UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to_____
Commission File Number 0-26494
GSE Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1868008
---------- ------------
(State of incorporation) (I.R.S. Employer Identification Number)
9189 Red Branch Road, Columbia, Maryland 21045
---------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 772-3500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of Common Stock held by non-affiliates as of
June 30, 2004 was $22,195,271 based on the closing price of such stock on that
date of $2.48.
Number of shares of Common Stock outstanding as of March 1, 2005: 8,999,706
EXPLANATORY NOTE
This Amendment No. 1 to the Form 10-K for the fiscal year ended
December 31, 2004 is filed to add Part III of Form 10-K, which was omitted in
reliance on General Instruction G(3) thereto.
TABLE OF CONTENTS
PART III Page
----
Item 10. Directors and Executive Officers of the Registrant................2
Item 11. Executive Compensation............................................6
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................8
Item 13. Certain Relationships and Related Transactions...................10
Item 14. Principal Accountant Fees and Services...........................12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
executive officers, key employees and directors of the Company as of April 25,
2005.
Name Age Position
-------- ------ ---------
Jerome I. Feldman (1) (3) (4) 76 Director, Chairman of the Board
Sheldon L. Glashow (2) 72 Director
Gill R. Grady 47 Senior Vice President
Scott N. Greenberg 48 Director
Roger L. Hagengruber (2) 62 Director
Jeffery G. Hough 50 Senior Vice President and Chief Financial Officer
Chin-our Jerry Jen 56 Director, Chief Operating Officer and President
Andrea D. Kantor 47 Director
Joseph W. Lewis (2) 70 Director
John Moran 54 Director, Chief Executive Officer
Harold D. Paris 50 Senior Vice President
George J. Pedersen (1) (3) (4) 69 Director
Douglas E. Sharp 46 Director
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Nominating Committee
Jerome I. Feldman, age 76. Mr. Feldman has served as a director since 1994,
and as Chairman of the Board since 1997. Mr. Feldman is founder and since 1959
has been Chief Executive Officer and a Director of GP Strategies. He has also
been Chairman of the Board of GP Strategies since 1999 and President of GP
Strategies from 1959 until 2001. He has been Chairman of the Board of Five Star
Products, Inc. ("Five Star"), a paint and hardware distributor, since 1994;
Chairman of the Board and Chief Executive Officer of National Patent Development
Corporation ("NPDC"), a holding company with interests in optical plastics,
paint and hardware distribution services since August 2004; and a Director of
Valera Pharmaceuticals, Inc. ("Valera"), a specialty pharmaceutical company,
since January 2005. Mr. Feldman is also Chairman of the New England Colleges
Fund and a Trustee of Northern Westchester Hospital Foundation.
Sheldon L. Glashow, Ph.D., age 72. Dr. Glashow has served as a director
since 1995. Dr. Glashow is the Higgins Professor of Physics Emeritus at Harvard
University, and a university professor and the Arthur G.B. Metcalf Professor of
Mathematics & the Sciences at Boston University since July 2000, and previously
taught physics at other major universities in Massachusetts, Texas, California
and France. In 1979, Dr. Glashow received the Nobel Prize in Physics. Dr.
Glashow was a director of GP Strategies from1997 to 2001; a director of General
Physics Corporation from 1987 to 1995; and a director of Interferon Sciences,
Inc., a pharmaceuticals company since 1991. Dr. Glashow also serves on the board
of directors of RedStorm Scientific, Inc., a computational drug design company.
Dr. Glashow previously served as a director of Duratek, Inc., an environmental
technology and consulting company, from 1985 to 1995. Dr. Glashow is a foreign
member of the Russian and Korean Academies of Sciences.
Gill R. Grady, age 47. Mr. Grady has been a Senior Vice President since
September 1999 and is currently responsible for business operations. Prior to
this, he was responsible for executive oversight of business development as well
as several administrative functions such as investor relations, human resources,
contract administration and information technology. He has also held numerous
senior management positions in business operations, marketing and project
management with the Company. From 1992 through 1997, Mr. Grady was responsible
for business development for the Company's Eastern European activities.
