GSE SYSTEMS INC, 10-Q filed on 23 Jul 20
v3.20.2
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 31, 2020
Cover [Abstract]    
Entity Registrant Name GSE SYSTEMS INC  
Entity Central Index Key 0000944480  
Current Fiscal Year End Date --12-31  
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 Common Stock, Shares Outstanding   20,551,080
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Address, State or Province MD  
v3.20.2
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 11,360 $ 11,691
Contract receivables, net 13,650 17,207
Prepaid expenses and other current assets 1,818 1,880
Total current assets 26,828 30,778
Equipment, software and leasehold improvements 5,518 5,523
Accumulated depreciation (4,679) (4,584)
Equipment, software and leasehold improvements, net 839 939
Software development costs, net 627 641
Goodwill 13,339 13,339
Intangible assets, net 5,506 10,479
Deferred tax assets, net 0 57
Operating lease - right of use assets, net 2,053 2,215
Other assets 60 61
Total assets 49,252 58,509
Current liabilities:    
Line of credit 3,500 0
Current portion of long-term debt, net of debt issuance costs and original issue discount 13,319 18,481
Accounts payable 1,403 1,097
Accrued expenses 1,446 1,871
Accrued compensation 1,878 1,876
Billings in excess of revenue earned 6,332 7,613
Accrued warranty 949 921
Income taxes payable 1,680 1,341
Other current liabilities 1,238 1,234
Total current liabilities 31,745 34,434
Operating lease liabilities 2,704 3,000
Other liabilities 1,032 956
Total liabilities 35,481 38,390
Commitments and contingencies
Stockholders' 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, 21,979,404 shares issued, 20,380,493 shares outstanding as of March 31, 2020; 21,838,963 shares issued, 20,240,052 shares outstanding as of December 31, 2019 219 218
Additional paid-in capital 79,495 79,400
Accumulated deficit (60,912) (54,654)
Accumulated other comprehensive loss (2,032) (1,846)
Treasury stock at cost, 1,598,911 shares at March 31, 2020 and December 31, 2018 (2,999) (2,999)
Total stockholders' equity 13,771 20,119
Total liabilities and stockholders' equity $ 49,252 $ 58,509
v3.20.2
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Stockholders' 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) 21,979,404 21,838,963
Common stock, shares outstanding (in shares) 20,380,493 20,240,052
Treasury stock (in shares) 1,598,911 1,598,911
v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract]    
Revenue $ 17,705 $ 22,194
Cost of revenue 13,590 17,458
Gross profit 4,115 4,736
Operating expenses:    
Selling, general and administrative 4,948 4,423
Research and development 210 240
Restructuring charges 10 0
Loss on impairment 4,302 5,464
Depreciation 108 91
Amortization of definite-lived intangible assets 670 570
Total operating expenses 10,248 10,788
Operating loss (6,133) (6,052)
Interest expense, net (241) (208)
(Loss) gain on derivative instruments, net (43) 93
Other income, net 29 22
Loss before income taxes (6,388) (6,145)
Benefit from income taxes (130) (1,848)
Net loss $ (6,258) $ (4,297)
Net loss per common share - basic and diluted (in dollars per share) $ (0.31) $ (0.22)
Weighted average shares outstanding used to compute net loss per share - basic and diluted (in shares) 20,342,933 19,950,746
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]    
Net loss $ (6,258) $ (4,297)
Cumulative translation adjustment (186) (87)
Comprehensive loss $ (6,444) $ (4,384)
v3.20.2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Total
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       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense   570       570
Common stock issued for options exercised (in shares) 2          
Common stock issued for options exercised $ 1 41       42
Common stock issued for RSUs vested (in shares) 108          
Common stock issued for RSUs vested $ 1 (1)       0
Shares withheld to pay taxes   (150)       (150)
Foreign currency translation adjustment       (87)   (87)
Net loss     (4,297)     (4,297)
Balance at Mar. 31, 2019 $ 216 78,578 (46,866) (1,722) $ (2,999) 27,207
Balance (in shares) at Mar. 31, 2019 21,595       (1,599)  
Balance at Dec. 31, 2019 $ 218 79,400 (54,654) (1,846) $ (2,999) 20,119
Balance (in shares) at Dec. 31, 2019 21,839       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense   147       147
Common stock issued for RSUs vested (in shares) 140          
Common stock issued for RSUs vested $ 1 (1)       0
Shares withheld to pay taxes   (51)       (51)
Foreign currency translation adjustment       (186)   (186)
Net loss     (6,258)     (6,258)
Balance at Mar. 31, 2020 $ 219 $ 79,495 $ (60,912) $ (2,032) $ (2,999) $ 13,771
Balance (in shares) at Mar. 31, 2020 21,979       (1,599)  
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net loss $ (6,258) $ (4,297)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Loss on impairment 4,302 5,464
Depreciation 108 91
Amortization of definite-lived intangible assets 670 570
Amortization of capitalized software development costs 75 129
Change in fair value of contingent consideration 0 (1,200)
Stock-based compensation expense 141 597
Loss (gain) on derivative instruments, net 43 (93)
Bad debt expense 93 0
Deferred income taxes 57 (2,128)
Changes in assets and liabilities:    
Contract receivables 3,453 5,388
Prepaid expenses and other assets 525 439
Accounts payable, accrued compensation, and accrued expenses (121) (2,446)
Billings in excess of revenue earned (1,220) (3,185)
Accrued warranty (26) 62
Other liabilities (201) 23
Cash provided by (used in) operating activities 1,641 (586)
Cash flows from investing activities:    
Capital expenditures (1) (11)
Capitalized software development costs (61) (110)
Acquisition of DP Engineering, net of cash acquired 0 (13,521)
Cash used in investing activities (62) (13,642)
Cash flows from financing activities:    
Proceeds from line of credit 3,500 0
Proceeds from issuance of long-term debt 0 14,263
Repayment of long-term debt (5,162) (671)
Proceeds from issuance of common stock 0 42
Shares withheld to pay taxes (51) (150)
Cash (used in) provided by financing activities (1,713) 13,484
Effect of exchange rate changes on cash and cash equivalents (197) (33)
Net decrease in cash and cash equivalents (331) (777)
Cash and cash equivalents at the beginning of the year 11,691 12,123
Cash and cash equivalents at the end of the year $ 11,360 $ 11,346
v3.20.2
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
1.
Summary of Significant Accounting Policies

Basis of Presentation

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” or "we” and "our" are to GSE Systems, Inc. and our subsidiaries, collectively.

The consolidated interim financial statements included herein have been prepared by GSE and are unaudited. In the opinion of the management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2019 was derived from our audited financial statements, but it does not include all disclosures required by U.S. GAAP.

The results of operations for interim periods are not necessarily an indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on June 11, 2020.

