UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

xAnnual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the fiscal year ended December 31, 20062007

oTransition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the transition period from                  to

Commission File Number 1-7234

GP STRATEGIES CORPORATION

(Exact name of Registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:      None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   o No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes   o No   x

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   o

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.     o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company.  See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company”  in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes   o No   x

The aggregate market value of the outstanding shares of the Registrant’s Common Stock, par value $.01 per share, held by non-affiliates as of June 30, 20062007 was approximately $110,447,000.$171,000,000.

The number of shares outstanding of the registrant’s Common Stock as of February 28, 2007:29, 2008:

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 20072008 Annual Meeting of Stockholders are incorporated herein by reference into Part III hereof.

In addition, in January 2008 Training Industry, Inc. selected us as one of the Top Sales Training Companies from among 200 companies.

Our consulting, engineering, and technical support services range from traditional business consulting, including lean enterprise consulting services, to specialized engineering and technical support services, such as design and evaluation services regarding facilities, processes and systems. Our consulting and engineering customers typically operate in technically complex industries such as oil and gas, power, chemical, aerospace, transportation and manufacturing industries, and include customers such as The Boeing Company, Huntsman, Shell Oil Company, Chevron Texaco and Amerenue. We have a strong reputation for providing services for leading edge and emerging technologies and believe we are a leader in the rapidly developing field of design and construction of alternative fuel stations, including liquefied natural gas (“LNG”) fueling and hydrogen systems. In addition, our consulting services support regulatory and environmental compliance, modification of facilities and processes and plant performance improvement. We have a demonstrated track record of consulting and engineering performance.

Operating Segments

As of December 31, 2006, the Company operatedWe operate through General Physics’ twothree reportable business segments: 1)(i) Manufacturing & BPO, (ii) Process, Energy & Government;Government, and 2) Manufacturing(iii) Sandy Training & Business Process Outsourcing (BPO)Marketing (“Sandy”).The Company is We are organized by operating group, primarily based upon the services performed and markets served by each group.group and the services performed. Each operating group consists of strategic business units (SBUs)(“SBUs”) and business units (BUs)(“BUs”) which are focused on providing specific products and services to certain classes of customers or within targeted markets. Across operating groups, SBUs and BUs, the Company integrateswe integrate similar service lines, technology, information, work products, client management and other resources. Communications and market research, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned with operating groups to support existing customer

accounts and new customer development. The Company’sOur reportable business segments represent an aggregation of itsour operating groups in accordance with the aggregation criteria in Statement of Financial Accounting Standards (SFAS)(“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131)131”). Further information regarding the Company’seach business segmentssegment is discussed below.

Process, Energy & Government

The Process, Energy & Government segment provides engineering consulting, design and evaluation services involving facilities, the environment, processes and systems, staff augmentation, curriculum design and development, and training and technical services primarily to federal and state governmental agencies, large government contractors, petroleum and chemical refining companies, and electric power utilities.

Manufacturing & BPOBPO.

The Our Manufacturing & BPO segment providesdelivers training, curriculum design and development, staff augmentation, e-Learning services, system hosting, integration and help desk support, training business process and training outsourcing, and consulting and technical services primarily to large companies in the automotive, steel, pharmaceutical, electronics and semiconductors, financial and other industries as well as to governmental clients.government agencies. Our October 2007 acquisition of Via has expanded our delivery capabilities and diversified our core client base in the software, electronics and semiconductors and retail markets.  Our ability to deliver a wide range of training services allows us to take over the entire learning function for the client, including their training personnel.

Process, Energy & Government. Our Process, Energy & Government segment has over four decades of experience providing consulting, engineering, technical and training services, including emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to federal and state government agencies, large government contractors, petroleum and chemical refining companies and electric power utilities.

Sandy Training & Marketing.Acquired in January 2007, Sandy is a provider of custom product sales training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy provides custom product sales training designed to better educate customer sales forces with respect to new product features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship management strategy, measure performance against competitors and connect with their customers on a one-to-one basis.

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Business Segment Financial Information

For financial information about the Company’sour business segments and geographic operations and revenue, see Note 1516 to the accompanying Consolidated Financial Statements.

ProductsServices and ServicesProducts

For businesses, government agencies and other organizations, General Physics offers services and products spanning the entire lifecycle of production facilities. General Physics’ products and services include plant, equipment and process launch assistance; operations and maintenance practice training and consulting services; curriculum development and delivery; facility and enterprise change and configuration management; lean enterprise consulting; plant and process engineering review and re-design; business continuity planning and support services; alternative fuels engineering consulting, facility design and construction services; business process outsourcing; training outsourcing; e-Learning hosting, consulting and systems implementation; and development and delivery of information technology (IT) training on an enterprise-wide scale. General Physics’

Our personnel bring a wide variety of professional, technical and military backgrounds together to create cost-effective solutions for modern business and governmental challenges. The Company’sOur primary productservice and serviceproduct categories are discussed in more detail below.

Sales Training, Custom Training and Performance Improvement.Improvement. General Physics providesWe provide sales training and other custom training services and products to support existing, as well as the launch of new, plants, products, equipment, technologies and processes. The range of services includes fundamental analysis of a client’s training needs, curriculum design, instructional material development (in hard copy, electronic/software or other format), information technology service support and delivery of training. Training products include custom instructor and student training manuals, and instructional materials suitable for web-based and blended learning solutions. General Physics’Our instructional delivery capabilities include traditional classroom, structured on-the-job training (OJT), just-in-time methods, computer-based, web-based, video-based and the full spectrum of e-Learning technologies. General Physics’Our e-Learning services enable the Companyus to function as a single-source e-Learning solutions provider through itsour integration services and hosting, the development and provisioning of proprietary content and the aggregation and distribution of third party content.  In addition, our Sandy segment provides customer relationship marketing (CRM) products including brand loyalty publications and other related products. Sandy develops personalized publications for automotive and non-automotive clients which establish a link between the manufacturer/dealer and each customer. Sandy also produces glovebox portfolios which are brand specific portfolios that are installed in the gloveboxes of new cars and trucks at the time of vehicle assembly.

Business Process Outsourcing. General Physics provides We provide end-to-end business process outsourcing solutions, including the management of itsour customers’ training departments, as well as administrative processes, such as tuition assistance program management, vendor management, call center / help desk administration and learning management system (LMS) administration. General Physics automates muchOur training BPO services encompass a wide spectrum of itslearning engagements from transactional multi-week assignments focused on a single aspect of a learning process to multi-year contracts where we manage the learning infrastructure of our customer. In addition, we automate a large amount of our customers’ tuition reimbursement programs by utilizing itsour own proprietary software, Tuition Outsourced Processing Services (TOPS). GPWe also providesprovide meeting and event planning services, including needs assessment, site selection, contract negotiations, logistics and room setup, onsite coordination and support, accommodations management and pre and post-event reporting.

Consulting. Consulting services include not only training-related consulting services, but also more traditional business management, engineering and other disciplines. General Physics isWe are able to provide high-level lean enterprise consulting services, as well as training in the concept, methods and application of lean enterprise and other quality practices, organizational development and change management. General PhysicsWe also providesprovide engineering consulting services to support regulatory and environmental compliance, modification of facilities and processes, plant performance improvement, reliability-centered maintenance practices and plant start-up activities. Consulting services also include operations continuity assessment, planning, training and procedure development. Consulting products include proprietary training and reference materials.

Technical Support and Engineering. General Physics is We are staffed and equipped to provide engineering and technical support services and products to clients. General Physics hasWe have civil, mechanical and electrical engineers who provide consulting, design and evaluation services regarding facilities, processes and systems. General Physics believesWe believe that it iswe are a leader in the design and construction of alternative fuel stations, cryogenic systems and high pressure systems. Technical support services include procedure writing and configuration control for capital intensive facilities, plant start-up assistance, logistics support (e.g., inventory management and control), implementation and engineering

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We believe our competitive strengths position us to continue to capitalize on the Internetgrowth occurring in the markets that we serve. Our key competitive strengths include:

The Company’s internet

Independent and Single-Source Custom Training Solutions Provider. We believe we are one of the largest independent single-source custom training solutions providers in the markets in which we compete. We provide business process outsourcing solutions spanning the full life-cycle of the training process, including the management of training departments and administrative processes for our customers. We believe that the breadth of our service and product offerings, which encompass fully integrated training business process outsourcing solutions as well as discrete services, allows us to better serve the needs of our clients by providing them with a single-source solution for custom training, consulting and technical and engineering services. We believe that the integration of our services into a single platform, together with our international presence and delivery capabilities, allows our customers to leverage an enterprise-wide solution to address their performance improvement needs in a way that streamlines their internal operations, improves the speed and efficiency at which critical know-how is www.gpstrategies.com.  Additionaldisseminated on a firm-wide basis, and enables them to achieve their desired performance improvement goals.

