GSE SYSTEMS INC, 10-K filed on 13 Apr 21
v3.21.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2020
Mar. 31, 2021
Jun. 30, 2020
Cover [Abstract]      
Entity Registrant Name GSE SYSTEMS INC    
Entity Central Index Key 0000944480    
Current Fiscal Year End Date --12-31    
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Address, State or Province MD    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 20,709,883
Entity Common Stock, Shares Outstanding   20,634,372  
v3.21.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current assets    
Cash and cash equivalents $ 6,702 $ 11,691
Contract receivables, net 10,494 17,207
Prepaid expenses and other current assets 1,554 1,880
Total current assets 18,750 30,778
Equipment, software and leasehold improvements, net 616 939
Software development costs, net 630 641
Goodwill 13,339 13,339
Intangible assets, net 4,234 10,479
Deferred tax assets 0 57
Operating lease right-of-use assets, net 1,562 2,215
Other assets 59 61
Total assets 39,190 58,509
Current liabilities    
Line of credit 3,006 0
Paycheck Protection Program Loan, current portion 5,034 0
Debt, net of issuance costs and discount 0 18,481
Accounts payable 570 1,097
Accrued expenses 1,297 1,871
Accrued compensation 1,505 1,876
Billings in excess of revenue earned 5,285 7,613
Accrued warranty 665 921
Income taxes payable 1,621 1,341
Other current liabilities 2,498 1,234
Total current liabilities 21,481 34,434
Paycheck Protection Program Loan, noncurrent portion 5,034 0
Operating lease liabilities noncurrent 1,831 3,000
Other noncurrent liabilities 339 956
Total liabilities 28,685 38,390
Commitments and contingencies (Note 16)
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, 22,192,569 and 21,838,963 shares issued, 20,593,658 and 20,240,052 shares outstanding, respectively 222 218
Additional paid-in capital 79,687 79,400
Accumulated deficit (65,191) (54,654)
Accumulated other comprehensive loss (1,214) (1,846)
Treasury stock at cost, 1,598,911 shares (2,999) (2,999)
Total stockholders' equity 10,505 20,119
Total liabilities and stockholders' equity $ 39,190 $ 58,509
v3.21.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2020
Dec. 31, 2019
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) 22,192,569 21,838,963
Common stock, shares outstanding (in shares) 20,593,658 20,240,052
Treasury stock at cost (in shares) 1,598,911 1,598,911
v3.21.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]    
Revenue $ 57,620 $ 82,975
Cost of revenue 42,835 62,677
Gross profit 14,785 20,298
Operating expenses    
Selling, general and administrative 15,765 16,169
Research and development 686 710
Restructuring charges 1,297 2,478
Loss on impairment 4,302 5,597
Depreciation 330 363
Amortization of intangible assets 1,943 2,400
Total operating expenses 24,323 27,717
Operating loss (9,538) (7,419)
Interest expense (623) (988)
Loss on derivative instruments, net (17) (13)
Other (expense) income, net (4) 2,068
Loss before income taxes (10,182) (6,352)
Provision for income taxes 355 5,733
Net loss $ (10,537) $ (12,085)
Net loss per common share - basic and diluted (in dollars per share) $ (0.52) $ (0.60)
Diluted loss per common share (in dollars per share) $ (0.52) $ (0.60)
Weighted average shares outstanding used to compute net loss per share - basic and diluted (in shares) 20,439,157 20,062,021
Weighted average shares outstanding - Diluted (in shares) 20,439,157 20,062,021
v3.21.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]    
Net loss $ (10,537) $ (12,085)
Foreign currency translation adjustment 632 (211)
Comprehensive loss $ (9,905) $ (12,296)
v3.21.1
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
Balance at Dec. 31, 2018 $ 214 $ 78,118 $ (42,569) $ (1,635) $ (2,999) $ 31,129
Balance (in shares) at Dec. 31, 2018 21,485,000       (1,599)  
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) 9,000          
Common stock issued for options exercised $ 1 0 0 0 0 1
Common stock issued for RSUs vested (in shares) 345,000          
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 21,839,000       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 378 0 0 $ 0 378
Common stock issued for RSUs vested (in shares) 354,000          
Common stock issued for RSUs vested $ 4 (4) 0 0 0 0
Shares withheld to pay taxes 0 (87) 0 0 0 (87)
Foreign currency translation adjustment 0 0 0 632 0 632
Net loss 0 0 (10,537) 0 0 (10,537)
Balance at Dec. 31, 2020 $ 222 $ 79,687 $ (65,191) $ (1,214) $ (2,999) $ 10,505
Balance (in shares) at Dec. 31, 2020 22,193,000       (1,599)  
v3.21.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Cash flows provided by operating activities    
Net loss $ (10,537) $ (12,085)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Loss on impairment 4,302 5,597
Depreciation 330 363
Amortization of intangible assets 1,943 2,400
Amortization of deferred financing costs 82 0
Amortization of capitalized software development costs 339 366
Change in fair value of contingent consideration 0 (1,200)
Stock-based compensation expense 378 1,513
Bad debt expense 103 31
(Gain) loss on derivative instruments, net 17 13
Deferred income taxes 0 5,349
Gain on sale of assets (5) (66)
Changes in assets and liabilities    
Contract receivables 6,901 6,754
Prepaid expenses and other assets 81 532
Accounts payable, accrued compensation and accrued expenses (1,498) (3,458)
Billings-in-excess of revenue earned (2,374) (3,051)
Accrued warranty (721) (294)
Other liabilities 1,777 1,240
Net cash provided by operating activities 1,118 4,004
Cash flows from investing activities:    
Capital expenditures (13) (131)
Proceeds from sale of equipment 11 13
Capitalized software development costs (328) (392)
Acquisition of DP Engineering, net of cash acquired 0 (13,542)
Cash used in investing activities (330) (14,052)
Cash flows from financing activities:    
Proceeds from line of credit 4,752 0
Repayment of line of credit (1,746) 0
Payment of insurance premium (204) 0
Proceeds from issuance of long-term debt 0 14,263
Repayment of long-term debt (18,481) (4,294)
Proceeds from Paycheck Protection Program Loan 10,000 0
Proceeds from issuance of common stock 0 1
Termination fee on Interest rate swap agreement (209) 0
Shares withheld to pay taxes (87) (228)
Deferred financing costs (91) 0
Net cash (used in) provided by financing activities (6,066) 9,742
Effect of exchange rate changes on cash 289 (126)
Net decrease in cash and cash equivalents (4,989) (432)
Cash, cash equivalents at beginning of year 11,691 12,123
Cash, cash equivalents at end of year $ 6,702 $ 11,691
v3.21.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
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 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 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. 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 over time as control transfers to a customer. 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 become known.
 
