As filed with the Securities and Exchange Commission on November 14, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ______________________________________________

FORM 10-KSB/A

Amendment No. 1

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File No.: 000-07539

WINDSORTECH, INC.

(Exact name of small business issuer as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 13-2599131 (I.R.S. Employer Identification No.)

70 Lake Drive, Hightstown, NJ 08520

(Address of Principal Executive Offices) (Zip Code)

(609) 426-4666

(Issuer’s Telephone Number)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosures will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]  No [X]

Issuer’s revenues for its most recent fiscal year: $22,079,796

The aggregate market value of the voting stock, $.01 par value, held by non-affiliates of the Registrant, based upon the closing price of Common Stock on March 18, 2005, as reported on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “WRST.OB,” was approximately $ 76,573,769 (27,845,007 shares x $2.75 per share). There is no officer who owns more than 10% of the shares of Common Stock.

The number of shares outstanding of each class of our common equity as of March 18, 2005 is as follows:

Class of Common Equity	Number of Shares
Common Stock, par value $.01	27,845,007

Table Of Contents
Item	Description	Page
	Restatement	2
	Part I
1.	Description of Business	3
2.	Description of Property	10
3.	Legal Proceedings	11
4.	Submissions of Matters to a Vote of Security Holders	12
	Part II
5	Market for Common Equity and Related Stockholder Matters	12
6	Management’s Discussion And Analysis of Financial Condition and Results of Operations	17
7.	Financial Statements	31
8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
8A.	Controls and Procedures	31
	Part III
9.	Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act	33
10.	Executive Compensation	36
11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
12.	Certain Relationships and Related Transactions	40
13.	Exhibits	43
14.	Principal Accountant Fees and Services	43
	Signatures	44
	Financial Statements and Exhibits	46

1

Restatement

This Amendment No. 1 on Form 10-KSB/A (“Form 10-KSB/A”) to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004, initially filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2005, (“Original Filing”) reflects a restatement of the Consolidated Financial Statements of Windsortech, Inc. and Subsidiaries (the “Company”) for the year ended December 31, 2004, as discussed in Note 1 to the Consolidated Financial Statements.  The determination to restate these Financial Statements and other financial information was made as a result of management’s determination that the initial accounting for deferred income taxes related to the acquisition of QualTech International Corporation and QualTech Services Group, Inc. needed correction. The audited consolidated financial statements as of December 31, 2004 and for the year then ended have been restated to reflect the proper accounting treatment.

Deferred income taxes were not originally recorded for the book to tax basis differences of acquired intangible assets. The effect of this correction was to record a long-term deferred tax liability at the acquisition date of $1,326,000, with an offsetting increase to goodwill. This correction also caused a change in the deferred income tax provision for the year ended December 31, 2004, increasing the deferred tax benefit by $82,331.

Additionally, in 2004, the Company reversed a deferred tax asset valuation allowance related to net operating losses of WindsorTech that were incurred in 2002 and 2003. This was based on the Company’s determination that the deferred tax assets were more likely than not realizable in future periods, based on the Company’s projection of future taxable income related to its acquisition of QualTech. The reversal of the valuation allowance was originally recorded as a deferred income tax benefit. However, because the reversal of the valuation allowance was a result of the acquisition of QualTech, the offsetting adjustment should have been recorded in the purchase price allocation of the QualTech acquisition. The effect of this correction was to decrease the deferred tax benefit and goodwill by $180,649.

The restatements had no effect on pre-tax income or cash flow for the year ended December 31, 2004.

Portions of Notes 1, 4, 5, 9 and 15 of the Consolidated Financial Statements have been restated to reflect the above described adjustments.

This Form 10-KSB/A amends and restates Part II, Item 6 Management’s Discussion And Analysis of Financial Condition and Results of Operations and Part II, Item 7 Financial Statements.  In addition, pursuant to the rules of the SEC, certain exhibits of the Original Filing has been amended to contain an updated consent of the Company’s independent registered public accounting firm and currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley act of 2002. Except as specifically indicated above, the Report has not been updated to reflect events occurring subsequently to the original filing date. Other events occurring after the filing of the Report or other disclosures necessary to reflect subsequent events will be addressed in reports filed with the Securities and Exchange Commission (“SEC”) subsequent to the date of this filing.

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PART I

Item 1.Description of Business

Forward-Looking Statements And Associated Risk

The following discussion should be read in conjunction with our audited Financial Statements and Notes thereto included herein.

Certain statements in this Report, constitute “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 the Private Securities Litigation Reform Act of 1995. We intend that such forward-looking statements be subject to the safe harbors created thereby.

All such forward-looking information involves risks and uncertainties and may be affected by many factors, some of which are beyond our control. These factors include:

· Our growth strategies.

· Anticipated trends in our business and demographics.

· Our ability to successfully integrate the business operations of recently acquired companies; and

·  Regulatory, competitive or other economic influences. 

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our continued ability to sustain our growth through continuing vendor relationships; the successful consummation and integration of future acquisitions; the ability to hire and retain key personnel; the continued development of our technical, manufacturing, sales, marketing and management capabilities; relationships with and dependence on third-party suppliers; anticipated competition; uncertainties relating to economic conditions where we operate; uncertainties relating to government and regulatory policies; uncertainties relating to customer plans and commitments; rapid technological developments and obsolescence in the products we sell and the industries in which we operate and compete; existing and potential performance issues with suppliers and customers; governmental export and import policies; global trade policies; worldwide political stability and economic growth; the highly competitive environment in which we operate; potential entry of new, well-capitalized competitors into our markets; and changes in our capital structure and cost of capital. The words “believe”, “expect”, “anticipate”, “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

References

References in this form 10-KSB/A to “we”, “us,” “our,” “the Company,” and “Windsortech,” mean Windsortech, Inc. and our subsidiaries, unless the context otherwise requires.

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What We Do

We are a technology services company. Our Data Security and Compliance services as well as our Data Center Hardware and Data Center Maintenance services are geared towards both the users of business-computing hardware (desktops, laptops, related peripherals and servers) as well as the users of enterprise-class hardware (mainframes, midrange processors, large storage, controllers, etc.). In October, 2004, WindsorTech launched its brand extension, QSGI, to build cohesion among the various technology services that we offer and build brand recognition and preference through strong cross-marketing opportunities.

Segments

Our company operates in three segments that clearly focus our services into easy-to-understand categories for our target audiences:

A.   Data Security & Compliance

We provide data security and regulatory compliance services for end-of-life business-computing IT assets. We offer a variety of solutions to companies whose business computing technologies (desktops, laptops, printers and servers) have come to the end of their life cycle. These services include:

- Data erasure to Department Of Defense standards for hard drives

- Environmental compliance (proper recycling or safe disposal) for IT assets

- IT asset remarketing for IT assets with market value

- Asset Auditing/Life Cycle Management which allows customers to minimize their overall IT expenditure and maximize their return on investment.

B.   Data Center Hardware

We are the leading reseller of refurbished IBM mainframe processors, IBM midrange processors and associated peripheral products including tape and disk products and connectivity products to companies around the world.

C.   Data Center Maintenance

We provide hardware maintenance services for enterprise-class hardware and Data Center consulting to companies throughout the United States.

Across all three segments, we purchase excess, used, off-lease and refurbished hardware from a variety of sources including Fortune 1000 companies, as well as leasing and finance companies.

Data Security & Compliance Segment:

We are a “best practice” provider of data security and regulatory compliance services for end-of-life business-computing IT assets. We offer a variety of services to help companies with these assets to ensure compliance with federal and state mandates regulating the donation or disposal of such assets.

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Our services include:

-   Data security through Department of Defense hard drive data erasure

-   IT asset management with IT auditing and reporting

-   IT remarketing to reduce/eliminate fees associated with hard drive data erasure and auditing the assets

-   Environmental compliance services for IT assets with no market value

Our data security and destruction services help companies achieve regulatory compliance with federal legislation including:

-   Gramm-Leach-Bliley Act - Requires companies which engage in financial activities such as insurance companies, banks, brokerage firms, etc. to ensure the security and confidentiality of customer information and protect against anticipated threats or hazards to information.

-   Health Insurers Portability & Accounting Act of 1996 (HIPPA) - Requires healthcare companies to ensure the confidentially of all protected health information and protect against anticipated threats or hazards to information.

-   Sarbanes-Oxley Act - Requires all publicly traded companies to protect investors by improving the accuracy and reliability of corporate disclosures. Requires companies to track the complete life cycle of all IT assets for seven years.

-   FTC FACT Act - Requires companies to protect consumers against unauthorized access to credit report information “in connection with the disposal” of computer and other records by erasure of hard drives.

-   Environmental Compliance - requires that the recycling of computers and related products be managed in a manner that is protective of human health and the environment.

Our services are designed to help our clients to:

-   reduce the burdens of liability associated with regulatory compliance of IT assets.

-   reduce the overall expense of achieving regulatory compliance.

-   reduce the total cost of ownership for IT hardware.

-   permit IT professionals to focus on rapid changes in technology, service their internal clients and make sure their IS/IT infrastructure is proactively helping their company maintain a competitive edge in the marketplace.

The market is highly fragmented with critical legislation driving the demand. There is no other technology services company offering similar IT “life cycle” services ranging from PCs to Mainframes. According to a recent Gartner, Inc. estimate, 125 million computers are estimated to be coming out of service in the US in 2005.

As a compliment to the services we provide, on October 27, 2003 we filed U.S. Patent Application titled “System and Method of Erasing a Hard Drive via a Computer Network.” Our product is called, “EraseYourHardDrive.com.” This product and the method of erasing a hard drive via a computer network provide an easy, fast and effective way for erasing hard drives, which meets US Department of Defense standards for hard drive sanitation.

In addition, the Data Security and Compliance segment re-sells a wide range of used and

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refurbished computer products, including servers, laptop and desktop computers, monitors, PC processors, CD/DVD disk drives, modems, printers and memory.

Our Data Security & Compliance group has technical facilities in New Jersey, a retail sales and marketing office in Minnesota and wholesale sales offices in New Hampshire and Florida.

Data Center Hardware Segment:

We are a reseller of refurbished enterprise-class hardware and associated peripheral products to companies around the world. Our strength comes from a significant presence in worldwide markets as the leading provider of refurbished mainframes and associated peripherals. More importantly, in this hardware niche, there are no other significant competitors.

The enterprise-class products that we market include:

-   IBM mainframe products

-   IBM midrange products (AS/400 and RS/6000)

-   IBM/OEM tape storage

-   IBM/OEM disk storage

-   Hitachi Data Systems (HDS) products

-   EMC products

-   Connectivity products, controllers and mainframe printers

Very few resellers of enterprise-class hardware are able to offer data center managers refurbished mainframe products as well as technical expertise across all hardware categories found in the typical data center.

Because enterprise-class hardware is designed and manufactured to be reliable spanning several years, an alternative - such as QSGI - to choosing “new” hardware offers significant savings to our target audience.

Businesses that have already made purchasing decisions and saved money in the secondary market understand that there is often a fine line between “latest” technology and “current” technology. IBM, for example, recently introduced both the z990 and z890 mainframe. This new hardware is able to perform a variety of functions that make it unique and attractive for “early adopters” and those that believe that having the “latest” is best. Others understand, however, that technology that is only one year old can easily meet their data center requirements - that year-old technology is still “current” for their purposes. Yet, the key difference is that those who choose “current” technology (as opposed to “latest”) do not absorb the initial depreciation and may pay only a fraction of the price of “new” technology.

Currently, IBM is the only manufacturer of mainframes in the world marketplace. This gives IBM the luxury of having no competition for new mainframes. The lack of competition for new mainframes creates a unique opportunity for us to sell used mainframes to customers needing to control capital budgets for IT hardware.

Technology that is introduced by IBM is often available in the used marketplace as early as 9-12 months after being introduced as a result of companies merging data centers, filing bankruptcy, upgrading to the latest technology, or when hardware goes off lease. In many instances, the hardware is shipped to our offices in Eagan, Minnesota, where it is tested, refurbished and typically upgraded.

The key to our success is rooted in the information we glean through our retail efforts and our

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wholesale efforts. QSGI is typically involved in greater than 80 percent of all refurbished mainframe bids in the United States. To source enterprise-class hardware, our wholesale efforts are aware of nearly all mainframes that are - or about to become - available in the world. Access to this database of clients allows us to cross-market our other services that we offer.

Our Data Center Hardware group has its technical facilities in Minnesota along with sales and marketing. In addition, it has technical and sales offices in Connecticut, Florida, Illinois and California.

Data Center Maintenance Segment:

We provide hardware maintenance services on enterprise-class hardware and associated peripheral products to companies around the United States. Either as a separate service from the hardware sale or sold as a service along with a sale of hardware, our maintenance programs are a source of significant savings and reliability for clients.

Products we maintain include:

-   IBM mainframe products

-   IBM midrange products

-   IBM/OEM tape storage

-   IBM/OEM disk storage

-   Hitachi Data Systems (HDS) products

-   EMC products

-   Connectivity products and controllers

Our competitive advantages that make our services valuable for our corporate end-users as well as leasing companies needing to manage “off-lease” enterprise-class hardware include:

-   our technical expertise.

-   our ready access to a strategic inventory of critical back-up parts.

-   our reduced pricing as compared to our competitors.

-   our greater expertise on multiple platforms including the heart of the data center, “the Mainframe.”

All training and back-up parts management for Data Center Maintenance is located in Minnesota; however, we have technical coverage and offices in Pennsylvania, Michigan, Wisconsin, Iowa, Missouri, Texas, Colorado and Wyoming.

Dependence on Major Customers

With the exception of our hardware maintenance contracts which can be up to three years in length, we do not have any exclusive long-term arrangements with our customers for the continued sales of our product. At present, we operate solely in the United States and have no assets in foreign countries.

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We sell and deliver our technology services to customers throughout the United States and on 6 continents worldwide. For the years ended December 31, 2004 and 2003, sales to our top ten customers comprised 39% and 51% of our revenue, respectively. In each of the periods referred to, Keystone Memory Group, a “related party” for accounting purposes, was one of our top ten customers.

A portion of our revenues is also derived from export sales. For the years ended December 31, 2004, and 2003, export sales comprised 18% and 30% of revenue, respectively.

Backlog

Customers typically do not place recurring "long-term" orders with us, resulting in a limited order backlog at any point in time. Our failure to receive orders from customers on a continuous basis could have a material adverse effect on our financial condition, results of operations and cash flows given our lack of recurring orders.

Employees

As of March 18, 2005, we employed 56 full-time and nineteen part-time employees. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppages. We consider our relations with our employees to be good. We depend on the continued service of our key technical, sales and senior management personnel, and our ability to attract and retain additional qualified personnel. If we are unable to hire and retain qualified personnel, our business will be seriously harmed.

Available Information

Our Internet website address is http://www.qsgi.com. We make available free of charge through our Internet website our annual report on Form 10-KSB, Form 10-KSB/A ,quarterly reports on Form 10-QSB, current reports on Form 8-K and amendments to those reports filed as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Compliance With Environmental Regulations

Federal, state, and local laws or regulations which have been enacted or adopted regulating the discharge of materials into the environment have not had, and under present conditions we do not foresee that they will have, a material adverse effect on our capital expenditures, earnings, cash flows or our competitive position. We will continue to monitor our operations with respect to potential environmental issues and costs, including changes in legally mandated standards.

We recycle used equipment that may contain hazardous materials through Waste Management’s Recycle America - Asset Recovery Group (“ARG”) division. ARG, for a fee, manages commodities and materials for recycling in accordance with applicable local, state and federal laws, rules and regulations. Upon receipt of materials for recycling, ARG provides us with a Certification of Destruction that, in part, certifies that the materials were accepted for the purpose of recycling and/or destruction in accordance with all applicable standards including federal, state and local requirements.

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Recent Developments

Change in Authorized Share Capital

On September 17, 2004, in an Action by Consent in Writing of a Majority of Shareholders, the Company’s majority shareholders voted to amend the Company’s Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of common stock of the Company. The majority shareholders approved an increase in the number of common shares which the Corporation is authorized to issue from Thirty-five Million (35,000,000) shares of Common Stock, par value $.01 per share, to Fifty-five Million (55,000,000) shares of Common Stock, par value $.01 per share. No change was made to the Five Million (5,000,000) shares of Preferred Stock, par value $.01 per share that the Company is authorized to issue. On October 19, 2004, the Company filed an appropriate amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware.

Other Information

On January 13, 2003, R. Keith Elliott was appointed as a member of our board of directors to fill a vacancy. On May 27, 2003, Andrew Paciocco resigned as a member of our board of directors for personal reasons. On November 1, 2003, Seth A. Grossman was appointed to fill the vacancy.

On June 24, 2003, we offered 2,000,000 shares of our common stock for sale in a Confidential Private Placement to certain investors. The offering, which closed on July 18, 2003, was not fully subscribed and 1,354,586 shares were sold at $.35 per share. Officers and directors (including their children) purchased 207,200 shares, or 15.3% of the total shares sold.

On August 28, 2003, we offered 20 Units at a price of $10,000 per Unit. Each Unit consists of (i) 10,000 shares of our common stock, and warrants to purchase 10,000 shares of our common stock, exercisable for a period of three years at a price of $1.00 per share (the “Warrants”). The offering closed on September 2, 2003.

On February 19, 2004, by Action of Consent of Majority Shareholders, David A. Loppert was removed from the Board of Directors. Thereafter, the Board of Directors removed Mr. Loppert as an officer of the Company.

On April 19, 2004, David A. Loppert filed a Complaint against the Company in the Chancery Court of New Castle County, Delaware, Case No. 394-N, in which he asserted that he remained a director and officer of the Company notwithstanding the Company's position that he no longer held those positions. Settlement discussions were held and a dispute arose as to whether agreement had been reached. On May 14, 2004, Mr. Loppert filed a second lawsuit, Case No. 441-N in which he asserted that a settlement had been reached and that he would acknowledge that he was no longer an officer or director provided the Company delivered to him options to purchase 1.1 million shares of the Company's common stock at $1.10 per share. The Company defended and asserted that final agreement had never been reached. However, on June 25, 2004, the Delaware Chancery Court ruled that an enforceable settlement had been reached and further ruled that the Company was required to pay Mr. Loppert's legal fees related to this matter. Based upon the Court's decision in this matter, Mr. Loppert continued as an employee of the Company through September 30, 2004. On July 27th, 2004, the Company determined to appeal the Court's ruling to the Delaware Supreme Court.