Scalable Technology Platform. Our training programs are delivered online, in classroom settings or a combination of both. We have the ability to work with outside information about General Physics may be found at www.gpworldwide.com. The Company makes available freetechnology (IT) vendors in combination with our own proprietary software in order to deliver a scalable technology platform capable of charge through its internet site, its annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K;addressing training needs of various size and any amendmentcommitment, ranging from a one-time project to those reports filed or furnished pursuanta multi-year training program. For example, in June 2007 we signed an agreement with a Fortune 500 company to provide outsourced training services including the Securities Exchange Actimplementation of 1934, (the “Exchange Act”) as soon as reasonably practicable after such material is electronically fileda Learning Management  System, e-Learning content development, training administration, helpdesk support and vendor management. Originally contracted to support the customer’s 26,000 employees, our relationship has been expanded to include training delivery to over 10,000 external sales representatives, with or furnishedplans to further include nearly 400,000 health care providers.

Legacy Technical Expertise. In the 1960’s, we began providing technical services to the U.S. SecuritiesNavy Nuclear submarine program and Exchange Commission.nuclear power generation industry and have since maintained and expanded our reputation for providing technically complex consulting, engineering, and training services. Many of our employees have engineering degrees, technical training or years of relevant technical industry experience. Through repeat projects with industry leaders, such as Chevron Texaco, ExxonMobil, Applied Materials and Washington Group International, we have acquired significant industry experience in providing highly technical consulting services. We believe that our technical expertise allows us to address market opportunities for complex business challenges that require in-depth expertise and certifications typically acquired over several years of specialized training and many years of experience. We also believe that our ability to provide both training-related and business consulting services allows us to gain insight into operations of our customers, understand the challenges they face and develop optimal solutions to meet these challenges. We also believe that the knowledge that we develop while working with our clients provides us with a significant competitive advantage as those clients look to expand the scope of services outsourced to third party service providers.

Well Positioned to Capitalize on the Large Product Sales Training Market. We believe that the accelerating rate of introduction of new products with advanced features, combined with the growing amount and accessibility of information available to consumers, requires companies to maintain a highly skilled and technologically current sales force to most effectively capture customer interest and confidence. Training Magazine has reported that sales training is among the top areas for corporate training expenditures, accounting for 13% of total training expenditures in 2007. In-house implementation of product sales training programs can

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be expensive and time-consuming as these programs typically involve significant levels of face-to-face training, in some cases across a large sales force that can be located around the globe. In addition, product sales training tends to be a continuous process, as the rapid pace of new products and features in many cases requires year-round updating of the sales force. Through our acquisitions of Sandy in January 2007 and PMC in 2006, and complemented by the e-Learning capabilities of our recently acquired Via business, we now have what we believe to be one of the industry’s leading product sales training platforms with the ability to serve large, multinational customers such as General Motors and Microsoft, and are well positioned to benefit from increased corporate spending on product sales training.

Business Model Supports Visibility of Revenues. We believe the nature of our business, which includes established relationships with our clients, average project tenure of one year, as well as many long term contracts with our customers provides us with a platform from which to drive revenues and gives us visibility into our future performance. We have long-standing relationships with many of our clients, with over 60% of our top 25 clients having used our services for five or more years.  Additionally, over 80% of our annual revenue is generated by existing clients. We also had a backlog for services under executed contracts of $140.3 million as of December 31, 2007, most of which we anticipate will be recognized as revenue during 2008.

Highly Qualified and Dedicated Employees and Tenured Management Team. Our most important asset is our people, as the diverse skill set of our workforce enables us to serve our diverse and expanding global client base. As a result, we are committed to the continued development of our employees. We provide our employees with technical, functional, industry, managerial and leadership skill development and training throughout their careers with us. We seek to reinforce our employees’ commitment to our clients, culture and values through a comprehensive performance management system and a career philosophy that rewards both individual performance and teamwork. We also benefit from the skill and experience of our executive management team, who together have a combined 100 years experience in the technology and education industries and have an average tenure with our company of over 20 years.

Contracts

Through General Physics, the Company

We currently performsperform under fixed price (including fixed-fee per transaction), time-and-materials and cost-reimbursable contracts. General Physics’Our contracts with the U.S. Government have predominantly been cost-reimbursable contracts and fixed-pricefixed price contracts. General Physics isWe are required to comply with Federal Acquisition Regulations and Government Cost Accounting Standards with respect to services provided to the U.S. Government and its agencies. These Regulations and Standards govern the procurement of goods and services by the U.S. Government and the nature of costs that can be charged with respect to such goods and services. All such contracts are subject to audit by a designated government audit agency, which in most cases is the Defense Contract Audit Agency (the DCAA)“DCAA”). The DCAA has audited the Company’sour contracts through 20032004 without any material disallowances.

The following table illustrates the Company’s percentage of our total revenue attributable to each type of contract for the year ended December 31, 2006:2007:

Fixed-priceFixed price contracts provide for payment to the Companyus of pre-determined amounts as compensation for the delivery of specific products or services, without regard to the actual costs incurred. The Company bearsWe bear the risk that increased or unexpected costs required to perform the specified services may reduce the Company’sour profit or cause the Companyus to sustain a loss, but the Company haswe have the opportunity to derive increased profit if the costs required to perform the specified services are

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Backlog

The Company’s

Our backlog for services under executed contracts and subcontracts was approximately $85.3$140.3 million and $78.9$85.3 million as of December 31, 20062007 and 2005,2006, respectively. The Company anticipatesincrease compared to December 31, 2006 is primarily attributable to Sandy which had backlog of approximately $37.9 million as of December 31, 2007. We anticipate that most of itsour backlog as of December 31, 20062007 will be recognized as revenue during 2007.2008. However, the rate at which services are performed under certain contracts, and thus the rate at which backlog will be recognized, is at the discretion of the client and most contracts are, as mentioned above, subject to termination by the client upon written notice.

Environmental Statutes and Regulations

The Company provides

We provide environmental engineering services to itsour clients, including the development and management of site environmental remediation plans. Due to the increasingly strict requirements imposed by Federal,federal, state and local environmental laws and regulations (including, without limitation, the Clean Water Act, the Clean Air Act, Superfund, the Resource Conservation and Recovery Act and the Occupational Safety and Health Act), the Company’sour opportunities to provide such services may increase.

The Company’s

Our activities in connection with providing environmental engineering services may also subject the Companyus to such Federal,federal, state and local environmental laws and regulations. Although the Company subcontractswe subcontract most remediation construction activities and all removal and offsite disposal and treatment of hazardous substances, the Companywe could still be held liable for clean-up or violations of such laws as an “operator” or otherwise under such Federal,federal, state and local environmental laws and regulations with respect to a site where it haswe have provided environmental engineering and support services. The Company believes,We believe, however, that it iswe are in compliance in all material respects with such environmental laws and regulations.

Item 1A:  Risk Factors

Set forth below and elsewhere in this report and in other documents

The following are some of the Company files with the U.S. Securities and Exchange Commission are risks and uncertaintiesfactors that we believe could cause the Company’sour actual results to differ materially from historical results and from the results contemplated by the forward-looking statements contained in this report and other public statements made by us.  Additional risks and uncertainties not presently known to us, or that we currently see as immaterial, may also harm our business. Most of these risks are generally beyond our control.  If any of the Company.risks or uncertainties described below, or any such additional risks and uncertainties actually occur, our business, results of operations and financial condition could be materially and adversely affected.

Our holding company structure could adversely affect our abilityfinancial results are subject to pay our expenses and long-term debt obligations.

Our principal operations are conducted through our General Physics subsidiary. General Physics’ Credit Agreement currently limits its ability to loan, dividendquarterly fluctuations, which may result in volatility or otherwise pay funds to us, which could adversely affect our ability to pay our expenses and long-term debt obligations which mature in 2008 (see Note 9 to the accompanying Consolidated Financial Statements).

As of December 31, 2005, we identified a material weaknessdeclines in our internal control over financial reportingstock price.

