GSE SYSTEMS INC, 10-K filed on 11 Jun 20
v3.20.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
May 31, 2020
Jun. 30, 2019
Cover [Abstract]      
Entity Registrant Name GSE SYSTEMS INC    
Entity Central Index Key 0000944480    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Shell Company false    
Entity Filer Category Non-accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Public Float     $ 47,033,354
Entity Common Stock, Shares Outstanding   20,389,082  
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Address, State or Province DE    
v3.20.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 11,691 $ 12,123
Contract receivables, net 17,207 21,077
Prepaid expenses and other current assets 1,880 1,800
Total current assets 30,778 35,000
Equipment, software, and leasehold improvements 5,523 5,293
Accumulated depreciation (4,584) (4,228)
Equipment, software, and leasehold improvements, net 939 1,065
Software development costs, net 641 615
Goodwill 13,339 13,170
Intangible assets, net 10,479 6,080
Deferred tax assets 57 5,461
Operating lease - right of use assets, net 2,215 0
Other assets 61 49
Total assets 58,509 61,440
Current liabilities    
Current portion of long-term debt, net of debt issuance costs and original issue discount 18,481 1,902
Accounts payable 1,097 1,307
Accrued expenses 1,871 2,646
Accrued compensation 1,876 3,649
Billings in excess of revenue earned 7,613 10,609
Accrued warranty 921 981
Income taxes payable 1,341 1,176
Other current liabilities 1,234 60
Total current liabilities 34,434 22,330
Long-term debt, less current portion, net of debt issuance costs and original issue discount 0 6,610
Operating lease liabilities 3,000 0
Other liabilities 956 1,371
Total liabilities 38,390 30,311
Commitments and contingencies
Stockholder's equity    
Preferred stock $0.01 par value, 2,000,000 shares authorized, no shares issued and outstanding 0 0
Common stock $0.01 par value; 60,000,000 shares authorized, 21,838,963 shares issued, 20,240,052 shares outstanding as of December 31, 2019; 60,000,000 shares authorized, 21,485,445 shares issued, 19,886,534 shares outstanding as of December 31, 2018 218 214
Additional paid-in capital 79,400 78,118
Accumulated deficit (54,654) (42,569)
Accumulated other comprehensive loss (1,846) (1,635)
Treasury stock at cost, 1,598,911 shares (2,999) (2,999)
Total stockholders' equity 20,119 31,129
Total liabilities and stockholders' equity $ 58,509 $ 61,440
v3.20.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Stockholder's equity    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 60,000,000 60,000,000
Common stock, shares issued (in shares) 21,838,963 21,485,445
Common stock, shares outstanding (in shares) 20,240,052 19,886,534
Treasury stock at cost (in shares) 1,598,911 1,598,911
v3.20.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]    
Revenue $ 82,975 $ 92,249
Cost of revenue 62,677 69,119
Gross profit 20,298 23,130
Operating expenses    
Selling, general and administrative 16,169 17,469
Research and development 710 899
Restructuring charges 2,478 1,269
Loss on impairment 5,597 0
Depreciation 363 515
Amortization of definite-lived intangible assets 2,400 1,612
Total operating expenses 27,717 21,764
Operating (loss) income (7,419) 1,366
Interest expense (988) (268)
Loss on derivative instruments (13) (350)
Other income (expense), net 2,068 29
Income (loss) before income taxes (6,352) 777
Provision (benefit) for income taxes 5,733 1,131
Net loss $ (12,085) $ (354)
Basic loss per common share (in dollars per share) $ (0.60) $ (0.02)
Diluted loss per common share (in dollars per share) $ (0.60) $ (0.02)
Weighted average shares outstanding - Basic (in shares) 20,062,021 19,704,999
Weighted average shares outstanding - Diluted (in shares) 20,062,021 19,704,999
v3.20.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]    
Net loss $ (12,085) $ (354)
Foreign currency translation adjustment (211) (164)
Comprehensive loss $ (12,296) $ (518)
v3.20.1
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Total
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Cumulative effect of new accounting principle | ASU 606 [Member] $ 0 $ 0 $ 655 $ 0 $ 0 $ 655
Balance at Dec. 31, 2017 $ 210 76,802 (42,870) (1,471) $ (2,999) 29,672
Balance (in shares) at Dec. 31, 2017 21,024,395       (1,598,911)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 1,668 0 0 $ 0 1,668
Common stock issued for options exercised (in shares) 219,997          
Common stock issued for options exercised $ 2 134 0 0 0 136
Common stock issued for RSUs vested (in shares) 241,053          
Common stock issued for RSUs vested $ 2 (2) 0 0 0 0
Shares withheld to pay taxes   (484)       (484)
Foreign currency translation adjustment 0 0 0 (164) 0 (164)
Net loss 0 0 (354) 0 0 (354)
Balance at Dec. 31, 2018 $ 214 78,118 (42,569) (1,635) $ (2,999) 31,129
Balance (in shares) at Dec. 31, 2018 21,485,445       (1,598,911)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 1,513 0 0 $ 0 1,513
Common stock issued for options exercised (in shares) 9,011          
Common stock issued for options exercised $ 1 0 0 0 0 1
Common stock issued for RSUs vested (in shares) 344,507          
Common stock issued for RSUs vested $ 3 (3) 0 0 0 0
Shares withheld to pay taxes 0 (228) 0 0 0 (228)
Foreign currency translation adjustment 0 0 0 (211) 0 (211)
Net loss 0 0 (12,085) 0 0 (12,085)
Balance at Dec. 31, 2019 $ 218 $ 79,400 $ (54,654) $ (1,846) $ (2,999) $ 20,119
Balance (in shares) at Dec. 31, 2019 21,838,963       (1,598,911)  
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Cash flows provided by operating activities    
Net loss $ (12,085) $ (354)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Write-off of long-lived assets to be disposed of 5,597 0
Depreciation 363 515
Amortization of definite-lived intangible assets 2,400 1,612
Amortization of capitalized software development costs 366 507
Change in fair value of contingent consideration (1,200) 0
Stock-based compensation expense 1,420 1,526
Bad debt expense 31 294
Loss on derivative instruments, net 13 350
Deferred income taxes 5,349 644
(Gain) on sale of equipment, software, and leasehold improvements (66) 0
Changes in assets and liabilities    
Contract receivables, net 6,754 (5,656)
Prepaid expenses and other assets 532 856
Accounts payable, accrued compensation, and accrued expenses (3,458) (838)
Billings in excess of revenue earned (3,051) (2,984)
Accrued warranty (294) (322)
Other liabilities 1,333 367
Net cash provided by (used in) operating activities 4,004 (3,483)
Cash flows from investing activities:    
Purchase of equipment, software and leasehold improvements (131) (513)
Proceeds from sale of assets 13 0
Capitalized software development costs (392) (432)
Acquisition of True North Consulting, net of cash acquired 0 (9,609)
Acquisition of DP Engineering, net of cash acquired (13,542) 0
Net cash used in investing activities (14,052) (10,554)
Cash flows from financing activities:    
Proceeds from issuance of long-term debt 14,263 10,154
Repayment of long-term debt (4,294) (1,642)
Proceeds from issuance of common stock 1 136
Shares withheld to pay taxes on stock based compensation (228) (484)
Contingent consideration payments to former owners of Hyperspring, LLC 0 (1,701)
Net cash provided by financing activities 9,742 6,463
Effect of exchange rate changes on cash (126) (374)
Net decrease in cash, cash equivalents, and restricted cash (432) (7,948)
Cash, cash equivalents, and restricted cash, beginning balance 12,123 20,071
Cash, cash equivalents, and restricted cash, ending balance $ 11,691 $ 12,123
v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
1.  Summary of Significant Accounting Policies

Principles of consolidation

GSE Systems, Inc. is a leading provider of professional and technical engineering, staffing services, and simulation software to clients in the power and process industries. References in this report to “GSE,” the “Company,” “we” and “our” are to GSE Systems and its subsidiaries, collectively. All intercompany balances and transactions have been eliminated in consolidation.

Accounting estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates the estimates used, including, but not limited to those related to revenue recognition on long-term contracts, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, impairment of long-lived assets, valuation of contingent consideration issued in business acquisitions, valuation of stock based compensation awards and the recoverability of deferred tax assets. Actual results could differ from these estimates.