On November 18, 2004, the Company filed a Complaint against Mr. Loppert in the Circuit Court for Palm Beach County, Florida, Case No. 502004CA010870XXXXMB, in which the Company asserted that, if any settlement agreement had been reached between the Company and Mr. Loppert, such agreement had been induced by improper conduct and was thereby voidable.

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On January 7, 2005, Mr. Loppert brought an action in the Superior Court of New Jersey, Case No. L000020-05, against two officers of the Company, Marc Sherman and Edward Cummings, and two former officers, Carl Saracino and Michael Sheerr, alleging that each owed Mr. Loppert approximately $110,000.00 in connection with loans made to each of them which were then loaned to the Company.

On January 31, 2005, the Delaware Supreme Court affirmed the Chancery Court’s June 25, 2004 decision.

On March 15, 2005, all claims and litigation between Mr. Loppert and the Company and Messrs. Sherman, Cummings, Saracino and Sheerr were resolved pursuant to agreement. The Company, Mr. Loppert and each party released all opposing parties for all claims existing as of the date of settlement.

On May 26, 2004, in a Confidential Private Placement to certain investors, we completed the sale of 6,000,000 shares of our Common Stock at $.60 per share and 6,000,000 warrants. 3,000,000 of the warrants are exercisable for a period of five years at a price of $1.50 per share and 3,000,000 of the warrants are exercisable for a period of five years at a price of $3.60 per share. In October 2004, the Company issued warrants with an exercise price of $2.00 to certain of the $1.50 warrant holders in exchange for their exercise of 500,000 warrants for which the Company received $750,000.

On May 28, 2004, the Company completed the purchase of all of the outstanding shares of QualTech International Corporation and its affiliate, QualTech Services Group, Inc. Under the terms of the agreement, QualTech’s shareholders received a combination of 1,957,831 shares of Windsortech common stock and cash totaling $6.6 million of which $3.25 million was in cash, $3.25 million was in the Company’s common stock and $100,000 was in direct acquisition costs, primarily legal fees.

On July 27, 2004, the Company received notice from the Securities and Exchange Commission that its registration statement on Form SB-2 for the registration of 28,876,839 shares of stock became effective.

On October 20, 2004, the Company filed a registration statement on Form S-8 to register the issuance of up to 9,238,292 shares of common stock including common stock pursuant to the Windsortech, Inc. 2002 Flexible Stock Plan.

As of February 14, 2005, Joel L. Owens resigned as Chief Operating Officer. He continues his employment as Executive Vice-President of the Company’s Data Center Hardware and Data Center Services groups.

Item 2.Description of Property

Our Data Security and Compliance segment leases approximately 38,000 square feet of general warehouse and office space in Hightstown, New Jersey pursuant to a five-year lease at a current annual rental of approximately $159,000, escalating each year. In addition to fixed rentals, the real property lease requires the Company to pay all maintenance, real estate taxes and insurance. This facility, with approximately 34,000 feet of warehouse space, is in good condition and ideally suited to our existing business and has adequate and sufficient capacity for our current and estimated future business needs. This lease expires in September 2006.

This segment also leases approximately 1,400 square feet of office space in Portsmouth, New Hampshire pursuant to a three-year lease at a current annual rental of approximately $30,000, escalating each year. This lease expires in October 2007.

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Our Data Center Hardware and Data Center Maintenance segments lease approximately 30,000 square feet of general warehouse and office space in Eagan, Minnesota pursuant to a five-year lease at a current rental of approximately $13,000, escalating in August 2006 to approximately $15,000 per month. This facility is in good condition and ideally suited to our existing business and has adequate and sufficient capacity for our current and estimated future business needs. This lease expires in October 2009.

Rent expense and other charges totaled $305,792 and $192,305 for the years ended December 31, 2004 and 2003, respectively.

The approximate minimum payments required under the lease for the years 2005 - 2009 are as follows:

Year	Amount
2005		398,000
2006		380,000
2007 2008 2009		217,000 187,000 148,000
	$	1,321,000

Item 3.Legal Proceedings

On April 19, 2004, David A. Loppert filed a Complaint against the Company in the Chancery Court of New Castle County, Delaware, Case No. 394-N, in which he asserted he remained a director and officer of the Company notwithstanding the Company’s position that he no longer held those positions. Settlement discussions were held and a dispute arose as to whether agreement had been reached.

On May 14, 2004, Mr. Loppert filed a second lawsuit in the Chancery Court, Case No. 441-N, in which he asserted that a settlement had been reached and that he would acknowledge that he was no longer an officer or director provided the Company delivered to him options to purchase 1.1 million shares of the Company’s common stock at $1.10 per share. The Company defended and asserted that final agreement had never been reached. However, on June 25, 2004, the Delaware Chancery Court ruled that an enforceable agreement had been reached and further ruled that the Company was required to pay Mr. Loppert’s legal fees related to this matter. Based upon the Court’s decision in this matter, Mr. Loppert continued as an employee of the Company through September 30, 2004. On July 27, 2004, the Company determined to appeal the Court’s ruling to the Delaware Supreme Court.

On November 18, 2004, the Company filed a Complaint against Mr. Loppert in the Circuit Court for Palm Beach County, Florida, Case No. 502004CA010870XXXXMB, in which the Company asserted that, if any settlement agreement had been reached between the Company and Mr. Loppert, such agreement had been induced by improper conduct and was thereby voidable.

On January 7, 2005, Mr. Loppert brought an action in the Superior Court of New Jersey, Case No. L000020-05, against two officers of the Company, Marc Sherman and Edward Cummings, and two former officers, Carl Saracino and Michael Sheerr, alleging that each owed Mr. Loppert approximately $110,000.00 in connection with loans made to each of them which were then loaned to the Company.

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On January 31, 2005, the Delaware Supreme Court affirmed the Chancery Court’s June 25, 2004 decision.

On March 15, 2005, all claims and litigation between Mr. Loppert and the Company and Messrs. Sherman, Cummings, Saracino and Sheerr were resolved pursuant to agreement. The Company, Mr. Loppert and each party released all opposing parties for all claims existing as of the date of settlement.

The Company is party to various legal proceedings arising in the ordinary course of business. In the opinion of management, these proceedings are not likely to have a material adverse affect on the financial position, results of operations or cash flows of the Company. The estimate of potential impact on the Company could change in the future.

PART II

Item 4.Submission of Matters to a Vote of Security Holders

On February 19, 2004, by Action of Consent of Majority Shareholders. David A. Loppert was removed from the Board of Directors. Thereafter, the Board of Directors removed Mr. Loppert as an officer of the Company.

On September 17, 2004, in an Action by Consent in Writing of a Majority of Shareholders, the Company’s majority shareholders voted to amend the Company’s Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of common stock of the Company. The majority shareholders approved an increase in the number of common shares which the Corporation is authorized to issue from Thirty-five Million (35,000,000) shares of Common Stock, par value $.01 per share, to Fifty-five Million (55,000,000) shares of Common Stock, par value $.01 per share. No change was made to the Five Million (5,000,000) shares of Preferred Stock, par value $.01 per share that the Company is authorized to issue. On October 19, 2004, the Company filed an appropriate amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware.

Item 5. Market for Common Equity and Related Stockholder matters

Market Information

The Company’s Common Stock is listed on the OTC Bulletin Board under the symbol “WSRT.OB.” Our Common Stock became listed on October 24, 2003.

The following table sets forth, for the calendar periods indicated, the high and low sales prices per share for the Company’s Common Stock as reported on the OTC Bulletin Board:

Years Ended December 31, 2004	High		Low
First Quarter	$	4.40	$	2.00
Second Quarter		2.30		1.05
Third Quarter		2.25		1.19
Fourth Quarter		3.57		1.65

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Years Ended December 31, 2003
First Quarter	—	—
Second Quarter	—	—
Third Quarter	—	—
Fourth Quarter	4.05	1.90

Holders

As of March 18, 2005, there were approximately 3,300 holders of record of the Company’s Common Stock and the closing price was $2.75. Because many of the outstanding shares of the Company’s Common Stock are held by brokers and other institutions on behalf of shareholders, the Company is not able to estimate the total number of beneficial shareholders represented by these record holders.

Dividends

The Company has paid no cash or stock dividends on its Common Stock to date and does not anticipate paying any dividends on its Common Stock in the foreseeable future. The Company intends to use any earnings, which may be generated, to finance the growth of the businesses. The Board of Directors has the right to authorize the issuance of preferred stock, without further shareholder approval, the holders of which may have preferences over the holders of the Common Stock as to payment of dividends.

Securities authorized for issuance under equity compensation plans

Set forth in the table below is information, as of December 31, 2004, regarding securities authorized for issuance under equity compensation plans:

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		6,275,000	$	1.428		1,333,292
Equity compensation plans not approved by security holders		1,350,000	$	0.026		-
Total		7,625,000	$	1.18		1,333,292

Equity Compensation Plan not Approved by Security Holders

The material features of the plan are:

Option Grant. In October 2001, in connection with their initial employment, WindsorTech, Inc. (New Jersey corporation) granted to Messrs. Cummings, Loppert, Saracino, Sherman and Sheerr and two other employees options to purchase an aggregate of 1,350,000 shares of its common stock at $0.026 per share, exercisable at any time after October 1, 2001 and on or before December 31, 2010. The options granted were Non-Qualified Options and immediately vested.

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Death. If the option recipient dies, his personal representative and/or beneficiary will have the right (which must be exercised not later than the option expiration date) to exercise the options to the extent they were not exercised at the time of the recipient’s death.

Non-Transferability of Rights; Designation of Beneficiaries. Except as provided below, the options cannot not be transferred by the recipient other than by will or the laws of descent and distribution, and, during the lifetime of the recipient, the options can be exercised only by the recipient, except that, during his lifetime, the recipient may transfer the options for no consideration to members of his immediate family or a trust for the benefit of himself and/or members of his immediate family subject to all of the provisions applicable to the options prior to the transfer.

Withholding.The Company or any affiliate that employs the recipient has the right to deduct any sums that federal, state or local tax law requires to be withheld with respect to the exercise of the options or as otherwise may be required by such laws. The Company or any such affiliate may require, as a condition to issuing stock upon the exercise of the options, that the recipient or other person exercising the options pay a sum to cover any such taxes. In the alternative, the recipient or other person exercising the options may elect to pay such sums to the Company or the affiliate by delivering written notice of that election to the Company's corporate headquarters prior to or concurrently with exercise. There is no obligation that the recipient be advised of the existence of the tax or the amount that may be withheld.

Changes in Capital Structure. If there is any change in the capital structure of the Company, or if there is be any dividend upon the stock of the Company payable in stock or any other dividend payable in stock, or of there is a stock split, spin-off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, the maximum aggregate number of shares with respect to which the options may be exercised and the number and the option price of the shares of stock with respect to which the options were granted, will be proportionately adjusted by the Company if, and to the extent, necessary to prevent dilution or enlargement of the rights of the recipient.

Recent Sales of Unregistered Securities

The following table lists all unregistered securities sold/issued by us in the last three years pursuant to Item 701 of Regulation S-B.

These shares were issued to the persons listed below in connection with (1) the formation of WindsorTech, (2) the Merger, (3) a transaction fee in connection with the merger, (4) services rendered to Delta, (5) stock in lieu of compensation and, unless otherwise indicated, were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, (6)(7)(8) Private Placement Shares, (9) the acquisition, (10) the exercise of stock options, (11) the exercise of stock warrants, or (12) services rendered.

Name/Entity/Nature	Date Issued	Note	Number of Persons	Issued For	Number of Common Shares
Edward L. Cummings	Oct - 2001	1	1	Capital Contribution	5,000,000
David A. Loppert	Oct - 2001	1	1	Capital Contribution	5,000,000
Carl C. Saracino	Oct - 2001	1	1	Capital Contribution	5,000,000
Michael P. Sheerr	Oct - 2001	1	1	Capital Contribution	5,000,000
Marc Sherman	Oct - 2001	1	1	Capital Contribution	5,000,000
Edward L. Cummings	Jan - 2002	2	1	Merger Consideration	1,800,000
David A. Loppert	Jan - 2002	2	1	Merger Consideration	1,800,000

Carl C. Saracino Jan - 2002 2 1 Merger Consideration 1,800,000

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Name/Entity/Nature Date Issued Note   Number of Persons Issued For Number of Common Shares

Michael P. Sheerr	Jan - 2002	2	1	Merger Consideration	1,800,000
Marc Sherman	Jan - 2002	2	1	Merger Consideration	1,800,000
Leonard P. Stone	Jan - 2002	3	1	Finders Fee	450,000
William J. Barbera	Jan - 2002	3	1	Finders Fee	180,000
Frederic E. Smithline	Jan - 2002	4	1	Services Rendered	600,000
Brian Cockerham	Dec - 2002	5	1	Compensation	5,000
Edward L. Cummings	Dec - 2002	5	1	Compensation	500,000
Erik Cummings	Dec - 2002	5	1	Compensation	50,000
David Harris	Dec - 2002	5	1	Compensation	150,000
Robert Jackson	Dec - 2002	5	1	Compensation	150,000
David A. Loppert	Dec - 2002	5	1	Compensation	500,000
Eleanor McDonald	Dec - 2002	5	1	Compensation	5,000
Wayne Neuls	Dec - 2002	5	1	Compensation	5,000
Lou Nuccio	Dec - 2002	5	1	Compensation	50,000
Carl C. Saracino	Dec - 2002	5	1	Compensation	500,000
Michael P. Sheerr	Dec - 2002	5	1	Compensation	500,000
Marc Sherman	Dec - 2002	5	1	Compensation	500,000
Stanley Adelman	July - 03	6	1	Private Placement Shares	5,000
Harvey Albert	July - 03	6	1	Private Placement Shares	15,000
Mike Belise & Linda A Gary	July - 03	6	2	Private Placement Shares	71,429
Bismark Intervest, Inc.	July - 03	6	1	Private Placement Shares	300,000
Edward L. Cummings	July - 03	6	1	Private Placement Shares	61,200
John R. Doss	July - 03	6	1	Private Placement Shares	300,000
Steven Gadon & Barbara Gadon	July - 03	6	2	Private Placement Shares	85,000
Andrew L. Granat	July - 03	6	1	Private Placement Shares	15,000
Alan J Haber	July - 03	6	1	Private Placement Shares	3,000
Barry S. Hanburger	July - 03	6	1	Private Placement Shares	2,500
Bernard & Carol Harris, JT TEN WROS	July - 03	6	2	Private Placement Shares	2,000
John D. Wright, cust for Jonathan Martin Harris, Minor	July - 03	6	1	Private Placement Shares	1,000
Rodney D. and Linda L. Johnson, JT TEN WROS	July - 03	6	1	Private Placement Shares	2,000
Craig G. Langweiler	July - 03	6	2	Private Placement Shares	10,000
Monte Lang & Lillian M Lang, JT TEN WROS	July - 03	6	2	Private Placement Shares	30,000
Max & Delayne Loppert, JT TEN WROS	July - 03	6	1	Private Placement Shares	70,000
Anne E.B. Loppert, Minor, David A. Loppert, Custodian	July - 03	6	1	Private Placement Shares	43,500
Jeffrey E.B. Loppert, Minor, David A. Loppert, Custodian	July - 03	6	1	Private Placement Shares	43,500
Martin Miller	July - 03	6	1	Private Placement Shares	2,857
Robert & Penni Parker, JT TEN WROS	July - 03	6	2	Private Placement Shares	14,300

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Name/Entity/Nature Date Issued Note   Number of Persons Issued For Number of Common Shares

RBC Dain Rauscher Custodian, FBO Harvey Albert IRA	July - 03	6	1	Private Placement Shares	20,000
Lois G. Rosenberg	July - 03	6	1	Private Placement Shares	500
Paul Rosen & Wendy Rosen	July - 03	6	2	Private Placement Shares	85,000
Carl Saracino	July - 03	6	1	Private Placement Shares	15,000
Philip & Lilyan Sherman, JT TEN WROS	July - 03	6	2	Private Placement Shares	20,000
Michael P. Sheerr	July - 03	6	1	Private Placement Shares	44,000
Alexandra J. Sherman, Minor, Marc Sherman Custodian	July - 03	6	1	Private Placement Shares	28,433
Maximilian B. Sherman, Minor, Marc Sherman Custodian	July - 03	6	1	Private Placement Shares	28,433
Zachary T. Sherman, Minor, Marc Sherman Custodian	July - 03	6	1	Private Placement Shares	28,434
Jonathan E. Stoll	July - 03	6	1	Private Placement Shares	2,500
Gail M. Thompson	July - 03	6	1	Private Placement Shares	1,000
Jack B. Tull Sr.	July - 03	6	1	Private Placement Shares	3,000
John D. & Dorothy J. Wright, JT TEN WROS	July - 03	6	2	Private Placement Shares	1,000
Bismark Intervest, Inc.	July - 03	7	1	Private Placement Shares	100,000
Edith Newman Revocable Trust	July - 03	7	1	Private Placement Shares	20,000
Paul Lee Newman Roth IRA	July - 03	7	1	Private Placement Shares	50,000
Paul Lee Newman	July - 03	7	1	Private Placement Shares	30,000
Michael Weiss	May - 04	8	1	Private Placement Shares	83,400
Odin Partners, LP	May - 04	8	1	Private Placement Shares	116,600
Barron Partners, LP	May - 04	8	1	Private Placement Shares	4,833,333
Guerilla Partners, LP	May - 04	8	1	Private Placement Shares	716,600
Guerilla IRA Partners, LP	May - 04	8	1	Private Placement Shares	83,400
Bismark Investment	May - 04	8	1	Private Placement Shares	166,667
Joel Owens	May - 04	9	1	Acquisition	1,715,911
Jolene Owens	May - 04	9	1	Acquisition	241,920
Robert Jackson	Nov - 04	10	1	Exercise of Stock Options	200,000
Carl Saracino	Nov - 04	10	1	Exercise of Stock Options	150,000
Michael Sheerr	Nov - 04	10	1	Exercise of Stock Options	150,000
Guerilla IRA Partners, LP	Oct - 04	11	1	Exercise of Stock Warrants	41,700
Guerilla Partners, LP	Oct - 04	11	1	Exercise of Stock Warrants	358,300
Odin Partners, LP	Oct - 04	11	1	Exercise of Stock Warrants	58,300
Michael Weiss	Oct - 04	11	1	Exercise of Stock Warrants	41,700
Burger, Trailor, Farmer	Jul - 04	12	1	Shares Issued for Services	105,422
Burger, Trailor, Farmer	Dec - 04	12	1	Shares Issued for Services	18,000

1.   Represents shares issued to the founders and initial shareholders of WindsorTech in exchange for a capital contribution of $50,000 paid by each in cash. At the time of issuance, WindsorTech was not a public reporting entity, and the shares were exempt from registration pursuant to Section 4(2) of the Securities Act. The certificates representing the shares were legended to indicate that they were restricted. These shares were exchanged for the Merger Consideration shares issued in January 2002 as discussed in note 2 below and were subsequently cancelled.  