We experience, and cannot assureexpect to continue to experience, fluctuations in quarterly operating results. Consequently, you should not deem our results for any particular quarter to be necessarily indicative of future results.  Factors that we will not find further such weaknessesmay affect quarterly operating results in the future. include:

Section 404·                the overall level of services and products sold;

·                the volume of publications shipped by our Sandy segment each quarter, because revenue and cost on publications contracts are recognized in the quarter during which the publications ship;

·                the gain or loss of material clients;

·                the timing, structure and magnitude of acquisitions;

·                participant training volume and general levels of outsourcing demand from clients in the industries that we serve;

·                the budget and purchasing cycles of our clients, especially of the Sarbanes-Oxley Actgovernments and government agencies that we serve;

·                the commencement or completion of 2002 requiresclient engagements or services and products in a particular quarter;

·               currency fluctuations; and

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·                the general level of economic activity.

In addition, we provide domestic preparedness and emergency management services, including hurricane and other disaster recovery services, which can result in revenue volatility associated with the unpredictability of certain events occurring and the need for these types of services.  Accordingly, it is difficult for us to conduct an annual reviewforecast our growth and evaluationresults of operations on a quarterly basis.  If we fail to meet expectations of investors or analysts, our stock price may fall rapidly and without notice.  Furthermore, the fluctuation of quarterly operating results may render less meaningful period-to-period comparisons of our internal control over financial reporting andoperating results.

We are vulnerable to include a report on, and an attestation by our independent registered public accountants, KPMG LLP,the cyclical nature of the effectivenessmarkets we serve.

The demand for our services and products is dependent upon training and marketing budgets and the existence of projects with training, engineering, procurement, construction or management needs.  Although downturns can impact our entire business, the automotive, construction, alternative fuels and energy markets are examples of businesses that are cyclical in nature and have been affected from time to time by fluctuations in either national or worldwide demand for these controls.projects.  Industries such as these and many of the others we serve have historically been and might continue to be vulnerable to general downturns and are and might continue to be cyclical in nature.  During economic downturns, our clients might demand better terms.  In the courseaddition, many of our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, we identified a material weakness in our internal control over financial reporting, arising from deficiencies with respecttraining contracts are subject to our accounting for income taxes. To remediate this material weakness, during 2006 we revised our processes and procedures over the accounting for income taxes, hired a new tax director who we believe provides the Company with the necessary technical skills to perform, review and analyze complex tax accounting activities, and implemented an independent review of our annual tax provision computations by an independent registered public accounting firm. 

We concluded that our internal control over financial reporting was effective as of December 31, 2006.  See Item 9A, Controls and Procedures.

Despite our remediation of the material weakness in our internal control over financial reporting that was reported for the year ended December 31, 2005, we cannot assure you that deficiencies or weaknesses in our controls and procedures will not be identifiedmodification in the future. Any such weaknessesevent of certain material changes in the business or deficienciesdemand for our services.  Our government clients also might face budget deficits that prohibit them from funding proposed and existing projects.  As a result, our past results have varied considerably and could continue to vary depending upon the demand for future projects in the industries that we serve.

Changing economic conditions in the United States, the United Kingdom and the other countries in which we conduct our operations could harm our business, results of operations and financial condition.

Our revenues and profitability are related to general levels of economic activity and employment primarily in the United States and the United Kingdom.  As a result, any significant economic downturn or recession in one or both of those countries could harm our business and operating results, result in adverse publicity and a loss in investor confidence in our financial reports, which in turn could have an adverse effect on our stock price, and, if they are not properly remediated, could adversely affect our ability to report our financial results on a timely and accurate basis.

Failure to continue to attract and retain qualified personnel could harm our business.

Our principal resource is our personnel.condition.  A significant portion of our revenuerevenues is derived from Fortune 500 companies and their international equivalents, which historically have decreased expenditures for external training during economic downturns.  If the economies in which these companies operate weaken in any future period, these companies may not increase or may reduce their expenditures on external training, and other products and services supplied by us, which could materially and products that are delivered by instructors, engineers, technical personneladversely affect our business, results of operations and consultants. Our success depends uponfinancial condition.  As we expand our abilitybusiness globally, we might be subject to additional risks associated with economic conditions in the countries into which we enter or in which we expand our operations.

We expect to continue to attract and retain instructors, engineers, technical personnel and consultants who possess the skills and experience required to meet the needsmaking acquisitions as part of our clients. In ordergrowth strategy, which subjects us to initiatenumerous risks that could have a material adverse effect on our business, financial condition and develop client relationships and executeresults of operations.

As part of our growth strategy, we must maintain andexpect to continue to hire qualified salespeople. We must also continuepursue selective acquisitions of businesses that broaden our service and product offerings, deepen our capabilities and allow us to attractenter attractive new domestic and develop capable management personnelinternational markets.  Pursuit of acquisitions exposes us to guidemany risks, including that:

·                acquisitions may require significant capital resources and divert management’s attention from our existing business;

·                acquisitions may not have the benefits anticipated;

·                acquisitions could subject us to contingent or other liabilities, including liabilities arising from events or conduct predating the acquisition of a business that were not known to us at the time of the acquisition;

·                we may incur significantly greater expenditures in integrating an acquired business than had been initially anticipated; and

·               acquisitions may create unanticipated tax and accounting problems.

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Our failure to successfully accomplish future acquisitions or to manage and integrate completed or future acquisitions could have a material adverse effect on our business, financial condition or results of operations.  We can provide no assurances that we:

·                will identify suitable acquisition candidates;

·                can consummate acquisitions on acceptable terms;

·                can successfully compete for acquisition candidates against larger companies with significantly greater resources;

·                can successfully integrate any acquired business into our operations or successfully manage the operations of any acquired business; or

·               will be able to retain an acquired company’s significant client relationships, goodwill and supervisekey personnel or otherwise realize the useintended benefits of any acquisition.

In addition, acquisitions might involve our entry into new businesses that might not be as profitable as we expect.  During 2007, we completed the acquisitions of Via, SEL and Sandy. We can provide no assurances that our expectations regarding the profitability of these or future acquisitions will prove to be accurate.

Acquisitions might also increase our exposure to the risks inherent in certain markets or industries.  For example, Sandy’s business is heavily oriented toward providing product sales training to auto manufacturers in the U.S. and, consequently, this acquisition increased our exposure to the risks of the auto manufacturing industry.  Developments in that industry, as well as certain unforeseen factors or other risks in that industry or in other industries might cause our actual results to differ from our expectations.

As a result of completed and possible future acquisitions, our past performance is not indicative of future performance, and investors should not base their expectations as to our future performance on our historical results.

Future acquisitions may require that we incur debt or issue dilutive equity.

Our acquisition strategy may require us to incur debt, under our existing credit facility or otherwise, or issue equity, resulting in additional leverage or dilution of ownership.

Difficulties in integrating acquired businesses could result in reduced revenues and income.

We might not be able to integrate successfully any business we have acquired or could acquire in the future.  The integration of the businesses will be complex and time consuming and will place a significant strain on our management, administrative services personnel and information systems.  This strain could disrupt our business.  Furthermore, we could be adversely impacted by unknown liabilities of acquired businesses.  We could encounter substantial difficulties, costs and delays involved in integrating common accounting, information and communication systems, operating procedures, internal controls and human resources practices, including incompatibility of business cultures and the loss of key employees and customers.  Also, depending on the type of acquisition, a key element of our resources. Competitionstrategy may include retaining management and key personnel of the acquired business to operate the acquired business for qualified personnel can be intense. We cannot assure you that qualified personnel will continueus.  Our inability to be availableretain these individuals could materially impair the value of an acquired business. These difficulties could reduce our ability to us. Any failure to attractgain customers or retain qualified instructors, engineers, technical personnel, consultants, salespeopleexisting customers, and managerscould increase operating expenses, resulting in sufficient numbers could adversely affect our businessreduced revenues and financial condition.

The loss of our key personnel, including our executive management team, could harm our business.

Our success is largely dependent upon the experience and continued services of our executive management team and our other key personnel. The loss of one or more of our key personnelincome and a failure to attract, develop or promote suitable replacements for them may adversely affect our business.realize the anticipated benefits of acquisitions.

Our revenue and financial condition could be adversely affected by the loss of business from significant customers, including the U.S. Government and automotive manufacturers.

For the years ended December 31, 2007, 2006 2005 and 2004,2005, revenue from the U.S. Government represented approximately 29%18%, 40%,29% and 38%40% of our consolidated revenue, respectively.  However, the revenue was derived from a number of separate contracts with a variety of government agencies we regard as separate customers.  Most ofThe

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from winning new government contracts or renewals of existing contracts, which could materially and adversely affect our future operating performance.

