EX-99 5 exh99_2.txt PRO FORMA Exhibit 99.2 GSE Systems, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements In September 2003, the Company completed the sale of substantially all of the assets of GSE Process Solutions, Inc. ("Process") to Novatech, LLC. ("Novatech"), pursuant to an Asset Purchase Agreement, effective as of September 25, 2003, by and between the Company, Process and Novatech. The Company received $5.5 million in cash and Novatech assumed certain identified liabilities. The following unaudited pro forma condensed consolidated financial statements have been prepared to give effect to the sale of the Process assets based upon the assumptions and adjustments described in the accompanying notes. The pro forma condensed consolidated balance sheet has been prepared as if the sale of the Process assets occurred on June 30, 2003; the pro forma condensed consolidated statements of operations have been prepared as if the sale occurred at the beginning of the periods presented. The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have actually been reported had the transaction occurred on the assumed dates, nor are they necessarily indicative of the future results of operations. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 2002 and the Company's quarterly report on Form 10-Q for the six months ended June 30, 2003 as filed with the Securities and Exchange Commission. GSE SYSTEMS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (in thousands, except share data) (Unaudited) June 30,2003 Pro Forma Pro Forma Historical Adjustments Results ASSETS ______________ ____________ ____________ Current assets: Cash and cash equivalents $ 1,023 $ - $ 1,023 Contract receivables 10,263 (2,911)a. 7,352 Inventories 1,646 (1,646)a. - Prepaid expenses and other current assets 2,774 (1,788)a. 986 ______________ ____________ ____________ Total current assets 15,706 (6,345) 9,361 Property and equipment, net 1,467 (646)a. 821 Software development costs, net 3,968 (3,012)a. 956 Goodwill, net 2,901 (1,162)a. 1,739 Other assets 1,619 (1,182)a. 437 ______________ ____________ ____________ Total assets $ 25,661 $ (12,347) $ 13,314 ================ ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 2,045 $ (1,753)a. $ 292 Line of credit with bank 5,063 (4,351)b. 712 Accounts payable 2,971 (379)a. 2,592 Accrued expenses 2,751 (518)a. 2,233 Billings in excess of revenue earned 2,756 (1,972)a. 784 Other current liabilities 520 (370)a. 150 ____________ _____________ ____________ Total current liabilities 16,106 (9,343) 6,763 Long-term debt 1,749 (1,073)a. 676 Billings in excess of revenue earned 771 (771)a. - Accrued warranty reserves 416 - 416 ____________ _____________ ____________ Total liabilities 19,042 (11,187) 7,855 Stockholders' equity: Series A convertible preferred stock $.01 par value, 2,000,000 shares authorized, shares issued and outstanding 39,000 - - - Common stock $.01 par value, 18,000,000 shares authorized, shares issued and outstanding 6,019,138 60 - 60 Additional paid-in capital 28,019 - 28,019 Accumulated deficit (20,368) (1,160)a. (21,528) Accumulated other comprehensive loss (1,092) - (1,092) ___________ _____________ ____________ Total stockholders' equity 6,619 (1,160) 5,459 Total liabilities and stockholders' equity $ 25,661 $ (12,347) $ 13,314 ================ ============== ============== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GSE SYSTEMS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share and per share data) (Unaudited) Six months ended June 30, 2003 Pro Forma Pro Forma Historical Adjustments Results ______________ ___________ ___________ Contract Revenue $ 19,035 $ (8,610) c. $ 10,425 Cost of Revenue 14,398 (6,142) c. 8,256 ______________ ___________ ___________ Gross Profit 4,637 (2,468) 2,169 Operating expenses Selling, general and administrative 5,617 (2,677) c. 2,940 Depreciation and amortization 309 (112) c. 197 ______________ ___________ ___________ Total operating expenses 5,926 (2,789) 3,137 ______________ ___________ ___________ Operating loss (1,289) 321 (968) Interest expense, net (169) 66 d. (103) Other income (expense), net (170) 47 c. (123) ______________ __________ ___________ Loss before income taxes (1,628) 434 (1,194) Provision for income taxes 22 - e. 22 ______________ __________ ___________ Net loss (1,650) 434 (1,216) Preferred stock dividends (116) - (116) ______________ __________ ___________ Net loss attributed to common shareholders $ (1,766) $ 434 $ (1,332) ============= =========== ============ Basic loss per common share $ (0.30) $ (0.22) ============= ============= Diluted loss per common share $ (0.30) $ (0.22) ============= ============= Weighted average shares outstanding: Used in Basic calculation 5,951,182 5,951,182 ============ ============ Used in Diluted calculation 5,951,182 5,951,182 ============ ============ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GSE SYSTEMS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share and per share data) (Unaudited) Year ended December 31,2002 Pro Forma Pro Forma Historical Adjustments Results _____________ ____________ __________ Contract Revenue $ 43,116 $ (22,941) c. $ 20,175 Cost of Revenue 31,801 (15,176) c. 16,625 _____________ _________ __________ Gross Profit 11,315 (7,765) 3,550 Operating expenses Selling, general and administrative 12,303 (5,043) c. 7,260 Depreciation and amortization 540 (148) c. 392 _____________ __________ __________ Total operating expenses 12,843 (5,191) 7,652 _____________ __________ __________ Operating loss (1,528) (2,574) (4,102) Write-down of investment in Avantium International B.V. (2,783) - (2,783) Interest expense, net (277) 168 d. (109) Other income (expense), net 34 7 c. 41 _____________ __________ __________ Loss before income taxes (4,554) (2,399) (6,953) Provision for income taxes 1,389 - e. 1,389 _____________ __________ __________ Net loss (5,943) (2,399) (8,342) Preferred stock dividends (234) - (234) _____________ __________ ___________ Net loss attributed to common shareholders $ (6,177) $ (2,399) $ (8,576) ============= ========== =========== Basic loss per common share $ (1.05) $ (1.46) ============= =========== Diluted loss per common share $ (1.05) $ (1.46) ============= =========== Weighted average shares outstanding: Used in Basic calculation 5,863,134 5,863,134 ============= ============= Used in Diluted calculation 5,863,134 5,863,134 ============= ============= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
GSE Systems, Inc. Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 1. Basis of Pro Forma Presentation In September 2003, the Company completed the sale of substantially all of the assets of GSE Process Solutions, Inc. ("Process") to Novatech, LLC. ("Novatech"), pursuant to an Asset Purchase Agreement, effective as of September 25, 2003, by and between the Company, Process and Novatech. The Company received $5.5 million in cash and Novatech assumed certain identified liabilities. The unaudited pro forma condensed consolidated balance sheet at June 30, 2003 is presented to reflect the sale of the Process assets as if the transaction had been consummated on June 30, 2003. The unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2003 is presented as if the transaction had been consummated on January 1, 2003. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2002 is presented as if the transaction had been consummated on January 1, 2002. 2. Pro Forma Assumptions and Adjustments a. Adjustments to eliminate assets sold and liabilities assumed by Novatech and to recognize loss on sale of $1.2 million, determined as follows: Cash proceeds $ 5,500 Liabilities assumed 6,838 -------------- Total consideration 12,338 Assets sold 12,349 Transaction costs 1,149 -------------- Loss on sale $ (1,160) ==============
b. Adjustment to recognize use of cash proceeds to retire $4.4 million of the Company's line of credit. ($5.5 million cash proceeds less $1.1 million of transaction costs.) c. Adjustments to eliminate historical operations of Process Business. The business unit contribution of the Process business for the six months ended June 30, 2003 and for the year ended December 31, 2002 have been excluded from the respective pro forma statements of operations. Business unit contribution represents earnings before interest and taxes and before the allocation of corporate expenses. The corporate expenses that were allocated to the Process business have not been removed from the pro forma statements of operations ($742,000 for the six months ended June 30, 2003 and $1.5 million for the year ended December 31, 2003). d. Adjustments to eliminate interest expense on debt retired with proceeds from sale. Interest expense has been reduced by $66,000 for the six months ended June 30, 2003 and $168,000 for the year ended December 31, 2002 to reflect the reduction in the Company's bank debt due to the assumed application of $4.4 million cash ($5.5 million cash proceeds net of transaction costs of $1.1 million) to pay down the outstanding bank debt as of the transaction date. e. The sale of the Process assets has no significant impact on the provision for income taxes as the Company had established a full valuation allowance against the Company's net deferred income tax assets in 2002.