Business combinations
Business combinations are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), ASC 805, Business Combinations, using the acquisition method. Under the acquisition method, the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree are recognized at fair value on the acquisition date, which is the date on which control is transferred to the Company. Any excess purchase price is recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred.
Revenues and the results of operations of the acquired business are included in the accompanying consolidated statements of operations commencing on the date of acquisition.
Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Under ASC 805, contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates, and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

Revenue recognition

The Company derives its revenue through three broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3) Training and Consulting services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.
The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware, software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the training simulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under the SDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward complete satisfaction of the performance obligation. PCS revenue is recognized ratably over the service period, as PCS is deemed a stand-ready obligation.
In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to the Company’s revenue recognition as a significant change in the estimates can cause the Company’s revenue and related margins to change significantly from the amounts estimated in the early stages of the project.
The SDB contracts generally provide a one-year base warranty on the systems. The base warranty will not be accounted for as a separate performance obligation under the contract because it does not provide the customer with a service in addition to the assurance that the completed project complies with agreed-upon specifications. Warranties extended beyond our typical one-year period will be evaluated on a case by case basis to determine if it provides more than just assurance that the product operates as intended, which requires carve-out as a separate performance obligation.
Revenue from the sale of perpetual standalone and term software licenses, which do not require significant modification or customization, is recognized upon its delivery to the customer. Revenue from the sale of cloud based subscription applications is recognized ratably over the subscription period following delivery to the customer. Delivery is considered to have occurred when the customer receives access to the software or the cloud based application.
A software license sale contract with multiple deliverables typically includes the following elements: license, installation and training services, and PCS. The total transaction price of a software license sale contract is typically fixed, and is allocated to the identified performance obligations based on their relative standalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license revenue is recognized when the software license is delivered to the customer; installation and training revenue is recognized when the installation and training is completed without regard to a detailed evaluation of the point in time criteria due to the short-term nature of the installation and training services (one to two days on average); and PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.
The contracts within the training and consulting services revenue stream are either time and materials (T&M) based or fixed-price based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed by type of work, as well as approved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance with ASC 606-10-55-18, Revenue from contracts with customers, we elected to apply the “right to invoice” practical expedient, under which we recognize revenue in the amount to which we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary worker multiplied by the bill rate for the type of work, as well as approved expenses incurred. Under a typical fixed-price contract, we recognize the revenue on a Percentage of Completion basis as it relates to GSE Construction Contracts with revenue recognized based on project delivery over time. Revenue from the sale of short-term contracts with a delivery period of one month or less is recognized in the month completed.

For contracts with multiple performance obligations, we allocate the contract price to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers.

Cash and cash equivalents

Cash and cash equivalents represent cash and highly liquid investments including money market accounts with maturities of three months or less at the date of purchase.

Contract receivables, net

Contract receivables include recoverable costs and accrued profit not billed which represents revenue recognized in excess of amounts billed. Billings in excess of costs and estimated earnings on uncompleted contracts in the accompanying consolidated balance sheets represent advanced billings to clients on contracts in advance of work performed. Generally, such amounts will be earned and recognized over the next twelve months.
Billed receivables are recorded at invoiced amounts. The allowance for doubtful accounts is based on historical trends of past due accounts, write-offs, specific identification and review of customer accounts.

Impairment of long-lived assets

Long-lived assets, such as equipment, purchased software, capitalized software development costs, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized at the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of would be separately presented in the consolidated balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated.

Development expenditures

Development expenditures incurred to meet customer specifications under contracts are charged to contract costs. Company sponsored development expenditures are either charged to operations as incurred and are included in research and development expenses or are capitalized as software development costs. The amounts incurred for Company sponsored development activities relating to the development of new products and services or the improvement of existing products and services, were approximately $1.1 million and $1.3 million for the years ended December 31, 2019 and 2018, respectively. Of this amount, the Company capitalized approximately $0.4 million for the years ended December 31, 2019 and 2018.

Equipment, software and leasehold improvements, net

Equipment and purchased software are recorded at cost and depreciated using the straight-line method with estimated useful lives ranging from three years to ten years. Leasehold improvements are amortized over the life of the lease or the estimated useful life, whichever is shorter, using the straight-line method. Upon sale or retirement, the cost and related depreciation are eliminated from the respective accounts and any resulting gain or loss is included in operations. Maintenance and repairs are charged to expense as incurred.

Software development costs

Certain computer software development costs, including direct labor cost, are capitalized in the accompanying consolidated balance sheets. Capitalization of computer software development costs begins upon the establishment of technological feasibility. Capitalization ceases and amortization of capitalized costs begins when the software product is commercially available for general release to customers. Amortization of capitalized computer software development costs is included in cost of revenue and is determined using the straight-line method over the remaining estimated economic life of the product, typically three years. On an annual basis, or more frequently as conditions indicate, the Company assesses the recovery of the unamortized software development costs by estimating the net undiscounted cash flows expected to be generated by the sale of the product. If the undiscounted cash flows are not sufficient to recover the unamortized software costs the Company will write-down the carrying amount of such asset to its estimated fair value based on the future discounted cash flows. The excess of any unamortized computer software costs over the related fair value is written down and charged to operations.

Goodwill and intangible assets

The Company’s intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, trade names, non-compete agreements and alliance agreements. Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contract backlog and contractual customer relations, which are recognized in proportion to the related project revenue streams. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. The Company does not have any intangible assets with indefinite useful lives.
Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company reviews goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with Accounting Standards Update (“ASU”) 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The Company tests goodwill at the reporting unit level.
ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under ASU 2011-08, an entity is not required to perform step one of the goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. 

On February 15, 2019, we acquired DP Engineering (as described in Note 4) and preliminarily recorded goodwill and identified intangible assets as part of the acquisition. On February 23, 2019, an unexpected event occurred at one of DP Engineering’s significant customers and all pending work for that customer was suspended pending a root cause analysis on February 28, 2019. On May 10, 2019, the Company determined that a material impairment had occurred, requiring an assessment for impairment to be completed related to $5.8 million of goodwill recorded in the acquisition. See Note 7.

For the annual goodwill impairment test as of December 31, 2019, the Company performed a quantitative step 1 goodwill impairment analysis and have concluded that the estimated fair values of each of the reporting units exceeded their respective carrying values. No further goodwill impairment was recorded during 2019. At December 31, 2018, we performed a qualitative step 0 goodwill impairment test and concluded that the fair values of each of our reporting units exceeded their respective carrying values.

Foreign currency translation

The United States Dollar (“USD”) is the functional currency of GSE and our subsidiaries operating in the United States. Our subsidiaries’ financial statements are maintained in their functional currencies. The functional currency of each of our foreign subsidiaries is the currency of the economic environment in which the subsidiary primarily does business. Our foreign subsidiaries’ financial statements are translated into USD using the exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated into USD using the period-end spot foreign exchange rates. Income and expenses are translated at the average exchange rate for the year. Equity accounts are translated at historical exchange rates. The effects of these translation adjustments are cumulative translation adjustments, which are reported as a component of accumulated other comprehensive income (loss) included in the consolidated statements of changes in stockholders’ equity.
For any business transaction that is in a currency different from the entity’s functional currency, we record a gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled) to foreign currency realized gain (loss) account, net gain (loss) on derivative instruments in the consolidated statements of operations.

Income taxes

Income taxes are provided under the asset and liability method. Under this method, deferred income taxes are determined based on the differences between the consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. A provision is made for the Company’s current liability for federal, state and foreign income taxes and the change in the Company’s deferred income tax assets and liabilities.

We establish accruals for uncertain tax positions taken or expected to be taken in a tax return when it is not more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Favorable or unfavorable adjustment of the accrual for any particular issue would be recognized as an increase or decrease to income tax expense in the period of a change in facts and circumstances. Interest and penalties related to income taxes are accounted for as income tax expense.

Stock-based compensation

Share-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718, Compensation-Stock Compensation. Compensation expense related to share based awards is recognized on a pro rata straight-line basis based on the value of share awards that are scheduled to vest during the requisite service period.

Significant customers and concentration of credit risk

For the year ended December 31, 2019, we have a concentration of revenue from one individual customer, which accounted for 27.8% of our consolidated revenue. For the year ended December 31, 2018, we have a concentration of revenue from two customers, which accounted for 14.3% and 26.9% of our consolidated revenue, respectively. These customers are part of both Performance and NITC segments. No other individual customer accounted for more than 10% of our consolidated revenue in 2019 or 2018.
As of December 31, 2019, we have two customers that accounted for 10.3% and 12.6% of the Company’s consolidated contract receivables. As of December 31, 2018, the Company had one customer that accounted for 16.8% of the Company’s consolidated contract receivables. No other individual customer accounted for more than 10% of our consolidated revenue in 2019 or 2018.

Fair values of financial instruments

The carrying amounts of current assets and current liabilities reported in the consolidated balance sheets approximate fair value due to their short term duration.

Derivative instruments

The Company utilizes forward foreign currency exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates. It is the Company’s policy to use such derivative financial instruments to protect against market risk arising in the normal course of business in order to reduce the impact of these exposures. The Company minimizes credit exposure by limiting counterparties to nationally recognized financial institutions.

