EX-99.2 4 exh99-2pro_forma.htm EXHIBIT 99.2 PRO FORMA exh99-2pro_forma.htm

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
On April 26, 2010 (the “Closing Date”), GSE Systems, Inc. (“GSE” or the “Company”), through its wholly owned subsidiary GSE Systems, Ltd., completed the acquisition of all outstanding common stock of TAS Holdings Ltd. (“TAS”).  The purchase price for the common stock of TAS is equal to (i) the Consolidated Net Asset Value of TAS as of March 31, 2010, approximately $592,000, and (ii) four times the adjusted consolidated pre-tax income of TAS for the year ended September 30, 2009, approximately $1.7 million, for a total of approximately $2.3 million.
 
    On the Closing Date, TAS entered into a sale and leaseback agreement with the former TAS Shareholders.   Under the terms of the agreement, the former TAS Shareholders purchased the building occupied by TAS for approximately $370,000 in cash, which was paid on the Closing Date, and TAS entered into a five-year lease for approximately $31,000 per year, payable in equal monthly installments.  TAS may terminate the lease after April 26, 2013 upon six months’ written notice.
  
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.  At the time of the acquisition, GSE and TAS had different fiscal year ends.  The unaudited pro forma condensed consolidated balance sheet as of March 31, 2010 is presented as if the acquisition had occurred on March 31, 2010. The unaudited pro forma condensed consolidated income statements for the year ended December 31, 2009 and the twelve months ended September 30, 2009 for GSE and TAS, respectively, and the three months ended March 31, 2010 and December 31, 2009 for GSE and TAS, respectively, is presented as if the acquisition had occurred on January 1, 2009.   The historical unaudited financial information for TAS has been adjusted to reflect certain reclassifications to conform to the Company’s financial statement presentation.  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.
 
All historical TAS financial data included in the pro forma condensed consolidated financial statements are presented in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). We believe there to be no significant differences between the IFRS financial data presented and accounting principles generally accepted in the United States.  For purposes of the following unaudited pro forma condensed consolidated financial statements, the TAS balance sheet as of March 31, 2010 has been converted at an exchange rate of $1.51/£1, the TAS income statement for the twelve months ended September 30, 2009 has been converted at an average exchange rate of $1.54/£1 and the TAS income statement for the three months ended December 31, 2009 has been converted at an average exchange rate of $1.56/£1.
 
The unaudited pro forma adjustments are based on estimates, available information and certain assumptions that we believe are reasonable. 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 TAS 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 Forms 10-K and 10-Q for the year ended December 31, 2009 and the three months ended March 31, 2010, respectively.
 

 
 
 

GSE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2010
 (in thousands, except share data)
                           
                           
               
Pro Forma
      
   
Historical GSE
    
Historical TAS
    
Adjustments
  
Pro Forma
  
                           
ASSETS
                          
Current assets:
                          
Cash and cash equivalents
   $ 24,222     $ 166       (492 )
(a)
   $ 24,266  
                      370  
(b)
        
Restricted cash
     937       -                 937  
Contract receivables, net
     18,018       423                 18,441  
Prepaid expenses and other current assets
     1,512       124                 1,636  
Total current assets
     44,689       713                 45,280  
                                   
Equipment and leasehold improvements, net
     949       435       (370 )
(b)
     1,014  
Software development costs, net
     1,934       -                 1,934  
Goodwill
     1,739       -       1,022  
(c)
     2,761  
Other intangible assets, net
     -       -       722  
(c)
     722  
Long-term restricted cash
     455       -                 455  
Other assets
     588       -                 588  
Total assets
   $ 50,354     $ 1,148               $ 52,754  
                                   
LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
Current liabilities:
                                  
Accounts payable
   $ 6,155     $ 394               $ 6,549  
Accrued expenses
     952       214                 1,166  
Accrued compensation and payroll taxes
     1,637       11                 1,648  
Billings in excess of revenue earned
     2,311       -                 2,311  
Accrued warranty
     1,260       -                 1,260  
Other current liabilities
     99       -                 99  
Total current liabilities
     12,414       619                 13,033  
                                   
Other liabilities
     159       -       1,105  
(d)
     1,264  
Total liabilities
     12,573       619                 14,297  
                                   
                                   
Total stockholders' equity
     37,781       529       (529 )
(e)
     38,457  
                      676  
(f)
        
Total liabilities and stockholders' equity
   $ 50,354     $ 1,148               $ 52,754  
                                   
See accompanying notes to unaudited proforma condensed consolidated financial statements.
                                   