Furthermore, our reputation could suffer serious harm if allegations of impropriety were made against us. If we are suspended or prohibited from contracting with the U.S. Government, or any significant U.S. Government agency, if our reputation or relationship with U.S. Government agencies becomes impaired or if the U.S. Government otherwise ceases doing business with us or significantly decreases the amount of business it does with us, it could materially and adversely affect our operating performance and could result in additional expenses and a loss of revenue.

We are a party to fixed price contracts and may enter into similar contracts in the future.

We enter into fixed price contractsfuture, which could result in reduced profits or losses if we have cost overruns.are not able to accurately estimate or control costs.

A significant portion of our revenue is attributable to contracts entered into on a fixed-price basis.  Thisfixed price basis, which allows us to benefit from cost savings, but we carry the burden of cost overruns.  If our initial estimates are incorrect, or if unanticipated circumstances arise, we could experience cost overruns which would result in reduced profits or even result in losses on these contracts.  Our financial condition is dependent onupon our ability to maximize our earnings from our contracts.  Lower earnings or losses caused by cost overruns could have a negative impact on our financial results.

Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses.  Under cost-reimbursable contracts, which are subject to a contract ceiling amount, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance based.  However, if costs exceed the contract ceiling or are not allowable under the provisions of the contract or applicable regulations, we may not be able to obtain reimbursement for all such costs.

Our inability to successfully estimate and manage costs on each of these contract types may materially and adversely affect our financial condition. Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.

Our revenues may be adversely affected if we fail to win competitively awarded contracts or to receive renewal or follow-on contracts.

We obtain many of our significant contracts, including U.S. Government contracts, through a competitive bidding process. Competitive bidding presents a number of risks, including, without limitation:

·                the need to compete against companies or teams of companies that may have more financial and marketing resources and more experience in bidding on and performing major contracts than we have;

·                the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular contract for which we are competing;

·                the need to compete to retain existing contracts that have in the past been awarded to us;

·                the expense and delay that may arise if our competitors protest or challenge new contract awards;

·                the need to submit proposals in advance of the completion of their design, which may result in unforeseen cost overruns;

·                the substantial cost and managerial time and effort, including design, development and marketing activities necessary to prepare bids and proposals for contracts that we may not win;

·                the need to develop, introduce and implement new and enhanced solutions to our customers’ needs;

·                the need to locate and contract with teaming partners and subcontractors; and

·               the need to accurately estimate the resources and cost structure that will be required to perform any fixed price contract that we win.

There are no assurances that we will continue to win competitively awarded contracts or to receive renewal or follow-on contracts. Renewal and follow-on contracts are important because our contracts are for fixed terms. These terms vary from shorter than one year to over five years, particularly for contracts with extension options.

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Our information technology systems are subject to risks that we cannot control.

Our information technology systems are dependent upon global communications providers, web browsers, telephone systems, and other aspects of the Internet infrastructure that have experienced system failures and electrical outages in the past.  Our systems are susceptible to slow access and download times, outages from fire, floods, power loss, telecommunications failures, break-ins, and similar events.  Our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems.  The occurrence of any of these events could disrupt or damage our information technology systems and inhibit our internal operations, our ability to provide services to our customers, and the ability of our customers to access our information technology systems.  This could result in our loss of customers, loss of revenue or a reduction in demand for our services.

A breach of our security measures could harm our business, results of operations and financial condition.

Our databases contain confidential data of our clients and our clients’ customers, employees and vendors. A party who is able to circumvent our security measures could misappropriate such confidential information or interrupt our operations.  Many of our contracts require us to comply with specific data security requirements. If we are unable to maintain our compliance with these data security requirements or any person, including any of our current or former employees, penetrates our network security or misappropriates sensitive data, we could be subject to significant liabilities to our clients for breaching these data security requirements or other contractual confidentiality provisions. Furthermore, unauthorized disclosure of sensitive or confidential data of our clients or other parties, whether through breach of our computer systems, systems failure or otherwise, could also damage our reputation and cause us to lose existing and potential clients.  We may also be subject to civil actions for breaches related to such data or need to expend significant capital and other resources to continue to protect against security breaches or to address any problem they may cause.

Our international sales and operations expose us to various political and economic risks, which could have a material adverse effect on our business, results of operations and financial condition.

Our revenue outside of the U.S. was approximately 11%, 12% and 10% of our total revenue for the years ended December 31, 2007, 2006 and 2005, respectively.  We conduct our business primarily in the U.S., the United Kingdom, Canada, Mexico, Malaysia and Singapore, but also in other developed and developing countries, including India and China.  We intend to continue to expand our global operations, particularly in India and China.  This could involve expanding into countries other than those in which we currently operate.  It could also involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems.  International sales and operations might be subject to a variety of risks, including:

·                greater difficulty in staffing and managing foreign operations;

·                greater risk of uncollectible accounts;

·                longer collection cycles;

·                logistical and communications challenges;

·                potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;

·                changes in labor conditions; burdens and costs of compliance with a variety of foreign laws;

·                political and economic instability;

·                increases in duties and taxation;

·                exchange rate risks;

·                greater difficulty in protecting intellectual property;

·                general economic and political conditions in these foreign markets;

·                acts of war or terrorism or natural disasters, and limits on the ability of regional governments to respond to such acts;

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·                restrictions on the transfer of funds into or out of a particular country; or

·               nationalization of foreign assets and other forms of governmental protectionism.

As we expand our business into new countries, we may increase our exposure to the risks discussed above. An adverse development relating to one or more of these risks could affect our relationships with our customers or could have a material adverse effect on our business, results of operations and financial condition.

We are subject to risks associated with currency fluctuations, which could have a material adverse effect on our results of operations and financial condition.

Approximately 11% of our revenue and costs for the year ended December 31, 2007 are denominated in foreign currencies, including the British Pound Sterling, the Canadian Dollar and the Euro, and, to a lesser extent, the Mexican Peso, the Malaysian Ringgit, the Indian Rupee, the Singapore Dollar and the Chinese Yuan.  British Pound Sterling-denominated revenue represented approximately 9% of our revenue for the year ended December 31, 2007.  As a result, changes in the exchange rates of these foreign currencies to the U.S. Dollar will affect our revenue, cost of revenue and operating margins and could result in exchange losses.  The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted. 

Business disruptions could adversely affect our future sales, financial condition, reputation or stock price or increase costs and expenses.

Our business, and that of our key suppliers and customers, may be impacted by disruptions including, but not limited to, threats to physical security, information technology attacks or failures, damaging weather or other acts of nature and pandemics or other public health crises.  Such disruptions could affect our internal operations or services provided to customers, adversely impacting our sales, financial condition, reputation or stock price or increase our costs and expenses.

As of December 31, 2005, we identified a material weakness in our internal control over financial reporting and cannot assure you that we will not find further such weaknesses in the future.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to conduct an annual review and evaluation of our internal control over financial reporting and to include a report of, and an attestation by, our independent registered public accountants, KPMG LLP, as to the effectiveness of these controls.  In the course of our assessment of the effectiveness as of December 31, 2005 of our internal control over financial reporting, we identified a material weakness in our internal control over financial reporting arising from deficiencies with respect to our accounting for income taxes. We remediated this material weakness during 2006 by revising our processes and procedures over the accounting for income taxes. We did not identify any material weaknesses in our internal control over financial reporting as of December 31, 2007 and 2006. However, we cannot assure you that deficiencies or weaknesses in our controls and procedures will not be identified in the future.  Any such weaknesses or deficiencies could harm our business and operating results, result in adverse publicity and a loss in investor confidence in our financial reports, which in turn could have a material adverse effect on our business, results of operations or financial condition, and, if they are not properly remediated, could materially and adversely affect our ability to report our financial results on a timely and accurate basis.

We may incur material goodwill and other intangible asset impairment charges related to mergers and acquisitions.

As of December 31, 2007, we had goodwill of $61.7 million and other intangible assets of $6.3 million in connection with mergers and acquisitions. In accordance with U.S. generally accepted accounting principles, the goodwill and other indefinite-lived intangible assets are reviewed annually for impairment unless circumstances or events indicate that an impairment test should be performed sooner to determine if there has been any impairment to value.  The review for impairment is based on several factors requiring judgment. Principally, a decrease in expected cash flows or change in market conditions, among other things, may indicate potential impairment of recorded goodwill.

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environmental engineering and support services, we could be subject to liability.  Our insurance policies may not provide coverage for these risks.  Various mechanisms exist whereby the U.S. Government may limit liability for cleanup costs or violations of applicable environmental claimslaws and losses or indemnify us forregulations at such claims or losses under governmental contracts.  Nonetheless,sites.  Any incurrence of any substantial Superfund or other environmental liability could materially and adversely affect our business, andresults of operations or financial condition by reducing profits, or causing us to incur losses related to the cost of resolving such liability.liability or otherwise.

