GSE SYSTEMS INC - FORM 8-K/A - EX-99.2

Attached files

file	filename
8-K/A - FORM 8-K/A ENVISION FINANCIALS - GSE SYSTEMS INC	form8-ka.htm
EX-23.1 - CONSENT - GSE SYSTEMS INC	exh23-1consent.htm
EX-99.1 - FINANCIAL STATEMENTS - GSE SYSTEMS INC	exh99-1financiastatements.htm

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On January 4, 2011 (the “Closing Date”), GSE Systems, Inc. (“GSE” or the “Company”), completed the acquisition of all outstanding common stock of EnVision Systems, Inc. (“EnVision”). At closing, GSE paid $1.2 million in cash to the shareholders of EnVision. In addition, if Envision attains certain revenue targets for the four year period ending December 31, 2014, the shareholders of EnVision could receive up to an additional $3.05 million payable over four years.

The following unaudited pro forma condensed consolidated financial statements have been derived by the application of pro forma adjustments to our historical consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 is presented as if the acquisition had occurred on December 31, 2010. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2010 for GSE and EnVision, respectively, is presented as if the acquisition had occurred on January 1, 2010. The unaudited pro forma condensed consolidated financial statements do not purport to represent what our results of operations or financial position would have been as if the transaction had occurred on the dates indicated and are not intended to project our results of operations or financial position for any future period or date.

The unaudited pro forma adjustments are based on estimates, available information and certain assumptions that we believe are reasonable. The company has assumed that current value equals fair value for all assets and liabilities acquired in the acquisition of EnVision. The pro forma adjustments and primary assumptions are described in the accompanying notes. The unaudited pro forma condensed consolidated financial statements and the related notes should be read in conjunction with the historical consolidated financial statements and the related notes of EnVision included in Exhibit 99.1 of this Current Report on Form 8-K/A and the historical financial statements and accompanying notes of GSE included in our Form 10-K for the year ended December 31, 2010.

GSE SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Proforma Condensed Consolidated Balance Sheet
As of December 31, 2010
(in thousands, except share data)
Assets	Historical GSE			Historical Envision			Pro Forma Adjustments				Pro Forma
Current assets:
Cash and cash equivalents	$	26,577		$	553		$	(1,200	)	(a)	$	25,930
Restricted cash		179			—			—				179
Contract receivables, net		17,201			1,195			—				18,396
Prepaid expenses and other current assets		1,992			69			—				2,061
Total current assets		45,949			1,817			(1,200	)			46,566
Equipment and leasehold improvements		4,727			189			—				4,916
Accumulated depreciation		(3,667	)		(167	)		—				(3,834	)
Property, plant, and equipment, net		1,060			22			—				1,082

Software development costs, net		1,790			—			—				1,790
Goodwill		2,609			—			1,964		(b)		4,573
Intangible assets, net		637			—			1,529		(c)		2,166
Long-term restricted Cash		794			—			—				794
Other assets		775			—			321		(k)		1,096
Total assets	$	53,614		$	1,839		$	2,293			$	58,067
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,945		$	—		$	—			$	4,945
Accrued expenses		1,753			107			—				1,860
Accrued compensation and payroll taxes		2,053			—			—				2,053
Billings in excess of revenue earned		4,268			116			—				4,384
Accrued warranty		1,680			—			—				1,680
Deferred tax liability – current		35			92			105		(d)		232
Other current liabilities		1,175			18			733		(e)		1,926
Total current liabilities		15,909			333			838				17,080
Other liabilities		427			321			2,130		(e)		2,557
Deferred tax liability – long term		372			325			506		(d)		1,203
Total liabilities		16,708			979			3,474				21,161
Commitments and contingencies		—			—			—				—
Stockholders’ equity:
Total shareholders’ equity		36,906			860			(860	)	(f)		36,906
Total liabilities and stockholders’ equity	$	53,614		$	1,839		$	2,293			$	58,067
See accompanying notes to unaudited proforma condensed consolidated financial statements.

