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, 2003
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, 2003 was $9,931,577 based on the closing price of such stock on that
date of $1.65.
Number of shares of Common Stock outstanding as of March 1, 2004: 8,949,706
EXPLANATORY NOTE
This Amendment No. 1 to the Form 10-K for the fiscal year ended
December 31, 2003 is filed to add Part III of Form 10-K, which was omitted in
reliance on General Instruction G(3) thereto. This amendment does not change our
previously reported financial statements and other financial disclosures
TABLE OF CONTENTS
PART III Page
----
Item 10. Directors and Executive Officers of the Company....................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 IV
Item 15. Exhibits, Financial Statement Schedules, Reports on Form 8-k. 14
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 29,
2004.
Name Age Position
---------------------------- ------------
Jerome I. Feldman (1) (3) (4) 75 Director, Chairman of the Board
Sheldon L. Glashow (2) 71 Director
Gill R. Grady 46 Senior Vice President
Scott N. Greenberg 47 Director
Roger L. Hagengruber (2) 61 Director
Jeffery G. Hough 49 Senior Vice President and Chief Financial Officer
Chin-our Jerry Jen 55 Director, Chief Operating Officer and President
Andrea D. Kantor 46 Director
Joseph W. Lewis (2) 69 Director
John A. Moore, Jr. (3) 51 Director
John V. Moran 53 Director, Chief Executive Officer
Harold D. Paris 49 Senior Vice President
George J. Pedersen (1) (3) (4) 68 Director
Douglas E. Sharp 45 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 75. Mr. Feldman has served as a director since
1994, and as chairman of the board since 1997. Mr. Feldman co-founded GP
Strategies in 1959 and has served as its chief executive officer since its
founding. Since 1994, Mr. Feldman has been chairman of the board and a director
of Five Star Products, a wholesale distributor of home decorating, hardware and
finishing products. Mr. Feldman is chairman of the New England Colleges Fund and
a trustee of the Northern Westchester Hospital Center.
Sheldon L. Glashow, Ph.D., age 71. 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 has been 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 Academy of Sciences.
Gill R. Grady, age 46. 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 47. 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 has also served as a director of Valera
Pharmaceuticals, Inc. since 2002.
Roger L. Hagengruber, Ph.D., age 61. Dr. Hagengruber has served as a
director since June 2001. Dr. Hagengruber recently retired 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 Corp. 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 49. 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 55. 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 46. 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 69. 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 A. Moore, Jr., age 51. Mr. Moore has served as a director since
1997. Mr. Moore has served as the executive vice president of ManTech since
1993. Prior to joining ManTech in 1982, he was a supervisory auditor for the
Defense Contract Audit Agency. Mr. Moore holds a Bachelors degree in Accounting
from La Salle University and an MBA from the University of Maryland.
John V. Moran, age 53. Mr. Moran has served as a director since October
2003. 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, is majority owned by GP Strategies. 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. On
November 11, 2003, Mr. Moran was appointed Chief Executive Officer of GSE
Systems, Inc.
Harold D. Paris, age 49. 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 our 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 68. 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 45. 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 2003.
The Company believes that all of these filings 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 Mr. Lewis is
independent 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. A copy of this Code
of Business Ethics is incorporated by reference into this report as Exhibit
14.1. 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 within five (5) business days disclose the nature of
such amendment or waiver on its website at www.gses.com or in a Report on Form
8-K.
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, 2003, 2002 and 2001.
Long-Term Compensation
Awards Payouts
Securities (4)
Name and Principal Underlying LTIP All Other
Position Year Salary Bonus Options Payouts Compensation
John V. Moran (1) 2003 $ 35,000 $ - - - $ -
Chief Executive Officer 2002 - - - - -
2001 - - - - -
Chin-our Jerry Jen 2003 $ 186,308 $ - - - $ 6,410
President & COO 2002 195,961 45,900 (2) - - 5,313
2001 176,654 - 22,950 - 2,811
Jeffery G. Hough 2003 $ 154,100 $ 40,000 (2) - - $ 679
Sr. Vice President & CFO 2002 142,154 9,000 (2) - - 2,376
2001 155,841 - - - 3,485
Gill R. Grady 2003 $ 149,654 $ - - - $ 3,677
Sr. Vice President 2002 143,307 12,500 (2) - - 3,530
2001 135,048 - 15,000 - 2,955
Harold D. Paris 2003 $ 146,562 $ - - - $ 3,599
Sr. Vice President 2002 140,538 9,000 (2) - - 3,308
2001 128,984 8,000 (2) 15,000 - 2,863
(1) In December 2003, GSE's Board of Directors elected John Moran, a GP
Strategies executive, as Chief Executive Officer. Mr. Moran will continue as
a GP Strategies employee, however, Mr. Moran will devote 100% of his time to
the performance of his duties as CEO of GSE. For 2003, the Company was
charged $35,000 by GP Strategies for his compensation and benefits. See Item
13 "Certain Relationships and Related Transactions".