Some

In addition, our environmental engineering services involve professional judgments about the nature of our policies, such as our professional liability insurance policy, provide coverage on a “claims made” basis covering only claims actually made during the policy period currently in effect.  Tophysical and environmental conditions, including the extent that a risk is not insured withinto which hazardous substances are present, and about the probable effect of procedures to mitigate or otherwise affect those conditions.  If the judgments and the recommendations based upon those judgments are incorrect, we may be liable for resulting damages incurred by our then available coverage limits, insured under a low-deductible policy, indemnified against by a third party or limited by an enforceable waiver or limitation of liability, claimsclients.

Our holding company structure could be material and adversely affect our financial condition.ability to pay our expenses and long-term debt obligations.

AcquisitionsOur principal operations are part ofconducted through our growth strategysubsidiary, General Physics. General Physics’ Credit Agreement limits its ability to loan, dividend or otherwise pay funds to GP Strategies, which could adversely affect our ability to pay our expenses and may not be successful.other indebtedness obligations which mature in 2008 (see Note 10to the accompanying Consolidated Financial Statements for further details).

We expect to continue to pursue selective acquisitions of businesses as part of our growth strategy.  Acquisitions may bring us into businesses we have not previously conducted and expose us to risks that are different than those we have traditionally experienced.  We can provide no assurances that we will be able to find suitable acquisitions or that we will be able to consummate them on terms and conditions favorable to us, or that we will successfully integrate and manage acquired businesses.

On January 23, 2007, we completed the acquisition of certain assets and the business of Sandy Corporation. While we believe that this acquisition will be accretive to our earnings and we will be able to successfully integrate its operations into our business, we can provide no assurances that our expectations will prove to be accurate.  Sandy Corporation’s business is heavily oriented toward providing sales training to auto manufacturers in the U.S. domestic automotive industry.  Developments in that industry, as well as differences between General Physics and Sandy Corporation’s cultures and, certain unforeseen factors or other risks may cause our actual results to differ from our expectations.

We are subject to potential liabilities related to operations we have discontinued.

In November 2004, we completed the spin-off to our stockholders of the shares of stock we owned in NPDC.  Prior to the spin-off, we provided certain financial guarantees and entered into transactions involving assets owned by NPDC or subsequently contributed by us to NPDC.  We alsoAs a result of these transactions, we have outstanding debt that is

collateralized by certain real property which was transferred to NPDC in connection with the spin-off.  We also have continued to guarantee certain lease obligations and indebtedness of NPDC subsequent to the spin-off.  We no longer have the assets of NPDC available to us to use to satisfy these obligations, and if NPDC fails to satisfy obligations for which we continue to guarantee, we could be responsible for satisfying those obligations, which could materially and adversely impact our financial condition.

Our stockholder rights plan and authorized preferred stock and certain provisions in our amended and restated by-lawscould make a third-partythird party acquisition of us difficult.

We have a stockholder rights plan.

Our stockholder rights plan would cause substantial dilution to any person or group that attempts to acquire us on terms not approved in advance by our Board of Directors. In addition, ourrestated certificate of incorporation, as amended, or our restated certificate, allows us to issue up to 5,000,00010,000,000 shares of preferred stock, the rights, preferences, qualifications, limitations and restrictions of which may be fixed by the Board of Directors without any further vote or action by the stockholders.  In addition, our amended and restated bylaws provide, among other things, that stockholders seeking to bring business before or to nominate candidates for election as directors at an annual meeting of stockholders must provide us with timely advance written notice of their proposal in a prescribed form.  Our amended and restated bylaws also provide that stockholders desiring to call a special meeting for any purpose, must submit to us a request in writing of stockholders representing a majority of all of the shares of stock outstanding and entitled to vote and stating the purpose of such meeting.  The stockholder rights plan, the ability to issue preferred stock and certainsuch provisions in our by-laws maybylaws might have the effect of delaying, discouraging or preventing a change in control that might otherwise be beneficial to stockholders and might materially and adversely affect the market price of our Common Stock.common stock.

In addition, some provisions of Delaware law, particularly the “business combination” statute in Section 203 of Delaware General Corporation Law, might also discourage, delay or prevent someone from acquiring us or merging with us.  As a result of these provisions in our charter documents and Delaware law, the price investors might be willing to pay in the future for shares of our common stock might be limited.

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Our restated certificate of incorporation may discourage foreign ownershipallows us to redeem or otherwise dispose shares of our Common Stock.common stock owned by a foreign stockholder if certain U.S. Government agencies threaten termination of any of our contracts as a result of such an ownership interest.

The United States Departments of Energy and Defense have policies regarding foreign ownership, control or influence over government contractors who have access to classified information, and inquiremight conduct an inquiry as to whether any foreign interest has beneficial ownership of 5% or more of a contractor’s or subcontractor’s voting securities.  If either Department determines that an undue risk to the defense and security of the United States exists as a result of foreign ownership, control or influence over a government contractor (including as a result of a potential acquisition), it may,might, among other things, terminate the contractor’s or subcontractor’s existing contracts.  Our restated certificate of incorporation allows us to redeem or require the prompt disposition of all or any portion of the shares of our Common Stockcommon stock owned by a foreign stockholder beneficially owning 5% or more of the outstanding shares of our Common Stockcommon stock if either Department threatens termination of any of our contracts as a result of such an ownership interest.  These provisions may have the additional effect of delaying, discouraging or preventing a change in control and might materially and adversely affect the market price of our Common Stock.common stock.

We might need additional capital in the future, which might not be available to us.  The raising of additional equity might dilute your ownership in us.

We might need to raise additional funds through public or private debt or equity financings in order to meet various objectives, such as:

·                taking advantage of growth opportunities, including more rapid expansion;

·                acquiring complementary businesses or technologies;

·                developing new services and products; or

·                responding to competitive pressures.

Any additional capital raised through the sale of equity might dilute your ownership percentage in us.  Any additional debt financing would increase our leverage and might include covenants that may restrict our financial and operational flexibility, including our ability to invest in new business opportunities.

The price of our common stock might be highly volatile and could decline regardless of our operating performance.

The market price of our common stock could fluctuate in response to, among other things:

·         changes in financial estimates, treatment of our tax assets or liabilities or investment recommendations by securities analysts following our business;

·         changes in accounting standards, policies, guidance or interpretations or principles

·         sales of common stock by our directors, officers and significant stockholders;

·         our failure to achieve operating results consistent with securities analysts’ projections; and

·        the operating and stock price performance of competitors.

These factors might adversely affect the trading price of our common stock and prevent you from selling your common stock at or above the price at which you purchased it.  In addition, in recent years, the stock market has experienced significant price and volume fluctuations.  This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry.  These changes can occur without regard to the operating performance of the affected companies.  As a result, the price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our share price.

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Item 1B:         Unresolved Staff Comments

None.

Item 2:            Properties

The following information describes the material physical properties owned or leased by the Company

We do not own any significant real property, but we and its subsidiaries.

Asour subsidiaries lease an aggregate of December 31, 2006, the Company had leases for approximately 30,700 square feet in an office building in Elkridge, Maryland for its corporate headquarters office and approximately 128,000270,000 square feet of office, classroom and warehouse space at various other locations throughout the United States, the United Kingdom, Canada, Mexico, Malaysia, India and China.

Effective January 23, 2007 in connection with the acquisition of Sandy Corporation, the Company assumed leases forChina, typically, under long-term leases. We occupy approximately 71,60030,700 square feet ofin an office spacebuilding in Elkridge, Maryland for our corporate headquarters, under a lease which expires in 2013, and approximately 74,000 square feet in two office buildings in Troy, Michigan, and Long Beach, California and approximately 4,800 square feet of warehouse spaceunder leases which expire in Long Beach, California.2008.

The facilities owned or leased by the Company

We believe that our properties have been well maintained, are considered to be suitable and adequate for their intended usesus to operate at present levels and the productive capacity and extent of utilization of the facilities are considered to be well maintained andappropriate for our existing real estate requirements. Upon expiration of these leases, we do not anticipate any difficulty in good condition.obtaining renewals or alternative space.

Item 3:           Legal Proceedings

We discuss our legal proceedings in Note 1819 to the accompanying Consolidated Financial Statements.