Earnings per share

Basic loss per share is computed by dividing our net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing our net loss available to common shareholders by the diluted weighted average number of shares of common stock during the period. Since we experienced a net loss for all periods presented, basic and diluted net loss per share are the same. As such, diluted loss per share for the years ended December 31, 2019 and 2018 excludes the impact of potentially dilutive common shares since those shares would have an anti-dilutive effect on loss per share.

The number of common shares and common share equivalents used in the determination of basic and diluted (loss) earnings per share were as follows:

(in thousands, except for per share data)
 
Years ended December 31,
 
  
2019
  
2018
 
Numerator:
      
Net (loss) income attributed to common stockholders
 
$
(12,085
)
 
$
(354
)
         
Denominator:
        
Weighted-average shares outstanding for basic earnings per share
  
20,062,021
   
19,704,999
 
         
Effect of dilutive securities:
        
Employee stock options and warrants
  
-
   
-
 
         
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share
  
20,062,021
   
19,704,999
 
         
Shares related to dilutive securities excluded because inclusion would be anti-dilutive
  
314,234
   
217,152
 

Conversion of certain outstanding stock options was not assumed for the years ended December 31, 2019 and 2018 because the impact would have been anti-dilutive.

Going Concern Consideration

We are in compliance with the amended financial covenants contained in our debt agreement with Citizen’s Bank at December 31, 2019 and in April 2020 entered into an amendment, which removes certain covenants through March 31, 2021.

We are experiencing, as a result of the COVID-19 pandemic a negative impact on our financial position and results of operations. We have, and are likely to continue to experience loss or delayed orders, disruption of business as a result of worker illness or mandated shutdowns, and this could impact our ability to maintain compliance with loan covenants, our ability to  refinance existing indebtedness, and access to new capital. As part of our certification for the Paycheck Protection Program ("PPP") we indicated without these funds, the risk of employee terminations, layoffs and other drastic cost reductions exists. While the PPP funds will provide sufficient liquidity for the Company these funds will not prevent us from potentially not meeting the minimum EBITDA covenants and potentially not meeting the leverage ratio covenants in the future. Including the proceeds from our PPP loan, we believe we have sufficient cash to meet our operating requirement needs for at least the next twelve months, however since some of our loan covenants are related to operating performance, and our operating performance is being significantly impacted by COVID-19 we believe it is probable we will not meet our debt covenants requirement during all of 2020. If our debt becomes due and payable as a result of a covenant violation, it calls into question our ability to continue as a going concern.

v3.20.1
Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2019
Recent Accounting Pronouncements [Abstract]  
Recent Accounting Pronouncements
2.  Recent Accounting Pronouncements

Accounting pronouncements recently adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842), a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest applicable period presented in the consolidated financial statements, with certain practical expedients available.

The Company adopted the new standard using the modified retrospective approach effective on January 1, 2019. The Company’s adoption included lease codification improvements that were issued by the FASB through June 2019.

The FASB made available several practical expedients in adopting the new lease accounting guidance. The Company elected the package of practical expedients permitted under the transition guidance within the amended guidance, which among other things, allowed registrants to carry forward historical lease classification. The Company elected the practical expedient that allows the combination of both lease and non-lease components as a single component and account for it as a lease for all classes of underlying assets. The Company elected not to apply the new guidance to short term leases with an initial term of twelve months or less. The Company recognizes those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company elected to use a single discount rate for a portfolio of leases with reasonably similar characteristics.

The most significant impact was the recognition of ROU assets and related lease liabilities for operating leases on the consolidated balance sheets. The Company recognized ROU assets and related lease liabilities of $2.7 million and $3.0 million respectively, related to operating lease commitments, as of January 1, 2019. The operating lease ROU asset represents the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The new guidance did not have a material impact on the Company’s cash flows or results of operations. See Note 18 of the consolidated financial statements.

Accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The ASU is effective for public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On October 16, 2019 the FASB voted to defer the deadlines for private companies and certain small public companies, including smaller reporting companies, to implement the new accounting standards on credit losses. The new effective date is January 1, 2023. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on the Company’s consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.  ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation.  Goodwill impairment will now be the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill.  ASU 2017-04 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2019.  We are currently evaluating the potential impact of the adoption of ASU 2017-04 on our consolidated financial statements.

v3.20.1
Revision and Immaterial Correction of an Error in Previously Issued Financial Statements
12 Months Ended
Dec. 31, 2019
Revision and Immaterial Correction of an Error in Previously Issued Financial Statements [Abstract]  
Revision and Immaterial Correction of an Error in Previously Issued Financial Statements
3. Revision and Immaterial Correction of an Error in Previously Issued Financial Statements
During the quarter ended December 31, 2019, we identified errors related to the impairment of intangibles we acquired as part of our acquisition of DP Engineering.  In our March 31, 2019 interim unaudited financial statements we recorded an impairment charge to both our definite-lived intangible assets  (customer relationships) of $3.4 million and goodwill of $2.2 million. Subsequently, we concluded no impairment of the definite-lived intangibles was necessary and the entire impairment amount should have been allocated to goodwill. The revision had no overall impact on the amount of the total impairment but did impact the allocation of impairment between definite-lived intangibles and goodwill. This revision results in additional amortization of the definite-lived intangible asset. In accordance with ASC 250, Accounting Changes and Error Corrections, we evaluated the materiality of the errors from quantitative and qualitative perspectives and concluded that the errors were immaterial to the Company’s prior 2019 interim unaudited financial statements. Since these revisions were not material to any prior period interim financial statements, no amendments to previously filed interim periodic reports are required. Consequently, the Company has adjusted for these errors by revising our historical unaudited financial statements presented herein.  The Company corrected this immaterial error by revising the March 30, 2019, June 30, 2019 and September 30, 2019 unaudited financial statements included herein.
The tables below present the effect of the financial statement adjustments related to the revision discussed above of the Company’s previously reported financial statements as of and for the periods ended March 31, June 30, and September 30, 2019. The cumulative tax effect of the revision is reflected in the twelve months ended December 31, 2019 financial statements. This misstatement had no net impact on the Company’s consolidated statements of cash flows.

The effect of the immaterial correction of an error on our previously filed unaudited consolidated financial statements as of and for the three months ended March 31, 2019 is as follows:

Consolidated balance sheets
         
(in thousands)
         
  
Three months ended March 31, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Goodwill
 
$
16,709
  
$
(3,370
)
 
$
13,339
 
Intangible assets, net
  
8,999
   
3,309
   
12,308
 
Total assets
 
$
71,424
  
$
(61
)
 
$
71,363
 
             
Accumulated deficit
  
(46,805
)
  
(61
)
  
(46,866
)
Total liabilities and stockholders' equity
 
$
71,424
  
$
(61
)
 
$
71,363
 

Consolidated statement of operations
         
  
Three months ended March 31, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Amortization of definite-lived intangible assets
 
$
509
  
$
61
  
$
570
 
Loss before income taxes
  
(6,084
)
  
(61
)
  
(6,145
)
Net loss
 
$
(4,236
)
 
$
(61
)
 
$
(4,297
)
             
Basic loss per common share
 
$
(0.21
)
 
$
(0.01
)
 
$
(0.22
)
Diluted loss per common share
 
$
(0.21
)
 
$
(0.01
)
 
$
(0.22
)

Consolidated statement of stockholders' equity
         
  
Three months ended March 31, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Net loss
 
$
(4,236
)
 
$
(61
)
 
$
(4,297
)

The effect of the immaterial correction of an error on our previously filed unaudited consolidated financial statements as of and for the six months ended June 30, 2019 is as follows:

Consolidated balance sheets
         
(in thousands)
         
  
Six months ended June 30, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Goodwill
 
$
16,709
  
$
(3,370
)
 
$
13,339
 
Intangible assets, net
  
8,454
   
3,218
   
11,672
 
Total assets
 
$
68,996
  
$
(152
)
 
$
68,844
 
             
Accumulated deficit
 
$
(46,930
)
 
$
(152
)
 
$
(47,082
)
Total liabilities and stockholders' equity
 
$
68,996
  
$
(152
)
 
$
68,844
 

Consolidated statement of operations
         
  
Six months ended June 30, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Amortization of definite-lived intangible assets
 
$
1,056
  
$
152
  
$
1,208
 
Loss before income taxes
  
(5,803
)
  
(152
)
  
(5,955
)
Net loss
 
$
(4,361
)
 
$
(152
)
 
$
(4,513
)
             
Basic loss per common share
 
$
(0.22
)
 
$
(0.01
)
 
$
(0.23
)
Diluted loss per common share
 
$
(0.22
)
 
$
(0.01
)
 
$
(0.23
)