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2.	Represents shares issued in connection with the Merger in a transaction negotiated by the WTI shareholders in connection with the Merger, which Merger transaction was exempt from registration pursuant to Section 4(2) of the Securities Act. The Merger Agreement included an acknowledgment that the sale was not registered, that the WTI shareholders were acquiring the shares for investment and not for resale, and that such shareholder acknowledged that he must hold the shares until and unless registered or transferred in another transaction exempt from registration. In addition, certificates representing the shares were legended to indicate that they were restricted. The shares were issued in exchange for 5,000,000 shares from each of the stockholders of WindsorTech, Inc. (New Jersey corporation) as merger consideration. Each share was valued at $0.0278.
3.	Represents shares, valued at $0.0278 per share, issued as a transaction fee in connection with the Merger, which transaction was exempt from registration pursuant to Section 4(2) of the Act. The certificates representing the shares were legended to indicate that they were restricted. Mr. Stone and Mr. Barbera introduced the WindsorTech shareholders to Alfred Morgan, the principal stockholder of Delta and received the shares as a finders fee for making such introduction.
4.	Represents shares issued to for past legal services rendered to Delta in lieu of cash. The shares issued by Delta prior to the Merger were valued by Delta at $0.01 per share. The certificate representing the shares was legended to indicate that they were restricted.
5.	Represents shares issued in lieu of cash compensation. Each share was valued at $0.026. The certificates representing the shares were legended to indicate that they were restricted. The shares issued to each of Mr. Cummings, Loppert, Saracino, Sheerr and Sherman are reflected in the Summary Compensation Table in Part I, Item 6, under the “Bonus” column in 2002.
6.	Represents shares issued in a Confidential Private Placement. The offering closed on July 18, 2003. 1,354,586 shares were sold at $.35 per share. Officers and directors (including their children) purchased 207,200 shares, or 15.3% of the total shares sold.
7.	Represents shares issued in a Confidential Private Placement. The offering closed on September 2, 2003. The offering was for 20 units at a price of $10,000 per Unit. Each Unit consisted of (i) 10,000 shares of common stock and warrants to purchase 10,000 shares of common stock, exercisable for a period of three years at a price of $1.00 per share.
8.	Represents an aggregate of 6,000,000 shares of our own common stock sold to 6 investors for a total of $3,600,000, or $.60 per share, which transaction was exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act. The Investors were either accredited investors or sophisticated investors, and the total offering was less than 10 non-accredited investors. There was no general solicitation or advertising for the sale of these shares, and the investors had access to or were provided with relevant financial and other information relating to us.
9.	Represents shares used in connection with the acquisition of Qualtech International Corporation and Affiliate, valued at $1.66 per share, which transaction was exempt from registration pursuant to Section 4(2) of the Act.
10.	Represents shares issued in connection with the exercise of common stock options.
11.	Represents shares issued in connection with the exercise of common stock warrants.
12.	Represents shares issued to Burger, Trailor & Farmer, P.A. for legal services rendered.

Item 6.Management’s Discussion And Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our audited Financial Statements and Notes thereto included herein.

Certain statements in this Report, constitute “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 the Private Securities Litigation Reform Act of 1995. We intend that such forward-looking statements be subject to the safe harbors created thereby.

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All such forward-looking information involves risks and uncertainties and may be affected by many factors, some of which are beyond our control. These factors include:

· Our growth strategies.

· Anticipated trends in our business and demographics.

· Our ability to successfully integrate the business operations of recently acquired companies; and

·  Regulatory, competitive or other economic influences. 

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our continued ability to sustain our growth through continuing vendor relationships; the successful consummation and integration of future acquisitions; the ability to hire and retain key personnel; the continued development of our technical, manufacturing, sales, marketing and management capabilities; relationships with and dependence on third-party suppliers; anticipated competition; uncertainties relating to economic conditions where we operate; uncertainties relating to government and regulatory policies; uncertainties relating to customer plans and commitments; rapid technological developments and obsolescence in the products we sell and the industries in which we operate and compete; existing and potential performance issues with suppliers and customers; governmental export and import policies; global trade policies; worldwide political stability and economic growth; the highly competitive environment in which we operate; potential entry of new, well-capitalized competitors into our markets; and changes in our capital structure and cost of capital. The words “believe”, “expect”, “anticipate”, “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Overview

We are a technology services company. Our Data Security and Compliance services as well as our Data Center Hardware and Data Center Maintenance services are geared towards both the users of business-computing hardware (desktops, laptops, related peripherals and servers) as well as the users of enterprise-class hardware (mainframes, midrange processors, large storage, controllers, etc.). In October, 2004, WindsorTech launched its brand extension, QSGI, to build cohesion among the various technology services that we offer and build brand recognition and preference through strong cross-marketing opportunities.

Results Of Operations

The following table sets forth, for the periods indicated below, the relationships to total revenue of line items in our statements of operations for the years ended December 31, 2004 and 2003.

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	Year Ended		Year Ended
	December 31, 2004		December 31, 2003
	(restated)
	%		%
Revenue		100.0		100.0
Cost of sales		75.4		73.4
Gross profit		24.6		26.6
Selling, general and administrative expenses		21.9		26.6
Depreciation and amortization		1.8		1.0
Interest expense		0.4		1.0
Income (loss) before provision for income taxes		0.5		(2.0	)
Provision for income taxes		0.3		—
Net income (loss)		0.2		(2.0	)

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenue for the year ended December 31, 2004 was $22,079,796 compared to revenue of $7,484,472 for the year ended December 31, 2003, a $14,595,324 increase, or 195.0%. $12,375,105 of the increase was a result of our recent acquisitions and the balance was due to organic growth of our core business. Revenues increased because we were able to find new sources of product, which made more products available for sale and we increased our sales staff to help increase our market penetration.

Our revenues categorized by products and services are as follows:

	Year Ended		Year Ended
	December 31, 2004		December 31, 2003
Revenue
Products	$	20,605,647	$	7,454,235
Services		1,474,149		30,237
Total Revenue	$	22,079,796	$	7,484,472

Our revenue by geographic segment is as follows:

Years Ended December 31,	2004		%		2003		%		Change			% Change
United States	$	18,094,977		82%	$	5,198,400		70%		12,896,577			248%
Asia		983,921		4%		817,707		11%		166,214			20%
Europe		382,866		2%		349,715		5%		33,151			10%
Africa		604,686		3%		703,073		9%		(98,387	)		(14)%
United Kingdom		1,333,544		6%		155,834		2%		1,177,710			756%
Canada		506,262		2%		223,458		3%		282,804			127%
Australia		63,150				24,500		-		38,650			158%
South America		110,390		1%		11,785		-		98,605			837%
Total	$	22,079,796		100%	$	7,484,472		100%	$	14,595,324			195%

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We operate solely in the United States and have no assets in foreign countries. However, we sell to customers in foreign countries. For the years ended December 31, 2004 and 2003, export sales comprised approximately 18% and 30% of revenue, respectively. All of our purchases and sales are denominated in US dollars, and we recorded no foreign currency transaction gains or losses during any period.

Gross profit for the year ended December 31, 2004 was $5,428,413 compared to a gross profit of $1,992,411 for the year ended December 31, 2003, a $3,436,002 increase, or 172.5%. Gross margin was 24.6% for the year ended December 31, 2004 compared to 26.6% for the year ended December 31, 2003. Gross profit increased due to organic growth and the acquisitions. However, our margins contracted while we strengthened our infrastructure and built a solid foundation for our long term growth.

The overall management of the computer equipment through out its life cycle represents a growing burden on companies. The continual growth of liability concerns associated with IT assets and the compliance with relatively new government legislation is what is going to have the biggest impact on the Company’s future revenues. Our business has been built to keep companies in compliance with government legislation whether it is HIPPA, Sarbanes-Oxley, the FACT Act, Gramm-Leach-Bliley, the Patriot Act or federal and state EPA regulations.

Gartner Dataquest reports that in the US alone some 133,000 PCs per day are retired and replaced by their original owners. According to the National Safety Council, 63 million computers will become obsolete in 2005, resulting in a potentially greater source of computer equipment becoming available for resale and a potentially greater source of customers needing our services.

Selling, general and administrative expenses for the year ended December 31, 2004, were $4,835,565 compared to selling, general and administrative expenses of $1,988,091 for the year ended December 31, 2003, a $2,847,474 increase, or 143.2%. Selling, general and administrative expense increased as a result of recording a one time settlement expense of $380,000, $1,300,000 attributable to the companies acquired, which consisted mainly of payroll, payroll taxes, and employee benefits, rent and facilities expenses and insurance, and $240,000 from increased professional fees mainly attributable to the defense and appeal of a lawsuit and additional accounting fees. Expenses also increased as the Company promoted and launched its new brand name “QSGI” and added sales personnel to market its services and build brand recognition, In order to accomplish this, the Company hired additional sales personnel and support staff, opened an additional sales office and increased salaries to retain qualified personnel. In addition, the company provided educational opportunities and training to the national sales team.

Depreciation and amortization for the year ended December 31, 2004, was $391,672 compared to depreciation and amortization of $71,973 for the year ended December 31, 2003, a $319,699 increase, or 444.2%. This increase was the result of depreciation and the amortization of intangibles from the acquired companies as well as one full year of depreciation for fixed asset acquisitions and leasehold improvements that occurred throughout 2003 and new additions purchased in 2004.

Interest expense for the year ended December 31, 2004, was $83,307 compared to interest expense of $79,656 for the year ended December 31, 2003, a $3,651 increase, or 4.6%, commensurate with the increase in the Company’s borrowings.

The Company recognized tax expense during 2004. Tax expense during 2004 was $83,393, with an effective tax rate of 71%. The high effective tax rate was due to QualTech incurring state income taxes in jurisdictions where the Company could not file consolidated income taxes. During 2003, the Company did not recognize a deferred tax benefit as it increased its deferred tax asset valuation allowance.

Segments

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Our company operates in three segments that clearly focus our services into easy-to-understand categories for our target audiences:

Data Security & Compliance

We provide data security and regulatory compliance services for end-of-life business-computing IT assets. We offer a variety of solutions to companies whose business computing technologies (desktops, laptops, printers and servers) have come to the end of their life cycle. These services include:

- Data erasure to Department Of Defense standards for hard drives

- Environmental compliance (proper recycling or safe disposal) for IT assets

- IT asset remarketing for IT assets with market value

- Asset Auditing/Life Cycle Management which allows customers to minimize their overall IT expenditure and maximize their return on investment.

Data Center Hardware

We are the leading reseller of refurbished IBM mainframe processors, IBM midrange processors and associated peripheral products including tape and disk products and connectivity products to companies around the world.

Data Center Maintenance

We provide hardware maintenance services for enterprise-class hardware and Data Center consulting to companies throughout the United States.

Across all three segments, we purchase excess, used, off-lease and refurbished hardware from a variety of sources including Fortune 1000 companies, as well as leasing and finance companies.

Data Security & Compliance Segment

	Year Ended			Year Ended
	December 31, 2004			December 31, 2003
	(restated)
Revenue	$	10,388,674		$	7,484,472
Gross Profit		2,412,138			1,992,411
Selling, General and Administration		3,003,403			1,988,091
Depreciation and Amortization		113,519			71,973
Interest Expense, Net		67,172			79,656
Income (Loss) Before Provision
for Income Taxes		(983,059	)		(147,309	)
Segment Assets		4,428,937			88,142
Goodwill		-			-
Expenditures for Property and
Equipment		93,129			1,390,998

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Revenue for the year ended December 31, 2004 was $10,388,674 as compared to revenue for the year ended December 31, 2003 of $7,484,472, an increase of 38.8%. Revenues increased because we were able to find new sources of product, which made more products available for sale and we increased our sales staff to help increase our market penetration.

Gross Profit for the year ended December 31, 2004 was $2,412,138 as compared to gross profit for the year ended December 31, 2003 of $1,992,411, an increase of 21%. Gross profit increased primarily because of increased revenues.

Selling, General and Administrative Expense for the year ended December 31, 2004 was $3,003,403 as compared to Selling, General and Administrative expense for the year ended December 31, 2003 of $1,988,091, an increase of 51%. Selling, general and administrative expense increased as a result of recording a one time settlement expense of $380,000, and $240,000 from increased professional fees mainly attributable to the defense and appeal of a lawsuit and additional accounting fees. Expenses also increased as the Company promoted and launched its new brand name “QSGI” and added sales personnel to market its services and build brand recognition. In order to accomplish this, the Company hired additional sales personnel and support staff and increased salaries to retain qualified personnel.

Depreciation for the year ended December 31, 2004 was $113,519 as compared to depreciation for the year ended December 31, 2003 of $71,973, an increase of 58%. This was the result of one full year of depreciation for fixed asset acquisitions and leasehold improvements that occurred throughout 2004.

Interest expense for the year ended December 31, 2004 was $67,172 as compared to interest expense for the year ended December 31, 2003 of $79,656, a decrease of 16%.

Data Center Hardware Segment

	Year Ended		Year Ended
	December 31, 2004		December 31, 2003
	(restated)
Revenue	$	11,155,459		-
Gross Profit		2,562,942		-
Selling, General and Administration		1,418,447		-
Depreciation and Amortization		240,351		-
Interest Expense, Net		16,135		-
Income (Loss) Before Provision
for Income Taxes		1,067,296		-
Segment Assets		9,090,494		-
Goodwill		2,877,544		-
Expenditures for Property and
Equipment		9,938		-

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Data Center Maintenance Segment

	Year Ended		Year Ended
	December 31, 2004		December 31, 2003
	(restated)
Revenue	$	1,219,646		-
Gross Profit		453,333		-
Selling, General and Administration		413,715		-
Depreciation and Amortization		37,802		-
Interest Expense, Net		-		-
Income (Loss) Before Provision
for Income Taxes		33,632		-
Segment Assets		968,934		-
Goodwill		248,250		-
Expenditures for Property and				-
Equipment		103,044		-

The Data Center Hardware and Data Center Maintenance segments became part of the Company on May 1, 2004.

Liquidity and Capital Resources

Our current ratios at December 31, 2004 and December 31, 2003 were 1.8 and 1.3, respectively. Working capital at December 31, 2004 was $3,359,841 compared to $236,892 at December 31, 2003. Working capital increased primarily from the proceeds received from the issuance of common stock and warrants, the exercise of stock options and warrants, net amounts borrowed under revolving lines of credit and net amounts borrowed from certain shareholders. This amount was reduced by financing the operations of the company and by the acquisitions.

Net cash used in operating activities for the year ended December 31, 2004 was $2,145,496 compared to $185,700 of cash provided by operating activities for the year ended December 31, 2003. Cash used in operating activities for the year ended December 31, 2004 was primarily a result of an increase in accounts receivable and inventories offset by an increase in accounts payable and accrued expenses, depreciation, stock option compensation expense and stock warrants issued for services. Cash provided by operating activities for the year ended December 31, 2003 was primarily a result of an increase in accounts payable and accrued expenses, depreciation, and stock warrants issued for services, offset by an increase in accounts receivable and the net loss.

Net cash used in investing activities for the years ended December 31, 2004 and 2003 was $3,214,496 and $112,358, respectively. For the year ended December 31, 2004, cash was used for the acquisitions and to purchase property and equipment. For the year ended December 31, 2003, cash was used to purchase equipment, computer software and to apply for the EraseYourHardDrive.com patent

Net cash provided by financing activities for the year ended December 31, 2004 was $5,934,776 and was provided for by the sale of common stock and warrants, the exercise of stock options and warrants, net amounts borrowed under revolving lines of credit, and net amounts borrowed from certain shareholders. Net cash provided by financing activities for the year ended December 31, 2003 was $142,430 and was provided for by the sale of common stock and warrants and reduced by payments on notes payable and principal reductions on capital lease obligations.

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Since the acquisition, we have invested in strengthening our infrastructure and have used cash to increase inventory to a level necessary to support our growth. Our accounts receivable increased as a result of strong sales in December 2004. We believe that cash generated from operations, together with available cash resources and anticipated exercise of stock options and warrants in 2005, will be sufficient to meet our cash requirements for at least the next 12 months. However, we may need to raise additional funds to finance unanticipated working capital requirements or to acquire complementary businesses although we have not identified any specific acquisition candidates.

We do not have any material commitments for capital expenditures nor do we expect to incur any material commitments for capital expenses during 2005.

We did not have any significant elements of income or loss not arising from continuing operations in 2004 or 2003 and do not expect any in 2005. While our business is marginally seasonal, we do not expect this seasonality to have a material adverse affect on our results of operations or cash flows.

Off-Balance Sheet Arrangements

The company does not have any off-balance sheet arrangements.