Throughout his tenure, he has been the Company's liaison with the Department of
Energy and with Congress for funding related to the Company's Eastern European
activities. He has been employed by the Company or predecessor companies since
1980.
Scott N. Greenberg, age 48. Mr. Greenberg has served as a director since
1999 and previously served as a director from 1994 to 1995. Mr. Greenberg has
served on the Board of Directors of GP Strategies since 1987. Mr. Greenberg is
the President of GP Strategies and has served as its Chief Financial Officer
since 1989. Mr. Greenberg also served as a director of Valera Pharmaceuticals,
Inc. until January 2005.
Roger L. Hagengruber, Ph.D., age 62. Dr. Hagengruber has served as a
director since June 2001. Dr. Hagengruber retired in 2003 as the Senior Vice
President for National Security and Arms Control at the Sandia National
Laboratories, where he served as an officer for over 17 years. In his former
position, he led programs in nuclear technologies, arms control, satellite and
sensor systems, security, and international programs, including an extensive set
of projects within the states of the former Soviet Union. Dr. Hagengruber serves
on the Advisory Board of ManTech International Corporation. He is Senior Vice
President Emeritus at Sandia National Laboratories and a professor at the
University of New Mexico, where he also serves as director of the Institute for
Public Policy. Dr. Hagengruber holds B.S., M.S. and Ph.D. degrees from the
University of Wisconsin, with his doctorate in nuclear physics. He is also a
graduate of the Industrial College of the Armed Forces.
Jeffery G. Hough, age 50. Mr. Hough joined the Company in January 1999 as
Senior Vice President and Chief Financial Officer. During 1999, he was elected
both Treasurer and Secretary of the Company. Prior to joining the Company, from
1995 through 1998, Mr. Hough was the Chief Financial Officer and Treasurer of
Yokogawa Industrial Automation America, Inc., a supplier of process control
equipment. From 1982 through 1995, he held various financial management
positions with two other suppliers of process control equipment, ABB Process
Automation and Leeds & Northrop. Mr. Hough was an auditor for Price Waterhouse
from 1977 to 1982.
Chin-Our Jerry Jen, age 56. Mr. Jen has served on the board since March
2001. Mr. Jen has been with the Company and its predecessor companies since 1980
in various engineering and senior management positions. In 1997, Mr. Jen was
promoted to Senior Vice President of the Power Business Unit, and on November
14, 2000, he was named Chief Operating Officer in charge of both the Power and
Process Control Businesses. On March 27, 2001, Mr. Jen was named President and
director.
Andrea D. Kantor, age 47. Ms. Kantor has served as director since October
2003. She has been Vice President and General Counsel of GP Strategies
Corporation since 2001, Vice President and Corporate Counsel from 1999 to 2001,
and Associate General Counsel from 1988 to 1999. Prior to 1988, Ms. Kantor
practiced law as a corporate associate in New York City at Schulte, Roth & Zabel
and prior to that at Sidley Austin Brown & Wood LLP. Ms. Kantor is a member of
the Association of the Bar of the City of New York and a member of the Corporate
and Securities Law Committee of the American Corporate Counsel Association.
Joseph W. Lewis, age 70. Mr. Lewis has served as a director since March
2000. In 1998, Mr. Lewis retired from Johnson Controls, Inc. after 39 years of
service, including his tenure from 1986 to 1998 as Executive Vice President with
responsibilities for its Controls Group. Mr. Lewis is Chairman of the Board of
DryKor Ltd of Israel, a manufacturer of dehumidification equipment. He has
served as a director of Wheaton Franciscan Services, Inc., a multi-system health
care provider, since 1991 and served as its Treasurer from 1993 until 2002, and
is currently Chairman of the Board, appointed on July 1, 2003. He previously
served as a director of Entek IRD International until its sale to Allen Bradley,
a division of Rockwell International Corporation.
John Moran, age 54. Mr. Moran has served as a director since October 2003.
