3. Acquisitions

Hyperspring, LLC

On November 14, 2014, (the "Closing Date") the Company, through its operating subsidiary, GSE Power Systems, Inc. ("GSE Power"), acquired Hyperspring, LLC ("Hyperspring") pursuant to a Membership Interests Purchase Agreement ("Purchase Agreement") with the sellers of Hyperspring ("Sellers"). Hyperspring, headquartered in Huntsville, Alabama, specializes in training and development, plant operations support services, and staff augmentation, primarily in the United States nuclear industry. Hyperspring operates as a wholly-owned subsidiary of GSE Power. The purchase price allocation included customer relationship intangible assets valued at $779,000 which are being amortized over seven years.

GSE Power paid the Sellers an aggregate of $3.0 million in cash at the closing date. Hyperspring is in the process of bidding on a renewal of its current contract with the Tennessee Valley Authority ("TVA"). If Hyperspring is successful in renewing the TVA contract for substantially the same scope as currently being provided and at a profit margin that is greater than 15% on or before May 15, 2015, GSE will pay the Hyperspring members an additional $1.2 million. In addition, GSE Power may be required, pursuant to the terms of the Purchase Agreement, to pay the Sellers up to an additional an additional $7.2 million if Hyperspring attains certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017. However, if Hyperspring is not successful in renewing the TVA contracts, GSE may still be required to pay the Sellers up to an additional $8.4 million if Hyperspring attains certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017. Whether or not the TVA contract is renewed the total cash paid to the Hyperspring members may total $11.4 million.

In conjunction with the Hyperspring acquisition, GSE Power invested $250,000 for a 50% interest in IntelliQlik, LLC ("IntelliQlik") and is obligated to contribute an additional $250,000 upon the attainment by IntelliQlik of certain milestones. IntelliQlik is jointly owned by GSE Power and a former member of Hyperspring. See Note 17 in the Notes to Consolidated Financial Statements in Item 8 for further discussion related to IntelliQlik.

To assist our clients in creating world-class internal training and performance improvement programs, GSE is building an E2E (Entry2Expert) Performance Solution. The Performance Solution includes a set of integrated and scalable products and services that provide a structured training program, from employee selection and onboarding through continuous skills improvement for experienced employees. The Hyperspring acquisition, through its staff of instructors, engineers and specialist, and the IntelliQlik training platform, once completed, will increase the breadth of solutions that GSE can offer within the E2E Performance Solution program.

Hyperspring's results of operations are included in the consolidated financial statements for the period beginning November 14, 2014.

The following table summarizes the purchase price and purchase price allocation for the acquisition of Hyperspring, LLC, acquired on November 14, 2014.

	(Dollars in thousands)
	Hyperspring, LLC


Cash purchase price	$	3,000
Fair value of contingent consideration		3,953
Total purchase price	$	6,953

Purchase price allocation:
Cash	$	152
Contract receivables		1,719
Prepaid expenses and other current assets		23
Property and equipment, net		12
Intangible assets		779
Goodwill		5,612
Total assets		8,297

Line of credit		749
Accounts payable, accrued expenses, and other liabilities		586
Billings in excess of revenue earned		9
Total liabilities		1,344

Net assets acquired	$	6,953

Pro forma results. Our consolidated financial statements include the operating results of Hyperspring as of the date of acquisition. For the twelve months ended December 31, 2014 and 2013, the unaudited pro forma financial information below assumes that our material business acquisition of Hyperspring occurred on January 1, 2013.

(in thousands except per share data)	(unaudited)
	Year ended
	December 31,
Pro forma financial information including the acquisition of Hyperspring	2014				2013
Revenue		$	53,611			$	66,587
Operating loss			(6,149	)			(10,534	)
Net loss			(5,977	)			(1,711	)
Loss per common share — basic		$	(0.33	)		$	(0.57	)
Loss per common share — diluted		$	(0.33	)		$	(0.57	)

Contingent Consideration

ASC Topic 805 requires that contingent consideration be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement and discount the liabilities to present value using a weighted-average cost of capital. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

As of December 31, 2014 and 2013, contingent consideration included in the other current liabilities on the consolidated balance sheet totaled $2.8 million and $492,000, respectively. As of December 31, 2014 and 2013, we also had accrued contingent consideration totaling $1.9 million and $409,000, respectively, which is included in other long-term liabilities on the consolidated balance sheet and represents the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

(in thousands)
	December 31,
	2014		2013
Hyperspring, LLC	$	2,152	$	-
IntelliQlik, LLC		213		-
EnVision Systems, Inc.		477		492
Current contingent consideration		2,842		492

Hyperspring, LLC		1,948		-
EnVision Systems, Inc.		-		409
Contingent consideration	$	1,948	$	409