The preparation of financial statements in conformity with 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 financial statements, as well as reported amounts of revenues and expenses during the reporting period. Our most significant estimates relate to revenue recognition on contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired including the determination of fair value in impairment tests, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock-based compensation awards and the recoverability of deferred tax assets. Actual results of these, and other items not listed, could differ from these estimates and those differences could be material.

COVID-19

We began working remotely at the period end, due to the COVID-19 impact and continue to do so, available, and mandated by local, state and federal regulations. As a result, employees almost entirely work from home for the Performance Solutions segment, but for when required to be at the client site for essential project work. Performance Projects, since they are essential, for the most part continue without pause. For our staff augmentation, we have seen certain contract for NITC customers paused and or delayed as clients shrink their own on-premise workforces to the bare minimum in response to the pandemic; as a result the NITC business has seen its deployed billable employee base contract since the start of the pandemic. Although we cannot fully estimate the length or gravity of the impact of the COVID-19 outbreak at this time, we have experienced delays in commencing new projects, which has delayed or ability to recognize revenue. In addition, we have had order reductions or changes due to the pandemic. We expect the financial results for the fiscal year 2020 to be lower as a result of COVID-19.

Going Concern Consideration

As a result of the COVID-19 pandemic, we are experiencing a negative impact on our financial position and results of operations. We are likely to continue to experience delays in commencing outstanding orders or loss of orders altogether, disruption of our business as a result of worker illness or mandated shutdowns, and this could impact our ability to maintain compliance with our debt covenants, our ability to refinance existing indebtedness and our ability to access new capital. We received $10 million from the Paycheck Protection Program ("PPP") and indicated without these funds, the risk of employee terminations, layoffs and other drastic cost reductions exists. While the PPP funds will provide us liquidity, these funds will not prevent us from potentially not meeting the minimum EBITDA covenant or other of our debt covenants in the future. Including the proceeds from the PPP, 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 the COVID-19 pandemic, we believe it is probable we will not remain in compliance with our debt covenants throughout the remainder of fiscal 2020. As a result of the expected debt covenant violation, we have classified our debt as short-term in our consolidated balance sheets as of March 31, 2020 and December 31, 2019, which creates substantial doubt regarding our ability to continue as a going concern.

v3.20.2
Recent Accounting Pronouncements
3 Months Ended
Mar. 31, 2020
Recent Accounting Pronouncements [Abstract]  
Recent Accounting Pronouncements
2.
Recent Accounting Pronouncements
Accounting pronouncements recently adopted
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). 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 adopted the new standard and began using the simplified approach on January 1, 2020.

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. We are currently evaluating the effects, if any, that the adoption of this guidance will have on our consolidated financial position, results of operations and cash flows.

v3.20.2
Basic and Diluted (Loss) Income per Common Share
3 Months Ended
Mar. 31, 2020
Basic and Diluted (Loss) Income per Common Share [Abstract]  
Basic and Diluted (Loss) Income per Common Share
3.
Basic and Diluted (Loss) Income per Common Share

Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of outstanding shares of common stock for the period. Diluted net (loss) income per share adjusts the weighted average shares outstanding for the potential dilution that could occur if outstanding vested stock options were exercised and restricted stock units ("RSU") were vested, unless the impact of potential dilutive common shares outstanding are anti-dilutive. Since we experienced a net loss in each period presented, basic and diluted net loss per share are the same. The diluted loss per share, in each period presented, excludes the impact of 59,421 and 237,834 potentially dilutive securities during the three months ended March 31, 2020 and 2019, since they would have an anti-dilutive effect.

v3.20.2
Acquisitions
3 Months Ended
Mar. 31, 2020
Acquisitions [Abstract]  
Acquisitions
4.
Acquisition of DP Engineering
On February 15, 2019, we acquired 100% of the membership interests in DP Engineering for $13.5 million, subject to certain earn out provisions. We funded the acquisition by borrowing $14.3 million under our term loan agreement with Citizens Bank.
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 we paid to acquire DP Engineering, and the fair value of the assets acquired and liabilities assumed on February 15, 2019.
(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 we have collected in full. We did not acquire any other class of receivable as a result of the acquisition of DP Engineering.

The goodwill was 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.

We identified other intangible assets of $6.8 million, including customer contracts and relationships, tradename and non-compete agreements, with amortization periods of five years to fifteen years.

Approximately one week following our acquisition of DP Engineering, an adverse event occurred at one of DP Engineering’s major customer's locations that affected plant operations. We received a Notice of Suspension from that customer. This event adversely impacted the relationship between DP Engineering and this customer. We concluded this event represented a triggering event requiring an interim assessment of the intangible assets we acquired to determine if they had been impaired. As a result of the impairment analysis, we recognized the impairment charges of $5.6 million related to the acquired goodwill in our March 31, 2019 consolidated financial statements. On August 6, 2019, we received a Notice of Termination from this customer, notifying us they were terminating their Engineer of Choice consulting service agreement with DP Engineering. We concluded this represented a new triggering event and during the third quarter of 2019 we evaluated whether any additional impairment existed. We concluded, based on our analysis that no additional impairment was necessary.

Included in the purchase price of DP Engineering was the estimated fair value of an earn-out totaling $1.2 million, which we initially recorded as contingent consideration. Subsequent to the acquisition, primarily as a result of the events described above, we determined the conditions related to the contingent consideration would not be met and therefore we reversed this amount through our statement of operations in the first quarter of 2019.

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

Unrelated to the event described above, during the three months ended March 31, 2020, we concluded, as a result of the COVID-19 virus that a triggering event occurred requiring an interim assessment for impairment of our intangible assets, including those associated with DP Engineering. As a result of this analysis, we recorded an impairment charge of $4.3 million related to DP Engineering's definite-lived intangible assets in our March 31, 2020 consolidated financial statements.

DP Engineering recognized $1.4 million of revenue during the three months ended March 31, 2020.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information for the quarter ended March 31, 2019 in the table below summarizes the combined results of operations for GSE and DP Engineering as if the business combinations had occurred on January 1, 2019 (in thousands).

Revenue
 
$
25,178
 
Net loss
  
(3,451
)

The pro forma financial information has been calculated after applying GSE's accounting policies and includes pro forma adjustments resulting from our acquisition of DP Engineering, including amortization charges related to the intangible assets acquired, 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, 2019.

For the three months ended March 31, 2019, we incurred $600 thousand of selling, general and administrative costs related to the acquisition of DP Engineering. Due to the Q1 2019 triggering events described above, we also recorded a $5.6 million impairment of DP Engineering's goodwill during the three months ended March 31, 2019.
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, 2019, nor is it intended to be an indication of future operating results.

v3.20.2
Contract Receivables
3 Months Ended
Mar. 31, 2020
Contract Receivables [Abstract]  
Contract Receivables
5.
Contract Receivables
Contract receivables represent our unconditional rights to consideration due from a broad base of both domestic and international customers. All contract receivables are considered to be collectible within    .