Factors Affecting Future Operating Results

You should carefully consider the following risk factors, together with all other information contained or incorporated by reference in this filing, before you decide to purchase shares of our stock. These factors could cause our future results to differ materially from those expressed in or implied by forward-looking statements made by us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

Uncertainty Of Future Financial Results

Our future financial results are uncertain. There can be no assurance that we will continue to achieve profitability, and we may incur losses in the foreseeable future. Achieving and sustaining profitability depends upon many factors, including our ability to raise capital when needed, the success of our various marketing programs, and the maintenance or reduction of expense levels.

Fluctuations In Future Quarterly Results

We have been in business since October 2001 and have only thirteen quarters of historic quarterly operating results, only five of which have been profitable. Our quarterly operating results may fluctuate based on how well we manage our business. Some of the factors that may affect how well we manage our business include the timing of our delivery of significant orders; our ability to engineer customer solutions in a timely, cost effective manner; our ability to structure our organization to enable achievement of our operating objectives; our ability to meet the needs of our customers and markets; the ability to deliver, in a timely fashion, products for which we have received orders; the length of the sales cycle; the demand for products and services we offer; the introduction or announcements by computer manufacturers relating to the remarketing of new and used equipment; the hiring and training of additional personnel; as well as general business conditions. If we fail to effectively manage our business, this could adversely affect our results of operations.

We expect that the size and timing of our sales transactions may vary substantially from quarter to quarter, and we expect such variations to continue in future periods, including the possibility of losses in one or more fiscal quarters. These fluctuations may be caused by delays in shipping certain computer

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systems for which we receive orders that we expect to deliver during that quarter. In addition, our collection periods may fluctuate due to periodic shortages of goods available for shipment, which may result in the delay of payment from customers who will not pay until their entire order is shipped. Accordingly, it is likely that in one or more future fiscal quarters, our operating results could be below investors’ expectations and, as a result, any future public offering of shares of our Common Stock could be materially adversely affected.

Industry cycles may strain our management and resources

Cycles of growth and contraction in our industry may strain our management and resources. To manage these industry cycles effectively, we must: improve operational and financial systems; train and manage our employee base; successfully integrate operations and employees of businesses we acquire or have acquired; attract, develop, motivate and retain qualified personnel with relevant experience; and adjust spending levels according to prevailing market conditions. If we cannot manage industry cycles effectively, our business could be seriously harmed.

We Have Limited Principal Markets And Customers; We Have Significant Dependence On Major Customers; There Is A Risk Of Industry Concentration

We operate solely in the United States and have no assets in foreign countries. We sell and deliver computer systems, peripheral devices and parts to more than 300 customers throughout the United States and on 6 continents worldwide. For the years ended December 31, 2004 and 2003, our top ten customers accounted for approximately 39% and 51% of our total revenues, respectively. In each of the periods referred to, one of those customers was Keystone Memory Group, a “related party” for accounting purposes. We cannot be certain that customers that have accounted for significant revenue in past periods will continue to generate revenue. As a result of this concentration of our customers, our results of operations could be negatively affected if any of the following occurs: one or more of our customers becomes insolvent or goes out of business; one or more of our key customers significantly reduces, delays or cancels orders; or one or more of our significant customers selects products or services from one of our competitors.

Due to our acquisition, our customer base has broadened significantly and we therefore anticipate being less dependent on a relatively small number of customers to generate revenue. However, as revenue mix fluctuates from quarter to quarter, we may become more dependent on a small number of customers for a significant portion of our revenue in a particular quarter, the loss of which could adversely affect our operation results

With the exception of several of our maintenance contracts, we do not have any exclusive long-term arrangements with our customers for the continued sales of our product. Our failure to acquire additional significant or principal customers or to maintain our relationships with our existing principal customers could have a material adverse effect on our results of operations and cash flows.

For the years ended December 31, 2004 and 2003, primarily all of our sales of computer systems, peripherals and parts were to remarketers based in the United States or brokers based both in and out of the United States for whom we directly exported product. For the years ended December 31, 2004 and 2003, export sales comprised 18% and 30% of revenue, respectively. All of our purchases and sales are denominated in US dollars and we recorded no foreign currency transaction gains or losses during any period.

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Although we are striving to broaden our market focus to include sales to other markets, such as financial services, in the immediate future we expect that we will continue to derive a substantial percentage of our sales of product to such brokers and remarketers. Accordingly, unfavorable economic conditions or factors that relate to these industries, particularly any such conditions that might result in reductions in capital expenditures or changes in such companies' information processing system requirements, could have a material adverse effect on our results of operations.

We Rely On Merchandise Vendors As Sources For Our Products

The availability of off-lease and excess inventory computer equipment is unpredictable. We have no long-term arrangements with our vendors that assure the availability of equipment. We purchase equipment from more than 25 different vendors, and we have no formal commitments with or from any of them. We cannot assure you that our current vendors will continue to sell equipment to us as they have in the past, or that we will be able to establish new vendor relationships that ensure equipment will be available to us in sufficient quantities and at favorable prices. If we are unable to obtain sufficient quantities of equipment at favorable prices, our business will be adversely affected. In addition, we may become obligated to deliver specified types of computer equipment in a short time period and, in some cases, at specified prices. Because we have no formal relationships with vendors, we may not be able to obtain the required equipment in sufficient quantities in a timely manner, which could adversely affect our ability to fulfill these obligations.

We Are Subject To Risks That Our Inventory May Decline In Value Before We Sell It Or That We May Not Be Able To Sell The Inventory At The Prices We Anticipate

We purchase and warehouse inventory, most of which is “as-is” or excess inventory of computer equipment. As a result, we assume inventory risks and price erosion risks for these products. These risks are especially significant because computer equipment generally is characterized by rapid technological change and obsolescence. These changes affect the market for refurbished or excess inventory equipment. Our success will depend on our ability to purchase inventory at attractive prices relative to its resale value and our ability to turn our inventory rapidly through sales. If we pay too much or hold inventory too long, we may be forced to sell our inventory at a discount or at a loss or write down its value, and our business could be materially adversely affected.

Declining Prices For New Computer Equipment Could Reduce Demand For Our Products

The cost of new computer equipment has declined dramatically in recent years. As the price of new computer products declines, consumers may be less likely to purchase refurbished computer equipment unless there is a substantial discount to the price of the new equipment. Accordingly, if we were to sell “as-is” or refurbished equipment directly to end users, we would have to offer the products at a substantial discount to the price of new products. As prices of new products continue to decrease, our revenue, profit margins and earnings could be adversely affected. There can be no assurance that we will be able to maintain a sufficient pricing differential between new products and our “as-is” or refurbished products to avoid adversely affecting our revenues, profit margins and earnings.

If We Need Additional Financing For Unanticipated Working Capital Needs Or To Finance Acquisitions, We May Not Be Able To Obtain Such Capital, Which Could Adversely Affect Our Ability To Achieve Our Business Objectives

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We believe that cash generated from operations, together with other available cash resources, will be sufficient to meet our cash requirements for at least the next 12 months. However, we may need to raise additional funds to finance unanticipated working capital requirements or acquire complementary businesses, although we have not identified any specific acquisition candidates. If funds are not available when required for our unanticipated working capital needs or other transactions, our ability to carry out our business plan could be adversely affected, and we may be required to scale back our growth and operations to reflect the extent of available funding.

We have made acquisitions in the past and may make acquisitions in the future, if advisable, and these acquisitions involve numerous risks.

Our growth depends upon market growth and our ability to enhance our existing products and services, and to introduce new products and services on a timely basis. One of the ways to accomplish this is through acquisitions. In 2004, we completed the acquisitions of Qualtech International Corporation and its affiliate Qualtech Services Group. Acquisitions involve numerous risks, including, but not limited to, the following:

·   difficulty and increased costs in assimilating employees, including our possible inability to keep and retain key employees of the acquired business;

·   disruption of our ongoing business;

·   discovery of undisclosed liabilities of the acquired companies and legal disputes with founders or shareholders of acquired companies;

·   inability to successfully incorporate acquired technology and operations into our business and maintain uniform standards, controls, policies, and procedures;

·   inability to commercialize acquired technology; and

·   the need to take impairment charges or write-downs with respect to acquired assets.

No assurance can be given that our prior acquisitions or our future acquisitions, if any, will be successful or provide the anticipated benefits, or that they will not adversely affect our business, operating results or financial condition. Failure to manage growth effectively and to successfully integrate acquisitions made by us could materially harm our business and operating results.

If We Experience Problems In Our Distribution Operations, We Could Lose Customers

In addition to product vendors, we depend on several other third parties over whom we have limited control, including, in particular, Federal Express, United Parcel Service and common carriers for delivery of products to and from our distribution facility and to our customers. We have no long-term relationships with any of those parties. We are therefore subject to risks, including risks of employee strikes and inclement weather, which could result in failures by such carriers to deliver products to our customers in a timely manner, which could damage our reputation and name.

The Industry In Which We Compete In Is Highly Competitive

We face competition in each area of our business, although in the Data Center Hardware Segment, there are no significant competitors. Some of our competitors have greater resources and a more established market position than we have. Our primary competitors include:

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·   major manufacturers of computer equipment such as, Dell Computer Corporation, Hewlett Packard and IBM, each of which offer “as-is”, refurbished and new equipment through their websites and direct e-mail broadcast campaigns;

·   privately and publicly owned businesses such as Redemtech, Solectron and Spacefitters that offer asset management and end-of-life product refurbishment and remarketing services;

·   traditional store-based computer retailers, such as Best Buy Co., Inc., Circuit City Stores, Inc., CompUSA and Gateway Country; and

·   online competitors and auction sites, such as e-Bay

Some competitors have longer operating histories, larger customer or user bases, greater brand name recognition and significantly greater financial, marketing and other resources than we do. Some of these competitors already have an established brand name and can devote substantially more resources to increasing brand name recognition and product acquisition than we can. In addition, larger, well-established and well-financed entities may join with online competitors or computer manufacturers or suppliers as the use of the Internet and other online services increases. Our competitors may be able to secure products from vendors on more favorable terms, fulfill customer orders more efficiently or adopt more aggressive price or inventory availability policies than we can. Traditional store-based retailers also enable customers to see and test products in a manner that is not possible in the wholesale business. Our product offerings must compete with other new computer equipment and related products offered by our competitors. That competition may intensify if prices for new computers continue to decrease.

No Dividends On Common Stock; Issuance Of Preferred Stock

We do not have a history of paying dividends on our Common Stock, and there can be no assurance that dividends will be paid in the foreseeable future. We intend to use any earnings, which may be generated to finance the growth of our businesses. Our Board of Directors has the right to authorize the issuance of preferred stock, without further shareholder approval, the holders of which may have preferences over the holders of the Common Stock as to payment of dividends.

Dependence On Key Individuals

Our success depends to a significant extent upon the continued contributions of our key management, technical and sales personnel, many of who would be difficult to replace. The loss of one or more of these employees could harm our business. Although we have entered into a limited number of employment contracts with certain executive officers, we generally do not have employment contracts with our key employees. Our success also depends on our ability to identify, attract and retain qualified technical, sales, marketing, finance and managerial personnel. Competition for qualified personnel is particularly intense in our industry and in our location. This makes it difficult to retain our key personnel and to recruit highly qualified personnel. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. To be successful, we need to hire candidates with appropriate qualifications and retain our key executives and employees.

We are organized with a small senior management team. If we were to lose the services of the following members of our management team, our overall operations could be adversely affected. We consider our key individuals to be:

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Name	Position
Marc Sherman	Chairman, President and Chief Executive Officer, Director
Joel L. Owens	Executive Vice President Data Center Hardware and Data Center Services Group
Edward L. Cummings	Vice President, CFO, Treasurer, Director
David M. Harris	Vice President, Information Technology and Systems

Anti-Takeover Provisions

Certain provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-laws and Delaware law may be deemed to have an anti-takeover effect. Our certificate of incorporation provides that our Board of Directors may issue additional shares of Common Stock or establish one or more classes or series of Preferred Stock with such designations, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations that the Board of Directors fixes without stockholder approval. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Each of the foregoing provisions may have the effect of rendering more difficult, delaying, discouraging, preventing or rendering more costly an acquisition of the Company or a change in control of the Company.

Critical Accounting Policies

Management is responsible for the integrity of the financial information presented herein. The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Where necessary, they reflect estimates based on management’s judgment. When selecting or evaluating accounting alternatives, management focuses on those that produce from among the available alternatives information most useful for decision-making. Significant accounting policies that are important to the portrayal of the Company’s financial condition and results, which in some cases require management’s judgment, are summarized in the Notes to Financial Statements which are included herein in Item 7.

The Company believes that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts.

The Company recognizes revenue when it is realized or realizable and earned. The Company provides a limited “DOA Warranty” in connection with some of our product sales. DOA means “Dead On Arrival” and is a commonly used term in the computer industry. If provided to our customer, this warranty applies to used computers, disk drives, CD drives or DVD drives that do not power-up when they are received or, in some cases, for a period of up to 60 days from receipt and provides that the covered equipment can be returned for a full refund or replacement product, if available. The decision whether to provide a refund or replacement product is generally at our option, but in limited circumstances, it may be at the customer’s option. Based on an internal study by management, we determined that less that 5% of the Company’s sales are covered under this warranty and, of those sales, less than 10% are returned to the Company. If the equipment sold does not power-up, the Company has alternative methods to sell this equipment, by tearing it down and selling the working components as parts and the non-working components to metal recyclers. The alternative sales methods are rarely below the original cost of the equipment. The Company has not had any significant differences for the years

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ended December 31, 2004 and 2003. Therefore, no warranty reserve has been recorded. Should a reserve be recorded, it would increase both cost of sales and accrued expenses.

The Company provides estimated inventory allowances for excess, slow-moving and obsolete inventory as well as for inventory whose carrying value is in excess of net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. Management continually monitors its inventory valuation, and makes an assessment of its inventory allowance on a monthly basis. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required, which would be a decrease to our inventory balance and an increase to cost of sales.

The Company evaluates the realizability of its deferred tax assets on an ongoing basis by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. In the determination of the valuation allowance, the Company has considered future taxable income and the feasibility of tax planning initiatives. If the Company determined that it would not be able to realize a deferred tax asset created by net operating losses and other timing differences between the book and tax methods of accounting, an adjustment to increase the valuation allowance would be charged to income tax expense in the period such conclusion was made. Currently, the Company has not provided for a valuation allowance. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. Although the Company is not currently being audited by any taxing authority, there is the possibility of future audits, whose resolution could have an adverse impact of the results of operations and cash flows of the Company.

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Had the Company elected to account for stock-based employee compensation arrangements in accordance with SFAS No. 123 as an alternative to APB Opinion No. 25, additional expense would have been recognized in the statement of operations. For options issued to non-employees, the Company applies SFAS No. 123. Expense is recognized using the Black -Scholes option pricing model, which contains estimates on the volatility of the stock price, the risk free interest rate, and the expected life of the options granted. The Company bases its estimates on the best available information. Increases in estimated volatility, expected life, and the risk free interest rate would all increase the amount of expense recognized in the Statement of Operations.

Impact Of Recently Issued Accounting Standards

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No.150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The Company adopted the provisions of SFAS No. 150 effective July 1, 2003, which had no impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantor's Accounting and

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Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company adopted this interpretation in 2003, which had no impact on the Company’s financial position or results of operations.

In December 2003, the FASB issued No. 46 (revised December 2003) (FIN 46R), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FIN No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in variable interest entities (VIEs) created after December 31, 2003. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The adoption of this standard will have no impact on the Company’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires measurement of all employee stock-based compensation awards using a fair value method and the recording of such expense in the consolidated financial statements. In addition, the adoption of SFAS No. 123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. SFAS No. 123R is effective for the Company beginning January 1, 2006. The Company currently plans to adopt SFAS No. 123R using the modified prospective method. The Company is currently assessing the impact of the adoption of SFAS No. 123R to its results of operations, financial condition and compensation strategies.

Item 7.Financial Statements

Our financial statements included in this Annual Report on Form 10-KSB/A are listed in Item 13 and begin immediately after Item 14 on pages F-1 through F-30.

Item 8.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 8A.Controls and procedures

Evaluation of Disclosure Controls and Procedures

It is the Chief Executive Officer’s and the Chief Financial Officer’s responsibility to ensure that we maintain disclosure controls and procedures designed to provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is identified and communicated to senior management on a timely basis. Our disclosure controls and procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly results and an established system of internal controls.

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Our Disclosure Controls were designed to provide reasonable assurance that the controls and procedures would meet their objectives. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective, maturing control system, misstatements due to error or fraud may occur and not be detected.

The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in this Form 10-KSB/A. We are reporting a control weakness related to our corporate tax accounting function. This weakness related specifically to the Company not maintaining sufficient resources in the corporate tax accounting function to accurately identify, evaluate and report, in a timely manner, non-routine and complex transactions. This deficiency resulted in errors in the Company’s accounting for income taxes. These errors were corrected in our amended Form 10-KSB/A for the year ended December 31, 2004. Upon identification of this control weakness, immediate corrective action was undertaken. Remediation will include the following:

·   Where necessary, we will retain outside experts to supplement our core knowledge of the complexities around both current and deferred income tax accounts. These resources, when combined with our existing resources, will enable us to comply with the technical complexities of accounting for income taxes.

·   A formal policy governing all key aspects of accounting for income taxes will be developed and adopted.

·   We will increase the training of our corporate accountants on accounting for income taxes and other complex accounting issues

Our efforts to strengthen financial and internal controls continue. Based on this evaluation, other than the item described above, our CEO and CFO have concluded these controls are effective. There have been no significant changes in internal controls, or in other factors, which would significantly affect these controls subsequent to the date of evaluation.

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Part III

Item 9.Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

AS of March 18, 2005, Our Directors and Executive Officers are:

Name	Age	Position
Marc Sherman	41	Chairman, President and Chief Executive Officer, Director
R. Keith Elliott	62	Director
Seth A. Grossman	39	Chief Operating Officer, Director
Edward L. Cummings	56	Vice President, Chief Financial Officer, Treasurer, Director
Robert W. VanHellemont	58	Director
David Harris	42	Vice President, Information Technology and Systems

In January 2003, R. Keith Elliott was appointed as a member of our board of directors to fill a vacancy. In May 2003, Andrew Paciocco resigned as a member of our board of directors for personal reasons. In November 2003, Seth A. Grossman was appointed to fill the vacancy.

