GTSI's Struggles Lead Ernst & Young to Doubt Firm's Ability to Survive

GTSI Corp., a Chantilly firm struggling to change from a computer hardware reseller to a consulting services company, reported a nearly 18 percent drop in yearly revenue and a net loss of $16 million.

In financial results for 2005 that had been delayed, the company also disclosed that its independent accounting firm, Ernst & Young LLP, had informed executives that there was "substantial doubt" that GTSI could continue as a going concern. GTSI had $22,000 in cash at the end of 2005, down from $397,000 last year.

GTSI has moved toward a new business model of selling technology and consulting services to the government, rather than just reselling it hardware. The reselling business has largely dried up because many large hardware makers now sell directly to the government.

But moving on hasn't been easy. GTSI has gone through two rounds of layoffs. A number of senior executives have left. In March, the company's stock sank 10 percent after it received a default letter from one of its lenders.

"Clearly, this has been a difficult period for GTSI, its employees, customers, and partners," said Jim Leto, who replaced longtime chief executive Dendy Young earlier this year.

Leto sought to insure investors yesterday that his company did indeed have a future. GTSI has received a commitment letter from an undisclosed lender for $125 million in revolving credit, enough to meet working capital requirements and long-term borrowing needs, the firm said.

"I am impressed with the quality of the GTSI team, and I admire their dedication and determination to help our company succeed," Leto said in a statement. "My first task when I came into the executive suite was to address our longer term financing needs, and the commitment letter we executed is a significant step."

GTSI recorded a fourth-quarter loss of $5.6 million (61 cents) on $279.2 million in revenue, compared with a profit of $2.7 million (31 cents) on $328 million in revenue in the corresponding 2004 period.

For the year, GTSI lost $16 million ($1.74) on $886.3 million of revenue, compared with a $10.3 million profit ($1.09) on $1 billion in revenue during 2004.

Shares of GTSI closed yesterday at $5.98, down nearly 8 percent.