On November 11, 2003, Mr. Moran was appointed Chief Executive Officer of GSE
Systems, Inc. Since October 2001, Mr. Moran has served as Vice President of GP
Strategies Corporation. He was elected Director of Five Star Products, Inc. in
January 2002 and is responsible for leading that company's strategic steering
committee. Five Star, the largest distributor of home improvement products in
the Northeast, was a majority-owned subsidiary of GP Strategies, prior to the
spin-off of NPDC on November 24, 2004. He served as President and Chief
Executive Officer of GP e-Learning Technologies, Inc. from 2000 to 2001, and was
Group President of the Training and Technology Group of General Physics
Corporation, a wholly owned subsidiary of GP Strategies, from 1994 to 2000.
Harold D. Paris, age 50. Mr. Paris has served as Senior Vice President for
Power Simulation since May 2001. Previously, Mr. Paris served as Vice President
of Sales and Marketing for the Power Systems Business Unit, and has served in
various marketing and business management positions with the Company and its
predecessors since 1980.
George J. Pedersen, age 69. Mr. Pedersen has served as a director since
1994 and as Chairman of the Company's Executive Committee since 1997. He
currently serves as Chairman of the Board, Chief Executive Officer and President
of ManTech International Corp. Mr. Pedersen co-founded ManTech in 1968. He was
elected Chairman of ManTech's Board of Directors in 1979. In 1995, Mr. Pedersen
was elected to the additional positions of President and Chief Executive
Officer. Mr. Pedersen has also served as President and/or Chairman of the Board
of a number of ManTech subsidiaries. Mr. Pedersen also serves as a director,
Vice President and a member of the executive committee of the Professional
Services Council; a trustee and a member of the executive committee of the
National Security Industrial Association; and as a director of the Ivymount
School. Mr. Pedersen currently serves as Chairman of the Board of MARE, Inc.,
Chairman of the Board of the Institute of Software Research, Chairman of the
Board of Vega International, and a member of the Board of Directors of the
Association for Enterprise Integration (AFEI).
Douglas E. Sharp, age 46. Mr. Sharp has served as director since October
2003. He is the President and Chief Operating Officer of General Physics
Corporation (GP), a global workforce development, engineering and technical
services company. Beginning as a staff engineer with GP, Mr. Sharp had ever
increasing responsibilities for project management, business development, and
strategic planning. From Division Director to Vice President in 1994, he became
President of GP's Process and Energy Group in 1998 and Chief Operating Officer
in 2000. He was assigned as president and elected a member of the Board of
Directors of GP in 2002. Mr. Sharp graduated with honors in Mechanical
Engineering from the University of Maryland and has published and presented
several technical papers. He holds professional engineering registrations in the
states of Arizona, Florida, Ohio, South Carolina, Tennessee and Washington. Mr.
Sharp is a member of American Society of Training and Development, American
Society of Mechanical engineers and American Institute of Chemical Engineers.
Section 16 (a) Beneficial Ownership Reporting Compliance
Under Section 16 (a) of the Securities Exchange Act of 1934, the Company's
directors and officers and persons who are the beneficial owners of more than
10% of the common stock are required to report their beneficial ownership of
common stock and any changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established, and the
Company is required to report any failure to file by these dates during 2004.
The Company believes that all of these filing requirements were satisfied by
its directors and officers and by the beneficial owners of more than 10% of the
common stock. In making the foregoing statements, the Company has relied on
copies of the reporting forms received by it or the written representations from
certain reporting persons.
Audit Committee
The Company has established an Audit Committee of the Board of Directors
consisting of Sheldon Glashow, Roger Hagengruber and Joseph Lewis. The Board of
Directors has determined that Mr. Lewis qualifies as an "audit committee
financial expert" under applicable SEC regulations and that all members satisfy
the independence and experience requirements under the listing standards of the
American Stock Exchange that currently apply to the Company.