The components of contract receivables are as follows:

(in thousands)
 
March 31, 2020
  
December 31, 2019
 
       
Billed receivables
 
$
6,707
  
$
11,041
 
Unbilled receivables
  
7,377
   
6,624
 
Allowance for doubtful accounts
  
(434
)
  
(458
)
Total contract receivables, net
 
$
13,650
  
$
17,207
 

Management reviews collectability of receivables periodically and records an allowance for doubtful accounts to reduce its receivables to their net realizable value when it is probable that we will not be able to collect all amounts according to the contractual terms of the receivable. The allowance for doubtful accounts is based on historical trends of past due accounts, write-offs, specific identification and review of customer accounts. During the three months ended March 31, 2020 and 2019, we recorded bad debt expense of $93 thousand and $0, respectively.

During April 2020, we invoiced $4.5 million of the March 31, 2020 unbilled amounts.

As of March 31, 2020, we had one customer that accounted for 20% of our consolidated contract receivables. As of December 31, 2019, we had two customers that accounted for 13% and 10% of our consolidated contract receivables.

v3.20.2
Goodwill and Intangible Assets
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets [Abstract]  
Goodwill and Intangible Assets
6.
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. GSE does not have any intangible assets with indefinite useful lives other than goodwill.

During the three months ended March 31, 2020, we determined the impact of the COVID-19 virus on our operations was an indicator of a triggering event that could result in an impairment of our long-lived assets. As such, we performed an interim analysis to determine if an impairment existed at March 31, 2020 by its individual asset groupings, which management determined to be at the subsidiary level. We used a discounted cash flow analysis to test for impairment and concluded that the carrying value of the definite-lived intangible assets of DP Engineering exceeded its carrying value by $4.3 million, and we recorded an impairment for this amount as of March 31, 2020. No impairment was identified related to any other asset groupings.

Changes in the gross carrying amount, accumulated amortization, addition and impairment of definite-lived intangible assets was as follows:

             
(in thousands)
 
As of March 31, 2020
 
  
Gross Carrying Amount
  
Accumulated Amortization
  
Impact of Impairment
  
Net
 
Amortized intangible assets:
            
Customer relationships
 
$
11,730
  
$
(4,584
)
 
$
(3,102
)
 
$
4,044
 
Trade names
  
2,467
   
(816
)
  
(778
)
  
873
 
Developed technology
  
471
   
(471
)
  
-
   
-
 
Non-contractual customer relationships
  
433
   
(433
)
  
-
   
-
 
Noncompete agreement
  
949
   
(267
)
  
(422
)
  
260
 
Alliance agreement
  
527
   
(198
)
  
-
   
329
 
Others
  
167
   
(167
)
  
-
   
-
 
Total
 
$
16,744
  
$
(6,936
)
 
$
(4,302
)
 
$
5,506
 

(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 agreements
  
949
   
(217
)
  
732
 
Alliance agreement
  
527
   
(171
)
  
356
 
Others
  
167
   
(167
)
  
-
 
Total
 
$
16,744
  
$
(6,265
)
 
$
10,479
 

Amortization expense related to definite-lived intangible assets totaled $670 thousand and $570 thousand for the three months ended March 31, 2020 and 2019, respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years and thereafter:
(in thousands)
   
Years ended December 31:
   
2020 (remainder)
 
$
1,271
 
2021
  
1,213
 
2022
  
910
 
2023
  
640
 
2024
  
444
 
Thereafter
  
1,028
 
Total
 
$
5,506
 


Goodwill
We review 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. We test 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. We have determined that we have two reporting units, which are the same as our two operating segments: (i) Performance Improvement Solutions ("Performance") and (ii) Nuclear Industry Training and Consulting ("NITC").

We reviewed our goodwill for impairment, due to the COVID-19 interim triggering event noted above. Based upon our analysis, we determined the fair value of our goodwill at the reporting unit level exceeded the carrying value and determined no impairment charge was required during the three months ended March 31, 2020.
v3.20.2
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2020
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments
7.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurement, 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 principal 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 instrument liability award. 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.
At March 31, 2020 and December 31, 2019, we considered the recorded value of certain of its financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate fair value based upon their short-term nature.
As of March 31, 2020, we had four standby letters of credit totaling $1.2 million, which represent performance bonds on four contracts.
For the three months ended March 31, 2020, we did not have any transfers between fair value Level 1, Level 2 or Level 3. We did not hold any non-financial assets or non-financial liabilities subject to fair value measurements on a recurring basis at March 31, 2020.

The following table presents assets and liabilities measured at fair value at March 31, 2020:

(in thousands)
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
  
Significant
Other Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Total
 
             
Money market funds
 
$
434
  
$
-
  
$
-
  
$
434
 
Total assets
 
$
434
  
$
-
  
$
-
  
$
434
 
                 
Liability awards
  
-
   
(3
)
  
-
   
(3
)
Interest rate swap contract
  
-
   
(257
)
  
-
   
(257
)
Total liabilities
 
$
-
  
$
(260
)
 
$
-
  
$
(260
)
                 

Money market funds at both March 31, 2020 and December 31, 2019 are included in cash and cash equivalents in the respective consolidated balance sheets.

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

(in thousands)
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
  
Significant
Other Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(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
)

v3.20.2
Derivative Instruments
3 Months Ended
Mar. 31, 2020
Derivative Instruments [Abstract]  
Derivative Instruments
8.
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

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

As of March 31, 2020, we had no foreign exchange contracts outstanding.

Interest Rate Risk Management

As discussed in Note 10, we entered into an amended Credit Agreement in May 2018 and revised via the Seventh Amendment and Reaffirmation Agreement on April 17, 2020. The loan bears interest at adjusted one-month USD LIBOR, plus a margin ranging between 2.00% and 2.75% depending on our overall leverage ratio. As part of its overall risk management policies, in June 2018 we 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 5-year principal repayment terms. The terms of the swap requires us to pay interest on the basis of a fixed rate of 3.02%, and we receive interest on the basis of one-month USD LIBOR.

We 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:

  
March 31,
  
December 31,
 
(in thousands)
 
2020
  
2019
 
Prepaid expenses and other current assets
      
Foreign exchange contracts
 
$
-
  
$
49
 
Total asset derivatives
  
-
   
49
 
         
Other liabilities
        
Interest rate swaps
  
(257
)
  
(160
)
Total liability derivatives
  
(257
)
  
(160
)
         
Net fair value
 
$
(257
)
 
$
(111
)

We have not designated any of its derivative contracts as hedges. Changes in the fair value of the derivative contracts are included in gain (loss) 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 our 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 gain (loss) on derivative instruments, net in the consolidated statements of operations.