In February 2005, Joel L. Owens resigned as Chief Operating Officer for personal reasons.

Marc Sherman founded WindsorTech, Inc. in August 2001 and has served as Chairman, President and Chief Executive Officer since then. His term of office expires at the 2005 annual meeting and he has indicated he is available for reelection. Mr. Sherman served as a director of and Chief Executive Officer of Intellesale, Inc. (and its predecessor, Universal Commodities Corp.), from December 1994 to July 2001, a company that purchased and sold large volumes of off-lease/off finance excess, used, refurbished and “as-is” computer equipment and related products and which provided technology asset management to companies wishing to maximize the value of their computer equipment coming to the end of its useful or book lives. Prior to 1994, Mr. Sherman served in key positions in various family businesses. Mr. Sherman has over fifteen years of experience in marketing, operations and executive management. Mr. Sherman is the brother-in-law of Mr. Sheerr.

R. Keith Elliott was appointed to the board of directors in January 2003 to fill a vacancy. His term of office expires at the 2005 annual meeting and he has indicated he is available for reelection. Mr. Elliott is the retired chairman and chief executive officer of Hercules, Inc. He had been elected chairman and chief executive officer of Hercules, Inc. in 1997. From 1991 to April 2000, he served Hercules, Inc. as Senior Vice President and Chief Financial

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Officer; Executive Vice President and Chief Financial Officer; President and Chief Operating Officer; President and Chief Executive Officer; and Chairman of the Board of Directors. Hercules, Inc. is a multi-national specialty chemical manufacturer serving the paper, water, construction, pharmaceutical, food, consumer non-durable and adhesive markets and industries. Mr. Elliott is a member of the Board of Directors of Checkpoint Systems, Inc., a multi-national manufacturer of electronic labeling systems used in the retail industry to identify products and reduce theft, Sithe Energies Company, which develops peaking power plants based on gas, oil and coal fuels, Wilmington Trust Company, which provides customized financial alternatives for wealth advisory clients, corporate clients, and regional banking clients,Computer Task Group, an information technology staffing and solutions company, and the Institute for Defense Analyses, a federally funded research and development company. He also serves as a member of the National Advisory Board for the University of South Carolina. Mr. Elliott serves as Chairman of the Audit Committee and is a member of the Compensation Committee of the Board of Directors. The Board of Directors has determined that Mr. Elliott is an Audit Committee Financial Expert, as that term is defined in the rules issued pursuant to the Sarbanes-Oxley Act of 2002. This designation does not impose any duties, obligations or liabilities that are greater than the duties, obligations and liabilities imposed by being a member of the audit committee or board of directors. The Board of Directors has also determined that Mr. Elliott is independent, as that term is defined under the enhanced independence standards for audit committee members in the Securities Exchange Act of 1934 and rules there under.

Seth A. Grossman was hired on March 14, 2005 to be Chief Operating Officer. He had joined the Board of Directors in November 2003. His term of office expires at the 2005 annual meeting and he has indicated that he is available for reelection. Mr. Grossman was the Executive Vice President and Chief Strategic Officer of Paxson Communications Corporation (AMEX:PAX). He joined Paxson Communications in 1995 as its Director of Finance, before assuming additional responsibilities as SVP of Investor Relations and Corporate Development and then Chief Financial Officer. Prior to his tenure at Paxson, Mr. Grossman was a Senior Associate with Houlihan, Lokey, Howard & Zukin, a specialty investment bank in New York where he concentrated on corporate finance, valuation advisory and restructuring. Mr. Grossman was also a partner with McFerren Holding Co., a Central and Eastern European privatization consulting firm. Mr. Grossman holds a BBA with distinction from the University of Michigan and an MBA from the Harvard Graduate School of Business Administration. He currently sits on the Board of the Enterprise Development Corporation of South Florida, a not-for-profit technology enterprise development concern. Mr. Grossman sits on the Audit and Compensation Committees of the Board of Directors of the Company.

Edward L. Cummings co-founded WindsorTech and has served as its Vice President, Chief Financial Officer and Treasurer since inception. His term of office expires at the 2005 annual meeting and he has indicated that he is available for reelection. Mr. Cummings joined the Board of Directors of the Company in February 2004 to fill a vacancy. He served as Executive Vice President, Chief Financial Officer and Secretary of Intellesale, Inc. from July 1999 to February 2001. He joined its predecessor company Universal Commodities Corp. in October 1995 as controller and was elected to the board of directors in January 1997. From September 1994 to October 1995 he owned TCC, Inc., an operator of several retail gift shops. From December 1981 to September 1994 he was Chief Financial Officer and Treasurer of Albert E. Price, Inc., a giftware import and export company.

Robert W. VanHellemont was appointed to the board of directors in August 2004 to fill a vacancy. He is the founder and chief executive officer of the Varilease companies. The Varilease companies are leading North American business equipment and financing providers, which have financed more than $1 billion in assets worldwide. Mr. VanHellemont founded Varilease Corp. in 1987 and founded Varilease Technology Finance Group, Inc. in 2000. Additionally, Mr. VanHellemont served as

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senior vice president of Thomson-McKinnon Securities and spent over 10 years in senior positions at CMI Corp.

David M. Harris joined WindsorTech in May 2002 as Vice President, Information Technology and Systems. Mr. Harris is responsible for the development, implementation and maintenance of the Company’s information technology systems and processes. Prior to joining the Company, Mr. Harris was, from October 2001 to May 2002 a private consultant and, from April 1998 to October 2001, Network and Systems Administrator for Intellesale, Inc. Prior thereto, from 1984 to 1998 he has held various positions as Network and Systems Administrator and Programmer for various companies.

None of the Directors or Executive Officers of the Company:

·   have filed a bankruptcy petition or served as a general partner or an executive officer of any entity that has filed or had filed against it a bankruptcy petition;

·   have been convicted in a criminal proceeding or is the subject of a pending criminal proceeding;

·   are subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoined, barred or suspended or otherwise limited in their involvement in any type of business, securities or banking activities; or

·   have been found by a court of competent jurisdiction in a civil action, the Commission or the Commodity Futures Trading Commission to have violated federal or state securities or commodities law and the judgment has not been reversed, suspended or vacated.

Code of Ethics for Staff Members and Directors

The Company has adopted a Code of Ethics for Staff Members and Directors, which applies to all employees, including our Chief Executive and Chief Financial Officers. The Code is available on the “Investor Relations” portion of our web site at www.windsortechinc.com.

Compliance with Section 16(a) of the Exchange Act

We are in compliance with Section 16(a) of the Exchange Act.

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Item 10.Executive Compensation

The following table sets forth certain summary information concerning the total remuneration paid in 2004 and 2003 to the Company’s Chief Executive Officer and its four other most highly compensated executive officers.

Summary Compensation Table
					Long-Term Compensation
		Annual Compensation			Awards		Payouts
Name and Principal Position (1)	Year	Salary ($)	Bonus ($)	Other Annual Compensation ($)	Restricted Stock Awards ($)	Securities Underlying Options/SAR's (#)	LTIP Payouts	All Other Compensation ($)
Marc Sherman	2004	$ 265,385	-	$ 5,500	-	1,000,000	$ -	$ -
Chairman, CEO and	2003	$ 163,384	-	$ 6,000	-	1,000,000	$ -	$ -
President
Edward L. Cummings	2004	$ 141,346	-	$ 5,500	-	500,000	$ -	$ -
Vice President, Treasurer	2003	$ 120,115	-	$ 6,000	-	250,000	$ -	$ -
and CFO
David A. Harris	2004	$ 89,415	-	-	-	-	$ -	$ -
Vice President IT	2003	$ 82,540	-	-	-	225,000	$ -	$ -
Joel L. Owens(3)	2004	$ 141,667	-	-	-	60,000	$ -	$ -
Chief Operating Officer	2003	-	-	-	-	-	$ -	$ -
David A. Loppert(2)	2004	$ 61,558	-	$ 2,000	-	1,100,000	$ -	$ -
Director, Vice President,	2003	$ 143,192	-	$ 6,000	-	500,000	$ -	$ -
Secretary
Carl C. Saracino	2004	$ 125,000	-	$ 4,000	-	-	$ -	$ -
Operations Manager	2003	$ 120,115	-	$ 6,000	-	150,000	$ -	$ -
Michael P. Sheerr	2004	$ 125,000	-	$ 4,000	-	-	$ -	$ -
Sales Manager	2003	$ 120,115	-	$ 6,000	-	150,000	$ -	$ -

(1).  See “Employment Contracts” below for agreements entered into with executive officers.  

(2.)  On February 19, 2004, by Action of Consent of Majority Shareholders, David A. Loppert was removed from the Board of Directors. Thereafter, the Board of Directors removed Mr. Loppert as an officer of the Company. As part of a court enforced settlement agreement with Mr. Loppert, the company was required to issue him 1,100,000 stock options. These were not part of the 2002 Flexible Stock Plan.

(3) Named as COO on September 23, 2004. His employment started on May 1, 2004. Mr. Owens resigned as COO as of February 14, 2005.

Option Grants in Last Fiscal Year

The following table contains information concerning the grant of Stock Options to the named executive officers during 2004:

	Individual Grants
Marc Sherman		500,000	38.5%	$	1.44	May -14	$	535,000	(1	)
Marc Sherman		500,000	-	$	1.90	Nov - 14	$	735,000	(2	)

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Edward L. Cummings	250,000	19.2%	$	1.44	May -14	$	267,500	(1	)
Edward L. Cummings	250,000	-	$	1.90	Nov -14	$	367,500	(2	)

(1)   Based on the grant date present value of $1.07 per option share which was derived using the Black-Scholes option pricing model and is not intended to forecast future appreciation of the Company’s common share price. The Black-Scholes model was used with the following assumptions: dividend yield of 0%; expected volatility of 216.5%; risk-free interest rate of 3.63%; and expected lives of 5 years.

(2)   Based on the grant date present value of $1.47 per option share which was derived using the Black-Scholes option pricing model and is not intended to forecast future appreciation of the Company’s common share price. The Black-Scholes model was used with the following assumptions: dividend yield of 0%; expected volatility of 231.7%; risk-free interest rate of 3.53%; and expected lives of 5 years.

Option Exercises and Fiscal Year-End Values

The following table sets forth information with respect to the named executive officers concerning the exercise of options during 2004 and unexercised options held on December 31, 2004:

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

Exercised in 2004 Number of Securities Underlying Unexercised Options at Year End 2004 (#) Value of Unexercised In - The - Money Options at Year End 2004 ($)   

Name	Shares Acquired Upon Exercise (#)		Value Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable
Marc Sherman		--	$	--		2,375,000		--	$	8,122,500		--
Edward L. Cummings		--	$	--		1,100,000		--		3,762,000		--
David A. Harris		--	$	--		225,000		--		770,000		--
Joel L. Owens		--	$	--		60,000		--		205,000		--
Carl C. Saracino		150,000	$	4,500		350,000		--		1,197,000		--
Michael P. Sheerr		150,000	$	4,500		350,000		--		1,197,000		--

Compensation Pursuant to Plans

Other than as disclosed above, the Company has no plans pursuant to which cash or non-cash compensation was paid or distributed during the last fiscal year, or is proposed to be paid or distributed in the future, to the individuals described above.

Compensation of Directors

Beginning in the first quarter of 2002, the non-employee director compensation was changed from receiving no compensation to fixed quarterly fees in the amount of $1,500 per non-employee director. Such fee may be paid in cash, options or in shares of the Company’s Common Stock, at the election of the board of directors. Reasonable travel expenses are reimbursed when incurred. Individuals who become directors of the Company are automatically granted, on the date they become directors, an initial non-qualified stock option to purchase 125,000 shares of Common Stock, $.01 par value, at the closing price of the Company's Common Stock, expiring ten years from the grant date. Directors who are not also executive officers are not eligible to participate in any other benefit plan of the Company.

Compensation Committee Interlocks and Insider Participation

None.

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Employment Contracts and Termination of Employment, and Change-in-Control Arrangements

The Company entered into employment and non-compete agreements with the following named executive officers on October 1, 2001.

Name	Length	Commencing	Base Compensation
Marc Sherman	1 Year(1)	October 1, 2001	$ 100,000(2)
Edward L. Cummings	1 Year(1)	October 1, 2001	$ 100,000(3)
David A. Loppert(6)	1 Year(1)	October 1, 2001	$ 100,000(5)
Carl C. Saracino(6)	1 Year(1)	October 1, 2001	$ 100,000(4)
Michael P. Sheerr(6)	1 Year(1)	October 1, 2001	$ 100,000(4)

(1)   Automatically renewed for successive additional one-year terms on each anniversary unless either the employee or the Company gives the other party 30 days notice of non-renewal prior to an anniversary date. The employment agreements include certain early termination provisions in the event of the employee’s death, retirement, or upon the occurrence of certain events of defaults in performance by either the Company or the employee, as applicable.

(2)   $50,000 per annum for the period from October 1, 2001 to December 31, 2001 then increasing to $100,000 per annum effective January 1, 2002, $200,000 per annum, effective June 1, 2003 and $300,000 per annum effective May 1, 2004.

(3)   $50,000 per annum for the period from October 1, 2001 to December 31, 2001 then increasing to $100,000 per annum effective January 1, 2002, $125,000 per annum, effective June 1, 2003 and $150,000 per annum, effective May 1, 2004.

(4)   $50,000 per annum for the period from October 1, 2001 to December 31, 2001 then increasing to $100,000 per annum effective January 1, 2002, $125,000 per annum, effective June 1, 2003.

(5)   $50,000 per annum for the period from October 1, 2001 to December 31, 2001 then increasing to $100,000 per annum effective January 1, 2002, $165,000 per annum, effective June 1, 2003. Mr. Loppert is no longer with the Company.

(6)   The Company has notified Mr. Saracino and Mr. Sheerr that it does not intend to renew their employment contracts. Mr. Loppert’s contract has expired.

Key provisions of Employment and Non-Compete Agreements

Compensation. In addition to the base compensation of each named executive listed above, each named executive is entitled to receive such bonuses, incentive compensation, and other compensation, if any, as the Company’s board of directors or the compensation committee thereof, or other designated committee shall award such executive from time to time whether in cash, Company stock, stock options, other stock based compensation, other form of remuneration, or any combination of the foregoing.

Option Grant. Each executive was granted an option to acquire 250,000 shares of the Company’s common stock at $0.026 per share, exercisable at any time after October 1, 2001 and on or before December 31, 2010.

Change of Control. In the event of a change in control of the Company, all options granted to the executives will immediately vest, to the extent not already vested, and will become exercisable in accordance with the plan or terms and conditions under which they were granted. If, after the announcement of a change in control, an executive is terminated by the Company other than for cause, then the executive’s base compensation will be increased to three times the current base compensation and such amount shall be payable in a lump sum to the executive in US dollars within 30 days of the date of termination of employment.

Excise Gross Up. In the event that any payment or benefit payable to an executive under his employment contract, and/or under any other agreement or arrangement with the Company or any person whose actions result in a change of control of the Company, is covered by Section 280G(b)(2) of the Internal Revenue Code of 1986 and is subject to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the Company will pay the executive an additional amount that covers all excise taxes incurred or to be incurred by the executive because of any such payment or benefit, plus an

38

additional amount to cover all federal and state income taxes and excise taxes on the initial excise gross up payment.

Vesting of Options. In the event of termination of the executive’s employment for any reason other than termination by the Company due to his material default, as described in the employment contract, all stock options granted to him by the Company (or any subsidiary or affiliate) whether granted under and pursuant to a plan or otherwise, will become immediately exercisable to the extent not already exercisable and will remain exercisable until their expiration date.

Non-Compete Provisions. During the employment term and for a period of one year after termination of employment, if such termination is either voluntarily by the executive, or for cause by the Company, the executive shall not engage, directly or indirectly, either on his own behalf or on behalf of any other person, firm, corporation or other entity, in any business competitive with the business of the Company, in any geographic area in which the Company is conducting business during such executive’s employment term or at the time of termination of executive’s employment, or own more than 5% of any such firm, corporation or other entity. In addition, the executive must furnish the Company with such information, as the Company shall from time to time request in order to determine that executive is in compliance with his non-compete agreement.

Item 11.Security Ownership of Management and Certain Shareholders

Ownership of Equity Securities in the Company

The following table sets forth information regarding beneficial ownership of the Company’s Common Stock by each director and by each executive officer named in the Summary Compensation Table and by all the directors and executive officers as a group as of December 31, 2004:

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner(1)	Percent of Class
Common	Edward L. Cummings c/o 70 Lake Drive Hightstown, NJ 08520	3,216,200	9.7%
Common	R. Keith Elliott c/o 70 Lake Drive Hightstown, NJ 08520	425,000	1.3%
Common	Seth A. Grossman c/o 70 Lake Drive Hightstown, NJ 08520	425,000	1.3%
Common	David A. Harris c/o 70 Lake Drive Hightstown, NJ 08520	425,000	1.3%
Common	Joel L. Owens c/o 70 Lake Drive Hightstown, NJ 08520	1,993,331	6.0%
Common	Carl C. Saracino c/o 70 Lake Drive Hightstown, NJ 08520	1,815,000	5.5%
Common	Michael P. Sheerr c/o 70 Lake Drive Hightstown, NJ	1,844,000	5.6%
Common	Marc Sherman (2) c/o 70 Lake Drive Hightstown, NJ 08520	5,016,300	15.1%

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Common	Robert W. VanHellemont c/o 70 Lake Drive Hightstown, NJ 08520	198,500	*
Common	All Directors and Executive Officers as a Group (9 Persons)	15,358,331	46.4%

* The amount shown is less than 1% of the outstanding shares of common stock.