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 previous estimates.
 
Management judgments and estimates involved in the initial creation and subsequent updates to the Company’s estimates-at-completion and related profit recognized are critical for our revenue recognition associated with SDB contracts. Inputs and assumptions requiring significant management judgment included anticipated direct labor, subcontract labor, and other direct costs required to deliver on unfinished performance obligations.

The SDB contracts generally provide a one-year base warranty on the systems. The base warranty is not 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, if any, are evaluated on a case by case basis to determine if it provides more than just assurance that the product operates as intended, which would require 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-based software licenses is recognized ratably over the term of such licenses following delivery to the customer. Delivery is considered to have occurred when the customer receives a copy of the software and is able to use and benefit from the software.
 
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 are recognized when the installation and training are 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.

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

We recognize Training and Consulting Services revenue as services are performed and bill our customers for services that we have provided on a regular basis (i.e. weekly, biweekly or monthly) and in time with revenue recognition.

Contract asset, which we classify as unbilled receivables, relates to performance under the contract for obligations that are satisfied but not yet billed. Contract assets are recognized as revenue as they occur.

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.

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 and contract asset and liabilities

Contract receivables include recoverable costs and accrued profit not billed which represents revenue recognized in excess of amounts billed. Contract asset (unbilled receivables) include amounts earned in performance of services that have not been invoiced. Contract liabilities include billings in excess of revenue earned 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 cost of revenue. 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 $1.0 million and $1.1 million for the years ended December 31, 2020 and 2019, respectively. Of these amounts, the Company capitalized approximately $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively.

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 term 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. Included in capitalized software development costs are certain expenses associated with the development software as a services. Significant changes in the sales projections could result in an impairment with respect to the capitalized software that is reported on the Company’s consolidated balance sheets.

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. Due to the impact of the COVID-19 pandemic, definite-lived intangible assets were reviewed for impairment in the first quarter of 2020. The undiscounted cash flows evidenced impairment for the DP Engineering asset group as such, we used a discounted cash flow model to determine the fair value of the DP Engineering asset group and recorded an impairment charge of $4.3 million as of the period ended March 31, 2020.

The Company’s intangible assets impairment analysis includes the use of undiscounted and discounted cash flow models that requires management to make assumptions regarding estimates of revenue growth rates and operating margins used to calculate projected future cash flows.

 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 asset, 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.

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").

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 impairment testing. 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. Additionally, ASU 2017-04, Simplifying the Test for Goodwill Impairment by eliminating two step approach when there is indication of impairment.

On February 15, 2019, we acquired DP Engineering 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 terminated as a result of 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 $5.6 million of goodwill recorded in the acquisition. (See Note 7).

During the first quarter of fiscal 2020, We determined that the impact of the COVID-19 pandemic on its operations was an indicator of a triggering event that could result in potential impairment of goodwill. As such we performed a Step 1 goodwill analysis whereby we compared the fair value of each reporting unit to its respective carrying value, Based upon this analysis, we determined the fair value of goodwill at the reporting unit levels exceeded the carrying value and thus there was no impairment as of the period ended March 31, 2020. The Step 1 analysis was updated as of December 31, 2020 for our annual impairment test, and did not identify any impairment of goodwill as of such date. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. As of December 31, 2019, we performed a quantitative step 1 goodwill impairment test and concluded that the fair values of each of our reporting units exceeded their respective carrying values.

Our goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptions regarding estimates of revenue growth rates and operating margins used to calculate projected future cash flows, and risk-adjusted discount rates.