For the three months ended March 31, 2020 and 2019, we recognized a net (loss) gain on our derivative instruments as outlined below:

  
Three months ended
March 31,
 
(in thousands)
 
2020
  
2019
 
Interest rate swap - change in fair value
 
$
(97
)
 
$
(26
)
Foreign exchange contracts
  
17
   
102
 
Remeasurement of related contract receivables,
 and billings in excess of revenue earned
  
37
   
17
 
(Loss) gain on derivative instruments, net
 
$
(43
)
 
$
93
 

During the three months ended March 31, 2020, we realized a gain of $17 thousand for foreign exchange contracts due to their close out during the quarter, and we recorded a gain of $102 thousand related to the change in the fair value of foreign exchange contracts for the three months ended March 31, 2019.
v3.20.2
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Stock-Based Compensation [Abstract]  
Stock-Based Compensation
9.
Stock-Based Compensation

We recognize stock-based compensation expense for all equity-based awards issued to employees, directors and non-employees that are expected to vest. Stock-based compensation expense is based on the fair value of awards as of the grant date. We recognized $147 thousand and $570 thousand of stock-based compensation expense related to equity awards for the three months ended March 31, 2020 and 2019, respectively, under the fair value method. In addition to the stock-based compensation expense recognized, we also recognized $(6) thousand and $27 thousand of expense related to the change in the fair value of cash-settled restricted stock units (RSUs) during the three months ended March 31, 2020 and 2019, respectively.

During the three months ended March 31, 2020, we granted 30,000 time-vesting RSUs to employees with an aggregate fair value of approximately $21 thousand. During the three months ended March 31, 2019, the Company granted approximately 300,000 time-vesting RSUs to employees with an aggregate fair value of approximately $800 thousand. A portion of the time-vesting RSUs vest quarterly in equal amounts over the course of eight quarters, and the remainder vest annually in equal amounts over the course of three years. The fair value of the time-vesting RSUs is expensed ratably over the requisite service period, which ranges from one year to three years.

Our 1995 long-term incentive program (LTIP) provides for the issuance of performance-vesting and time-vesting restricted stock units to certain executives and other employees. Vesting of the performance-vesting restricted stock units (PRSU's) is contingent upon the employee's continued employment, and our achievement of certain performance goals during designated performance period as established by the Compensation Committee of the Board of Directors. We recognize compensation expense, net of estimated forfeitures, for PRSU's on a straight-line basis, over the performance period and based on the probable outcome of achievement of the financial targets. At the end of each reporting period, the Company estimates the number of PRSUs that are expected to vest, based on the probability and extent to which the performance goals will be met, to determine the expense for the period. If the number of shares expected to be earned changes during the period of performance, we make a cumulative adjustment to compensation expense based on the revised number of shares expected to vest.

During the three months ended March 31, 2020, we granted approximately 510,000 performance-vesting RSUs to key employees with an aggregate fair value of approximately $600 thousand. These awards vest over three years based upon certain financial metrics achieved during fiscal 2022. Approximately 50% of these awards are based upon obtaining certain revenue targets, and the remainder are based upon achieving certain Adjusted EBITDA targets. During the three months ended March 31, 2019, we granted approximately 350,000 performance-vesting RSUs. These awards vest over three years based upon achieving certain financial metrics during 2021 for revenue and Adjusted EBITDA.

We did not any grant stock options for the three months ended March 31, 2020 or 2019.

v3.20.2
Debt
3 Months Ended
Mar. 31, 2020
Debt [Abstract]  
Debt
10.
Debt

We entered into a 3-year, $5.0 million revolving line of credit facility with Citizens Bank National Association (the “Bank") to fund general working capital needs and acquisitions. We amended this facility on May 11, 2018 with the Amended and Restated Credit and Security Agreement (the “Credit Agreement" or the “Credit Facility”) to (a) expand the $5.0 million revolving line of credit to include a letter of credit sub-facility and not subject to a borrowing base ("the RLOC") and (b) to add a $25.0 million term loan facility, available to finance permitted acquisitions over the following 18 months. The credit facility is subject to certain financial covenants and reporting requirements, matures in five years and bear interest at the one-month USD LIBOR, plus a margin that varies depending on our overall leverage ratio. The RLOC has required monthly payments of only interest, with principal due at maturity, while our term loan draws require monthly payments of principal and interest, based on an amortization schedule. We are not required to maintain a restricted cash collateral account at Citizens Bank for the RLOC. Our obligations under the Credit Agreement are guaranteed by our wholly-owned subsidiaries Hyperspring, Absolute, True North, DP Engineering and by any future material domestic subsidiaries (collectively, "the Guarantors").  
 
On June 28, 2019, we entered into the Fifth Amendment and Reaffirmation Agreement, which changed our fixed charge coverage ratio from 1.25 to (i) 2.75 to 1.00 for the period ending 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, due to an expected violation of our covenants, we entered into the Sixth Amendment and Reaffirmation Agreement and effective on December 31, with our Bank to relax the fixed charge coverage ratio and leverage ratio and delay testing of both financial covenants. We agreed to an additional covenant, requiring us to maintain a consolidated Adjusted EBITDA target of $4.25 million, tested quarterly as of December 31, 2019, March 31, 2020 and June 30, 2020. Further, we agreed to maintain a minimum USA liquidity of at least $5.0 million in the aggregate, tested bi-weekly as of the fifteenth and the last day of each month, beginning on December 31, 2019 and until June 30, 2020. In addition to the revised covenants, we agreed to make accelerated principal payments of $3.0 million on January 6, 2020; $1.0 million on March 31, 2020; and $1.0 million on June 30, 2020.  
 
On April 17, 2020, we entered into the Seventh Amendment and Reaffirmation Agreement and effective March 31, 2020, which requires us to maintain a minimum fixed charge coverage ratio of 1.25 to 1.00, tested quarterly as of the last day of each quarter, beginning with the quarter ending June 30, 2021. In addition, we agreed to not exceed a maximum leverage ratio, tested quarterly as of the last day of each quarter and beginning with the quarter ending September 30, 2020 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 December 31, March 31, June 30 and September 30, thereafter. We additionally agreed to make accelerated principal payments of $0.75 million on April 17, 2020 and $0.5 million on June 30, 2020.  
 
We have the option to refinance the term loan facility if certain requirements are met, including certain covenant thresholds. 
 
Revolving Line of Credit 
 
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 2.00% depending on our overall leverage ratio, and we pay an unused RLOC fee quarterly based on the average daily unused balance. 
 
At March 31, 2020, we had borrowed $3.5 million under the RLOC, and there were four letters of credit totaling $1.2 million outstanding to certain of our customers. The amount available at March 31, 2020, after consideration of letters of credit, was approximately $0.3 million. 
 
Term Loan 
 
As discussed in Note 4, we acquired DP Engineering on February 15, 2019 for approximately $13.5 million in cash and borrowed $14.3 million to finance the acquisition. The loan matures in five years and bears interest at the adjusted USD LIBOR, plus a margin ranging between 2.00% and 2.75% depending on our overall leverage ratio. There were no debt issuance costs or loan origination fees associated with this transaction. 
 