Consolidated statement of stockholders’ equity
         
  
Six months ended June 30, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Net loss
 
$
(4,361
)
 
$
(152
)
 
$
(4,513
)

The effect of the immaterial correction of an error on our previously filed unaudited consolidated financial statements as of and for the nine months ended September 30, 2019 is as follows:

Consolidated balance sheets
         
(in thousands)
         
  
Nine months ended September 30, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Goodwill
 
$
16,709
  
$
(3,370
)
 
$
13,339
 
Intangible assets, net
  
7,960
   
3,116
   
11,076
 
Total assets
 
$
63,859
  
$
(254
)
 
$
63,605
 
             
Accumulated deficit
 
$
(48,050
)
 
$
(254
)
 
$
(48,304
)
Total liabilities and stockholders' equity
 
$
63,859
  
$
(254
)
 
$
63,605
 

Consolidated statement of operations
         
  
Nine months ended September 30, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Amortization of definite-lived intangible assets
 
$
1,550
  
$
254
  
$
1,804
 
Loss before income taxes
  
(6,356
)
  
(254
)
  
(6,610
)
Net loss
 
$
(5,482
)
 
$
(254
)
 
$
(5,736
)
             
Basic loss per common share
 
$
(0.27
)
 
$
(0.01
)
 
$
(0.28
)
Diluted loss per common share
 
$
(0.27
)
 
$
(0.01
)
 
$
(0.28
)

Consolidated statement of stockholders' equity
         
  
Nine months ended September 30, 2019
 
  
As reported
  
Adjustment
  
As revised
 
Net loss
 
$
(5,482
)
 
$
(254
)
 
$
(5,736
)

v3.20.1
Acquisitions
12 Months Ended
Dec. 31, 2019
Acquisitions [Abstract]  
Acquisitions
4.  Acquisitions

DP Engineering

On February 15, 2019, the Company through its wholly-owned subsidiary GSE Performance Solutions, Inc. (Performance Solutions), entered into a membership interest purchase agreement (the “DP Engineering Purchase Agreement”) with Steven L. Pellerin, Christopher A. Davenport, and DP Engineering to purchase 100% of the membership interests in DP Engineering for $13.5 million. The acquisition of DP Engineering was completed on an all-cash transaction basis. The acquisition was completed through the draw down of $14.3 million (including transaction costs) of the term loan. During the transaction, GSE incurred and paid $0.7 million of transaction cost. The purchase price was subject to customary pre- and post-closing working capital adjustments, plus an additional earn-out amount not to exceed $5 million, potentially payable in 2020 and 2021 depending on DP Engineering’s satisfaction of certain targets for Adjusted EBITDA in calendar years 2019 and 2020, respectively.  An escrow of approximately $1.7 million was funded at the closing and was released in full to the Company in December 2019 as part of a negotiated settlement of certain Company claims for indemnification pursuant to the DP Engineering Purchase Agreement.
DP Engineering is a provider of value-added technical engineering solutions and consulting services to nuclear power plants with an emphasis on preparation and implementation of design modifications during plant outages.  Located in Fort Worth, Texas, DP Engineering is well-regarded as a leading service provider to the nuclear power industry, having been designated an “engineer of choice” by several of the largest power generation companies.

Based on preliminary forecasted adjusted EBITDA of DP Engineering for the years 2019 and 2020, as of the acquisition date, the estimated fair value of the total earn-out amount was $1.2 million and was recorded as contingent consideration. Subsequent to the acquisition, it was determined that the conditions related to the contingent consideration would not be met and hence $1.2 million was recorded to income in the first quarter of 2019.

The following table summarizes the calculation of adjusted purchase price as of the acquisition date (in thousands):

Base purchase price per agreement
 
$
13,500
 
Pre closing working capital adjustment
  
155
 
Fair value of contingent consideration
  
1,200
 
Total purchase price
 
$
14,855
 

The following table summarizes the consideration paid to acquire DP Engineering and the fair value of the assets acquired and liabilities assumed at the date of the transaction. The following amounts except for cash are all reflected in the consolidated statement of cash flows within the “Acquisition of DP Engineering, net of cash acquired” line caption.
(in thousands)
Total purchase price
 
$
14,855
 
 Purchase price allocation:
    
Cash
  
134
 
Contract receivables
  
2,934
 
Prepaid expenses and other current assets
  
209
 
Property, and equipment, net
  
98
 
Intangible assets
  
6,798
 
Other assets
  
1,806
 
Accounts payable and accrued expenses
  
(1,396
)
Other liabilities
  
(1,494
)
 Total identifiable net assets
  
9,089
 
 Goodwill
  
5,766
 
 Net assets acquired
 
$
14,855
 

The fair value of the assets acquired includes gross trade receivables of $2.9 million, of which the Company has collected in full. GSE did not acquire any other class of receivable as a result of the acquisition of DP Engineering.
The goodwill is primarily attributable to value-added technical engineering solutions and consulting services to nuclear power plants with an emphasis on preparation and implementation of design modification during plant outages, the workforce of the acquired business and the significant synergies expected to arise after the acquisition of DP Engineering. The total amount of goodwill is expected to be tax deductible. All of the $5.8 million of goodwill was assigned to our Performance Improvement Solutions segment.
Approximately one week following our acquisition of DP Engineering, an adverse event occurred at one of DP Engineering’s major customer’s location that affected plant operations. This incident adversely impacted the relationship between DP Engineering and its customer. The Company determined this represented a triggering event requiring an interim assessment for impairment. As a result of the impairment analysis, we recognized an impairment charge of $5.6 million on goodwill related to the acquisition of DP Engineering during the quarter ended March 31, 2019. On August 6, 2019, following the Notice of Suspension, the Company received a Notice of Termination from this customer, notifying the Company that they were terminating their Engineer of Choice consulting service agreement with DP Engineering.  See Note 7 for further analysis on the carrying amount change due to impairment on goodwill and definite-lived intangible assets during the year ended December 31, 2019. As described in Note 3, a revision was made to prior periods regarding the impairment of DP Engineering.

On August 27, 2019, the Company made a demand for indemnification pursuant to the DP Engineering Purchase Agreement and on December 30, 2019, the Company entered into a settlement agreement pursuant to which the sellers agreed to release the full escrow account balance to the Company and pay additional funds, in the total amount of $2.0 million. The Company received these funds on December 31, 2019.

The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:
Intangible Assets
 
Weighted average amortization period
  
Fair Value
 
  
(in years)
  
(in thousands)
 
Customer relationships
  
15
  
$
4,898
 
Tradename
  
10
   
1,172
 
Non-compete agreements
  
5
   
728
 
Total
     
$
6,798
 

DP Engineering contributed revenue of $8.2 million to GSE for the period from February 15, 2019 to December 31, 2019.

True North

On May 11, 2018, GSE, through Performance Solutions, entered into a membership interest purchase agreement with Donald R. Horn, Jenny C. Horn, and True North Consulting LLC (the True North Purchase Agreement) to purchase 100% of the membership interests in True North Consulting LLC (True North) for $9.8 million. The purchase price was subject to customary pre- and post-closing working capital adjustments, resulting in total consideration of $9.9 million. The True North Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions subject to certain limitations. An escrow of $1.5 million was funded from the cash paid to the sellers of True North at the closing and was available to GSE to promote retention of key personnel and satisfy indemnification claims for 18 months after the closing, but no claims were made pursuant to the membership interest purchase agreement and all funds were related to the sellers prior to December 31, 2019. The acquisition of True North was completed on an all-cash transaction basis. In connection with the acquisition, we drew down a $10.3 million term loan to finance the transaction (including the transaction costs). See Note 13 for further information on the loan.
True North is a provider of technical engineering solutions to nuclear and fossil fuel power plants with an emphasis on regulatory-driven ASME code programs. Located in Montrose, Colorado, True North is a well-regarded service provider to leading companies in the power industry. The acquisition of True North has broadened our engineering services offering, expanded our relationships with several of the largest nuclear energy providers in the United States, and has added a highly specialized, complementary talent pool to our employee base.

The following table summarizes the consideration paid to acquire True North and the fair value of the assets acquired and liabilities assumed at the date of the transaction. As of December 31, 2019, the Company had finalized the determination of the fair value allocated to various assets and liabilities.