Code of Ethics
The Company has adopted a Code of Ethics for the principal executive
officer and senior financial officers of the Company and its subsidiaries,
including, but not limited to, the chief executive officer, the chief operating
officer, the chief financial officer, and the senior officers in the accounting
and finance department of the Company and its subsidiaries. The Code of Ethics
is available on the Company's website at www.gses.com. If the Company makes any
substantive amendments to the Code of Ethics or grants any waiver from a
provision of the Code of Ethics for its executive officers, the Company will
disclose the nature of such amendment or waiver on its website at www.gses.com.
ITEM 11 EXECUTIVE COMPENSATION
The following table and notes present the compensation paid by the Company
for services rendered by the Company's principal executive officer and the four
other most highly compensated executive officers of the Company for the fiscal
years ended December 31, 2004, 2003 and 2002.
Long-Term Compensation
----------------------
Awards Payouts
----------------------
Securities
Name and Principal Underlying LTIP All Other
Position Year Salary Bonus Options Payouts Compensation
John Moran (1) 2004 $ 289,000 $ - - - $ 1,922 (2)
Chief Executive Officer 2003 35,000 - - - -
2002 - - - - -
Chin-our Jerry Jen 2004 $ 172,500 $ - - - $ 17,800 (3)
President & COO 2003 186,308 - - - 19,417 (4)
2002 195,961 45,900 (5) - - 16,046 (6)
Jeffery G. Hough 2004 $ 155,250 $ - - - $ 12,074 (7)
Sr. Vice President & CFO 2003 154,100 40,000 (5) - - 12,756 (8)
2002 142,154 9,000 (5) - - 13,109 (9)
Gill R. Grady 2004 $ 138,958 $ - - - $ 16,449 (10)
Sr. Vice President 2003 149,654 - - - 17,549 (11)
2002 143,307 12,500 (5) - - 14,263 (12)
Hal D. Paris 2004 $ 136,083 $ 21,300 (13) - - $ 16,312 (14)
Sr. Vice President 2003 146,562 - - - 16,428 (15)
2002 140,538 9,000 (5) - - 14,041 (16)
(1) In December 2003, GSE's Board of Directors elected John Moran, a GP
Strategies executive, as Chief Executive Officer. Mr. Moran continued as a
GP Strategies employee until December 15, 2004 , however, Mr. Moran devoted
100% of his time to the performance of his duties as CEO of GSE. For 2004,
the Company was charged $289,000 by GP Strategies for his compensation and
benefits; for 2003, the Company was charged $35,000 by GP Strategies.
(2) Personal gasoline expenditures.
(3) Consists of $3,450 for Company retirement plan matching, $2,423 for
executive group term life insurance premiums, $3,833 for club membership
dues, $6,900 for car allowance and $1,194 for personal gasoline
expenditures.
(4) Consists of $3,726 for Company retirement plan matching, $2,683 for
executive group term life insurance premiums, $4,308 for club membership
dues, $7,754 for car allowance and $946 for personal gasoline expenditures.
(5) Bonus paid for prior year performance.
(6) Consists of $3,919 for Company retirement plan matching, $1,394 for
executive group term life insurance premiums, $3,833 for club membership
dues, and $6,900 for car allowance.
(7) Consists of $752 for executive group term life insurance premiums, $3,833
for club membership dues, $6,900 for car allowance and $589 for personal
gasoline expenditures.
(8) Consists of $679 for executive group term life insurance premiums, $4,308
for club membership dues, $7,754 for car allowance and $15 for personal
gasoline expenditures.
(9) Consists of $1,712 for Company retirement plan matching, $664 for executive
group term life insurance premiums, $3,833 for club membership dues, and
$6,900 for car allowance.
(10) Consists of $2,779 for Company retirement plan matching, $664 for executive
group term life insurance premiums, $3,833 for club membership dues, $6,900
for car allowance and $2,273 for personal gasoline expenditures.
(11) Consists of $2,993 for Company retirement plan matching, $684 for executive
group term life insurance premiums, $4,308 for club membership dues, $7,754
for car allowance and $1,810 for personal gasoline expenditures.
(12) Consists of $2,866 for Company retirement plan matching, $664 for executive
group term life insurance premiums, $3,833 for club membership dues, and
$6,900 for car allowance.