1.   This table includes presently exercisable stock options. The following directors and executive officers hold the number of presently exercisable options (all of which may be exercised at any time) set forth following their respective names: Edward L. Cummings - 1,100,000; R. Keith Elliott - 425,000; Seth A. Grossman -425,000; David A. Harris - 275,000; Joel A. Owens - 60,000; Carl C. Saracino - 350,000; Michael P. Sheerr - 350,000; Marc Sherman - 2,375,000; Robert W. VanHellemont - 175,000; and all directors and executive officers as a group (9 persons) - 5,535,000.

2.   Includes 85,300 shares beneficially owned by Mr. Sherman’s children for whom Mr. Sherman has sole voting and dispositive power.

Set forth in the table below is information, as of March 15, 2005, with respect to persons known to the Company (other than the directors and executive officers shown in the preceding table) to be the beneficial owners of more than five percent of the Company’s issued and outstanding Common Stock:

Name and Address	Number of Shares Beneficially Owned	Percent Of Class
Barron Partners 730 Fifth Avenue New York, NY 10019	4,833,333	17.4%

Securities authorized for issuance under equity compensation plans

This information is presented in Part II, Item 5 - “Market for Common Equity and Related Stockholder Matters” above.

Item 12Certain Relationships and Related Transactions

Loans from Principal Stockholders/Executive Officers

A.On October 12, 2001 the Company executed a Variable Amount Promissory Note in the amount of $250,000 in favor of David A. Loppert, an executive officer and director of the Company in consideration for Mr. Loppert extending to the Company a revolving line of credit of up to $250,000. The amounts outstanding were due on demand and bore interest at the rate of 12% per annum. Interest payments were paid monthly in arrears. The highest principal amount outstanding on the loan was $158,170. The Company repaid the outstanding balance on April 24, 2002.

B.On April 24, 2002, the Company entered into a secured loan agreement with its principal stockholders in order to provide the Company with working capital. The agreement was amended on September 30, 2002 and on February 28, 2003 to extend the maturity date. The loans are secured by substantially all of the assets of the Company. Each principal stockholder loaned the Company $110,000 (for an aggregate of $550,000). At December 31, 2003, the Company had repaid $10,000 on each loan. At December 31, 2004, the balance remaining is as follows:

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Name	Amount of Loan		Maturity		Interest Rate
Marc Sherman	$	15,000		January 31, 2006		12	%
Edward L. Cummings	$	80,000		January 31, 2006		12	%
David A. Loppert	$	100,000		January 31, 2005		12	%
Carl C. Saracino	$	70,000		January 31, 2006		12	%
Michael P. Sheerr	$	90,000		January 31, 2006		12	%

The loans bear interest at the rate of 12% per annum with interest only payments payable monthly in arrears. $100,000 of the principal and accrued interest is due and payable on January 31, 2005 and $ 255,000 of the principal and accrued interest is due and payable on January 31, 2006. The loan agreement, as amended, provides, among other standard and customary terms, that when the Company arranges permanent long or short- term financing, the principal stockholder loans will be subordinate to such permanent financing, if required.

At maturity, at the election of the principal stockholders, the Company shall repay such loans in cash or in a combination of cash and shares of the Company's Common Stock, with such stock valued at the current “market value” determined by a professional valuation service. For example, if each stockholder elects to receive all of his loan repayment in common stock, and if, for illustrative purposes only, the value of each share of common stock is $.01 at maturity, the Company will be required to issue 55,000,000 shares of its common stock. In this scenario, the Company will be required to obtain shareholder approval to increase its authorized share capital so that there will be sufficient shares available for issuance. If the Company’s common stock is publicly traded at the time of maturity, the current “market value” will be based on the average of the closing price for the ten business days preceding the maturity date. If the Company’s common stock is not publicly traded, the method of valuation will be selected by the professional valuation service.

The Company and the principal stockholders also entered into an Intercreditor Agreement dated as of April 24, 2002, that provides, among other standard and customary terms, that until all liabilities under the loan agreement have been paid in full, any payments made by the Company in respect of the loans shall be made in equal amounts to and among the lenders, who will apportion all amounts so paid to any of them in accordance with the Intercreditor Agreement so that no lender receives any payments from the Company before or in preference to any other lender. Additionally, the Intercreditor Agreement would provide for equal treatment of the lenders in connection with any bankruptcy, insolvency, receivership, liquidation or dissolution proceeding of the Company.

C.In October 2002, the Company executed Company Variable Amount Promissory Notes, each in the amount of $125,000 in favor of each of Edward Cummings, David Loppert, Carl C. Saracino, Michael Sheerr and Marc Sherman, each an executive officer and principal stockholder of the Company, in consideration for each executive extending to the Company a revolving line of credit of up to $125,000. The amounts outstanding are due on demand and bear interest at the rate of 12% per annum. Interest payments are paid monthly in arrears. As of December 31, 2004, $6,594 was due under these notes. As of December 31, 2003, $7,192 was due under these notes.

Sales to Related Party

The Company had sales to Keystone Memory Group, a customer related to Marc Sherman, Chairman and CEO, who is a principal stockholder of the Company and Michael Sheerr, an employee of the Company and former officer and principal stockholder. Keystone Memory Group is owned by Michael P. Sheerr and his wife. Mrs. Sheerr is Marc Sherman’s sister. Neither Mr. Sherman nor Mr. Sheerr

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has any business experience with Keystone.

The Company also had sales to Micro Memory Bank, a customer related to Michael Sheerr, an employee of the Company and former officer and principal stockholder. Micro Memory Bank is owned by Michael Sheerr’s brother. Mr. Sheerr does not have any business experience with Micro Memory Bank.

Sales to Keystone amounted to approximately $1,102,000 and $938,000 for the years ended December 31, 2004 and 2003, respectively. Accounts receivable from Keystone amounted to $119,046 and $37,173 at December 31, 2004 and 2003, respectively.

Sales to Micro Memory Bank amounted to approximately $5,400 and $20,000 for the years ended December 31, 2004 and 2003, respectively. There was no amount due from Micro Memory Bank at December 31, 2004 or December 31, 2003.

Keystone primarily sells memory upgrades for Sun, HP, Cisco, Compaq and IBM workstations, servers and personal computers as well as other computer parts. We sell personal computer memory modules to Keystone in bona fide arms-length negotiated transactions at competitive fair market prices. The products primarily consist of 32Mb, 64Mb, 128Mb and 256Mb RAM, or “Random Access Memory,” modules.

Micro Memory Bank manufactures and sells memory modules for workstations, servers and personal computers. We sell personal computer memory modules to Micro Memory Bank in bona fide arms-length negotiated transactions at competitive fair market prices. The products primarily consist of 32Mb, 64Mb, 128Mb and 256Mb RAM or “Random Access Memory” modules.

Shares issued to Principal Stockholders/Executive Officers

Principal Stockholder /  Executive Officer	Date Issued	Note	Issued For	Number of Common Shares
Edward L. Cummings	Oct - 2001	A	Capital Contribution	5,000,000
	Jan - 2002	B	Merger Consideration	1,800,000
	Dec - 2002	C	Compensation	500,000
David A. Loppert	Oct - 2001	A	Capital Contribution	5,000,000
	Jan - 2002	B	Merger Consideration	1,800,000
	Dec - 2002	C	Compensation	500,000
Carl C. Saracino	Oct - 2001	A	Capital Contribution	5,000,000
	Jan - 2002	B	Merger Consideration	1,800,000
	Dec - 2002	C	Compensation	500,000
Michael P. Sheerr	Oct - 2001	A	Capital Contribution	5,000,000
	Jan - 2002	B	Merger Consideration	1,800,000
	Dec - 2002	C	Compensation	500,000
Marc Sherman	Oct - 2001	A	Capital Contribution	5,000,000

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Jan - 2002	B	Merger Consideration	1,800,000
Dec - 2002	C	Compensation	500,000

A.In October 2001, WindsorTech, Inc. (New Jersey Company) sold an aggregate of 50,000 shares of its common to Edward Cummings, David Loppert, Carl C. Saracino, Michael Sheerr and Marc Sherman in consideration for $50,000 from each of them. In January 2002, WindsorTech, Inc. (New Jersey Corporation) affected a 100:1 stock split. These shares were restricted within the meaning of the Securities Act of 1933.

B.On January 30, 2002, in connection with the Merger, Delta issued an aggregate of 9,000,000 shares of its common stock to Edward Cummings, David Loppert, Carl C. Saracino, Michael Sheerr and Marc Sherman in exchange for their 25,000,000 shares of common stock in WindsorTech, Inc. (New Jersey Corporation). The 9,000,000 shares of common stock were valued at $250,000, or $.0278 per share. These shares are restricted within the meaning of the Securities Act of 1933.

C.In December 2002, the Compensation Committee of the Board of Directors awarded each executive officer a $13,000 bonus, payable in shares of the Company’s restricted common stock. Each executive officer received 500,000 restricted shares of common stock valued at $0.026 per share.

Item 13.Exhibits and Financial Statements

Exhibits
	See List of Exhibits filed as part of this Report on Form 10-KSB/A.
The financial statements listed below appear immediately after page 42.
Report of Independent Registered Public Accounting Firm		F-1
Financial Statements
Balance Sheet		F-2
Statement Of Operations		F-3
Statement Of Stockholders’ Equity		F-4
Statement Of Cash Flows		F-5
Notes To Financial Statements		F-6 - F-30

Item 14.Principal accountant fees and services

During 2004 and 2003, we paid the following fees, including out of pocket expense reimbursements, to RubinBrown LLP:

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	2004		2003
Audit Fees	$	108,358	$	55,265
Audit-Related Fees (1)		24,450		7,000
Tax Fees (2)		9,250		6,200
All Other Fees (3)		--		20,600
Total	$	142,058	$	89,065

(1) Audited-related fees include consultation concerning financial accounting and reporting standards and acquisitions, and work performed in connection with registration statements filed with the SEC.

(2) Tax Fees include tax planning and compliance for federal and state income taxes.

(3) All Other Fees represents a manufacturing process review conducted in 2003.

WindsorTech, Inc.’s Audit Committee approves the engagement of an accountant to render all audit and non-audit services prior to the engagement of the accountant based upon a proposal by the accountant of estimated fees and scope of the engagement. WindsorTech, Inc.’s Audit Committee has received the written disclosure and the letter from RubinBrown LLP required by Independence Standards Board Standard No. 1, as currently in effect, and has discussed with RubinBrown LLP their independence.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WindsorTech, Inc. (Registrant)
Dated:November 14, 2005	By:   /s/ Marc Sherman
	Marc Sherman
	Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Marc Sherman (Marc Sherman)	Chairman of the Board, Chief Executive Officer and President	November 14, 2005
/s/ Edward L. Cummings Edward L. Cummings	Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	November 14, 2005

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/s/ Seth A. Grossman Seth A. Grossman	Director	November 14, 2005
/s/ R. Keith Elliott R. Keith Elliott	Director	November 14, 2005
/s/ Robert W. VanHellemont Robert W. VanHellemont	Director	November 14, 2005

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45

List Of Exhibits

Exhibit Number	Description
2.1	Agreement and Plan of Merger by and between WindsorTech, Inc., Delta States Oil, Inc. and Alfred D. Morgan, Ph. D dated January 29, 2002 (incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2002 (Commission file number 000-07539)).
2.2	Agreement and plan of Merger by and among Windsortech, Inc., Qualtech International Corporation and Qualtech Service Group, Inc. dated May 1, 2004.
3.1	Certificate of Amendment of Certificate of Incorporation of WindsorTech, Inc. **
3.2	Amended and Restated ByLaws of WindsorTech, Inc. (Incorporated herein reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).
3.3	Action by Consent in Writing of a Majority of Stockholders dated May 19, 2004 concerning Amended and Restated By Laws.
3.4	Action by Consent in Writing of a Majority of Stockholders dated September 17, 2004 increasing the number of shares of the Corporation
4.1	Specimen Common Stock Certificate of WindsorTech, Inc. (Incorporated herein reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).
4.2	Form of Stock Purchase Agreements with Barron Partners, L.P., Guerrilla Capital, and Odin Partners et al. dated May 26, 2004.
4.3	Form of Registration Rights Agreements with Barron Partners, L.P., Guerrilla Capital, and Odin Partners et al. dated May 26, 2004.
4.4	Form of Common Stock Purchase Warrant at $1.50 per share dated May 28, 2004.
4.5	Form of Common Stock Purchase Warrant at $3.60 per share dated May 28, 2004
4.6	Form of Registration Rights Agreement with Joel Owens and Jolene Owens dated May 1, 2004.
10.1*	Employment and Non-Compete Agreement - Edward L. Cummings ***
10.2*	Employment and Non-Compete Agreement - David A. Loppert **
10.3*	Employment and Non-Compete Agreement - Carl C. Saracino **
10.4*	Employment and Non-Compete Agreement - Michael P. Sheerr **
10.5*	Employment and Non-Compete Agreement - Marc Sherman ***
10.6*	2002 Flexible Stock Plan (Incorporated herein reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on April 16, 2002 (Commission file number 000-07539)).
10.7	Promissory Note executed by the Company. As of April 24, 2002 this note was paid in full (Incorporated herein reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).

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Exhibit Number Description

10.8	Loan Agreement by and among Marc Sherman, Edward L. Cummings, David A. Loppert, Carl C. Saracino, Michael P. Sheerr and WindsorTech, Inc., on and as of April 24, 2002 (Incorporated herein reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).
10.9	Lease Agreement (Incorporated herein reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on August 19, 2002 (Commission file number 000-07539)).
10.10	Amendment to Loan Agreement by and among Marc Sherman, Edward L. Cummings, David A. Loppert, Carl C. Saracino, Michael P. Sheerr and WindsorTech, Inc., on and as of September 30, 2002 (Incorporated herein reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on November 11, 2002 (Commission file number 000-07539)).
10.11	Second Amendment to Loan Agreement by and among Marc Sherman, Edward L. Cummings, David A. Loppert, Carl C. Saracino, Michael P. Sheerr and WindsorTech, Inc., on and as of February 28, 2003 (Incorporated herein reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-QSB filed with the Commission on May 13, 2003 (Commission file number 000-07539)).
10.12	Employment and Non-Compete Agreement - Joel L. Owens
10.13***	Third Amendment to Loan Agreement by and among Marc Sherman, Edward L. Cummings, Carl C. Saracino, Michael P. Sheerr and WindsorTech, Inc., on and as of March 29, 2004.
12.1***	Statement re computation of ratios.
16.1	Letter from Milton Reece, CPA (“Reece”) concurring with the statements made by the Registrant in the Current Report on Form 8-K reporting Reece’s resignation as the Registrant’s principal accountant (incorporated herein by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2002 (Commission file number 000-07539)).
23.1***	Consent of RubinBrown LLP
31.1***	CEO Certification
31.2***	CFO Certification
32.1***	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan.
** Incorporated herein by reference to the same numbered exhibit in the Registrant’s Transition Report on Form 10-KSB/A filed with the Commission on April 1, 2002 (Commission file number 000-07539).
*** Attached hereto.
There are no other documents required to be filed as an Exhibit as required by Item 601(a) of Regulation S-B.

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Report of Independent Registered Public
Accounting Firm	F-1
Financial Statements
Consolidated Balance Sheets	F-2
Consolidated Statements Of Operations	F-3
Consolidated Statements Of Stockholders’ Equity	F-4
Consolidated Statements Of Cash Flows	F-5
Notes To Consolidated Financial Statements	F-6 - F-31

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Report Of Independent Registered Public

Accounting Firm

Board of Directors and Stockholders

Windsortech, Inc.

Hightstown, New Jersey

We have audited the accompanying consolidated balance sheets of Windsortech, Inc. and subsidiaries as of December 31, 2004 and 2003 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Windsortech, Inc. and subsidiaries as of December 31, 2004 and 2003 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the consolidated financial statements as of December 31, 2004, and for the year then ended have been restated.

St. Louis, Missouri

January 28, 2005, except as to the restatement discussed in Note 1 to the consolidated financial statements which is as of November 11, 2005

49

WINDSORTECH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Assets
	December 31,
	2004
	(Restated)			2003
Current Assets
Cash and cash equivalents	$	844,939		$	270,155
Accounts receivable, net of reserve of $50,000
and $20,000 in 2004 and 2003, respectively		3,612,530			223,326
Accounts receivable - related party		119,046			37,173
Inventories		2,721,505			358,380
Prepaid expenses and other assets		165,741			46,906
Deferred income taxes		67,511			14,528
Total Current Assets		7,531,272			950,468
Property And Equipment, Net		552,560			263,187
Goodwill		3,125,794			—
Intangibles, Net		3,188,896			—
Deferred Income Taxes		—			112,492
Other Assets		89,843			64,851
	$	14,488,365		$	1,390,998
Liabilities And Stockholders' Equity
Current Liabilities
Current maturities of notes payable	$	603,376		$	7,555
Revolving lines of credit		1,155,500			7,192
Accounts payable		1,590,928			268,958
Accrued expenses		265,391			152,796
Accrued payroll - principal stockholders		86,724			277,075
Deferred revenue		346,031			—
Other current liabilities		123,481			—
Total Current Liabilities		4,171,431			713,576
Notes Payable		255,000			503,403
Deferred Income Taxes		1,115,870			—
Total Liabilities		5,542,301			1,216,979
Commitments And Contingencies (Note 12)
Stockholders' Equity
Preferred shares: authorized 5,000,000 in 2004
and 2003, $0.01 par value, none issued		—			—
Common shares: authorized 55,000,000 in 2004 and 35,000,000 in 2003,
$0.01 par value; 25,550,007 shares issued and outstanding
in 2004 and 16,468,754 issued and outstanding in 2003		255,500			164,688
Additional paid-in capital		9,421,356			774,599
Retained earnings (deficit)		(730,792	)		(765,268	)
Total Stockholders' Equity		8,946,064			174,019
	$	14,488,365		$	1,390,998

Page F-2

See the accompanying notes to consolidated financial statements.

WINDSORTECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For The Years
	Ended December 31,
	2004
	(Restated)		2003
Revenue	$	22,079,796	$	7,484,472
Cost Of Sales		16,651,383		5,492,061
Gross Profit		5,428,413		1,992,411
Selling, General And Administrative Expenses		4,835,565		1,988,091
Depreciation And Amortization		391,672		71,973
Interest Expense, Net		83,307		79,656
Income (Loss) Before Provision For Income Taxes		117,869		(147,309	)
Provision For Income Taxes		83,393		1,900
Net Income (Loss)	$	34,476	$	(149,209	)
Net Income (Loss) Per Common Share - Basic	$	—	$	(0.01	)
Net Income (Loss) Per Common Share - Diluted	$	—	$	(0.01	)
Weighted Average Number of Common Shares
Outstanding - Basic		24,659,853		15,661,593
Weighted Average Number of Common Shares
Outstanding - Diluted		27,944,181		15,661,593

See the accompanying notes to consolidated financial statements.

 Page F-3

WINDSORTECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For The Years Ended December 31, 2004 And 2003

										Total
					Additional		Retained			Stockholders'
	Common Stock				Paid-In		Earnings			Equity
	Shares		Amount		Capital		(Deficit)			(Deficit)
Balance - January 1, 2003		14,914,168	$	149,142	$	176,648	$	(616,059	)	$	(290,269	)
Common Stock Issued		1,554,586		15,546		481,951		—			497,497
Common Stock Warrants Issued		—		—		116,000		—			116,000
Net Loss		—		—		—		(149,209	)		(149,209	)
Balance - December 31, 2003		16,468,754		164,688		774,599		(765,268	)		174,019
Common Stock Issued		7,957,831		79,578		4,946,811		—			5,026,389
Common Stock Warrants Issued		—		—		1,521,261		—			1,521,261
Exercise Of Stock Options		500,000		5,000		894,050		—			899,050
Tax Effect Of Exercise Of Stock Options		—		—		42,003		—			42,003
Exercise Of Stock Warrants		500,000		5,000		745,000		—			750,000
Stock Option Compensation		—		—		289,666		—			289,666
Shares Issued For Services		123,422		1,234		207,966		—			209,200
Net Income		—		—		—		34,476			34,476
Balance - December 31, 2004 (Restated)		25,550,007	$	255,500	$	9,421,356	$	(730,792	)	$	8,946,064

See the accompanying notes to consolidated financial statements.

 Page F-4

WINDSORTECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For The Years
	Ended December 31,
	2004
Cash Flows From Operating Activities	(Restated)			2003
Net income (loss)	$	34,476		$	(149,209	)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization		391,672			71,973
Stock option compensation expense		289,666			—
Deferred income taxes		37,735			—
Common stock issued for services		209,200			—
Stock warrants issued for services		—			60,000
Change in assets and liabilities:
Accounts receivable		(2,177,369	)		(235,502	)
Inventories		(1,538,500	)		68,760
Prepaid expenses and other current assets		(104,125	)		47,143
Other assets		(2,512	)		(1,250	)
Accounts payable and accrued expenses		714,261			323,785
Net Cash Provided By (Used In) Operating Activities		(2,145,496	)		185,700
Cash Flows From Investing Activities
Payments for patent and trademark		(3,010	)		(24,216	)
Acquisition of business, net of cash acquired		(3,005,375	)		—
Purchases of property and equipment		(206,111	)		(88,142	)
Net Cash Used In Investing Activities		(3,214,496	)		(112,358	)
Cash Flows From Financing Activities
Proceeds from the issuance of common stock and warrants		3,300,000			493,997
Stock warrants exercised		750,000			—
Stock options exercised		899,050			—
Net amounts borrowed (paid) under revolving lines of credit		638,308			(333,828	)
Amounts borrowed - notes payable		500,000			—
Principal payments - notes payable		(152,582	)		(17,739	)
Net Cash Provided By Financing Activities		5,934,776			142,430
Net Increase In Cash And Cash Equivalents		574,784			215,772
Cash And Cash Equivalents - Beginning Of Year		270,155			54,383
Cash And Cash Equivalents - End Of Year	$	844,939		$	270,155
Supplemental Disclosure Of Cash Flow Information
Income taxes paid (refunds received)	$	550		$	(70,800	)
Interest paid		58,561			114,980
Supplemental Cash Flow Information (Note 14)

See the accompanying notes to consolidated financial statements.

 Page F-5

WINDSORTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 And 2003

1.         Summary Of Significant Accounting Policies

Restatement Of Previously Issued Financial Statements

Management has determined that the initial accounting for deferred income taxes related to the acquisition of QualTech International Corporation and QualTech Services Group, Inc. (collectively QualTech) needed correction. The audited consolidated financial statements as of December 31, 2004 and for the year then ended have been restated to reflect the proper accounting treatment.

Deferred income taxes were not originally recorded for the book to tax basis differences of acquired intangible assets. The effect of this correction was to record a long-term deferred tax liability at the acquisition date of $1,326,000, with an offsetting increase to goodwill. This correction also caused a change in the deferred income tax provision for the year ended December 31, 2004, increasing the deferred tax benefit by $82,331.

Additionally, in 2004, the Company reversed a deferred tax asset valuation allowance related to net operating losses of WindsorTech that were incurred in 2002 and 2003. This was based on the Company’s determination that the deferred tax assets were more likely than not realizable in future periods, based on the Company’s projection of future taxable income related to its acquisition of QualTech. The reversal of the valuation allowance was originally recorded as a deferred income tax benefit. However, because the reversal of the valuation allowance was a result of the acquisition of QualTech, the offsetting adjustment should have been recorded in the purchase price allocation of the QualTech acquisition. The effect of this correction was to decrease the deferred tax benefit and goodwill by $180,649.

The restatements had no effect on pre-tax income or cash flow for the year ended December 31, 2004.

Portions of Notes 1, 4, 5, 9 and 15 have been restated to reflect the above described adjustments.

F-6

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effects of the restatement are summarized as follows:

	As of December 31, 2004 and for the year then ended
	As Previously Reported			Restated
Goodwill	$	1,980,443		$	3,125,794
Net deferred tax asset (liability)		195,310			(1,048,359	)
Retained earnings (deficit)		(632,474	)		(730,792	)
Provision (benefit) for income taxes		(14,925	)		83,393
Net income		132,794			34,476

	As of September 30, 2004 and for the quarter then ended (unaudited)
	As Previously Reported			Restated
Goodwill	$	2,305,205		$	3,450,556
Net deferred tax asset (liability)		82,792			(1,243,208	)
Retained earnings (deficit)		(342,093	)		(522,742	)
Provision for income taxes		247,396			247,396
Net income		280,323			280,323

	As of June 30, 2004 and for the quarter then ended (unaudited)
	As Previously Reported			Restated
Goodwill	$	2,198,772		$	3,344,123
Net deferred tax asset (liability)		288,440			(1,037,560	)
Retained earnings (deficit)		(622,417	)		(803,066	)
Provision (benefit) for income taxes		(180,649	)		—
Net income (loss)		59,413			(121,336	)

Business Organization

The Company is a technology services company and its products are geared towards both the users of business-computing hardware (desktops, laptops, related peripherals and servers) as well as the users of enterprise-class hardware (mainframes, midrange processors, large storage, controllers, etc.). The Company offers data destruction, regulatory compliance services and remarketing services for IT asset management.

F-7

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company purchases its products from a variety of sources, including Fortune 1000 companies, as well as leasing and finance companies, and re-sells a wide range of used and refurbished products, including mainframe processors and associated tape and disk products, connectivity products, midrange processors, laptop and desktop computers, monitors, processors, CD/DVD disk drives, modems, printers and memory. Only mainframe and associated peripherals that are manufactured by IBM are remarketed. The majority of the PC computers the Company sells are brand name Intel Pentium-class or equivalent products manufactured by IBM, Dell, Compaq, Apple, Sony, Fujitsu, Hewlett-Packard, Gateway, Toshiba and other major manufacturers.

On May 28, 2004, the Company purchased QualTech International Corporation and QualTech Services Group, Inc. QualTech International Corporation sells refurbished IBM mainframes and associated IBM peripherals to companies around the world. QualTech Services Group, Inc. provides hardware maintenance solutions and information systems consulting services to businesses in the United States.

The Company has office and warehouse space in Hightstown, New Jersey, and Eagan, Minnesota, and satellite sales and business development offices in California, Colorado, Connecticut, Illinois, New York, Texas, Florida, Michigan and Wyoming.

Principles Of Consolidation

The financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-8

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

For product sales, the Company recognizes revenue at the time products are shipped and title is transferred, which is in accordance with the stated shipping terms. Revenue is recognized in accordance with these shipping terms so long as a purchase order, electronic, written or phone commitment has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable and collectibility is deemed probable. If uncertainties exist regarding customer acceptance or collectibility, revenue is recognized when those uncertainties have been resolved. The Company provides a limited warranty on some of its products. The Company analyzes its estimated warranty costs and provides an allowance as necessary, based on experience. At December 31, 2004 and 2003, a warranty reserve was not considered necessary.

Asset management fees are recognized once the services have been performed and the results reported to the client. In those circumstances where the Company disposes of the client’s product, or purchases the product from the client for resale, revenue is recognized as a “product sale” described above.

Maintenance service revenue is recognized when the services are performed in accordance with the service agreement. Any prepaid service contracts are deferred and recognized over the term of the applicable agreements on a straight-line basis.

Cash And Cash Equivalents

The Company considers all liquid instruments purchased with maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable.

F-9

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

Inventories consist primarily of computer hardware, parts and related products, and are valued at the lower of average cost or market. Substantially all inventory items are finished goods. The Company closely monitors and analyzes inventory for potential obsolescence and slow-moving items on an item-by-item basis. Inventory items determined to be obsolete or slow moving are reduced to net realizable value. Inventory in-transit consists of items of inventory for which the Company has purchased and assumed the risk of loss, but which has not yet been received into stock at the Company’s facility.

Property And Equipment

Property and equipment is stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are charged against operations as incurred. Upon retirement or sale, any assets disposed are removed from the accounts and any resulting gain or loss is reflected in the results of operations.

Property, equipment, leasehold improvements, computer hardware and software are depreciated or amortized using the straight-line method over two to five-year periods. Capitalized values of property under leases are amortized over the life of the lease or the estimated life of the asset, whichever is less.

Impairment losses on long-lived assets, such as equipment and improvements, are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts.

Deposits

Deposits principally consist of the lease deposit for the Company’s New Jersey facility. This deposit is refundable at the expiration of the lease. Since the lease term extends beyond 12 months, the deposit is classified as a long-term asset in other assets on the balance sheet.

Advertising Costs

Advertising costs are expensed on the first date the advertisement takes place. Advertising expense amounted to $184,163 in 2004 and $14,784 in 2003.

F-10

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided against net deferred tax assets where the Company determines realization is not currently judged to be more likely than not.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed on the basis of the weighted average number of common share outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of all dilutive potential common shares that were outstanding during the period.

The following table presents the computation of basic and diluted net income (loss) per share:

	2004		2003
Net income (loss)	$	34,476	$	(149,209	)
Determination of basic and diluted shares:
Basic weighted average shares outstanding		24,659,853		15,661,593
Effect of dilutive securities:
Stock options		1,978,028		—
Warrants		1,306,300		—
Diluted weighted average shares outstanding		27,944,181		15,661,593
Net Income (Loss) Per Common Share - Basic	$	0.00	$	(0.01	)
Net Income (Loss) Per Common Share - Diluted	$	0.00	$	(0.01	)

In 2003, the Company excluded 420,869 weighted average common share equivalents related to stock options and 106,775 weighted average common share equivalents related to stock warrants because their effect would have been anti-dilutive.

F-11

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the relatively short maturity of these instruments. The carrying value of the notes payable and capital lease obligations, including the current portion, approximate fair value based on the incremental borrowing rates currently available to the Company for financing with similar terms and maturities.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation cost is recognized over the vesting period based on the difference, if any, on the date of grant between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock.

Had compensation cost for these plans been determined based on the fair value at the grant dates for awards under these plans, consistent with the alternative method set forth under SFAS No. 123, the Company’s expenses for the years ended December 31, 2004 and 2003 would have increased. The pro forma amounts are indicated below:

	2004			2003
Net income (loss), as reported	$	34,476		$	(149,209	)
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects		176,696			—
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects		(6,567,287	)		(379,426	)
Proforma net loss	$	(6,356,115	)	$	(528,635	)
Earnings (loss) per share:
Basic - as reported	$	0.00		$	(0.01	)
Diluted - as reported	$	0.00		$	(0.01	)
Basic - Proforma	$	(0.26	)	$	(0.03	)
Diluted - Proforma	$	(0.26	)	$	(0.03	)

F-12

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average per share fair value of the options granted was $1.25 and $1.58 for the years ended December 31, 2004 and 2003, respectively. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2004			2003
Risk-free interest rates		3.69	%		3.15	%
Expected option lives		5 years			5 years
Expected volatilities		101	%		117	%
Expected dividend yields		—	%		—	%

Impact Of Recently Issued Accounting Standards

In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The Company adopted the provisions of SFAS No. 150 effective July 1, 2003, which had no impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company adopted this interpretation in 2003, which had no impact on the Company’s financial position or results of operations.

F-13

In December 2003, the FASB issued No. 46 (revised December 2003) (FIN 46R), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FIN No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in variable interest entities (VIEs) created after December 31, 2003. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The adoption of this standard had no impact on the Company’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires measurement of all employee stock-based compensation awards using a fair value method and the recording of such expense in the consolidated financial statements. In addition, the adoption of SFAS No. 123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. SFAS No. 123R is effective for the Company beginning January 1, 2006. The Company currently plans to adopt SFAS No. 123R using the modified prospective method. The Company is currently assessing the impact of the adoption of SFAS No. 123R to its results of operations, financial condition and compensation strategies.

2.          Inventories

	2004			2003
Finished goods	$	2,546,733		$	276,794
Inventory in transit		189,772			96,586
Allowance for excess and obsolescence		(15,000	)		(15,000	)
	$	2,721,505		$	358,380

F-14

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.         Property And Equipment

	2004			2003
Furniture and fixtures	$	89,786		$	15,759
Equipment		417,537			161,495
Leasehold improvements		31,859			7,427
Computer equipment and software		286,061			157,237
		825,243			341,918
Less: Accumulated depreciation		(272,683	)		(93,326	)
		552,560			248,592
Construction in progress		—			14,595
	$	552,560		$	263,187

At December 31, 2004 and 2003, equipment includes assets acquired under capital lease obligations in the amount of $32,135. Related accumulated depreciation amounted to $ 17,723 and $11,291 at December 31, 2004 and 2003, respectively. Amortization expense of these assets under capital leases is included in depreciation expense.

Depreciation and amortization charged against income for all property and equipment amounted to $179,357 and $71,771 for the years ended December 31, 2004 and 2003, respectively.

4.         Business Acquisitions

In May 2004, the Company completed the purchase of all of the outstanding shares of QualTech International Corporation and its affiliate, QualTech Services Group, Inc. QualTech International Corporation is a worldwide re-seller of refurbished IBM mainframes and associated IBM peripherals. QualTech Services Group, Inc. provides hardware maintenance solutions and information systems consulting services to businesses in the United States. The Company’s primary reasons for the acquisition of QualTech were to expand the Company’s product offerings to include mainframe hardware and mainframe hardware services, to acquire an existing Fortune 1000 customer base to allow the Company to market its current product offerings to these customers and to acquire a leader in its industry with talented personnel to enhance the Company’s expertise. The acquisition was accounted for using the purchase method of accounting, and the results of operations of the acquired companies are included from the effective acquisition date of May 1, 2004.

F-15

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The cost of the acquired entities of $6,600,000 included payments to QualTech’s shareholders of $6,500,000 of which $3,250,000 was in cash and $3,250,000 was in the Company’s common stock. The value of the Company’s stock was based on its average market value several days prior to the acquisition. Direct acquisition costs, consisting primarily of legal fees, were $100,000.

In addition to the initial purchase price described in the previous paragraph, additional contingent consideration is payable, based on QualTech meeting certain objectives. QualTech shareholders shall be entitled to receive 5.5 times the average income after taxes, for the two year period following the effective date of the merger, that exceeds $1,100,000. A minimum of 50% of this amount is to be paid in cash. The remainder is to be paid in Company stock or cash at the discretion of the Company. At the end of the first anniversary, if the net income is less than $1,100,000, then no additional consideration is due. Any amounts paid under this agreement will be considered additional purchase price.

The allocation of the aggregate purchase price was performed with the assistance of an independent valuation firm. The purchase price allocation identified $3,400,000 of intangible assets other than goodwill. The goodwill recognized amounted to $3,125,794. Goodwill recorded in connection with this acquisition will not be amortized to expense, but will be subject to periodic testing for impairment in accordance with SFAS No 142, Goodwill and Other Intangible Assets. None of this goodwill is expected to be deductible for tax purposes.

The fair value of the net assets of QualTech as of the date of acquisition is as follows:

Cash	$	345,281
Accounts receivable		1,293,708
Inventory		824,625
Fixed assets		262,617
Other assets		35,393
Intangible assets		3,400,000
Goodwill		3,125,794
Accounts payable		(603,480	)
Accrued expenses		(129,927	)
Short-term debt		(510,000	)
Deferred tax liability		(1,179,647	)
Other liabilities		(264,364	)
	$	6,600,000

F-16

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Proforma Results

The following unaudited proforma condensed consolidated financial information for the years ended December 31, 2004 and 2003, is presented to show the results of the Company to give effect to the acquisition of QualTech International Corporation and its affiliate, QualTech Services Group, Inc., as if it had occurred on January 1, 2003 and 2004. The proforma results include certain adjustments, including increased amortization related to intangible assets and are not necessarily indicative of what the results would have been had the transactions actually occurred on those dates.