(in thousands)

Total purchase price
 
$
9,915
 
     
 Purchase price allocation:
    
Cash
  
306
 
Contract receivables
  
1,870
 
Prepaid expenses and other current assets
  
8
 
Property, and equipment, net
  
1
 
Intangible assets
  
5,088
 
Accounts payable, accrued expenses
  
(1,744
)
Accrued compensation
  
(353
)
 Total identifiable net assets
  
5,176
 
 Goodwill
  
4,739
 
 Net assets acquired
 
$
9,915
 

The fair value of the assets acquired includes gross trade receivables of $1.9 million, of which the Company has collected in full. GSE did not acquire any other class of receivable as a result of the acquisition of True North.
True North contributed revenue of $8.0 million to GSE for the period from May 11, 2018 to December 31, 2018. For the year ended December 31, 2019, True North contributed revenue of $9.8 million to GSE.
The goodwill is primarily attributable to broader engineering service offering to new and existing customers, the workforce of the acquired business and the significant synergies expected to after since the acquisition of True North. The total amount of goodwill is expected to be tax deductible. All of the $4.7 million of goodwill was assigned to our Performance Improvement Solutions segment.

The Company identified other intangible assets of $5.1 million, including customer contracts and relationships, tradename, non-compete agreements, and alliance agreements, with amortization periods of four years to fifteen years
The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:

Intangible Assets
 
Weighted Average Amortization Period
  
Fair Value
 
  
(in years)
  
(in thousands)
 
Customer relationships
  
15
  
$
3,758
 
Tradename
  
10
   
582
 
Alliance agreements
  
5
   
527
 
Non-compete agreements
  
4
   
221
 
Total
     
$
5,088
 

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for GSE, True North and DP Engineering as if the business combinations had occurred on January 1, 2018, in thousands.

  
Years ended December 31,
 
  
2019
  
2018
 
Revenue
 
$
85,959
  
$
120,373
 
Net loss
  
(4,805
)
  
(274
)

The pro forma financial information for all periods presented has been calculated after applying GSE's accounting policies and has also included pro forma adjustments resulting from these acquisitions, including amortization charges of the intangible assets identified from these acquisitions, interest expenses related to the financing transaction in connection with the acquisition of DP Engineering, and the related tax effects as if aforementioned companies were combined as of January 1, 2018.

For the year ended December 31, 2019 the Company has incurred $0.7 million of selling, general and administrative costs related to the acquisition of DP Engineering. Due to a triggering event described in Note 7, an impairment test was conducted, which resulted in substantially writing down the estimated fair value of goodwill initially recognized upon the acquisition. These expenses are included in general and administrative expense on GSE's consolidated statements of operations and are reflected in pro forma loss for the year ended December 31, 2019, in the table above.

For the year ended December 31, 2018 the Company incurred $0.5 million of selling, general and administrative costs related to the acquisition of True North. These expenses are included in general and administrative expense on GSE's consolidated statements of operations and are reflected in pro forma loss for the year ended December 31, 2018, in the table above.

The pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had been completed on January 1, 2018, nor is it intended to be an indication of future operating results.

v3.20.1
Revenue
12 Months Ended
Dec. 31, 2019
Revenue [Abstract]  
Revenue
5.  Revenue

We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers, upon the adoption of ASU 2014-09, Revenue from Contracts with Customers, and all the related updates (collectively, the new revenue standard) on January 1, 2018, using the modified retrospective transition method.

We generate revenue primarily through three broad revenue streams: 1) SDB, 2) Software, and 3) Training and Consulting Services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The following table represents a disaggregation of revenue by type of goods or services for the years ended December 31, 2019 and 2018, along with the reportable segment for each category:
(in thousands)

  
Twelve Months Ended December 31,
 
  
2019
  
2018
 
Performance Improvement Solutions segment
      
System Design and Build
 
$
19,574
  
$
25,948
 
Software
  
2,883
   
2,883
 
Training and Consulting Services
  
23,320
   
14,123
 
         
Nuclear Industry Training and Consulting segment
        
Training and Consulting Services
  
37,199
   
49,295
 
         
Total revenue
 
$
82,975
  
$
92,249
 

SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule as established in our contracts. The transaction price for software contracts is generally fixed. Fees for software are normally due in advance of or shortly after delivery of the software. Fees for PCS are normally paid in advance of the service period. For Training and Consulting Services, the customers are generally billed on a regular basis, such as weekly, biweekly or monthly, for services provided. Contract liability, which we classify as billing in excess of revenue earned, relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as performance obligations are satisfied.

The following table reflects the balance of contract liabilities and the revenue recognized in the reporting period that was included in the contract liabilities from contracts with customers:

(in thousands)
  
December 31, 2019
  
December 31, 2018
 
Billings in excess of revenue earned (BIE)
 
$
7,613
  
$
10,609
 
Revenue recognized in the period from amounts included in BIE at the beginning of the period
 
$
9,089
   
11,275
 

For an SDB contract, we generally have two main performance obligations: the training simulator build and PCS. The training simulator build generally includes hardware, software, and labor. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method. In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to the Company’s revenue recognition as a significant change in the estimates can cause the Company’s revenue and related margins to change significantly from the amounts estimated in the early stages of the project.
For the year ended December 31, 2019, the Company recognized revenue of $2.5 million related to performance obligations satisfied in previous periods.
As of December 31, 2019, the aggregate amount of transaction price allocated to the remaining performance obligations of SDB, software and fixed-price training and consulting services contracts is $28.0 million. The Company will recognize the revenue as the performance obligations are satisfied, which is expected to occur over the next twelve months.
Part of the training and consulting services contracts are T&M based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates, which are fixed by type of work, as well as approved expenses incurred. As part of our adoption of ASU 2014-09, we have elected to use the optional exemption under ASC 606-10-50-14(b), pursuant to which we have excluded disclosures of transaction prices allocated to remaining performance obligations under such contracts and when we expect to recognize the revenue.

v3.20.1
Restructuring Expenses
12 Months Ended
Dec. 31, 2019
Restructuring Expenses [Abstract]  
Restructuring Expenses
6.  Restructuring expenses

International Restructuring
On December 27, 2017, the Board of the Company approved an international restructuring plan to streamline and optimize the Company’s global operations. Beginning in December 2017, GSE has been in the process of consolidating its engineering services and R&D activities to Maryland and ceasing an unprofitable non-core business in the United Kingdom (UK). As a result, the Company closed its offices in Nyköping, Sweden; Chennai, India; and Stockton-on-Tees, UK. These actions are designed to improve Company productivity by eliminating duplicate employee functions, increasing GSE’s focus on its core business, improving efficiency and maintaining the full range of engineering capabilities while reducing costs and organizational complexity.

GSE eliminated approximately 40 positions due to these changes, primarily in Europe and India, and will undertake other cost-savings measures. As a result of these efforts, as shown in the table below, GSE expects to record a restructuring charge of approximately $2.2 million in total, primarily related to workforce reductions, contracts termination costs and asset write-offs due to the exit activities. We recorded a restructuring charge of $1.3 million for the year ended December 31, 2018. In addition to the restructuring costs in the table below, the Company has an estimated $1.3 million of cumulative translation adjustments that will be charged against net income (loss) and an estimated $1.0 million of tax benefits that will be realized upon liquidation of these foreign entities. GSE expects to recognize the remaining restructuring costs, currency translation adjustments and tax benefits in 2020.
For the year ended December 31, 2019, we made payments related to our international restructuring for employee termination benefits and other legal expenses in the amount of $54,000 that had been previously accrued.

DP Engineering Restructuring

During the third quarter of 2019, the Company implemented a restructuring plan as a result of the work suspension of DP Engineering’s largest customer and subsequent notification on August 6, 2019 that the Engineer of Choice contract was being terminated.  Accordingly, the Company took the necessary measures to reduce DP’s workforce by approximately 12 FTE’s and in addition terminated one of its office leases early resulting in one-time costs of $0.3 million being paid in the third quarter.  This reduction in force aligns the workforce to the current level of business going forward.

Lease abandonment

As of December 31, 2019, management decided abandon, a portion of several operating lease right of use lease assets in long idled space in our Sykesville office and in DP Engineering’s Fort Worth office. This was decided as part of on the on-going restructuring plans to right size the organization. Management determined the square footage which would remain in use and took steps to insure the abandoned space was separated from the remaining in use space, end access of all employees to the abandoned sections, and remove any remaining office furniture assets. We applied the abandonment guidance in ASC 360-10-35. We believe “abandonment” means ceasing to use the underlying asset and lacking either the intent or the ability to sublease the underlying asset. Accordingly, lease abandonment restructuring charges incurred relating to the right of use assets for the year ended December 31, 2019 totaled $1.5 million.

The following table shows the abandoned square footage and right of use asset details:

 
Sykesville
  
DP Engineering
  
Total
 
          
Square Ft in use December 1, 2019
  
36,549
   
19,871
   
56,420
 
Square Ft in use December 31, 2019
  
14,636
   
9,936
   
24,572
 
Abandoned Square Ft
  
21,913
   
9,936
   
31,849
 
(in thousands)
            
Pre-Abandonment ROU Balance
 
$
1,474
  
$
1,291
  
$
2,765
 
Post-Abandonment Balance
  
590
   
646
   
1,236
 
Abandonment ROU
  
884
   
646
   
1,529
 

Collectively, for the year ended December 31, 2019, the Company recorded restructuring charges of approximately $2.5 million, of which $0.3 million related to DP Engineering severance and lease termination, and $1.5 million lease abandonment charges, and $0.5 million related to an executive departure related to the suspension of the Company’s acquisition strategy.