(13) Bonus paid under change of control agreement related to the sale of the
Company's Process Automation business in September 2003.
(14) Consists of $3,148 for Company retirement plan matching, $649 for executive
group term life insurance premiums, $3,833 for club membership dues, $6,900
for car allowance and $1,782 for personal gasoline expenditures.
(15) Consists of $2,931 for Company retirement plan matching, $668 for executive
group term life insurance premiums, $4,308 for club membership dues, $7,754
for car allowance and $767 for personal gasoline expenditures.
(16) Consists of $2,810 for Company retirement plan matching, $498 for executive
group term life insurance premiums, $3,833 for club membership dues, and
$6,900 for car allowance.
Stock Options
In 2004, no stock options were granted to the named executive officers (or
any other Company employees).
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information on option exercises in 2004 by the
named executive officers and the value of their unexercised options as of
December 31, 2004.
Number of Value of Unexercised
# of Shares Securities Underlying In-the-Money
Acquired on Value Unexercised Options Options
Exercise Realized at 12/31/04 at 12/31/04 (1)
------------ --------- ------------------------
Exercisable Unexercisable Exercisable Unexercisable
John Moran - $ - - - $ - -
Chin-Our Jerry Jen - - 107,950 - 16,065 -
Jeffery G. Hough - - 75,000 - - -
Gill R. Grady - - 30,500 - 10,500 -
Harold D. Paris - - 25,500 - 10,500 -
(1) Calculated based on $2.70, which was the closing price of the Common Stock
as reported by the American Stock Exchange on December 31, 2004.
Employment Agreements
On March 10, 2000, the Company entered into change of control agreements
with Messrs. Jen, Hough and Grady. On May 30, 2002, the Company entered into a
similar agreement with Mr. Paris. Under these agreements, in the event of a
termination of the individual's employment within 12 months of a change in
business ownership structure, the executive is entitled to continuation of
salary, bonus and all benefits for up to 12 months following termination of
employment. The executive is also entitled to a bonus of 35% of base pay (30%
for Messrs. Grady and Paris).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the Company's common stock, as of April 1, 2005, by: (i) each stockholder who
is known by the Company to own beneficially more than 5% of the outstanding
common stock, (ii) each of the Company's directors, (iii) each current executive
officer of the Company named in the Summary Compensation Table, and (iv) all
directors and executive officers as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the common stock listed below
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
We are not aware of any material proceedings to which any of the parties
identified under (i), (ii) or (iii) above, or any associate thereof, is a party
adverse to the Company or any of its subsidiaries or has a material interest
adverse to the Company or any of its subsidiaries.
In preparing the following table, the Company has relied on the information
contained in the Schedule 13D and the statements previously filed by GP
Strategies Corporation, and Schedule 13G filed for 2004 by Wells Fargo Capital
Management Group. Certain of the shares reported in the following table may be
deemed to be beneficially owned by more than one person and, therefore, may be
included in more than one table entry.
Number of Percent of
Common Stock Outstanding
Shares Beneficially Common
Owned Stock
---------------------- -----------------
Name of Beneficial Owner
Certain Beneficial Owners
GP Strategies Corporation (1) 5,471,052 58.7%
777 Westchester Avenue
White Plains, NY 10604
Wells Capital Management Inc.(2) 1,530,056 17.0%
525 Market Street, 10th Floor
San Francisco, CA 94105
Directors and Executive Officers (3)
Jerome I. Feldman (4) 5,371,052 58.3%
Scott N. Greenberg (5) 5,254,052 57.7%
George J. Pedersen (6) 373,250 4.0%
Chin-Our Jerry Jen (7) 111,750 1.2%
Jeffery G. Hough (8) 75,000 0.8%
Gill R. Grady (9) 30,600 0.3%
Sheldon L. Glashow (10) 26,258 0.3%
Hal D. Paris (11) 25,000 0.3%
Joseph W. Lewis (12) 10,000 0.1%
Roger Hagengruber (13) 10,000 0.1%
John Moran - -
Andrea Kantor - -
Douglas Sharp - -
Directors and Executive Officers as a group
(13 persons) (14) 6,132,910 61.9%
(1) Includes 217,000 shares issuable to Mr. Feldman upon the exercise of options
which are currently exercisable (see Note 4 below), 100,000 shares issuable to
Mr. Greenberg upon the exercise of options which are currently exercisable (see
Note 5 below), 875,000 shares owned by SGLG, Inc. (SGLG), 250,000 shares owned
by General Physics Corporation (GPC), and 4,029,052 shares owned by GP
Strategies. GP Strategies, a company in which Mr. Feldman has a controlling
interest, owns GPC as well as a controlling interest in SGLG. GP Strategies
disclaims beneficial ownership of all shares, including those subject to option,
owned directly by Messrs. Feldman and Greenberg.