Item 4:           Submission of Matters to a Vote of Security Holders

No

On December 10, 2007, we held our annual meeting of shareholders. At that meeting, the following matters were submittedvoted upon:

1.                    Our stockholders elected the Directors listed below for terms continuing until the 2008 annual meeting of stockholders by the following votes:

2.                    Our stockholders approved an amendment to a voteour Amended and Restated Certificate of security holders duringIncorporation, to increase the fourth quarterauthorized number of shares of Common Stock from 25 million shares to 35 million shares. Our stockholders cast 14,171,122 votes for this amendment, 417,485 votes against this amendment, and 46,005 abstentions.

3.                    Our stockholders ratified the appointment of KPMG LLP as our independent auditor for the fiscal year covered by this report.ending December 31, 2007. Our stockholders cast 14,457,756 votes for ratification of KPMG LLP, 129,392 votes against ratification of KPMG LLP, and 47,464 abstentions.

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Item 7:           Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2007 which are located in Item 8 of this report.

General Overview

The Company’s

Our business consists of itsour principal operating subsidiary, General Physics, a global training, engineering, technical services and consulting company that seeks to improve the effectiveness of organizations by providing training, management consulting, e-Learning solutions, engineering and engineeringtechnical services and products that are customized to meet the specific needs of clients. Clients include Fortune 500 companies and manufacturing, process and energy companies and other commercial and governmental customers. General Physics isWe believe we are a global leader in performance improvement, with over four decades of experience in providing solutions to optimize workforce performance.

AsPrior to the acquisition of December 31, 2006, the Company operated through itsSandy in January 2007, we had two reportable business segments:

·segments. Subsequent to the acquisition, Sandy is run as an unincorporated operating group of General Physics and constitutes a separate reportable business segment.  We are organized by operating group primarily based upon the markets served by each group and the services performed. The Manufacturing & BPO and Process, Energy & Government — thissegments represent an aggregation of the Company’s operating segments in accordance with the aggregation criteria in SFAS No. 131, and the Sandy Training & Marketing segment provides engineering consulting, designrepresents one operating segment as defined in SFAS No. 131. We review our reportable business segments on a continual basis and evaluation servicescould change our reportable business segments from time to time in the event of organizational changes.

Further information regarding facilities, the environment, processes and systems, staff augmentation, curriculum design and development, and training and technical services primarily to federal and state governmental agencies, large government contractors, petroleum and chemical refining companies, and electric power utilities.our business segments is discussed below.

·Manufacturing & BPO. Our Manufacturing & BPO - this segment providesdelivers training, curriculum design and development, staff augmentation, e-Learning services, system hosting, integration and help desk support, training business process and training outsourcing, and consulting and technical services primarily to large companies in the automotive, steel, pharmaceutical, electronics and semiconductors, financial and other industries as well as to governmental clients.government agencies. Our October 2007 acquisition of Via has expanded our delivery capabilities and diversified our core client base in the software, electronics and semiconductors and retail markets.  Our ability to deliver a wide range of training services allows us to take over the entire learning function for the client, including their training personnel.

Process, Energy & Government. Our Process, Energy & Government segment has over four decades of experience providing consulting, engineering, technical and training services, including emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to federal and state government agencies, large government contractors, petroleum and chemical refining companies and electric power utilities.

Sandy Training & Marketing.Acquired in January 2007, Sandy is a provider of custom product sales training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy provides custom product sales training designed to better educate customer sales forces with respect to new product features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship management strategy, measure performance against competitors and connect with their customers on a one-to-one basis.

We discuss our business in more detail in Item 1.Business and the risk factors affecting our business in Item 1A. Risk Factors.

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Strategy

The Company’s primary strategy is

We seek to increase shareholder value by pursuing the following strategies:

Continuously enhance our service offerings and capabilities.  We plan to continuously expand our services and capabilities through organic growth initiatives based upon our technical expertise as well as through targeted acquisitions.  For example, our acquisitions of PMC, Sandy and Via have added product sales training to our services offerings and expanded our e-Learning capabilities.  We believe that the breadth of our service and product offerings allows us to effectively compete for customers by offering a comprehensive and single-source solution for custom training, consulting, engineering and technical services.  We will continue to focus on increasing our capabilities to drive incremental growth from new, as well as existing, clients.

Capture a greater percentage of our customers’ training expenditures. We plan to grow our business by cross-selling our services and capabilities across and within our existing client base.  We have a successful track record of increasing the scope of our work for a number of our clients, many of whom we estimate currently outsource only a fraction of their training expenditures.  We believe that as our clients benefit from the effective, cost-efficient and flexible training solutions that we provide, many of them will find it beneficial to increase the scope of training services that they outsource to third party providers.  We believe that the strength of our relationships with our existing clients, including the insight and knowledge into their operations that we have developed through these relationships, when combined with the broad range of our service and product offerings, provide us with an advantage when competing for these additional expenditures.  For example, three years ago we began servicing one of our top clients through a $300,000 pilot program requiring the administration of two workforce development curricula.  Today, this client outsources to us 14 worldwide talent management curricula generating approximately $17 million in revenues in 2007, and we are working with this client on developing additional outsourced training programs.

Leverage BPO capabilities. We have a demonstrated ability to provide training BPO services across a wide spectrum of learning engagements from transactional multi-week assignments focused on a single aspect of a learning process to multi-year contracts where we manage the learning infrastructure of our customer. Integrated BPO engagements typically require us to assume responsibility for the development, delivery and administration of learning functions and are generally carried out under multi-year agreements. Our recent award of an integrated training BPO engagement with a Fortune 500 customer, whereby we were selected to provide a broad range of capabilities to meet strategic needs of its coreinternal training function, reflects our ability to successfully pursue this strategy. We believe that the award will increase the visibility of our BPO capabilities in the market place. We intend to leverage our BPO capabilities to expand the customers and markets we serve.

Expand our international presence into high growth markets. We believe international markets offer compelling and underpenetrated growth opportunities for our services. We intend to leverage our current international presence as well as continue pursuing our strategy of enhancing our international platform by selectively acquiring businesses within General Physics.  The Company plansin targeted geographies and following our current clients as they enter new geographic markets, such as the high-growth emerging markets of China and India. In our experience, many of our clients are seeking access to execute its growththese and other attractive international markets and we intend to enhance our international capabilities, including by providing training solutions across organizations and their employees in different countries and different languages, while maintaining quality and consistency in the overall training program, in order to support their business expansion.  By moving into specific international markets with our existing clients, we are able to not only deepen our relationships with those clients, but are also able to develop expertise in those markets that we can leverage to additional customers.  We believe that following this strategy by focusingprovides us with opportunities to gain access to international markets with established client relationships in those markets.

Continue our disciplined acquisition strategy. We plan to continue to focus on the following key initiatives:identifying compelling strategic acquisition targets to enhance our service offerings and delivery capabilities and to expand our

·Sales Training — The Company has historically provided technical training

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geographic footprint. We have followed a disciplined approach to target selection and have been able to acquire complementary businesses at what we believe are attractive valuations, thereby expanding our existing footprint. Since 2006, we have acquired four businesses with annualized revenues totaling over $85 million, adding complementary services and believes that there is a significant market demand for custom sales training services. The Company took the first step of this initiative through the completion of its acquisition of Sandy Corporation on January 23, 2007. Sandy Corporation is a leader in customsuch as product sales training and has primarily served manufacturing customersexpanding our e-Learning capability. Two of these businesses are in the U.S. automotive industry for over 30 years. The acquisition will enhance the Company’s existing service offerings by adding custom product sales trainingUnited Kingdom, both of which have strengthened our international platform and enhanced our ability to its offering mix.  The Company plans to supportmeet the needs of Sandy Corporation’sour global clients while providing additional client opportunities. We also believe that our current customers and intends to expand its offerings worldwide and offer its unique innovative solutions to existing clientsoperating structure, which utilizes a centralized infrastructure of the Company. In order to achieve expansion of sales trainingcorporate services the Company plans to strategically pursue other selected markets where it believes it can leverage its existing capabilities.

·International Expansion — The Company has witnessed an increased demand for additional services in foreign countries from existing multinational customers based in the United States and Europe. The Company believes the greatest area of potential growth is in Asia. The Company has taken steps toward achieving its international growth strategy in the following areas:

·                  India — In January 2007, the Company opened an office in Chennai, India, to support existing customersour various platforms, enhances our ability to quickly and a growing presence in Asia. The Company primarily provides BPOcost-effectively integrate acquisitions. We look to identify acquisitions to augment our capabilities when we believe acquisitions are the quickest and technical

training services to an existing semi-conductor customer through its India office,most efficient way of expanding our platform and plans to expand business in this region.service offerings.

