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GTSI Confirms SBA Suspension; Shares Off

Updated from 9:03 PM ET to include GTSI statement.

NEW YORK ( TheStreet) -- Shares of GTSI Corp. (GTSI) fell on light volume in extended trading on Friday after the contractor was suspended from receiving new work by the Small Business Administration.

The suspension was first reported by the Washington Post which said the SBA was alleging GTSI had used other companies to gain access to contracts reserved for smaller entities.

Officials for the Small Business Adminstration weren't immediately available but GTSI issued its own press release late Friday, the majority of which was presented as an open letter to the company's "employees, customers, partners and investors" from president and CEO Scott Friedlander.

"The SBA sent out the Letter of Suspension notification late Friday afternoon by facsimile and the SBA took this action without prior discussion or notice to GTSI," the letter said. "Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter."

Friedlander added that GTSI would disclose further information about what it was doing "as the situation warrants" and said the company "would fight to restore its good name."

The stock was last quoted on at $5.98, down 17.5% from its close at $7.25 in Friday's regular session. Volume, however, was less than 10,000. The trailing three-month daily average churn in the shares is around 32,000. Year-to-date, GTSI shares were up more than 40% based on the regular session's finish.

GTSI is currently involved in a hostile takeover situation, resisting overtures from Eyak Technology LLC, an Alaska-based contractor that is 37%-owned by GTSI. The most recent offer from Eyak on Thursday is to acquire GTSI shares at $7.50 in cash, Eyak said. GTSI has yet to respond to that offer. It rejected Eyak's prior $7 per share proposal on Sept. 13, saying its board found the offer "grossly inadequate and not in the best interest of the shareholders of GTSI."

As the Washington Post article says, a suspension from getting government contracts would be devastating for GTSI, as the Herndon, Va.-based company gets the majority of its revenue from such projects. The company provides information technology products and services.

In the second quarter ended June 30, GTSI attributed its decline in revenue in the most recent quarter to $135 million from $164.6 million in the same period a year earlier to "an overall decrease in hardware and software revenue due to various government agencies spending trends."

The company reported a loss of $1.2 million, or 13 cents a share, for the June quarter, wider than its year-ago loss of $300,000, or 3 cents a share.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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