In a surprise move (Surprising to me, GTSI management, and the closely linked EyakTek which was making an offer to purchase GTSI), the US Government Small Business Administration has suspended GTSI from any future contract awards. Since GTSI derives 90%+ of its revenue from government contracts, this is a major blow that has led to EyakTek withdrawing its offer.
Lesson I’ve learned: Don’t reach for a small marginal return after a major run-up. I should have taken my money off the table when EyakTek’s offer came through. I knew the revenue concentration was an issue (Obviously it is better to have a diversified revenue stream so that events like this would have only a marginal impact), but given GTSI’s long operating history and stellar track record, I had discarded the possibility of impropriety (which has yet to be proven). When the offer came through, I felt this validated the company (especially since the offer came from a closely related company that would have a great understanding of GTSI’s operations), and so I focused solely on the offering price relative to my calculated intrinsic value. This was a mistake. Now I’ll have to wait to see how this SBA ban plays out.
On October 1, 2010 at 4:14PM, GTSI received a notice from the Small Business Administration (SBA) indicating that it was suspending GTSI from any future contract awards from the federal government. 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.
Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter.
We appreciate your support during this time and look forward to providing you with a report on our activities as the situation warrants. Please be assured that we will fight to restore our good name.
President and Chief Executive Officer
Source: GTSI Investor Relations