Additionally, to fund the acquisition of True North, we borrowed $10.3 million on May 11, 2018, $0.5 million of which was repaid to the Bank on the same day. The loan matures in five years and bears interest at the adjusted one-month USD LIBOR, plus a margin ranging between 2.00% and 2.75% depending on our overall leverage ratio. We incurred $70 thousand of debt issuance costs and $75 thousand of loan origination fees related to this transaction. Debt issuance costs and loan origination fees are reported as a direct deduction from the carrying amount of the loan and amortized over the term of the loan using the effective interest method. 

Possible violation of debt covenants during Fiscal 2020 
 
As discussed in Note 1, substantial doubt has been raised regarding our ability to continue as a going concern due to a probable debt covenant violation and have classified our debt as current in our consolidated balance sheets as of March 31, 2020 and December 31, 2019. 
 
The Credit Agreement contains customary covenants, as described above, and restrictions typical for a financing of this type, that, among other things, restricts our ability to incur additional debt, pay dividends, make distributions, make certain investments and acquisitions, repurchase our stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of our 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 facilities. 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. 

v3.20.2
Product Warranty
3 Months Ended
Mar. 31, 2020
Product Warranty [Abstract]  
Product Warranty
11.
Product Warranty

We accrue for estimated warranty costs at the time the related revenue is recognized and based on historical experience and projected claims. Our System Design and Build contracts generally include a one-year base warranty on the systems. The portion of our warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $949 thousand and the remaining $344 thousand is classified as long-term within other liabilities. The activity in the accrued warranty accounts during the current period is as follows:

(in thousands)
   
Balance, January 1, 2020
 
$
1,323
 
Current period provision
  
47
 
Current period claims
  
(73
)
Currency adjustment
  
(4
)
Balance at March 31, 2020
 
$
1,293
 

v3.20.2
Revenue
3 Months Ended
Mar. 31, 2020
Revenue [Abstract]  
Revenue
12.
Revenue

We generate revenue primarily 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 our Performance segment. Training and consulting service contracts are recognized through both our Performance and NITC segments.

The following table represents a disaggregation of revenue by type of goods or services for the three months ended March 31, 2020 and 2019, along with the reportable segment for each category:

(in thousands)
  
Three months ended
 
  
March 31, 2020
  
2019
 
Performance segment
      
System Design and Build
 
$
3,813
  
$
6,442
 
Software
  
910
   
749
 
Training and Consulting Services
  
4,988
   
4,999
 
         
NITC segment
        
Training and Consulting Services
  
7,994
   
10,004
 
         
Total revenue
 
$
17,705
  
$
22,194
 

SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule established in our contracts. We generally have 2 main performance obligations: the training simulator build and Post Contract Support ("PCS").
Fees for Post Contract Support ("PCS") are normally paid in advance of the service period.

The training simulator build generally includes hardware, software and labor. We recognize revenue for the training simulator build 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 towards the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically during the contract period, 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 our revenue recognition as a significant change in the estimates can cause our revenue and related margins to change significantly from the amounts estimated in the early stages of the project.

The transaction price for Software contracts is generally fixed and revenue is recognized upon delivery of the software, with fees due in advance of or shortly after delivery of the software.

We recognize Training and Consulting Services revenue as services are performed and bill our customers on a regular basis, such as weekly, biweekly or monthly for services provided and in time with revenue recognition.

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 revenue recognized in the reporting periods that were included in contract liabilities from contracts with customers:

(in thousands)
  
Three months ended
 
  
March 31, 2020
 
March 31, 2019
 
Revenue recognized in the period from amounts included in Billings in Excess of Revenue Earned at the beginning of the period
 
$
3,762
  
$
5,040
 


As of March 31, 2020, the aggregate amount of transaction price allocated to the remaining performance obligations of SDB, software and fixed-price training and consulting services contracts is $22.8 million. We will recognize the revenue as the performance obligations are satisfied and expected this to occur over the next 12 months.

v3.20.2
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Taxes [Abstract]  
Income Taxes
13.
Income Taxes

The following table shows the provision for (benefit from) income taxes and our effective tax rates:

(in thousands)
 
Three months ended
 
  
March 31, 2020
 
March 31, 2019
 
Benefit from income taxes
 
$
(130
)
 
$
(1,848
)
Effective tax rate
  
2.0
%
  
30.1
%

Our income tax benefit for the interim periods presented is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. Total income tax expense for the three months ended March 31, 2020 is comprised mainly of foreign and state tax expense. Total income tax expense for the three months ended March 31, 2019 is comprised mainly of the tax impact of the loss for impairment, federal, foreign and state tax expense.

Our effective tax rate was 2.0% and 30.1% for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020, the difference between our effective tax rate of 2.0% and the U.S. statutory federal income tax rate of 21% was primarily due to accruals related to uncertain tax positions for certain U.S. and foreign tax contingencies, a change in tax valuation allowance in our US and China subsidiaries and discrete item adjustments for U.S. and foreign taxes. For the three months ended March 31, 2019, the difference between the effective tax rate of 30.1% and the U.S. statutory federal income tax rate of 21% was primarily due to permanent differences, accruals related to uncertain tax positions for certain U.S. and foreign tax contingencies, a change in tax valuation allowance in our China subsidiary, discrete item adjustments for the U.S. and foreign taxes, the tax impact of the loss for impairment and the excess book deduction related to stock options and restricted stock units that were exercised or vested during the quarter.

Because of our net operating loss carryforwards, we are subject to U.S. federal and state income tax examinations from the year 2000 and forward. We are subject to foreign tax examinations by tax authorities for years 2014 and forward in Sweden, 2015 and forward in China, 2015 and forward in India and 2016 and forward in the United Kingdom.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) 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 50% likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense.

We recognize deferred tax assets to the extent that it is believed that these assets are more likely than not to be realized. We have evaluated all positive and negative evidence and determined that it will continue to assess a full valuation allowance on its U.S., Swedish U.K., Chinese and Slovakian net deferred assets as of March 31, 2020. We have determined that it is not more likely than not that it will realize the benefits of its deferred taxes in the U.S and foreign jurisdictions.

v3.20.2
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases
14.
Leases

We maintain leases of office facilities and equipment. Leases generally have remaining terms of one year to five years, whereas leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets. We recognize lease expense for minimum lease payments on a straight-line basis over the term of the lease. Certain leases include options to renew or terminate. Renewal options are exercisable based upon our discretion and vary based on the nature of each lease, with renewal periods generally ranging from one year to five years. The term of the lease includes renewal periods, only if we are reasonably certain that we will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, we consider several factors, including but not limited to, the cost of moving to another location, the cost of disruption to operations, whether the purpose or location of the leased asset is unique and the terms associated with extending the lease.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. Our real estate leases, which are comprised primarily of office spaces, represent a majority of the lease liability. The majority of our lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based on changes in facts and circumstances related to the use of the ROU and are recorded as incurred. We use an incremental borrowing rate based on rates available at commencement in determining the present value of future payments.

