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 Nuclear Industry Training and Consulting, primarily in the United States nuclear industry. Hyperspring operates as a wholly-owned subsidiary of GSE Performance Solutions, Inc. 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. Per the Purchase Agreement, a $1.2 million payment was due to the former Hyperspring members if Hyperspring were successful in renewing its contract with the Tennessee Valley Authority ("TVA") for a two year period for substantially the same scope as was currently being provided and with substantially the same economics. On September 24, 2015, TVA executed a three-year renewal contract with Hyperspring; accordingly the Company paid the $1.2 million payment to the former Hyperspring members in October 2015.

In addition, GSE may be required, pursuant to the terms of the Purchase Agreement, to pay the Sellers up to 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. Accordingly, the total cash paid to the former Hyperspring members may total $11.4 million.

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 nine months ended September 30, 2015 and 2014, the unaudited pro forma financial information below assumes that our material business acquisition of Hyperspring occurred on January 1, 2014.

(in thousands except per share data)	(unaudited)
	Three Months ended								Nine Months ended
	September 30,								September 30,
Pro forma financial information including the acquisition of Hyperspring	2015				2014				2015				2014
Revenue		$	14,961			$	12,307			$	42,589			$	37,930
Operating loss			(3,195	)			(1,785	)			(4,701	)			(5,848	)
Net loss			(3,363	)			(1,697	)			(5,140	)			(5,749	)
Loss per common share — basic		$	(0.19	)		$	(0.09	)		$	(0.29	)		$	(0.32	)
Loss per common share — diluted		$	(0.19	)		$	(0.09	)		$	(0.29	)		$	(0.32	)

IntelliQlik LLC

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 and is jointly owned by GSE Performance and a former Hyperspring member. GSE Performance was obligated to contribute an additional $250,000 should IntelliQlik attain certain development milestones by September 30, 2015. Based on a review of the software platform as of September 30, 2015, GSE concluded that the required development milestones had not been met and did not contribute the additional $250,000 investment. The Company wrote-off the remaining $126,000 balance of its IntelliQlik investment in the third quarter 2015. The loss was recorded under other expense, net.

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 September 30, 2015 and December 31, 2014, current contingent consideration totaled $2.6 million and $2.8 million, respectively. As of September 30, 2015 and December 31, 2014, we also had accrued contingent consideration totaling $2.2 million and $1.9 million, respectively, which represents the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

During the three and nine months ended September 30, 2015 the Company made payments of $182,000 and $500,000, respectively, to the former EnVision shareholders in accordance with the purchase agreements. For the nine months ended September 30, 2015, the Company did not make any payments to the former owners of Hyperspring. Refer to the Subsequent Event footnote in regards to the $1.2 million payout to the former Hyperspring members in October 2015.

(in thousands)
	September 30,		December 31,
	2015		2014
Hyperspring, LLC	$	2,601	$	2,152
IntelliQlik, LLC		-		213
EnVision Systems, Inc.		-		477
Current contingent consideration	$	2,601	$	2,842

Hyperspring, LLC	$	2,221	$	1,948
Contingent consideration	$	2,221	$	1,948