Acquisition

Hyperspring, LLC

On November 14, 2014, (the "Closing Date") the Company, through its operating subsidiary, GSE Power Systems, Inc. (now GSE Performance Solutions, Inc. "GSE Performance"), 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 Performance. The purchase price allocation included customer relationship intangible assets valued at $779,000 which are being amortized over seven years.

GSE Performance paid the Sellers an aggregate of $3.0 million in cash at the closing date. In addition, GSE may be required, pursuant to the terms of the Purchase Agreement, 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. Accordingly, the total cash paid to the former Hyperspring members may total $11.4 million. Included in this $11.4 million was a $1.2 million payment to the Hyperspring members if Hyperspring was successful in renewing its contract with the Tennessee Valley Authority ("TVA") on or before May 15, 2015 for a two year period for substantially the same scope as was currently being provided and with substantially the same economics. However, TVA did not issue their request for bid until late April 2015 and the award date is now scheduled for November 2015. Although TVA did grant Hyperspring a six month extension of their contract from May to November 2015, since this did not meet the two-year extension requirement per the Purchase Agreement, the $1.2 million TVA payment is divided into three increments of $400,000 each and are added to the annual payments which will be made to the former Hyperspring members if they achieved certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017. However, refer to Note 16 Subsequent Events regarding an amendment to the Purchase Agreement affecting the $1.2 million TVA payment.

In conjunction with the Hyperspring acquisition, GSE Performance invested $250,000 for a 50% interest in IntelliQlik, LLC ("IntelliQlik"). IntelliQlik is developing a software platform for online learning and learning management for the energy market. GSE Performance is obligated to contribute an additional $250,000 should IntelliQlik attain certain development milestones by September 30, 2015. IntelliQlik is jointly owned by GSE Performance and a former member of Hyperspring.

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 specialists, and the IntelliQlik training platform, once completed, will increase the breadth of solutions that GSE can offer within the E2E Performance Solution program.

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

(in thousands)

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 three months ended March 31, 2015 and 2014, the unaudited pro forma financial information below assumes that our material business acquisition of Hyperspring occurred on January 1, 2014. This pro forma information does not purport to represent what the Company's actual results would have been if the acquisition had occurred as of the date indicated or what results would be for any future periods.

(in thousands except per share data)	(unaudited)
	Three Months ended
	March 31,
Pro forma financial information including the acquisition of Hyperspring	2015				2014
Revenue		$	13,996			$	13,208
Operating loss			(446	)			(2,101	)
Net loss			(592	)			(2,031	)
Loss per common share — basic		$	(0.03	)		$	(0.11	)
Loss per common share — diluted		$	(0.03	)		$	(0.11	)

Contingent Consideration

Accounting Standards Codification 805, Business Combinations ("ASC 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 March 31, 2015 and December 31, 2014, contingent consideration included in the other current liabilities on the consolidated balance sheet totaled $1.9 million and $2.8 million, respectively. As of March 31, 2015 and December 31, 2014, we also had accrued contingent consideration totaling $2.5 million and $1.9 million, 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)
	March 31,		December 31,
	2015		2014
Hyperspring, LLC	$	1,516	$	2,152
IntelliQlik, LLC		213		213
EnVision Systems, Inc.		171		477
Current contingent consideration	$	1,900	$	2,842

Hyperspring, LLC	$	2,492	$	1,948
Contingent consideration	$	2,492	$	1,948