(2) Persons other than Wells Capital Management, Inc. have the right to receive
dividends from or the proceeds of the sale of such common stock. No such right
to receive proceeds or dividends relates to more than 5% of the class. Wells
Capital Management, Inc. is a subsidiary of Wells Fargo & Company. Dick
Kovacevich is Chairman and CEO.
(3) The address of all directors and executive officers is in care of GSE
Systems, Inc., 9189 Red Branch Road, Columbia, MD 21045.
(4) Includes 217,000 shares subject to option owned directly by Mr. Feldman
which are currently exercisable, as well as 4,029,052 shares owned by GP
Strategies, 875,000 shares owned by SGLG and 250,000 shares owned by GPC. Mr.
Feldman disclaims beneficial ownership of all the shares owned by GP Strategies,
SGLG and GPC.
(5) Includes 100,000 shares subject to option owned directly by Mr. Greenberg
which are currently exercisable, as well as 4,029,052 shares owned by GP
Strategies, 875,000 shares owned by SGLG and 250,000 shares owned by GPC. Mr.
Greenberg disclaims beneficial ownership of all the shares owned by GP
Strategies, SGLG and GPC.
(6) Includes 56,250 shares owned directly by Mr. Pedersen, 217,000 shares
issuable upon the exercise of options which are currently exercisable, and
100,000 warrants which are owned by ManTech International Corp. and are
currently exercisable. Mr. Pedersen has a controlling interest in ManTech
International Corporation. Mr. Pedersen disclaims beneficial ownership of the
warrants owned by ManTech.
(7) Includes 3,800 shares owned directly by Mr. Jen and 107,950 shares issuable
upon the exercise of options which are currently exercisable.
(8) Includes 75,000 shares issuable upon the exercise of options which are
currently exercisable.
(9) Includes 100 shares owned directly by Mr. Grade and 30,500 shares issuable
upon the exercise of options which are currently exercisable.
(10) Includes 8,129 shares owned directly by Dr. Glashow and 18,129 shares
issuable upon the exercise of options which are currently exercisable.
(11) Includes 25,000 shares issuable upon the exercise of options which are
currently exercisable.
(12) Includes 10,000 shares issuable upon the exercise of options which are
currently exercisable.
(13) Includes 10,000 shares issuable upon the exercise of options which are
currently exercisable.
(14) Includes 910,579 shares issuable upon the exercise of options and
warrants which are currently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2003, GSE's Board of Directors elected John Moran, a GP
Strategies executive with experience in the power industry and simulation
technology, as Chief Executive Officer. Mr. Moran continued as a GP Strategies
employee, however, Mr. Moran devoted 100% of his time to the performance of his
duties as CEO of GSE. In 2003, GSE was charged $35,000 by GP Strategies for his
compensation and benefits; in 2004 GSE was charged $289,000 by GP Strategies for
Mr. Moran's compensation and benefits. On December 16, 2004, Mr. Moran became an
employee of GSE.
On January 1, 2004, the Company entered into a Management Services
Agreement with GP Strategies Corporation in which GP Strategies agreed to
provide corporate support services to GSE, including accounting, finance, human
resources, legal, network support and tax. In addition, GSE uses the financial
system of General Physics, a subsidiary of GP Strategies. In 2004, GSE was
charged $685,000 for GP Strategies' services. The agreement has been extended
through December 31, 2005 without an increase in the fee. The agreement can be
renewed for successive one-year terms.