GSE SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Proforma Condensed Consolidated Statement of Operations
Years ended December 31, 2010
(in thousands, except share data)
	Historical GSE Year Ended 12/31/2010			Historical EnVision Year Ended 12/31/2010		Pro Forma Adjustments				Pro Forma
Contract revenue	$	47,213		$	3,234	$	—			$	50,447
Cost of revenue		36,081			1,488		(1,170	)	(i)		36,399
Gross profit		11,132			1,746		1,170				14,048
Operating expenses:
Selling, general, and administrative		11,683			1,287		353		(g)		13,323
Depreciation		579			5		—				584
Amortization of definite-lived intangible assets		102			—		267		(h)		369
Total operating expenses		12,364			1,292		620				14,276
Operating income (loss)		(1,232	)		454		550				(228	)
Interest income, net		19			14		—				33
(Loss) on derivative instruments		(913	)		—		—				(913	)
Other income (expense), net		83			—		—				83
Income (loss) before income taxes		(2,043	)		468		550				(1,025	)
Provision (benefit) for income taxes		206			179		(172	)	(j)		213
Net income (loss)		(2,249	)		289		722				(1,238	)
Net (income) loss attributable to the noncontrolling interest		—			73		—				73
Net income (loss) attributable to GSE	$	(2,249	)	$	362	$	722			$	(1,165	)
Basic loss per common share	$	(0.12	)							$	(0.06	)
Diluted loss per common share	$	(0.12	)							$	(0.06	)
Weighted average number of common shares outstanding
Basic		18,975									18,975
Diluted		18,975									18,975
See accompanying notes to unaudited proforma condensed consolidated financial statements.

NOTES TO UNAUDITED PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Adjustments to the unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 and consolidated statements of operations for the year ended December 31, 2010 for GSE and EnVision, respectively; are presented below:

(a)	Adjustment to reflect the cash payment of $1.2 million to the former EnVision shareholders as part of the acquisition.

(b)	Adjustment to record $1.97 million of goodwill resulting from the acquisition.

(c)

Adjustment to record $1.53 million of other intangible assets resulting from the acquisition. The intangible assets include; (i) contractual customer relationships of $469,000, (ii) non-contractual customer relationships of $540,000, (iii) developed technology of $252,000, (iv) in-process research and development of $246,000, along with (v) website and domain name of $22,000. These intangible assets are amortized over their respective useful lives, ranging from 3 to 10 years.

(d)	Adjustment to record the $611,000 deferred tax liability resulting from the other intangible assets related to the acquisition.

(e)

Adjustment to record the remaining payments of $2.86 million due to the EnVision shareholders resulting from the acquisition. The discounted value of EnVision shareholder's earn out payment, is $2.13 million payable over a four year period. An additional $733,000 is payable to the EnVision shareholders due to the working-capital true up provisions of the agreement.

(f)	Adjustment to eliminate stockholders’ equity from EnVision’s historical balance sheet.

(g)	Adjustment reflects accretion expense of $353,000 for the twelve months ended December 31, 2010, attributable to the contingent consideration due to the EnVision shareholders as a result of the acquisition.

(h)	Adjustment reflects amortization expense of $267,000 for the twelve months ended December 31, 2010, attributable to amortizable intangibles acquired as a result of the acquisition.

(i)	Adjustment reflects the removal of excess management compensation. For the twelve months ended December 31, 2010, EnVision distributed excess compensation of $560,000 and $540,000 to its two directors. An additional reduction of $70,000 reflects the reduction of salary expense attributable to EnVision’s two directors. For the twelve months ended December 31, 2010, EnVision paid salaries of $270,000. Per their GSE employment agreements their total salaries would be reduced to $200,000.

(j)	Adjustment reflects the tax impact on the consolidated operations of GSE Systems, Inc.
(k)	Adjustment reflects the EnVision shareholder's indemnification to GSE Systems, Inc. for uncertain tax positions as identified in the purchase agreement.

GSE SYSTEMS INC - FORM 8-K/A - EX-99.2 - March 21, 2011

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GSE SYSTEMS INC Reports