(2) Bonus paid for prior year performance.
(3) All other compensation consists
of:
Executive Group Term
Company Retirement Plan Matching Life Insurance Premiums
2003 2002 2001 2003 2002 2001
Chin-our Jerry Jen $ 3,726 $ 3,919 $ 2,110 $2,684 $ 1,394 $ 701
Jeffery G. Hough - 1,712 3,010 679 664 475
Gill R. Grady 2,993 2,866 2,701 684 664 254
Harold D. Paris 2,931 2,810 2,740 668 498 123
Stock Options
In 2003, 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 2003 by
the named executive officers and the value of their unexercised options as of
December 31, 2003.
Number of Value of Unexercised
# of Shares Securities Underlying In-the-Money
Acquired on Value Unexercised Options Options
Exercise Realized at 12/31/03 at 12/31/03 (1)
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ------------ -------------
John V. Moran - $ - - - $ - $ -
Chin-Our Jerry Jen - - 57,950 50,000 - -
Jeffery G. Hough - - 25,000 50,000 - -
Gill R. Grady - - 26,000 4,500 - -
Harold D. Paris - - 21,000 4,500 - -
-
(1) Calculated based on $1.88, which was the closing price of the Common Stock
as reported by the New York Stock Exchange on December 31, 2003.
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, 2004, 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/A filed for 2003 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) 5,426,052 58.8%
777 Westchester Avenue
White Plains, NY 10604
Wells Capital Management Inc.(2) 1,300,556 14.5%
525 Market Street, 10th Floor
San Francisco, CA 94105
Directors and Executive Officers (3)
Jerome I. Feldman (4) 5,341,052 58.5%
Scott N. Greenberg (5) 5,239,052 58.0%
George J. Pedersen (6) 343,250 3.7%
John A. Moore, Jr. (7) 272,431 3.0%
Chin-Our Jerry Jen (8) 61,750 0.7%
Sheldon L. Glashow (9) 26,258 0.3%
Gill R. Grady (10) 26,000 0.3%
Jeffery G. Hough (11) 25,000 0.3%
Harold D. Paris (12) 21,000 0.2%
Joseph W. Lewis (13) 10,000 0.1%
Roger L. Hagengruber (14) 7,000 0.1%
John V. Moran - -
Andrea D. Kantor - -
Douglas E. Sharp - -
Directors and Executive Officers as a group
(14 persons) (15) 6,118,741 62.7%
1 Includes 187,000 shares issuable to Mr. Feldman upon the exercise of options
which are currently exercisable (see Note 5 below), 85,000 shares issuable to
Mr. Greenberg upon the exercise of options which are currently exercisable (see
Note 6 below), and 5,154,052 shares owned by GP Strategies. 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. Robert W.
Bissell is President.
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 187,000 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 85,000 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, 187,000 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 83,925 shares owned directly by Mr. Moore, 88,506 shares issuable
upon the exercise of options which are currently exercisable, and 100,000
warrants which are owned by ManTech and are currently exercisable. Mr. Moore
disclaims beneficial ownership of all the shares owned by ManTech.
8 Includes 3,800 shares owned directly by Mr. Jen and 57,950 shares issuable
upon the exercise of options which are currently exercisable.
9 Includes 8,129 shares owned directly by Dr. Glashow and 18,129 shares issuable
upon the exercise of options which are currently exercisable.
10 Includes 26,000 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 21,000 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 7,000 shares issuable upon the exercise of options which are
currently exercisable.
15 Includes 812,585 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 will continue as a GP
Strategies employee, however, Mr. Moran will devote 100% of his time to the
performance of his duties as CEO of GSE. For 2003, GSE will reimburse GP
Strategies $35,000 for his compensation and benefits; in 2004 GSE will reimburse
GP Strategies $300,000 for Mr. Moran's compensation and benefits. The Audit
Committee approved this transaction.
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 effective January 1, 2004 (see below). In
addition, GSE will reimburse General Physics $30,000 for coverage under General
Physics' directors and officers liability and umbrella insurance for November
and December 2003.
Effective January 1, 2004, the Company entered into a Management
Services Agreement with GP Strategies 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 will use General
Physics' financial system. GSE will pay an annual fee to General Physics of
$685,000. The term of the agreement is one year, subject to earlier termination
only upon the mutual consent of the parties to the agreement. The agreement can
be renewed for successive one-year terms and was approved by the Audit
Committee.