·                  China — The Company recently began leasing office space in Shanghai, China and is evaluating several potential opportunities with new and existing customer relationships. The Company believes it can expand its technical training services to the automotive industry in China and plans to leverage the capabilities from its acquisition of Sandy Corporation in this area.

·                  Singapore — The Company has maintained an office in Singapore for several years and primarily provides training outsourcing services. The Company has added resources there and believes it can expand its existing service offerings in this region to new and existing multinational companies.

·                  Malaysia — Through its subsidiary in Kuala Lumpur, Malaysia, the Company has provided professional services to the power generation industry in Asia on a continuous basis since at least 1998. During that period, the Company has primarily provided training, operations, maintenance, and engineering services to many of the large fossil power, and steam and power generating facilities. The Company believes it can expand these services and provide training and BPO services in this region as well.

·Training and Business Process Outsourcing (BPO) — The Company has experienced significant growth in recent years in its Manufacturing & BPO group primarily due to the expansion of Training & BPO services, which include the management and administration of customers’ training departments and other administrative functions. The Company believes there is a large potential for additional growth for these service offerings across all industries. The Company plans to continue its focus on marketing these services to new and existing customers, as well as internationally as discussed above.

Significant Events

Acquisitions

Below is a summary of the four businesses we acquired during 2007 and 2006. See Note 4 to the Consolidated Financial Statements for further details, including the purchase price allocations.

Via Training, LLC (Via)

On October 1, 2007, General Physics acquired Via, a U.S. custom e-Learning sales training company, for a purchase price of $1.8 million in cash paid at closing. In addition, General Physics may be required to pay up to an additional $3.3 million, contingent upon Via achieving certain earnings targets, as defined in the purchase agreement, during the two twelve-month periods following the completion of the acquisition. Via is included in our Manufacturing & BPO segment and its results of operations are included in our consolidated financial statements for the period beginning October 1, 2007. The pro-forma impact of the Via acquisition is not material to our results of operations for the year ended December 31, 2007.

Smallpeice Enterprises Limited (SEL)

On June 1, 2007, General Physics, through its wholly owned GPUK subsidiary, completed the acquisition of SEL, a provider of business improvement and technical and management training services in the United Kingdom. GPUK acquired 100% ownership of SEL for a purchase price of approximately $3.3 million in cash. In addition, General Physics may be required to pay the seller up to an additional $1.8 million, contingent upon SEL achieving certain earnings targets, as defined in the purchase agreement, during the one-year period following completion of the acquisition. SEL is included in our Manufacturing & BPO segment and its results of operations are included in our consolidated financial statements for the period beginning June 1, 2007. The pro-forma impact of the SEL acquisition is not material to our results of operations for the year ended December 31, 2007.

Sandy Corporation

On January 23, 2007, General Physics completed the acquisition of certain operating assets and the business of Sandy, Corporation,a leader in custom product sales training and part of the ADP Dealer Services division of ADP. The Sandy, Corporation businesswhich is run as an unincorporated division of General Physics. Sandy CorporationPhysics, offers custom sales training and print-based and electronic publications primarily to the U.S. automotive industry. TheGeneral Physics acquired certain assets and the business of Sandy for a purchase price at closing consisted of approximately $5.2$4.4 million in cash paid to ADP withfrom cash on hand and the assumption of certain liabilities by General Physics to complete contracts, subject to post-closing adjustments.  The Company currently anticipates that the final cash purchase price will be approximately $4.4 million after post-closing adjustments based on the final clos ing balance sheet of Sandy Corporation as of the effective date of the acquisition.c ontracts. In addition, General Physics may be required to pay ADP up to an additional $8.0 million, contingent upon Sandy Corporation achieving certain revenue targets, (asas defined in the purchase agreement)agreement, during the two twelve-month periods following the completion of the acquisition. SFAS No. 141, Business Combinations (“SFAS No. 141”), requires that earned but unpaid contingent consideration be accrued to the extent that the amount earned is determinable beyond a reasonable doubt as of the balance sheet date. As of December 31, 2007, we accrued $2.0 million of contingent consideration with respect to the first twelve-month period following the

29

“Amendment”). At the Company’sour 2006 annual meeting of shareholders on September 14, 2006, the stockholders voted to approve the Amendmen t. The Amendment was filed with the Delaware Secretary of State and was effective September 15, 2006.Amendment.

Share Repurchase Program

In

On January 19, 2006, in connection with the capital stock restructuring discussed above, the Companyour Board of Directors authorized the repurchaserepurcha se of up to $5 million of additional common shares of our Common Stock from time to time in the open market, subject to prevailing business and market conditions and other factors. In August 2007, our Board of Directors authorized an additional $5 million of future share repurchases under the buyback program. During the yearyears ended December 31, 2007 and 2006, the Companywe repurchased approximately 678,500 and 420,000 shares, respectively, of itsour Common Stock in the open market for a total cost of approximately $6.5 million and $3.1 million.million, respectively. As of December 31, 2007, there was approximately $0.4 million available for future repurchases under the buyback program. In March 2008, our Board of Directors authorized an additional $3 million of future share repurchases under the buyback program. There is no expiration date for the repurchase program.

Results of Operations

Operating Highlights

Year ended December 31, 2007 compared to the year ended December 31, 2006

For the year ended December 31, 2007, we had income from continuing operations before income taxes of $16.9 million compared to $11.7 million for the year ended December 31, 2006. The improved results are primarily due to an increase in operating income of $5.0 million, the components of which are discussed below, and is attributable to increases in operating income across all of our business segments as well as the Sandy and SEL acquisitions which were accretive to earnings in 2007. Net income was $9.7 million, or $0.56 per diluted share, for the year ended December 31, 2007 compared to net income of $6.6 million, or $0.40 per diluted share, for 2006.

Diluted weighted average shares outstanding were 17.2 million for the year ended December 31, 2007 compared to 16.7 million for the same period in 2006. The increase in shares outstanding is due to the issuance of more shares in 2007 compared to 2006 for exercises of warrants and stock options. This was offset by repurchases of our common stock in the open market. In connection with our share repurchase program, we repurchased 678,500 shares of common stock in the open market during the year ended December 31, 2007 for approximately $6.5 million in cash.

Revenue

Manufacturing & BPO revenue increased $9.7 million or 9.6% during the year ended December 31, 2007 compared to 2006. The increase in revenue is due to the following: a $5.9 million increase in revenue from our operations in the United Kingdom which consists of a $3.4 million increase due to the acquisition of SEL during 2007, a $1.4 million increase attributable to the impact of foreign currency exchange rate increases in 2007

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compared to 2006, and a net increase of $1.1 million in training services provided to new and existing customers; a $1.5 million increase in revenue resulting from our acquisition of Via in October 2007; a $1.6 million increase in training and consulting services provided to steel customers; a $1.5 million increase in training and technical services primarily to new customers; and net increases of $1.0 million in training services provided to BPO and e-Learning customers ($1.0 net increase was comprised of $5.8 million of increases with new and existing customers, offset by a $4.8 million decrease due to a reduction in scope with a BPO customer in 2007 compared to 2006). These increases in revenue were offset by a $1.8 million decrease in revenue on a lean manufacturing contract which had a reduction in scope in 2007 compared to 2006.

Process, Energy & Government revenue decreased $5.6 million or 7.2% during the year ended December 31, 2007 compared to 2006. The decrease in revenue is primarily due to the following: a decrease of $5.3 million due to the completion of chemical demilitarization and environmental projects with government clients; a $4.8 million decrease in hurricane recovery services in 2007 compared to 2006 due to the work concluding in 2006; a $1.0 million decline in revenue  in 2007 compared to 2006 on a domestic preparedness contract with the U.S. Army Domestic Preparedness Equipment Technical Assistance Program (DPETAP) due to a prior funding cut in 2006. These decreases were offset by an increase in revenue of $1.3 million for domestic preparedness and emergency awareness training services provided to other federal and state government clients; an increase in revenue of $3.7 million in engineering and training services for petroleum and refining customers; and other net increases of $0.5 million primarily for training and technical services provided to energy customers.

The acquisition of Sandy resulted in an increase in revenue of $65.5 million during the year ended December 31, 2007. The results of Sandy’s operations have been included in our consolidated statement of operations since the completion of the acquisition on January 23, 2007. We may experience significant quarterly fluctuations in revenue and income related to Sandy’s publications business, since revenue and cost on publication contracts are recognized in the period in which the publications ship, based on the output method of performance. Shipments occur at various times throughout the year and the volume of publications shipped could fluctuate from quarter to quarter. Publications revenue in the Sandy Training & Marketing segment totaled $4.5 million during the fourth quarter of 2007, compared to $1.4 million during the third quarter of 2007, $4.1 million during the second quarter of 2007 and $2.6 million during the first quarter of 2007.