We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. We apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Lease contracts are evaluated at inception to determine whether they contain a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in thousands):

Operating Leases
Classification
 
March 31, 2020
  
December 31, 2019
 
Leased Assets
 
      
Operating lease - right of use assets
Long term assets
 
$
2,053
  
$
2,215
 
 
 
        
Lease Liabilities
 
        
Operating lease liabilities - Current
Other current liabilities
  
1,159
   
1,153
 
Operating lease liabilities
Long term liabilities
  
2,704
   
3,000
 
 
  
 
$
3,863
  
$
4,153
 

We executed a sublease agreement with a tenant to sublease 3,650 square feet from the office space in Sykesville on May 1, 2019. This agreement is in addition to the 3,822 of square feet previously subleased, which was entered into on April 1, 2017. The sublease does not relieve us of our primary lease obligation. The lessor agreements are both considered operating leases, maintaining the historical classification of the underlying lease. We do not recognize any underlying assets for the subleases as a lessor of operating leases. The net amount received from the sublease is recorded within selling, general and administrative expenses.

The table below summarizes the lease income and expenses recorded in the consolidated statements of operations incurred during the three months ended March 31, 2020, (in thousands):

   
Three months ended
 
Lease Cost
Classification
 
March 31, 2020
  
March 31, 2019
 
Operating lease cost (1)
Selling, general and administrative expenses
 
$
321
  
$
228
 
Short-term leases costs (2)
Selling, general and administrative expenses
  
1
   
38
 
Sublease income (3)
Selling, general and administrative expenses
  
(32
)
  
(16
)
Net lease cost
 
 
$
290
  
$
250
 

(1) Includes variable lease costs which are immaterial.
(2) Include leases maturing less than twelve months from the report date.
(3) Sublease portfolio consists of 2 tenants, which sublease parts of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.

The future minimum lease payments under non-cancellable operating leases are reflected below. This table also reflects the reconciliation of the undiscounted cash flows to the discounted operating lease liabilities as recognized at March 31, 2020 consolidated balance sheet (in thousands):

 
 
Operating Leases
 
2020
 
$
995
 
2021
  
1,292
 
2022
  
1,184
 
2023
  
622
 
2024
  
106
 
After 2024
  
-
 
Total lease payments
 
$
4,199
 
Less: Interest
  
336
 
Present value of lease payments
 
$
3,863
 

We calculated the weighted-average remaining lease term, presented in years below and the weighted-average discount rate for our operating leases. As noted in our lease accounting policy, we use the incremental borrowing rate as the lease discount rate.

Lease Term and Discount Rate
 
March 31, 2020
 
December 31, 2019
Weighted-average remaining lease term (years)
 
 
  
         Operating leases
 
3.28
 
3.51
Weighted-average discount rate
 
 
  
         Operating leases
 
5.00%
 
5.00%

The table below sets out the classification of lease payments in the consolidated statement of cash flows. The right-of-use assets obtained in exchange for operating lease liabilities represent the new operating leases obtained through our business combinations during the three months ended March 31, 2020.

(in thousands)
  
Three months ended
 
Other Information
 
March 31, 2020
  
March 31, 2019
 
 - Operating cash flows used in operating leases
 
$
339
  
$
235
 
Cash paid for amounts included in measurement of liabilities
  
339
   
235
 
 
        

v3.20.2
Segment Information
3 Months Ended
Mar. 31, 2020
Segment Information [Abstract]  
Segment Information
15.
Segment Information
We have two reportable business segments. The Performance Improvements Solutions segment provides simulation, training and engineering products and services delivered across the breadth of industries we serve. The Performance segment includes simulation for both training and engineering applications. Examples of engineering services include, but are not limited to, plant design verification and validation, thermal performance evaluation and optimization programs and engineering programs for plants for ASME code and ASME Section XI. We provide these services through GSE, True North and DP Engineering across all market segments. Example training applications include turnkey and custom training services. Contract terms are typically less than two years.

The NITC segment provides specialized workforce solutions primarily to the nuclear industry, working at clients' facilities. This business is managed through our Hyperspring and Absolute subsidiaries. The business model, management focus, margins and other factors clearly separate this business line from the rest of our product and service portfolio.

Our primary measure of segment performance, as shown in the table below, excludes the loss on impairment of intangible assets and goodwill and the change in fair value of contingent consideration, net related to the DP Engineering acquisition, which do not accurately represent the ongoing operations of the Performance Improvements Solutions segment. Excluding these discrete items from the segment measure of performance allows for better period over period comparison.

The following table summarizes the revenue and operating results attributable to our reportable segments and includes a reconciliation of segment revenue to consolidated revenue and segment loss to consolidated loss before income taxes. Inter-segment revenue is eliminated in consolidation and is not significant:

(in thousands)
 
Three months ended
 
  
March 31, 2020
  
March 31, 2019
 
Revenue:
      
Performance Improvement Solutions
 
$
9,711
  
$
12,190
 
Nuclear Industry Training and Consulting
  
7,994
   
10,004
 
Total revenue
 
$
17,705
  
$
22,194
 
         
Operating loss:
        
Performance Improvement Solutions
 
$
(1,272
)
 
$
(863
)
Nuclear Industry Training and Consulting
  
(559
)
  
(925
)
Loss on impairment
  
(4,302
)
  
(5,464
)
Change in fair value of contingent consideration, net
  
-
   
1,200
 
Operating loss
  
(6,133
)
  
(6,052
)
         
Interest expense, net
  
(241
)
  
(208
)
(Loss) gain on derivative instruments, net
  
(43
)
  
93
 
Other income, net
  
29
   
22
 
Loss before income taxes
 
$
(6,388
)
 
$
(6,145
)
         

v3.20.2
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
16.
Commitments and Contingencies

Per ASC 450 Contingencies, we review potential items and areas where a loss contingency could arise. In the opinion of management, we are not a party to any legal proceeding, the outcome of which, in management's opinion, individually or in the aggregate, would have a material effect on our consolidated results of operations, financial position or cash flows. Legal defense costs are expensed as incurred.

Joyce v. Absolute Consulting, Inc.