In March 2000, GP Strategies agreed to guarantee up to $1.8 million of the
Company's credit facility and received a warrant to purchase 150,000 shares of
GSE common stock, which warrant expired unexercised, in consideration of such
guarantee. On March 23, 2003, GP Strategies extended its guarantee and received
150,000 shares of GSE common stock with a value of $180,000.
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 GSE. The line is collateralized by substantially all of
the Company's assets and provides for borrowings up to 80% of eligible accounts
receivable and 80% of eligible unbilled receivables. GP Strategies agreed to
guarantee the Company's borrowings as part of its fee pursuant to the Management
Services Agreement described above.
In June 2003, the Company received a $6.6 million order from the Mexican
utility Comision Federal de Electricidad (CFE) for a major simulator upgrade to
the Laguna Verde nuclear plant near Vera Cruz, Mexico. The contract required
that the Company issue an advance payment bond ($1.8 million) and a performance
bond ($1.3 million) to CFE. On July 9, 2003, the Company entered into a
Collateral Agreement with ManTech in which ManTech agreed to issue two letters
of credit on the Company's behalf to a Mexican surety company as collateral for
the bonds. One letter of credit will be outstanding for at least 30 months or
until the advance payment bond is released, which ever is later, and the other
letter of credit will be outstanding for at least 42 months or until the
performance bond is released, which ever is later. As consideration of ManTech's
issuance of the letters of credit, the Company issued 100,000 warrants at an
exercise price of $1.33 per share, the closing price on July 8, 2003 and will
pay ManTech a fee equal to 7% per annum on the total amount of the then-existing
value of the letters of credit, payable on a quarterly basis. George Pedersen, a
director of the Company, is the Chairman, Chief Executive Officer and President
of ManTech. John Moore, a director of the Company, is the Executive Vice
President of ManTech.
In 2000, the Company issued a demand promissory note to ManTech that
allowed the Company to borrow up to $1.8 million at an interest rate of prime
plus one percent. In addition, ManTech provided $1.8 million in standby letters
of credit to the Company's bank as additional collateral for the Company's
credit facility. In April 2001, ManTech agreed to allow the Company's bank to
draw upon ManTech's $1.8 million letter of credit which supported the Company's
credit facility, thus paying down a portion of the Company's bank debt in
exchange for additional subordinated debt in the Company. Accordingly, the
Company's promissory note to ManTech was amended to increase the amount to $3.9
million. The amended note permitted ManTech to convert the principal amount of
the note into GSE Series A convertible preferred stock at a conversion rate of
$100 per share. The Company determined that the conversion of this debt did not
constitute a beneficial conversion. ManTech elected to convert its subordinated
debt into preferred equity on December 5, 2001. The Series A convertible
preferred stock had no voting rights and bore dividends at the rate of 6% per
annum payable quarterly. Dividends accumulated if not paid quarterly and
compounded interest accrued on any unpaid dividends. ManTech at its discretion
had the right to convert each share of Series A convertible preferred stock into
GSE common stock at a purchase price of $2.645 per share at any time after a
one-year holding period from the date of issuance. At the end of the third year
from the date of issuance, the Series A convertible preferred stock would
automatically convert into GSE common stock
On June 25, 2001, the Company issued an additional unsecured promissory
note to ManTech for $1.0 million at an interest rate of prime plus one percent.
The Company used the loan proceeds for working capital purposes. The note was
subordinated to the Company's credit facility. During 2002, the Company repaid
ManTech $350,000, plus $247,000 of interest. In 2003, the Company paid $35,000
of interest.
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. The Audit
Committee approved this transaction. 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.
On October 23, 2003 GP Strategies purchased a $650,000 unsecured
subordinated promissory note from ManTech. The terms of the subordinated note
were amended by the Company to allow the conversion of the subordinated debt to
GSE common stock at a rate of $1.5526, which was below the market rate on the
date of the amendment. The Audit Committee approved this transaction. GP
Strategies elected to convert the note on October 23, 2003 and received 418,653
shares of GSE common stock.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Auditors 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 2003
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 2002.
2003 2002
Audit fees $ 149,000 $ 112,250
Audit related fees (1) 10,500 9,500
Tax fees (2) 98,700 118,718
--------- ---------
Total fees $ 258,200 $ 240,468
========= =========
(1) Audit related fees consisted principally of fees for audits of
financial statements of certain employee benefit plans, SEC compliance
and issuances of consents.
(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: April 29, 2004
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-k.
(a) (3) The following documents are filed as part of this Amendment No.1 on
form 10-K/A.
Exhibit No. Description
___________ _______________________________________________________________
14. Code of Ethics.
(a) Code of Ethics for Principal Executive Officer and Senior
Financial Officers.
31. Section 302 Certifications.
(a) Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.