GTSI warns about impact of suspension

By Steven Overly
Capital Business Staff Writer
Monday, October 4, 2010; 8:43 PM

GTSI said its temporary suspension from new government contracts and the potential for further penalties "could have a material adverse effect on GTSI's going concern status, financial condition and results of operations" in a statement released Monday night.

The full impact of the suspension remains to be seen, but the company said possible sanctions could include "administrative, civil or criminal liabilities -- including repayments fines or penalties being imposed on GTSI -- or GTSI's disbarment from future U.S. government contracting."

The company pledged to work with the U.S. Small Business Administration to address the concerns outlined in Friday's notice of suspension, but did not say whether it would formally contest the decision.

GTSI asserts that the SBA did not contact company officials prior to the suspension notice and the company has 30 days to contest the agency's decision. However, doing so could further extend the suspension while an investigation is pending.

Meanwhile, EyakTechnology of Dulles, or EyakTek as the company is known, has withdrawn its offer to acquire GTSI. A spokesman said any future bids will depend on the impact of the suspension.

GTSI stock tumbled 40 percent, or $2.90, Monday to close at $4.35 per share.

EyakTek had offered to buy GTSI for as much as $7.50 a share before rescinding the offer. GTSI had repeatedly rebuffed EyakTek's unsolicited offers, deeming them too low. GTSI owns 37 percent of EyakTek, a provider of infrastructure, security and information technology systems to the government.

The decision to temporarily suspend GTSI from new federal work came after the company's relationship with smaller contractors became the focus of an internal SBA examination and the subject of a report by The Washington Post.

In Friday's notice of suspension, the SBA accused GTSI of inappropriately using other firms to gain access to contracts allotted for small businesses. The Post report said GTSI had teamed up with an Alaska native corporation called Eyak Corp. to form EyakTek and pursue government work. Under federal law, Alaska native corporations are eligible for certain contracts without competition.

In an open letter Friday, GTSI chief executive Scott W. Friedlander pledged to fight the allegations and "restore our good name." He added: "Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter."

Eyak Corp., based in Cordova, Alaska, issued a response Monday to the Post's report. "We embrace a solemn responsibility to protect the interests of our shareholders, chief executive Rod Worl said in a statement. "We are proud to have observed both the letter and the spirit of the legal requirements of all of the government programs, specific contracts, and relevant legislation pertaining to our business."

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