On March 29, 2019, a former employee of Absolute Consulting, Inc., filed a putative class action against Absolute and us in the United States District Court for the District of Maryland (case number 1:19 cv 00868 RDB). The lawsuit alleged the plaintiff was not properly compensated for overtime hours worked. We have been dismissed from the case, but Absolute remains a party and continues to deny allegations and defend this litigation with GSE’s assistance. In July 2020, mediation occurred between Absolute and the plaintiff, at which the parties reached a tentative understanding but not yet a final settlement or conclusion (see Note 17). The parties will continue to work together to finalize a settlement based on the terms of their understanding, which will then be presented for approval to the court. We are unable to conclude regarding the likelihood of an unfavorable outcome or if this matter is remote or probable.

v3.20.2
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events - COVID-19 [Abstract]  
Subsequent Events - COVID-19
17.
Subsequent Events
On July 14, 2020, a mediation session occurred between our legal counsel, Absolute Consulting's management and the plaintiffs in the Joyce v. Absolute Consulting Inc. matter (see Note 16). As a result, the parties have entered into non-binding memorandum of understanding (‘MOU’), which if memorialized in a final settlement agreement that receives court approval, would result in an estimated gross settlement between $861 thousand and $1.5 million. If the case is not settled, then the parties would remain in their pre-MOU positions. We are unable to conclude that the likelihood of an unfavorable outcome in this matter is remote or probable.

CARES Act

On April 24, 2020, we received funds under the Paycheck Protection Program, a part of the CARES Act. The loan is serviced by Citizen’s Bank, and the application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan necessary to support our ongoing operations. We plan to use the funds for payroll and related costs, rent, utilities and other debt obligations incurred before February 15, 2020. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on our ability to adhere to the forgiveness criteria. The loan bears interest at a rate of 0.98% per annum and matures on April 24, 2022, with the first payment deferred until November 2020. Under the terms of the PPP, certain amounts may be forgiven if they are used in accordance with the CARES Act. The Company believes that the full amount of the $10.0 million Paycheck Protection Program loan will be forgiven.

v3.20.2
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Summary of Significant Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation

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” or "we” and "our" are to GSE Systems, Inc. and our subsidiaries, collectively.

The consolidated interim financial statements included herein have been prepared by GSE and are unaudited. In the opinion of the management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2019 was derived from our audited financial statements, but it does not include all disclosures required by U.S. GAAP.

The results of operations for interim periods are not necessarily an indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on June 11, 2020.

The preparation of financial statements in conformity with 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 financial statements, as well as reported amounts of revenues and expenses during the reporting period. Our most significant estimates relate to revenue recognition on contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired including the determination of fair value in impairment tests, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock-based compensation awards and the recoverability of deferred tax assets. Actual results of these, and other items not listed, could differ from these estimates and those differences could be material.

COVID-19
COVID-19

We began working remotely at the period end, due to the COVID-19 impact and continue to do so, available, and mandated by local, state and federal regulations. As a result, employees almost entirely work from home for the Performance Solutions segment, but for when required to be at the client site for essential project work. Performance Projects, since they are essential, for the most part continue without pause. For our staff augmentation, we have seen certain contract for NITC customers paused and or delayed as clients shrink their own on-premise workforces to the bare minimum in response to the pandemic; as a result the NITC business has seen its deployed billable employee base contract since the start of the pandemic. Although we cannot fully estimate the length or gravity of the impact of the COVID-19 outbreak at this time, we have experienced delays in commencing new projects, which has delayed or ability to recognize revenue. In addition, we have had order reductions or changes due to the pandemic. We expect the financial results for the fiscal year 2020 to be lower as a result of COVID-19.

Going Concern Consideration
Going Concern Consideration

As a result of the COVID-19 pandemic, we are experiencing a negative impact on our financial position and results of operations. We are likely to continue to experience delays in commencing outstanding orders or loss of orders altogether, disruption of our business as a result of worker illness or mandated shutdowns, and this could impact our ability to maintain compliance with our debt covenants, our ability to refinance existing indebtedness and our ability to access new capital. We received $10 million from the Paycheck Protection Program ("PPP") and indicated without these funds, the risk of employee terminations, layoffs and other drastic cost reductions exists. While the PPP funds will provide us liquidity, these funds will not prevent us from potentially not meeting the minimum EBITDA covenant or other of our debt covenants in the future. Including the proceeds from the PPP, 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 the COVID-19 pandemic, we believe it is probable we will not remain in compliance with our debt covenants throughout the remainder of fiscal 2020. As a result of the expected debt covenant violation, we have classified our debt as short-term in our consolidated balance sheets as of March 31, 2020 and December 31, 2019, which creates substantial doubt regarding our ability to continue as a going concern.

v3.20.2
Recent Accounting Pronouncements (Policies)
3 Months Ended
Mar. 31, 2020
Recent Accounting Pronouncements [Abstract]  
Recent Accounting Pronouncements
Accounting pronouncements recently adopted
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). 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 adopted the new standard and began using the simplified approach on January 1, 2020.

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. We are currently evaluating the effects, if any, that the adoption of this guidance will have on our consolidated financial position, results of operations and cash flows.

v3.20.2
Acquisitions (Tables)
3 Months Ended
Mar. 31, 2020
Business Acquisition [Abstract]  
Business Acquisition, Pro Forma Information
Unaudited Pro Forma Financial Information

The unaudited pro forma financial information for the quarter ended March 31, 2019 in the table below summarizes the combined results of operations for GSE and DP Engineering as if the business combinations had occurred on January 1, 2019 (in thousands).

Revenue
 
$
25,178
 
Net loss
  
(3,451
)

DP Engineering Ltd, CO. [Member]  
Business Acquisition [Abstract]  
Adjusted Purchase Price Consideration and Fair Value Adjustments
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
 

Consideration Paid For Assets Acquired and Liabilities Assumed
The following table summarizes the consideration we paid to acquire DP Engineering, and the fair value of the assets acquired and liabilities assumed on February 15, 2019.
(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
 

v3.20.2
Contract Receivables (Tables)
3 Months Ended
Mar. 31, 2020
Contract Receivables [Abstract]  
Contract Receivables
The components of contract receivables are as follows:

(in thousands)
 
March 31, 2020
  
December 31, 2019
 
       
Billed receivables
 
$
6,707
  
$
11,041
 
Unbilled receivables
  
7,377
   
6,624
 
Allowance for doubtful accounts
  
(434
)
  
(458
)
Total contract receivables, net
 
$
13,650
  
$
17,207
 

v3.20.2
Goodwill and Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets [Abstract]  
Schedule of Acquired Finite-Lived Intangible Assets by Major Class
Changes in the gross carrying amount, accumulated amortization, addition and impairment of definite-lived intangible assets was as follows:

             
(in thousands)
 
As of March 31, 2020
 
  
Gross Carrying Amount
  
Accumulated Amortization
  
Impact of Impairment
  
Net
 
Amortized intangible assets:
            
Customer relationships
 
$
11,730
  
$
(4,584
)
 
$
(3,102
)
 
$
4,044
 
Trade names
  
2,467
   
(816
)
  
(778
)
  
873
 
Developed technology
  
471
   
(471
)
  