In December 2003, GSE agreed to pay to General Physics, a fully-owned
subsidiary of GP Strategies, approximately $35,000 for services performed by
General Physics personnel in the fourth quarter 2003 for the implementation of
the Management Services Agreement. In addition, GSE was charged $30,000 by
General Physics for coverage under General Physics' directors and officers'
liability and umbrella insurance for November and December 2003.
On September 29, 2003 the Company amended the ManTech Preferred Stock
issuance agreement to revise the conversion rate from $2.645 per share to
$1.5526 per share. The change in conversion rate increased the number of common
shares available upon conversion from 1,474,480 to 2,511,915. On October 23,
2003 ManTech elected to convert all of its preferred stock to common stock and
sold all of its GSE common stock and subordinated debt to GP Strategies. Due to
GP Strategies' acquisition of additional shares of the Company on that date,
bringing its ownership of the common stock of the Company from approximately 22%
to approximately 58%, the Company became a majority-owned subsidiary of GP
Strategies.
In March 2003, GP Strategies extended its $1.8 million limited guarantee of
the Company's then credit facility and received 150,000 shares of the Company's
common stock with a value of $180,000 in consideration of such extension. On
March 30, 2004, the Company was added as an additional borrower under the
Financing and Security Agreement between General Physics and a financial
institution which expires on August 23, 2005. Under the terms of the agreement,
$1.5 million of General Physics' available credit facility has been carved out
for use by the Company. The line is collateralized by substantially all of the
Company's assets and provides for borrowings of up to 80% of eligible accounts
receivable and 80% of eligible unbilled receivables, up to a maximum of $1.5
million. GP Strategies also agreed to guarantee the Company's borrowings as part
of its fee pursuant to the Management Services Agreement described above.
In 2004, Michael Feldman received a salary of $85,000 from the Company as
marketing manager of the Company and in 2003 received a salary of $16,000 from
the Company. Michael Feldman currently receives an annual salary of
approximately $110,000 from the Company as Managing Director, Marketing. Michael
Feldman is the son of Jerome I. Feldman, GP Strategies' Chairman and Chief
Executive Officer.
Jerome I. Feldman, GP Strategies' Chairman of the Board and Chief Executive
Officer is also Chairman of the Board of the Company. Scott N. Greenberg, GP
Strategies' President and Chief Financial Officer and director is also a
director of the Company. Douglas Sharp, the President of General Physics is a
director of the Company and Andrea D. Kantor, GP Strategies' Vice President and
General Counsel is a director of the Company.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Registered Public Accounting Firms' Fees
The following table presents fees for professional audit services rendered
by KPMG LLP for the audit of the Company's annual financial statements for 2004
and fees billed for other services rendered by KPMG LLP, together with a
comparison of the fees for audit services and other services rendered by KPMG
LLP in 2003.
2004 2003
----- -----
Audit fees $ 167,000 $149,000
Audit related fees (1) $ 11,000 $ 10,500
Tax fees (2) $ 5,000 $ 98,700
--------- --------
Total fees $ 183,000 $258,200
========= ========
(1) Audit related fees consisted principally of fees for audits of
financial statements of certain employee benefit plans.
(2) Tax fees consisted of fees for tax consultation and tax compliance
services.
Policy on Pre-Approval of Services Provided by Independent Auditor
Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the terms
of the engagement of KPMG are subject to specific pre-approval policies of the
Audit Committee. All audit and permitted non-audit services to be performed by
KPMG require pre-approval by the Audit Committee in accordance with pre-approval
policies established by the Audit Committee. The procedures require all proposed
engagements of KPMG for services of any kind be directed to the Company's
General Counsel and then submitted for approval to the Audit Committee prior to
the beginning of any service.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GSE SYSTEMS, INC.
By: /s/ John Moran
_______________
John Moran
Chief Executive Officer
Dated: May 2, 2005