The following table shows the total restructuring costs:

  
Total Expected Restructuring Costs
  
Total 2019 Restructuring Costs
 
Restructuring Costs
      
Lease Abandonment
 
$
1,529
  
$
1,529
 
Lease Abandonment costs
  
57
   
57
 
Lease termination costs
  
39
   
39
 
   International Restructuring
  
106
   
106
 
Employee termination benefits
  
747
   
747
 
Total
 
$
2,478
  
$
2,478
 

v3.20.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets [Abstract]  
Goodwill and Intangible Assets
7.  Goodwill and Intangible Assets

Intangible Assets Subject to Amortization

Amortization of intangible assets other than goodwill is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for customer relationships which are recognized in proportion to the related projected revenue streams. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. The Company does not have any intangible assets with indefinite useful lives, other than goodwill.

As discussed in Note 4, we recognized definite-lived intangible assets of $6.8 million upon acquisition of DP Engineering on February 15, 2019, including customer contracts and relationships, trademarks and non-compete agreements, with amortization periods of 5 to 15 years. Amortization of our definite-lived intangible assets is recognized on a straight-line basis over the estimate useful life of the associated assets.
Following the February 23, 2019 event occurring at a DP Engineering customer location and subsequent receipt of the Notice of Suspension on February 28, 2019, the Company concluded that DP Engineering’s relationship with its largest customer has been adversely impacted. The DP Engineering customer contracts and relationships were the major component of the definite-lived intangible assets recognized in connection with the acquisition of DP Engineering. Accordingly, the Company determined that a triggering event had occurred requiring an interim assessment of whether a potential impairment of definite-lived intangible asset impairment test was necessary.
Therefore, the impairment test of the definite-lived intangible assets recognized upon the acquisition of DP Engineering was also conducted according to ASC 350, Intangibles-Goodwill and other.
The interim impairment test was based on the present value of revised cash flow projected for 5 to 15 years. The result of the impairment test concluded no impairment of the definite-lived intangibles was necessary because the undiscounted cash flow of the asset group exceeds the adjusted carrying value. Due to the August 6, 2019 Notice of Termination of the Engineer of Choice agreement with DP Engineering, the Company performed an additional interim impairment test as of September 30, 2019 and determined no further impairment testing is needed.

As described in Note 3, a revision was made to prior periods regarding the impairment of DP Engineering.

The following table shows the gross carrying amount and accumulated amortization of definite-lived intangible assets:

(in thousands)
 
As of December 31, 2019
 
  
Gross Carrying Amount
  
Accumulated Amortization
  
Net
 
Amortized intangible assets:
         
Customer relationships
 
$
11,730
  
$
(4,079
)
 
$
7,651
 
Trade names
  
2,467
   
(727
)
  
1,740
 
Developed technology
  
471
   
(471
)
  
-
 
Non-contractual customer relationships
  
433
   
(433
)
  
-
 
Noncompete agreement
  
949
   
(217
)
  
732
 
Alliance agreement
  
527
   
(171
)
  
356
 
Others
  
167
   
(167
)
  
-
 
Total
 
$
16,744
  
$
(6,265
)
 
$
10,479
 
             
(in thousands)
 
As of December 31, 2018
 
  
Gross Carrying Amount
  
Accumulated Amortization
  
Net
 
Amortized intangible assets:
            
Customer relationships
 
$
6,831
  
$
(2,375
)
 
$
4,456
 
Trade names
  
1,295
   
(318
)
  
977
 
Developed technology
  
471
   
(471
)
  
-
 
Non-contractual customer relationships
  
433
   
(433
)
  
-
 
Noncompete agreement
  
221
   
(35
)
  
186
 
Alliance agreement
  
527
   
(66
)
  
461
 
Noncompete agreement
  
167
   
(167
)
  
-
 
Total
 
$
9,945
  
$
(3,865
)
 
$
6,080
 

Amortization expense related to definite-lived intangible assets totaled $2.4 million and 1.6 million for the years ended December 31, 2019 and 2018, respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years:

(in thousands)
   
Years ended December 31:
   
2020
 
$
2,808
 
2021
  
2,143
 
2022
  
1,626
 
2023
  
1,199
 
Thereafter
  
2,703
 
  
$
10,479
 

Goodwill

The Company reviews goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company tests goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. After the acquisition of Hyperspring on November 14, 2014, the Company determined that it had two reporting units, which are the same as our two operating segments: (i) Performance Improvement Solutions; and (ii) Nuclear Industry Training and Consulting (which includes Hyperspring and Absolute).

On February 15, 2019, we acquired DP Engineering (as described in Note 4) and preliminarily recorded goodwill and identified intangible assets as part of the acquisition. On February 23, 2019, an unexpected event occurred at one of DP Engineering’s significant customers and all pending work for that customer was suspended on February 28, 2019 pending a root cause analysis. While that analysis is now complete, and virtually all of the suspended projects have been restarted, the customer terminated the existing contract on August 6, 2019. The Company determined that the notice of suspension was a triggering event necessitating a goodwill impairment test.
 
On May 10, 2019, the Company determined that a triggering event had occurred, requiring an assessment for impairment to be completed. The impairment test used an income-based approach with discounted cash flow method, and market-based approach including both guideline public company method and merger and acquisition method.
 
The impairment test results indicated that the current estimated fair value of goodwill recorded from the acquisition of DP Engineering had declined below its initial estimated fair value at the acquisition date. As a result, the Company recognized an impairment charge of $5.6 million to write down the goodwill on DP Engineering. The Company determined that the impact of the suspension of obtaining new contracts from that customer resulted in a material downward revision to DP Engineering’s revenue and profitability forecasts when compared to the acquisition date valuation. The impairment charge on goodwill was recorded within “Loss on impairment” in our consolidated statements of operations. Due to the August 6, 2019 Notice of Termination of the Engineer of Choice agreement with DP Engineering, the Company performed, under ASC 350 guidance, additional impairment testing as of September 30, 2019 and at this time have determined no further impairment is needed. As described in Note 3, a revision was made to prior periods regarding the impairment of DP Engineering.

For the annual goodwill impairment test as of December 31, 2019, the Company performed a quantitative step 1 goodwill impairment analysis and have concluded that the estimated fair values of each of the reporting units exceeded their respective carrying values. No additional goodwill impairment was recorded at year end 2019.
  
As of December 31, 2019 and 2018, goodwill of $13.3 million and $13.2 million, respectively, related to the acquisitions of Hyperspring, Absolute, True North Consulting, and DP Engineering. $5.6 million impairment of goodwill was recorded in 2019.

The change in the net carrying amount of goodwill from January 1, 2018 through December 31, 2019 was comprised of the following items:

(in thousands)
  
Performance Improvement Solutions
  
Nuclear Industry Training and Consulting
  
Total
 
Net book value at January 1, 2018
 
$
-
  
$
8,431
  
$
8,431
 
             
Acquisition
  
4,739
   
-
   
4,739
 
Dispositions
  
-
   
-
   
-
 
Goodwill impairment loss
  
-
   
-
   
-
 
             
Net book value at December 31, 2018
 
$
4,739
  
$
8,431
  
$
13,170
 
             
Acquisition
  
5,766
   
-
   
5,766
 
Dispositions
  
-
   
-
   
-
 
Goodwill impairment loss
  
(5,597
)
  
-
   
(5,597
)
             
Net book value at December 31, 2019
 
$
4,908
  
$
8,431
  
$
13,339
 

v3.20.1
Contract Receivables
12 Months Ended
Dec. 31, 2019
Contract Receivables [Abstract]  
Contract Receivables
8.  Contract Receivables

Contract receivables represent the Company’s unconditional rights to considerations due from a broad base of both domestic and international customers. All contract receivables are considered to be collectible within twelve months.

Recoverable costs and accrued profit not billed represent costs incurred and associated profit accrued on contracts that will become billable upon future milestones or completion of contracts. The components of contract receivables are as follows:

(in thousands)
 
December 31,
 
  
2019
  
2018
 
Billed receivables
 
$
11,041
  
$
15,998
 
Unbilled receivables
  
6,624
   
5,506
 
Allowance for doubtful accounts
  
(458
)
  
(427
)
Total contract receivables, net
 
$
17,207
  
$
21,077
 

Management reviews collectability of receivables periodically and records an allowance for doubtful accounts to reduce our receivables to their net realizable value when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the receivable. The allowance for doubtful accounts is based on historical trends of past due accounts, write-offs, and specific identification and review of customer accounts. During the years ended December 31, 2019 and 2018, the Company recorded bad debt expense of $31,000 and $294,000, respectively.
During January 2020, the Company invoiced $3.8 million of the unbilled amounts related to the balance at December 31, 2019.