-
   
-
 
Non-contractual customer relationships
  
433
   
(433
)
  
-
   
-
 
Noncompete agreement
  
949
   
(267
)
  
(422
)
  
260
 
Alliance agreement
  
527
   
(198
)
  
-
   
329
 
Others
  
167
   
(167
)
  
-
   
-
 
Total
 
$
16,744
  
$
(6,936
)
 
$
(4,302
)
 
$
5,506
 

(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 agreements
  
949
   
(217
)
  
732
 
Alliance agreement
  
527
   
(171
)
  
356
 
Others
  
167
   
(167
)
  
-
 
Total
 
$
16,744
  
$
(6,265
)
 
$
10,479
 

Finite-Lived Intangible Assets, Future Amortization Expense
Amortization expense related to definite-lived intangible assets totaled $670 thousand and $570 thousand for the three months ended March 31, 2020 and 2019, respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years and thereafter:
(in thousands)
   
Years ended December 31:
   
2020 (remainder)
 
$
1,271
 
2021
  
1,213
 
2022
  
910
 
2023
  
640
 
2024
  
444
 
Thereafter
  
1,028
 
Total
 
$
5,506
 


v3.20.2
Fair Value of Financial Instruments (Tables)
3 Months Ended
Mar. 31, 2020
Fair Value of Financial Instruments [Abstract]  
Assets and Liabilities Measured at Fair Value
The following table presents assets and liabilities measured at fair value at March 31, 2020:

(in thousands)
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
  
Significant
Other Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Total
 
             
Money market funds
 
$
434
  
$
-
  
$
-
  
$
434
 
Total assets
 
$
434
  
$
-
  
$
-
  
$
434
 
                 
Liability awards
  
-
   
(3
)
  
-
   
(3
)
Interest rate swap contract
  
-
   
(257
)
  
-
   
(257
)
Total liabilities
 
$
-
  
$
(260
)
 
$
-
  
$
(260
)
                 

Money market funds at both March 31, 2020 and December 31, 2019 are included in cash and cash equivalents in the respective consolidated balance sheets.

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

(in thousands)
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
  
Significant
Other Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(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
)

v3.20.2
Derivative Instruments (Tables)
3 Months Ended
Mar. 31, 2020
Derivative Instruments [Abstract]  
Estimated Fair Value of the Contracts in the Consolidated Balance Sheets
We 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:

  
March 31,
  
December 31,
 
(in thousands)
 
2020
  
2019
 
Prepaid expenses and other current assets
      
Foreign exchange contracts
 
$
-
  
$
49
 
Total asset derivatives
  
-
   
49
 
         
Other liabilities
        
Interest rate swaps
  
(257
)
  
(160
)
Total liability derivatives
  
(257
)
  
(160
)
         
Net fair value
 
$
(257
)
 
$
(111
)

Net (Loss) Gain on Derivative Instruments
For the three months ended March 31, 2020 and 2019, we recognized a net (loss) gain on our derivative instruments as outlined below:

  
Three months ended
March 31,
 
(in thousands)
 
2020
  
2019
 
Interest rate swap - change in fair value
 
$
(97
)
 
$
(26
)
Foreign exchange contracts
  
17
   
102
 
Remeasurement of related contract receivables,
 and billings in excess of revenue earned
  
37
   
17
 
(Loss) gain on derivative instruments, net
 
$
(43
)
 
$
93
 

v3.20.2
Product Warranty (Tables)
3 Months Ended
Mar. 31, 2020
Product Warranty [Abstract]  
Activities in the Accrued Warranty Accounts
We accrue for estimated warranty costs at the time the related revenue is recognized and based on historical experience and projected claims. Our System Design and Build contracts generally include a one-year base warranty on the systems. The portion of our warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $949 thousand and the remaining $344 thousand is classified as long-term within other liabilities. The activity in the accrued warranty accounts during the current period is as follows:

(in thousands)
   
Balance, January 1, 2020
 
$
1,323
 
Current period provision
  
47
 
Current period claims
  
(73
)
Currency adjustment
  
(4
)
Balance at March 31, 2020
 
$
1,293
 

v3.20.2
Revenue (Tables)
3 Months Ended
Mar. 31, 2020
Revenue [Abstract]  
Disaggregation of Revenue
The following table represents a disaggregation of revenue by type of goods or services for the three months ended March 31, 2020 and 2019, along with the reportable segment for each category:

(in thousands)
  
Three months ended
 
  
March 31, 2020
  
2019
 
Performance segment
      
System Design and Build
 
$
3,813
  
$
6,442
 
Software
  
910
   
749
 
Training and Consulting Services
  
4,988
   
4,999
 
         
NITC segment
        
Training and Consulting Services
  
7,994
   
10,004
 
         
Total revenue
 
$
17,705
  
$
22,194
 

Balance of Contract Liabilities and Revenue Recognized in Reporting Period
The following table reflects the revenue recognized in the reporting periods that were included in contract liabilities from contracts with customers:

(in thousands)
  
Three months ended
 
  
March 31, 2020
 
March 31, 2019
 
Revenue recognized in the period from amounts included in Billings in Excess of Revenue Earned at the beginning of the period
 
$
3,762
  
$
5,040
 

v3.20.2
Income Taxes (Tables)
3 Months Ended
Mar. 31, 2020
Income Taxes [Abstract]  
Income Before Income Taxes by Domestic and Foreign Sources
The following table shows the provision for (benefit from) income taxes and our effective tax rates:

(in thousands)
 
Three months ended
 
  
March 31, 2020
 
March 31, 2019
 
Benefit from income taxes
 
$
(130
)
 
$
(1,848
)
Effective tax rate
  
2.0
%
  
30.1
%

v3.20.2
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Classification of Operating ROU Assets and Lease Liabilities on the Balance Sheet
Lease contracts are evaluated at inception to determine whether they contain a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in thousands):

Operating Leases
Classification
 
March 31, 2020
  
December 31, 2019
 
Leased Assets
 
      
Operating lease - right of use assets
Long term assets
 
$
2,053
  
$
2,215
 
 
 
        
Lease Liabilities
 
        
Operating lease liabilities - Current
Other current liabilities
  
1,159
   
1,153
 
Operating lease liabilities
Long term liabilities
  
2,704
   
3,000
 
 
  
 
$
3,863
  
$
4,153
 

Lease Income and Expenses
The table below summarizes the lease income and expenses recorded in the consolidated statements of operations incurred during the three months ended March 31, 2020, (in thousands):

   
Three months ended
 
Lease Cost
Classification
 
March 31, 2020
  
March 31, 2019
 
Operating lease cost (1)
Selling, general and administrative expenses
 
$
321
  
$
228
 
Short-term leases costs (2)
Selling, general and administrative expenses
  
1
   
38
 
Sublease income (3)
Selling, general and administrative expenses
  
(32
)
  
(16
)
Net lease cost
 
 
$