	2004		2003
Net revenue	$	30,890,968	$	21,962,181
Net income (loss)		190,819		(94,465	)
Earnings (loss) per share - basic	$	0.01	$	—
Earnings (loss) per share - diluted	$	0.01	$	—
Weighted average shares - basic		24,602,246		23,619,424
Weighted average shares - diluted		32,464,038		23,619,424

5.         Goodwill and Other Intangible Assets

In accordance with the SFAS No. 142, the Company is required to assess goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performed an impairment test in the fourth quarter of 2004, and has determined that the carrying value of such assets were not impaired. At December 31, 2004, the balance of goodwill and intangible assets is as follows:

Goodwill	$	3,125,794
Intangible assets with indefinite lives		910,000
Intangibles with definite lives		2,278,896
	$	6,314,690

F-17

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangibles with indefinite lives relate principally to trade names. Intangibles with definite lives relate principally to the following:

			2004		Accumulated				Amortization Life
	Cost		Amortization		Amortization		Net		Life (years)
Customer Lists	$	1,640,000	$	121,472	$	121,472	$	1,518,528		9.0
Database		400,000		29,632		29,632		370,368		9.0
Employee
Noncompetes		450,000		60,000		60,000		390,000		5.0
Total	$	2,490,000	$	211,104	$	211,104	$	2,278,896

Amortization of intangibles is computed on a straight-line basis and based on December 31, 2004 balances, expected amortization expense in each of the next five years is approximately $317,000 per year.

6.         Other Assets

	2004		2003
Deposits	$	63,341	$	40,837
Trademark		3,010		—
Patent, net of amortization of $1,413 in 2004       and $202 in 2003		22,803		24,014
Other		689		—
	$	89,843	$	64,851

The patent is being amortized over a 20-year life. Patent amortization expense in 2004 amounted to $1,211 and in 2003 amounted to $202. Expected amortization expense in each of the next five years is approximately $1,211 per year.

F-18

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.         Financing Arrangements

Notes payable consist of the following:

	2004		2003
Notes payable, principal stockholders, secured by substantially all of the Company’s assets, with interest only payments at 12% payable monthly in arrears, with $100,000 and $255,000 in principal and accrued interest due and payable on January 31, 2005 and January 31, 2006, respectively.	$	355,000	$	500,000
Notes payable - stockholder, secured by substantially all of the Company’s assets, with interest only payments at prime plus 2% (7.25% at December 31, 2004) payable monthly in arrears, with $500,000 in principal and accrued interest due and payable on April 1, 2005.		500,000		—
Capital lease obligations		3,376		10,958
		858,376		510,958
Less: Current maturities		603,376		7,555
	$	255,000	$	503,403

On April 24, 2002, the Company entered into a secured loan agreement with its principal stockholders. This agreement, as amended, provides for each principal stockholder to loan the Company $110,000 (for an aggregate of $550,000). The loan agreement, as amended, provides, among other standard and customary terms, that when the Company arranges permanent long or short-term financing, the principal stockholder loans will be subordinate to such permanent financing, if required. At maturity, and at the election of the principal stockholders, the Company shall repay such loans in cash or in a combination of cash and shares of the Company’s common stock, with such common stock valued at the current “market value” determined by a professional valuation service.

The Company has also entered into a secured loan agreement with Barron Partners, LP, one of its principal stockholders. This agreement provides for a short-term loan to the Company in the amount of $500,000, due and payable on April 1, 2005. At December 31, 2004, all interest due under this note had been paid.

Both of these loans are collateralized by all of the Company’s assets.

F-19

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revolving Lines Of Credit

The Company has entered into revolving lines of credit with certain principal stockholders in the aggregate of $500,000. Advances under the lines are at the discretion of such principal stockholders, and are due on demand. At December 31, 2004 and 2003, $0 and $7,192, respectively, had been advanced.

The Company has two revolving line-of-credit agreements for its QualTech subsidiaries. The first loan provides for borrowings limited to the lesser of $750,000 or the borrowing base of 75% of eligible accounts receivable plus 25% of inventories, with eligible inventories not to exceed $1,200,000. Interest on this loan is payable monthly at the prime rate (5.25% at December 31, 2004), with all principal due April 30, 2005. Borrowings under this loan amounted to $452,500 at December 31, 2004.

The second loan provides for borrowings limited to the lesser of $1,500,000 or the borrowing base of 75% of eligible accounts receivable plus 25% of inventories, with eligible inventories not to exceed $1,200,000. Interest on this loan is payable at the prime rate plus one percent (6.25% at December 31, 2004), with all principal due April 30, 2005. Borrowings under this loan amounted to $703,000 at December 31, 2004.

Both of these loans are guaranteed by an officer of the Company and collateralized by QualTech’s assets. QualTech is also required to maintain a total liabilities to tangible net worth ratio not in excess of 2.5 to 1. QualTech was in compliance with this covenant at December 31, 2004.

8.         Stockholders’ Equity

Stock Option Grants

In October 2001, the Company granted 1,350,000 options to its shareholders and employees to acquire shares of its common stock at $0.026 per common share pursuant to individual option grants. The terms of the grants provided for immediate vesting, and the options may be exercised at any time for a period of ten years commencing October 1, 2001.

F-20

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2002, the Company’s stockholders approved the 2002 Flexible Stock Plan (the “2002 Plan”). Under the 2002 Plan, the number of shares which may be issued or sold, or for which options, stock appreciation rights (SAR’s) or performance shares may be granted to certain directors, officers and employees of the Company is 5,000,000, plus an annual increase, effective the first day of each calendar year commencing with 2003, equal to 10% of the number of shares outstanding as of the first day of such calendar year but in no event more than 30,000,000 shares in the aggregate.

A summary of stock option activity is as follows:

	2004						2003
				Weighted-					Weighted-
				Average					Average
				Exercise					Exercise
	Shares			Price			Shares		Price
Outstanding - Beginning of Period		5,525,000		$	0.999			2,560,000	$	0.026
Granted		2,600,000			1.684			2,965,000		1.839
Exercised		(500,000	)		(1.803	)		—		—
Forfeited		—			—			—		—
Outstanding on December 31		7,625,000		$	1.180			5,525,000	$	0.999
Exercisable on December 31		7,175,000		$	1.148			2,935,000	$	0.116

The following table summarizes information about the options outstanding at December 31, 2004:

							Exercisable Stock
	Outstanding Stock Options						Options
			Weighted-
			Average		Weighted-				Weighted-
Range Of			Remaining		Average				Average
Exercise			Contractual		Exercise				Exercise
Prices	Shares		Life		Price		Shares		Price
$ 0.026		2,775,000		7.0	$	0.026		2,775,000	$	0.026
$ 1.44 to $ 1.90		2,525,000		9.8	$	1.685		2,075,000	$	1.686
$2.00 to $2.13		2,325,000		9.7	$	2.008		2,325,000	$	2.008
		7,625,000						7,175,000

F-21

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company applies APB Opinion No. 25 and related interpretations in accounting for all grants.

As the result of a court decision in 2004, 1,100,000 fully vested options were required to be granted to an employee at an exercise price of $1.10 per share. The price was $0.25 below the market price of the stock at the date of grant and, accordingly, an expense was recorded in 2004 in the amount of $275,000.

Additionally, 400,000 options were issued to employees in 2004 at an exercise price of $1.66 per share. This was $0.19 below the market price of the stock at the date of grant and is being expensed on a straight-line basis over the three year vesting life of the options. An expense in the amount of $14,666 was recorded in 2004.

For the remainder of the options granted in 2004, the exercise price was equal to the fair market value at the date of grant, and, accordingly, no compensation cost has been recognized under these grants.

Warrants

In July 2003, the Company issued 400,000 warrants for investment banking services. These warrants have an exercise price of $0.50 per share, and are exercisable from the date of issuance through 36 months after the effective date of a registration statement registering the shares of common stock underlying the warrants. These warrants were valued at $60,000 and recorded as expense when issued.

In August 2003, the Company issued 20 Units at a price of $10,000 per Unit. Each Unit consists of (i) 10,000 shares of common stock, and warrants to purchase 10,000 shares of common stock, exercisable for a period of three years at an exercise price of $1.00 per share. These warrants were valued at $56,000, based on the relative fair value of the warrants as compared to the common stock issued.

In May 2004, the Company issued 6,000,000 warrants to a group of investors in connection with the sale of 6,000,000 shares of common stock. 3,000,000 of the warrants are exercisable for a period of five years at a price of $1.50 per share and 3,000,000 of the warrants are exercisable for a period of five years at a price of $3.60 per share. These warrants were valued at $1,521,261, based on the relative fair value of the warrants as compared to the common stock issued.

F-22

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2004, the Company issued 350,000 warrants with an exercise price of $2.00 to certain warrant holders in exchange for their exercise of 500,000 warrants for which the Company received $750,000. The fair value of the 350,000 new warrants plus the fair value of the 500,000 warrants with a decreased exercise period was less than the fair value of the 500,000 warrants before the modification. As such, no value was assigned to the new warrants.

A schedule of common stock warrant activity is as follows:

	Number Of			Weighted Average
	Shares			Exercise Price
Outstanding at December 31, 2002	—			—
Warrants granted		600,000		$	0.667
Outstanding at December 31, 2003		600,000			0.667
Warrants granted		6,350,000			2.520
Warrants exercised		(500,000	)		1.500
Outstanding at December 31, 2004		6,450,000		$	2.426

The following table summarizes information about the warrants outstanding at December 31, 2004:

	Outstanding Stock Warrants						Exercisable Warrants
			Weighted-
			Average		Weighted-				Weighted-
Range Of			Remaining		Average				Average
Exercise			Contractual		Exercise				Exercise
Prices	Number		Life		Price		Shares		Price
$ 0.50 - $ 1.00		600,000		1.58	$	0.667		600,000	$	0.667
$ 1.50 - $ 2.00		2,850,000		4.19	$	1.560		2,850,000	$	1.560
$3.60		3,000,000		4.38	$	3.600		3,000,000	$	3.600
		6,450,000						6,450,000

F-23

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.         Income Taxes

The provision for income taxes consists of the following:

	2004		2003
Current	$	45,658	$	1,900
Deferred		37,735		—
	$	83,393	$	1,900

The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:

	2004			2003
Deferred Tax Assets
Liabilities and reserves	$	68,254		$	14,528
Net operating loss carryforwards		228,273			331,387
Stock options		5,720			—
Inventory capitalization		29,250			—
Gross deferred tax assets		331,497			345,915
Valuation allowance		—			(180,648	)
		331,497			165,267
Deferred Tax Liabilities
Intangible assets		1,243,669			—
Property and equipment		93,576			28,881
Prepaid expenses		33,698			—
Patent and trademark		8,913			9,366
		1,379,856			38,247
Net Deferred Tax Asset (Liability)	$	(1,048,359	)	$	127,020

The current and long-term components of the deferred tax asset (liability) are as follows:

	2004			2003
Current deferred tax asset	$	67,511		$	14,528
Long-term deferred tax asset (liability)		(1,115,870	)		112,492
	$	(1,048,359	)	$	127,020

At December 31, 2004, the Company had aggregate net operating loss carryforwards of approximately $576,000 for income tax purposes that expire beginning in 2022.

F-24

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation of the effective tax rate with the statutory federal income tax rate is as follows:

	2004			2003
Statutory rate		34	%		34	%
State income taxes, net of federal benefits		29			5
Change in deferred tax asset valuation allowance		—			(36	)
Meals and entertainment		8			(3	)
Other		—			(1	)
		71	%		(1	)%

In 2004, the Company reversed the deferred tax asset valuation allowance. This was based on the Company’s determination that the deferred tax assets were more likely than not realizable in future periods, based on the Company’s projection of future taxable income related to its acquisition of QualTech. Because the reversal of the valuation allowance was a result of the acquisition of QualTech, the offsetting adjustment was recorded in the purchase price allocation of the QualTech acquisition.

10.       Concentrations

Major Customers

For the years ended December 31, 2004 and 2003, sales to the Company’s top ten customers (including sales to a related party - see Note 12) comprised 39% and 51% of revenue, respectively. These customers also comprised 60% and 67% of the combined accounts receivable and accounts receivable - related party at December 31, 2004 and 2003, respectively.

Purchases

The Company purchases a majority of its products from a small number of suppliers. Approximately 20% and 30% of product purchases were from two vendors for the years ended December 31, 2004 and 2003, respectively.

F-25

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.       Benefit Plan

The Company has a 401(k) defined contribution benefit plan for all eligible employees. The Company contributes 3% of eligible employees’ salaries to the plan. The Company contributed $47,397 and $28,347 to the plan during the years ended December 31, 2004, and 2003, respectively.

12.       Commitments And Contingencies

Lease

The Company has an operating lease on New Jersey real property expiring in the year 2006. In addition to fixed rentals, the real property lease requires the Company to pay all maintenance, real estate taxes and insurance.

The Company has an operating lease on New Hampshire real property expiring in the year 2006.

The Company has an operating lease on Minnesota real property expiring in the year 2009. In addition to fixed rentals, the real property lease requires the Company to pay its pro-rata share of all maintenance, real estate taxes, and insurance.

Rent expense and other charges totaled $305,792 and $192,305 for the years ended December 31, 2004 and 2003, respectively.

The approximate minimum payments required under these operating leases at December 31, 2004 are:

Year	Amount
2005	$	398,000
2006		380,000
2007		217,000
2008		178,000
2009		148,000
	$	1,321,000

F-26

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Environmental

The Company recycles used equipment that may contain hazardous materials. The Company contracts with a licensed waste management company for the purpose of recycling or destruction of these materials in accordance with all applicable environmental standards. Therefore, management believes it is not necessary to record a liability for environmental contingencies in the accompanying financial statements.

Legal Proceedings

The Company is party to legal proceedings arising in the ordinary course of business. In the opinion of management, these proceedings are not likely to have a material adverse affect on the financial position, results of operations or cash flows of the Company. The estimate of potential impact on the Company could change in the future.

13.       Related Party Transactions

In 2004 and 2003, the Company had sales to two customers related to two stockholders and officers of the Company. Sales to such customers for the years ended December 31, 2004 and 2003 amounted to approximately $1,123,000 and $958,000, respectively. Accounts receivable from these customers amounted to $119,046 and $37,173 at December 31, 2004 and 2003, respectively.

14.       Supplemental Cash Flow Information

During 2004, the Company issued 123,422 shares of its common stock to settle an accounts payable balance with a vendor for $209,200. During 2004, the Company issued 1,957,831 shares of its common stock valued at $3,250,000 as partial payment for the acquisition of QualTech. During 2003, the Company issued shares of its common stock to settle an accounts payable balance with a vendor for $59,500.

F-27

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.       Segment Information

As a result of the acquisition of Qualtech International, Inc. and its affiliate, Qualtech Services Group, Inc., the company began operating in three business segments: Data Security & Compliance, Data Center Hardware, and Data Center Maintenance. The overall concept that Windsortech, Inc. employs in determining its operating segments is to present the results in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products and services offered and the target market.

Data Security And Compliance Segment

This segment provides data security and regulatory compliance services for end-of-life business-computing IT assets. The Company offers a variety of services to help companies with these assets to ensure compliance with federal and state mandates regulating the disposal of such assets. In addition, this segment re-sells a wide range of used and refurbished computer products, including servers, laptop and desktop computers, monitors, PC processors, CD/DVD disk drives, modems, printers and memory.

Data Center Hardware Segment

This segment remarkets refurbished mainframe processors, midrange processors and associated peripherals including tape and disk products and connectivity products. The Company is one of the leading resellers of refurbished enterprise-class hardware and associated peripheral products to companies around the world.

Data Center Maintenance

This segment provides hardware maintenance services on enterprise-class hardware and associated peripheral products to companies in the United States.

F-28

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies, except that intersegment sales and transfers are generally accounted for as if the sales or transfers were to third parties at current market prices. These amounts have been eliminated in consolidation.

	2004			2003
Revenues
Data Security and Compliance	$	10,388,674		$	7,484,472
Data Center Hardware		11,155,459			—
Data Center Maintenance		1,219,646			—
Intersegment Elimination		(683,983	)		—
Consolidated Total	$	22,079,796		$	7,484,472

Product Revenue
Data Security and Compliance	$	9,450,188	$	7,454,235
Data Center Hardware		11,155,459		—
Data Center Maintenance		—		—
Consolidated Total	$	20,605,647	$	7,454,235

Service Revenue
Data Security and Compliance	$	254,503	$	30,237
Data Center Hardware		—		—
Data Center Maintenance		1,219,646		—
Consolidated Total	$	1,474,149	$	30,237

Income (Loss) Before Provision (Benefit) for Income Taxes
Data Security and Compliance	$	(983,059	)	$	(147,309	)
Data Center Hardware		1,067,296			—
Data Center Maintenance		33,632			—
Consolidated Total	$	117,869		$	(147,309	)

F-29

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	2004		2003
Depreciation And Amortization
Data Security and Compliance	$	113,519	$	71,973
Data Center Hardware		240,351		—
Data Center Maintenance		37,802		—
Consolidated Total	$	391,672	$	71,973

Interest Expense, Net
Data Security and Compliance	$	67,172	$	79,656
Data Center Hardware		16,135		—
Data Center Maintenance		—		—
Consolidated Total	$	83,307	$	79,656

Segment Assets
Data Security and Compliance	$	4,428,937	$	1,390,998
Data Center Hardware		9,090,494		—
Data Center Maintenance		968,934		—
Consolidated Total	$	14,488,365	$	1,390,998

Goodwill
Data Security and Compliance	$	—	$	—
Data Center Hardware		2,877,544		—
Data Center Maintenance		248,250		—
Consolidated Total	$	3,125,794	$	—

Expenditures For Property And Equipment
Data Security and Compliance	$	93,129	$	88,142
Data Center Hardware		9,938		—
Data Center Maintenance		103,044		—
Consolidated Total	$	206,111	$	88,142

F-30

WINDSORTECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company Data By Geographic Segment

The Company operates solely in the United States and has no assets in foreign countries. All of the Company’s purchases and sales are denominated in US dollars. The Company has not recorded any foreign currency transaction gains or losses in 2004 or 2003.

For the years ended December 31, 2004 and 2003, export sales comprised 18% and 30% of revenue, respectively.

Revenue by Geographic Segment comprised:

	2004		2003
United States	$	18,094,977	$	5,198,400
Asia		983,921		817,707
Europe		382,866		349,715
Africa		604,686		703,073
United Kingdom		1,333,544		155,834
Canada		506,262		223,458
Australia		63,150		24,500
South America		110,390		11,785
	$	22,079,796	$	7,484,472

F-31