In addition, as a result of the acquisition of Sandy, we have a concentration of revenue from General Motors as well as a market concentration in the automotive sector. Revenue from General Motors accounted for approximately 21% of our consolidated revenue for the year ended December 31, 2007, and revenue from the automotive industry accounted for approximately 30% of our consolidated revenue for the year ended December 31, 2007.

Gross profit

Manufacturing & BPO gross profit of $14.5 million or 13.0% of revenue for the year ended December 31, 2007 increased by $1.1 million or 8.2% when compared to gross profit of approximately $13.4 million or 13.2% of revenue for the year ended December 31, 2006. This increase in gross profit is primarily attributable to the

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Year ended December 31, 2006 compared to the year ended December 31, 2005

For the year ended December 31, 2006, the Companywe had net income of $6.6 million, or $0.40 per diluted share, compared to $7.2 million, or $0.38 per diluted share, for the year ended December 31, 2005. The decrease in net income was primarily due to the gain on litigation settlement net of legal fees and expenses of $5.6 million during 2005 which did not recur in 2006, offset by increased operating income in 2006 of $1.4 million, the components of which are discussed below, and a loss from discontinued operations of $1.2 million, or $0.07 per diluted share, in 2005 which did not recur in 2006. The increase in diluted earnings per share is also partially attributable to the decrease in common shares outstanding during 2006 compared to 2005 as a result of the capital stock restructuring discussed above. Diluted weighted average shares outstanding were 16.7 million in 2006 compared to 18.9 million in 2005.

Revenue

Process, Energy & Government revenue decreased $8.5 million or 9.9% during the year ended December 31, 2006 compared to 2005. The decrease in revenue is primarily due to a $10.7 million decline in government funding for the Domestic Preparedness Equipment Technical Assistance Program (DPETAP) contract during 2006. A scheduling delay on an environmental engineering contract also resulted in a decrease in revenue of $3.7 million in 2006 compared to 2005. In addition, there was a decrease in revenue of $1.9 million due to the completion of a chemical demilitarization project which ended in 2006.  These decreases were offset by an increase in hurricane recovery services revenue of $3.1 million, an increase of $1.5 million on construction jobs primarily for wastewater treatment, an increase of $1.4 million in lean six sigma services, an increase of $1.1 million related to a hydrogen fuel station design and construction contract, and an increase of $0.7 million related to a liquefied natural gas (LNG) fueling station project.

Manufacturing & BPO revenue increased $11.7 million or 13.1% during the year ended December 31, 2006 compared to 2005. The increase in revenue is due to the following: a $8.4 million increase due to the expansion of business process outsourcing services with new and existing customers, a $4.1 million increase from our international operations in the United Kingdom (primarily resulting from the PMC acquisition in February 2006 which resulted in a $2.9 million revenue increase as well as an increase in BPO services), a $2.7 million increase in lean manufacturing services, and a $1.8 million increase in other technical services provided primarily to a pharmaceutical customer. These net increases in revenue were offset by the following decreases in revenue: a change in contract scope with a business process outsourcing customer during 2005 which resulted in a decrease in revenue of $2.7 million during the first two quarters of 2006 compared to 2005, a $1.5 million revenue decrease in government e-Learning implementation services due to fewer implementations taking place during the third and fourth quarters of 2006 compared to 2005, and net decreases of $1.1 million on various other contracts.

Gross profit

Process, Energy & Government gross profit of $13.2revenue decreased $8.5 million or 17.0% of revenue for9.9% during the year ended December 31, 2006 decreased by $3.0 million or 18.7% when compared to gross profit of approximately $16.2 million or 18.9% of revenue for the year ended December 31, 2005. ThisThe decrease in gross profitrevenue is primarily attributabledue to a $10.7 million decline in government funding for the DPETAPDomestic Preparedness Equipment Technical Assistance Program (DPETAP) contract during 2006. A scheduling delay on an environmental engineering contract also resulted in a decrease in revenue of $3.7 million in 2006 compared to 2005. In addition, there was a decrease in revenue of $1.9 million due to the completion of a chemical demilitarization project which ended in 2006. These decreases were offset by an increase in hurricane recovery services revenue of $3.1 million, an increase of $1.5 million on construction jobs primarily for wastewater treatment, an increase of $1.4 million in lean six sigma services, an increase of $1.1 million related to a hydrogen fuel station design and construction contract, and other decreases in revenue discussed above.an increase of $0.7 million related to a liquefied natural gas (LNG) fueling station project.

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Gross profit

Manufacturing & BPO gross profit of $13.4 million or 13.2% of revenue for the year ended December 31, 2006 increased by $4.6 million or 52.4% when compared to gross profit of approximately $8.8 million or 9.8% of revenue for the year ended December 31, 2005. This increase in gross profit is primarily attributable to an increase in revenue from business process outsourcing, lean manufacturing and other technical services, as well as international growth during 2006 compared to 2005. Additionally, infrastructure costs have not increased at the same rate as our revenue growth for this segment, resulting in increased profitability.

Process, Energy & Government gross profit of $13.2 million or 17.0% of revenue for the year ended December 31, 2006 decreased by $3.0 million or 18.7% when compared to gross profit of approximately $16.2 million or 18.9% of revenue for the year ended December 31, 2005. This decrease in gross profit is primarily attributable to a decline in government funding for the DPETAP contract and other decreases in revenue discussed above.

Selling, general and administrative expenses

SG&A expenses increased $0.2 million or 1.6% from $14.0 million for the year ended December 31, 2005 to $14.3 million for the year ended December 31, 2006. The increase is primarily due to increases in indirect labor costs, stock-based compensation expense and board of director fees during 2006 compared to 2005, offset by a reversal of a prior restructuring accrual of $0.3 million by our operations in the United Kingdom in 2006 which did not occur in 2005.

Interest expense

Interest expense increased 2.6% from $1.5 million for the year ended December 31, 2005 to $1.6 million for the year ended December 31, 2006. The slight increase is primarily due to higher short-term borrowing levels during 2006 compared to 2005.

Other income

Other income increased $0.7 million from $0.2 million for the year ended December 31, 2005 to $1.0 million for the year ended December 31, 2006. The increase was primarily due to an increase in income from a joint venture during 2006 compared to 2005. Other income for 2006 includes $0.5 million of income from a joint venture, for which $0.3 million was included in revenue during 2005.

Gain on litigation settlement

The Company recognized a gain of $5.6 million for the litigation settlement proceeds paid by EDS in 2005, net of legal fees and expenses, which did not recur in 2006. See Note 1819 to the accompanying Consolidated Financial Statements for further details.

Income taxes

Income tax expense was $5.1 million for the year ended December 31, 2006 compared to $6.8 million for the year ended December 31, 2005. The decrease in income tax expense was primarily due to a decrease in income from continuing operations before income taxes in 2006 compared to 2005. As of December 31, 2006, the

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Company had federal net operating loss carryforwards of $22.4 million, which expire during 2022 and 2023.The2023. The effective income tax rate was 43.3% and 44.4% for the years ended December 31, 2006 and 2005, respectively (see Note 1112 to the accompanying Consolidated Financial Statements).

Year ended December 31, 2005 compared to the year ended December 31, 2004Liquidity and Capital Resources

Working Capital

For the year ended December 31, 2005, the Company had income2007, our working capital decreased $5.1 million from continuing operations before income taxes of $15.2$23.1 million compared to $14.0 million for the year endedat December 31, 2004. 2006 to $18.1 million at December 31, 2007.The improved results weredecrease from December 31, 2006 is primarily due to increased operating incomethe use of $4.7a total of $10.6 million for General Physics’ two business segments, a decreaseof cash to complete the acquisitions of Sandy in generalJanuary 2007, SEL in the United Kingdom in June 2007 and administrative expensesVia in October 2007. We also used approximately $6.5 million of $4.4 million atcash to repurchase 678,500 shares of our Common Stock in the corporate level, and a decrease in interest expense of $0.4 million.  Corporate general and administrative expenses in 2004 included corporate overhead expenses that were for the benefit of both continuing and discontinued operations, which were not allocated to discontinued operations unless they were solely attributable to NPDC.  These increases were offset by a decrease of $8.1 million in income relating to the EDS litigation in 2005 compared to 2004. In 2005, the Company recognized a gain on the litigation settlement, net of legal fees and expenses, of approximately $5.6 million compared to a gain on the arbitration award, net of legal fees and expenses, of approximately $13.7 million in 2004.

Revenue