The activity in the allowance for doubtful accounts is as follows:

(in thousands)
 
As of and for the
 
  
Years ended December 31,
 
  
2019
  
2018
 
       
Beginning balance
 
$
427
  
$
137
 
Current year provision
  
31
   
294
 
Current year write-offs
  
-
   
-
 
Currency adjustment
  
-
   
(4
)
Ending balance
 
$
458
  
$
427
 

v3.20.1
Prepaid Expenses and Other Current Assets
12 Months Ended
Dec. 31, 2019
Prepaid Expenses and Other Current Assets [Abstract]  
Prepaid Expenses and Other Current Assets
9.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

(in thousands)
 
December 31,
 
  
2019
  
2018
 
Inventory
 
$
-
  
$
139
 
Income tax receivable
  
237
   
310
 
Prepaid expenses
  
861
   
556
 
Other current assets
  
782
   
795
 
Total
 
$
1,880
  
$
1,800
 

Inventory composed of raw material, is being purchased to support the construction of three major nuclear simulation projects related to a significant contract that was executed during the first quarter of 2016. The construction was completed in the first quarter of 2019. Inventory is recorded at the lower of cost or net realizable value in accordance with ASC 330, Inventory. Cost is determined using specific identification.

Other current assets primarily include value-added tax receivables and cash deposited in a Swedish tax account. Prepaid expenses primarily include prepayment for insurance and other subscription based services.

v3.20.1
Equipment, Software, and Leasehold Improvements
12 Months Ended
Dec. 31, 2019
Equipment, Software and Leasehold Improvements [Abstract]  
Equipment, Software and Leasehold Improvements
10.  Equipment, Software and Leasehold Improvements

Equipment, software and leasehold improvements, net consist of the following:

(in thousands)
 
December 31,
 
  
2019
  
2018
 
Computer and equipment
 
$
2,266
  
$
2,178
 
Software
  
1,693
   
1,682
 
Leasehold improvements
  
664
   
619
 
Furniture and fixtures
  
900
   
814
 
   
5,523
   
5,293
 
Accumulated depreciation
  
(4,584
)
  
(4,228
)
Equipment, software and leasehold improvements, net
 
$
939
  
$
1,065
 

Depreciation expense was $0.4 million and $0.5 million for the years ended December 31, 2019 and 2018, respectively.

v3.20.1
Product Warranty
12 Months Ended
Dec. 31, 2019
Accrued Warranty [Abstract]  
Product Warranty
11.  Product Warranty

Accrued warranty

For contracts that contain a warranty provision, the Company provides an accrual for estimated future warranty costs based on historical experience and projected claims. The Company’s contracts may contain warranty provisions ranging from one year to five years. The current portion of the accrued warranty is presented separately on the consolidated balance sheets within current liabilities whereas the noncurrent portion is included in other liabilities.

In the final quarter of 2019 management reassessed the warranty percentage used in determining project budgets for warranty projects which were active at the end of 2019 and used in project budgets for non-warranty projects active at the end of 2019. In 2018 and prior periods, the GSE standard warranty was 4% of non-physical material cost of an individual project. Physical material is excluded from this target as the associated vendor typically provides their own warranty. Based on historical warranty costs, trends in actual expenses incurred and discussions with sales managers, it is management’s determination that a 3% warranty provision is a conservative estimate for all warranty costs both for active warranty projects and active non-warranty projects. The adjustment of this change resulted in a $0.2 million decrease in warranty provision.

The activity in the accrued warranty accounts is as follows:

(in thousands)
 
As of and for the
 
  
years ended December 31,
 
  
2019
  
2018
 
       
Beginning balance
 
$
1,621
  
$
1,953
 
         
Current year provision
  
(133
)
  
(107
)
         
Current year claims
  
(164
)
  
(215
)
         
Currency adjustment
  
(1
)
  
(10
)
         
Ending balance
 
$
1,323
  
$
1,621
 

The current and non-current warranty balance is as follows:

  
Years ended December 31,
 
  
2019
  
2018
 
Current
 
$
921
  
$
981
 
Non-current
  
402
   
640
 
Total Warranty
 
$
1,323
  
$
1,621
 

v3.20.1
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2019
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments
12.  Fair Value of Financial Instruments

ASC 820, Fair Value Measurement (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The levels of the fair value hierarchy established by ASC 820 are:
Level 1: inputs are quoted prices, unadjusted, in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2: inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. A Level 2 input must be observable for substantially the full term of the asset or liability. The Monte Carlo model was used to calculate the fair value of level 2 instruments. The inputs used are current stock price, expected term, risk-free rate, number of trials, volatility and interest rates.
Level 3: inputs are unobservable and reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The contingent consideration was based on EBITDA.
The Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at December 31, 2019 and 2018 based upon the short-term nature of the assets and liabilities.
As of December 31, 2019, the Company had four standby letters of credit totaling $1.2 million which represent performance bonds on three contracts.

The following table presents assets and liabilities measured at fair value at December 31, 2019:

  
Quoted Prices
in Active Markets
for Identical Assets
  
Significant
Other Observable
Inputs
  
Significant
Unobservable
Inputs
    
(in thousands)
 
(Level 1)
  
(Level 2)
  
(Level 3)
  
Total
 
             
             
Money market funds
 
$
434
  
$
-
  
$
-
  
$
434
 
Foreign exchange contracts
  
-
   
49
   
-
   
49
 
                 
Total assets
 
$
434
  
$
49
  
$
-
  
$
483
 
 
Liability awards
  
-
   
(9
)
  
-
   
(9
)
Interest rate swap contract
  
-
   
(160
)
  
-
   
(160
)
                 
Total liabilities
 
$
-
  
$
(169
)
 
$
-
  
$
(169
)

The following table presents assets and liabilities measured at fair value at December 31, 2018:

  
Quoted Prices
in Active Markets
for Identical Assets
  
Significant
Other Observable
Inputs
  
Significant
Unobservable
Inputs
    
(in thousands)
 
(Level 1)
  
(Level 2)
  
(Level 3)
  
Total
 
             
             
Money market funds
 
$
824
  
$
-
  
$
-
  
$
824
 
Foreign exchange contracts
  
-
   
43
   
-
   
43
 
                 
Total assets
 
$
824
  
$
43
  
$
-
  
$
867
 
                 
Liability awards
 
$
-
  
$
(118
)
 
$
-
  
$
(118
)
Interest rate swap contract
  
-
   
(103
)
  
-
   
(103
)
                 
Total liabilities
 
$
-
  
$
(221
)
 
$
-
  
$
(221
)

During the years ended December 31, 2019 and 2018, the Company did not have any transfers into or out of Level 3.

The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the year ended December 31, 2019:
(in thousands)
Balance, January 1, 2019
 
$
-
 
Issuance of contingent consideration in connection with acquisitions
  
1,200
 
Change in fair value
  
(1,200
)
Balance, December 31, 2019
 
$
-
 

v3.20.1
Debt
12 Months Ended
Dec. 31, 2019
Debt [Abstract]  
Debt
13.  Debt

Citizen’s Bank

The Company entered into a three-year, $5.0 million revolving line of credit facility (RLOC) with Citizen’s Bank (the “Bank”) on December 29, 2016, to fund general working capital needs, including acquisitions. The Company is not required to maintain a restricted cash collateral account at the Bank for outstanding letters of credit and working capital advances. The credit facility agreement is subject to standard financial covenants and reporting requirements.
On May 11, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the Credit Agreement) with the Bank, amending and restating the Company’s existing Credit and Security Agreement with the Bank, which included a $5.0 million asset-based revolving credit facility between the Company and the Bank, to now include (a) a $5.0 million revolving credit facility not subject to a borrowing base, including a letter of credit sub-facility, and (b) a $25.0 million delayed-draw term loan facility available to be drawn upon for up to 18 months and to finance certain permitted acquisitions by the Company. The credit facilities mature in five years and bear interest at LIBOR plus a margin that varies depending on the overall leverage ratio of the Company and its subsidiaries. Revolving loans are interest-only with principal due at maturity, while term loans require monthly payments of principal and interest based on an amortization schedule.