 
 
 
 

 
GSE SYSTEMS, INC. AND SUBSIDIARIES
  
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
(in thousands, except per share data)
  
                           
   
Historical GSE
    
Historical TAS
                
   
Year Ended
    
12 Months Ended
    
Pro Forma
      
   
12/31/2009
    
9/30/2009
    
Adjustments
  
Pro Forma
  
                           
Contract revenue
   $ 40,060     $ 3,707             $ 43,767  
Cost of revenue
     29,736       2,466               32,202  
Gross profit
     10,324       1,241               11,565  
                                 
Operating expenses
                                
Selling, general and administrative
     7,749       833       31  
(i)
     8,613  
ESA related charges
     1,508       -                 1,508  
Depreciation and amoritization
     504       77       149  
(g)
     730  
                                   
Total operating expenses
     9,761       910                 10,851  
                                   
Operating income
    563       331                 714  
                                   
Interest income (expense), net
     56       (31 )     31  
(h)
     56  
ESA related charges
     (865 )     -                 (865 )
Gain on derivative instruments
     763       -                 763  
Other expense, net
     (397 )     -                 (397 )
                                   
Income before income taxes
     120       300                 271  
                                   
Provision for income taxes
     917       59       (26 )
(j)
     950  
                                   
Net income (loss)
  $ (797 )   $ 242               $ (679 )
                                   
Basic loss per common share
   $ (0.05 )                     $ (0.04 )
Diluted loss per common share
   $ (0.05 )                     $ (0.04 )
                                   
Weighted average number of common
                                  
shares outstanding:
                                 
  Basic     16,938               123  
(f)
     17,061  
  Diluted
     16,938               123  
(f)
     17,061  
                                   
See accompanying notes to unaudited proforma condensed consolidated financial statements.
  



 
 
 

GSE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                           
           
Historical GSE
  
Historical TAS
          
           
3 Months Ended
3 Months Ended
  
Pro Forma
    
           
3/31/2010
  
12/31/2009
  
Adjustments
  
Pro Forma
                           
 
Contract revenue
  
 $          11,208
  
 $                 860
        
 $   12,068
 
Cost of revenue
  
               8,063
  
                    565
        
       8,628
 
Gross profit
  
               3,145
  
                    295
        
       3,440
                           
 
Operating expenses:
                  
   
Selling, general and administrative
  
               2,561
  
                    209
  
          8
 (i)
  
       2,778
   
Depreciation
  
                 131
  
                      24
  
         25
 (g)
  
          180
                           
 
Total operating expenses
  
               2,692
  
                    233
        
       2,958
                           
 
Operating income
  
                 453
  
                      62
        
          515
                           
 
Interest expense, net
  
                   (2)
  
                      (8)
  
          8
 (h)
  
            (2)
 
Loss on derivative instruments
  
                (304)
  
                        -
        
        (304)
 
Other expense, net
  
                   19
  
                        -
        
           19
 
Income before income taxes
  
                 166
  
                      54
        
          228
                           
 
Provision (benefit) for income taxes
  
                (283)
  
                      12
  
       (11)
 (k)
  
        (282)
                     
 
Net income
  
 $              449
  
     $                   42
        
 $       510
                           
                           
 
Basic income per common share
  
 $             0.02
  
 $                   -
        
 $      0.03
                           
 
Diluted income per common share
  
 $             0.02
  
 $                   -
        
 $      0.03
                         
            -
 
Weighted average number of common
                  
   
shares outstanding:
                  
   
Basic
    
18,932
      
123
(f)
  
19,055
   
Diluted
  
19,538
      
123
(f)
  
19,661
                           
                           
                           
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 March 31, 2010 and income statements for the year ended December 31, 2009 and the twelve months ended September 30, 2009 for GSE and TAS, respectively, and the three months ended March 31, 2010 and December 31, 2009, for GSE and TAS, respectively, are presented below:
 
(a)  
Adjustment to reflect the cash payment of $492,000 to the former TAS shareholders as part of the acquisition.
 
(b)  
Adjustment to reflect the former TAS shareholder’s purchase of the TAS office building for $370,000 in connection with the sale leaseback transaction as part of the acquisition.
 
(c)  
Adjustment to record $1.0 million of goodwill and $722,000 of other intangible assets resulting from the acquisition.
 
(d)  
Adjustment to record the remaining payments of $1.1 million due to the TAS shareholders resulting from the acquisition.
 
(e)  
Adjustment to eliminate stockholders’ equity from TAS’s historical balance sheet.
 
(f)  
Adjustment to reflect the issuance of approximately 123,000 shares of GSE’s common stock valued at $676,000 in connection with the acquisition.
 
(g)  
Adjustment reflects amortization expense of $149,000 and $25,000 for the twelve months ended September 30, 2009 and the three months ended December 31, 2009, respectively, attributable to amortizable intangibles acquired as a result of the acquisition.
 
(h)  
Adjustment reflects the elimination of mortgage interest expense of $31,000 and $8,000 for the TAS office building for the twelve months ended September 30, 2009  and three months ended December 31, 2009, respectively.
 
(i)  
Adjustment reflects the yearly rent expense of $31,000 and $8,000 for the twelve months ended September 30, 2009 and three months ended December 31, 2009, respectively, in connection with the sale leaseback transaction of the TAS office building as part of the acquisition.
 
(j)  
Adjustment to reflect the effect on the tax provision for the consolidation of GSE Systems Ltd. for the year ended December 31, 2009 and TAS for the twelve months ended September 30, 2009.
 
(k)  
Adjustment to reflect the effect on the tax provision for the consolidation of GSE Systems Ltd. for the three months ended March 31, 2010 and TAS for the three months ended December 31, 2009.