The Company’s obligations under the Credit Agreement are guaranteed by GSE’s wholly-owned subsidiaries Hyperspring, Absolute, and True North and by any future material domestic subsidiaries (collectively, the Guarantors). Attendant to the Company’s acquisition of DP Engineering, the Company and the Bank entered into a Third Amendment and Reaffirmation Agreement and a Fourth Amendment and Reaffirmation Agreement on February 15, 2019 and March 20, 2019, respectively. On June 28, 2019, the Company and the Bank entered into a Fifth Amendment and Reaffirmation Agreement, which changed the fixed charge coverage ratio from 1.25, to four different ratios ranging from 1.05 to 1.25 among different time periods and changed the leverage ratio to: (i) 2.75 to 1.00 for the periods ending on June 30, 2019, September 30, 2019, December 31, 2019 and March 31, 2020; (ii) 2.50 to 1.00 for the periods ending June 30, 2020 and September 30, 2020; (iii) 2.25 to 1.00 for the periods ending December 31st, March 31st, June 30th and September 30th thereafter.

On January 8, 2020, the Company entered into a Sixth Amendment and Reaffirmation Agreement. The amendments contained therein relaxed the fixed charge coverage ratio and leverage ratio, as well as delayed testing of both financial covenants, but added a covenant requiring that the Company maintain a consolidated, Adjusted EBITDA target of $4.25 million to be tested as of December 31, 2019, March 31, 2020, and June 30, 2020. Further, the Company agreed to maintain a minimum USA Liquidity of at least $5.0 million in the aggregate, to be tested bi-weekly as of the fifteenth (15th) and the last day of each month beginning on December 31, 2019 and thereafter until June 30, 2020 In addition to the revised covenants, GSE was required to pay a $20,000 bank fee and additional principal payments as follows: January 6, 2020 of $3.0 million, March 31, 2020 of $1.0 million, and June 30, 2020 of $1.0 million.

On April 17, 2020, the Company entered into a Seventh Amendment and Reaffirmation Agreement. The Company shall maintain a minimum fixed charge coverage ratio of 1.25 to 1.00, to be tested quarterly as of the last day of each quarter beginning with the quarter ending June 30, 2021, on rolling four-quarter basis. The Company shall not exceed a maximum leverage ratio, to be tested quarterly as of the last day of each quarter beginning with the quarter ending September 30, 2020, on a rolling four-quarter basis as follows:  (i)  3.00 to 1.00 for the period ending on September 30, 2020, (ii) 2.50 to 1.00 for the period ending on December 31, 2020, and (iii) 2.25 to 1.00 for the period ending on March 31, 2021 and for the periods ending on each December 31, March 31, June 30 and September 30 thereafter. In addition to the revised covenants, GSE was required to pay a $50,000 bank fee and additional principal payments as follows: April 17, 2020 $0.75, and June 30, 2020 $0.5 million. The Company has the option to refinance the term loan facility if certain requirements are met, including meeting certain covenant thresholds.

RLOC

The Company entered into a three-year, $5.0 million revolving line of credit facility with the Bank on December 29, 2016, to fund general working capital needs. We intend to continue using the RLOC for short-term working capital needs and the issuance of letters of credit in connection with business operations. Letter of credit issuance fees range between 1.25% and 2% depending on the Company’s overall leverage ratio, and the Company pays an unused RLOC fee quarterly based on the average daily unused balance.

At December 31, 2019, there were no outstanding borrowings under the RLOC and four letters of credit totaling $1.2 million. The amount available at December 31, 2019, after consideration of the letters of credit was approximately $3.8 million. At December 31, 2018, there were no outstanding borrowings on the RLOC and 5 letters of credit totaling $2.3 million.

Term Loan

As discussed in Note 4, we acquired DP Engineering on February 15, 2019 for approximately $13.5 million in cash. The purchase price was subject to customary pre- and post-closing working capital adjustments plus an additional earn-out amount not to exceed $5.0 million potentially payable in 2020 and 2021. We drew down $14.3 million to finance the acquisition of DP Engineering. The loan bears interest at the adjusted LIBOR plus a margin ranging between 2% and 2.75% depending on the overall leverage ratio of the Company and matures in five years. There were no debt issuance costs and loan origination fees associated with the loan related for our acquisition of DP Engineering.

Additionally, as discussed in Note 4, we acquired True North on May 11, 2018 for total consideration of approximately $9.9 million in cash. We drew down $10.3 million to finance the acquisition of True North, $0.5 million of which was repaid to the Bank on the same day. The loan bears interest at the adjusted one month-LIBOR plus a margin ranging between 2% and 2.75% depending on the overall leverage ratio of the Company and matures in five years on May 11, 2023. We also incurred $70,000 debt issuance costs and $75,000 loan origination fees related to the Credit Agreement. Debt issuance costs and loan origination fees are reported as a direct deduction from the carrying amount of the loan and are amortized over the term of the loan using the effective interest method.

At December 31, 2019, the outstanding debt under the delayed draw term loan facility was as follows:

    
Long-term debt, net of discount
 
$
18,481
 
Less: current portion of long-term debt
  
18,481
 
Long-term debt, less current portion
 
$
-
 

As discussed in Note 1, substantial doubt has been raised regarding the Company’s ability to continue as a going concern due to a probable covenant violation. As such, the classification of our debt is current.

The Credit Agreement contains customary covenants and restrictions typical for a financing of this type that, among other things, require the Company to satisfy certain financial covenants and restrict the Company’s ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions after any applicable grace period could result in the obligations under the Credit Agreement becoming immediately due and payable and termination of the credit facilities. In addition to non-compliance with covenants and restrictions, the Credit Agreement also contains other customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the Bank may declare the obligations under the Credit Agreement to be immediately due and payable and may terminate the credit facilities.

v3.20.1
Derivative Instruments
12 Months Ended
Dec. 31, 2019
Derivative Instruments [Abstract]  
Derivative Instruments
14.  Derivative Instruments

In the normal course of business, our operations are exposed to fluctuations in foreign currency values and interest rate changes. We may seek to control a portion of these risks through a risk management program that includes the use of derivative instruments.

Foreign Currency Risk Management

The Company utilizes forward foreign currency exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates and minimize credit exposure by limiting counterparties to nationally recognized financial institutions.

As of December 31, 2019, the Company had foreign exchange contracts outstanding of approximately 1.0 million Euro, which will be valid through March 2020. At December 31, 2018, the Company had contracts outstanding of approximately 3.2 million Euro at fixed rates. The contracts outstanding at December 31, 2019 have expired on various dates from January through March 2020.

Interest Rate Risk Management

As discussed in Note 13, the Company entered into a term loan to finance the acquisition of True North in May 2018, and subsequently DP Engineering, which was later amended on June 28, 2019, January 7, 2020 and April 17, 2020. The loan bears interest at adjusted one-month LIBOR plus a margin ranging between 2% and 2.75% depending on the overall leverage ratio of the Company. As part of our overall risk management policies, in June 2018, the Company entered into a pay-fixed, receive-floating interest rate swap contract with a notional amount of $9.0 million to reduce the impact associated with interest rate fluctuations. The notional value amortizes monthly in equal amounts based on the five-year principal repayment terms. The terms of the swap require the Company to pay interest on the basis of a fixed rate of 3.02%, and GSE will receive interest on the basis of one-month USD LIBOR.

The Company reports all derivatives at fair value. These contracts are recognized as either assets or liabilities, depending upon the derivative’s fair value. The estimated net fair values of the derivative contracts on the consolidated balance sheets are as follows:

  
December 31,
 
(in thousands)
 
2019
  
2018
 
       
Asset derivatives
      
Prepaid expenses and other current assets
 
$
49
  
$
43
 
   
49
   
43
 
         
Liability derivatives
        
   Other liabilities
  
(160
)
  
(103
)
   
(160
)
  
(103
)
         
Net fair value
 
$
(111
)
 
$
(60
)

The Company has not designated the derivative contracts as hedges. The changes in the fair value of the derivative contracts are included in (loss) gain on derivative instruments, net, in the consolidated statements of operations.

The foreign currency denominated contract receivables, billings in excess of revenue earned, and subcontractor accruals that are related to the outstanding foreign exchange contracts are remeasured at the end of each period into the functional currency using the current exchange rate at the end of the period. The gain or loss resulting from such remeasurement is also included in (loss) gain on derivative instruments, net, in the consolidated statements of operations.

For the years ended December 31, 2019 and 2018, the Company recognized a net (loss) gain on its derivative instruments as outlined below:

  
Years ended December 31,
 
(in thousands)
 
2019
  
2018
 
       
Foreign exchange contracts- change in fair value
 
$
6
  
$
(150
)
Interest rate swap - change in fair value
  
(57
)
  
(103
)
Remeasurement of related contract receivables and billings in excess of revenue earned
  
38
   
(97
)
  
$
(13
)
 
$
(350
)

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes [Abstract]  
Income Taxes
15.  Income Taxes

The conso