Foreign currency translation

The United States Dollar (USD) is the functional currency of GSE and subsidiaries operating in the United States. 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 the foreign currency realized gain (loss) account 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 50% 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

Stock-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 stock-based awards is recognized on a pro rata straight-line basis based on the fair 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, 2020, we have a concentration of revenue from one individual customer, which accounted for 14.1% of our consolidated revenue. For the year ended December 31, 2019, we had a concentration of revenue from one customer, which accounted for 27.8% of our consolidated revenue. This customer is part of both Performance and NITC segments. No other individual customer accounted for more than 10% of our consolidated revenue in 2020 or 2019.
 
As of December 31, 2020, we have no customer that accounted over 10% of the Company’s consolidated contract receivables. As of December 31, 2019, the Company had two customers that accounted for 12.6% and 10.3% of the Company’s consolidated contract receivables.

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

Occasionally, 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. We do not have such derivative instruments as of December 31, 2020.

COVID-19

GSE employees began working remotely during the first quarter of 2020 due to the COVID-19 pandemic and will continue to do so when practical and as mandated by local, state and federal directives and regulations. Employees almost entirely work from home within our Performance Improvement Solutions ("Performance") segment, except when required to be at the client site for essential project work. Our Performance contracts, which are considered an essential service, are permitted to and mostly continue without pause; however, we have experienced certain delays in new business. For our staff augmentation business, we have seen certain contracts for our Nuclear Industry Training and Consulting ("NITC") customers paused or delayed as clients shrink their own on-premise workforces to the minimum operating levels in response to the pandemic; as a result, our NITC segment has experienced a decline in its billable employee base since the start of the pandemic. Although we cannot fully estimate the length or gravity of the impact of the COVID-19 pandemic to our business at this time, we have experienced delays in commencing new projects and thus our ability to recognize revenue has been delayed for some contracts. We have also experienced order reductions or other negative changes to orders due to the pandemic. We routinely monitor our operating expenses as a result of contract delays and have made adjustments to keep our gross profit at a sustainable level.

Going Concern

In 2019, our operating results were negatively impacted by the loss of a major customer in our DP Engineering subsidiary. In 2020, we had several projects delayed and new orders postponed because of the COVID-19 pandemic.  We have amended our credit facility with Citizens Bank in 2020 based upon expected covenant violations and have been required to curtail term debt in exchange for revised financial covenants.  Scheduled term loan repayments and agreed upon curtailment required us to use $18.5 million in available cash to pay-off our term debt in 2020.  As such, our working capital position on December 31, 2020 was a deficit of $2.7 million.  This working capital deficit includes, $5.0 million  from current maturities on our PPP loan, which we expect will be forgiven and have not received any indications to the contrary (See Note 4). If the PPP loan is not forgiven, in part or in whole, we will work with our bank to extend repayment terms as permitted to mitigate the impact on our cashflows.  However, if unforgiven and unamended, our PPP loan would be due April 23, 2022, in part or in whole, and may stress our free cash flow and the business to a degree that may cause our covenants to fail.

The COVID-19 macroeconomic environment is considered fluid and although recovery is anticipated to steadily occur over the next 12 months, a further decline will stress our ability to meet covenant requirements.  Further continuance of delays in commencing work on outstanding orders or a continued loss of orders, further disruption of our business because of worker illness or mandated shutdowns may also exacerbate the situation.  Jurisdictions where our businesses operate across the country are pushing toward re-opening places of business and government support, through the American Rescue Plan Act of 2021, will continue support the broad economy on that path.  However, the timing of these elements taking place are not predictable and may not serve to mitigate our situation or improve our specific company’s health.

We signed the Ninth Amendment and Reaffirmation Agreement (the “Nineth Amendment”) with our bank on March 29, 2021 to waive the fixed charge coverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and to adjust the thresholds for future covenants to ease the risk of non-compliance experienced in previous quarters (See Note 25).  However, our new covenant compliance is dependent on meeting future projections, which are subject to the variability and unknown speed and extent of post-COVID-19 recovery.

The Company also maintains options to compensate for a further decline in operations to bolster cash positions by raising capital through its access to the public markets or entering alternative finance arrangements afforded to it through established financial relationships.  Impact to net income could be mitigated through one or many of the various cost cutting measures at its disposal, directed at compensation, vendor augmentation or delay of investment initiatives in its corporate office.

These actions and options, which are further supported by positively trending macroeconomic conditions, and the potential to see recovering business and orders ease the risk to the bank covenants experienced in previous quarters.  However, when considering the unpredictability of the above, there continues to be substantial doubt the Company will continue as a going concern over the next twelve months.

v3.21.1
Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2020
Recent Accounting Policies [Abstract]  
Recent Accounting Policies
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 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. 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. 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. As a smaller reporting company, we have elected to defer adoption in line with new deadlines and 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.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities, Investments – Equity Method and Joint Ventures, and Derivatives and Hedging, which provides clarity for companies that holds equity securities at cost to first update the fair value of an investment, immediately prior to applying the Equity Method of Accounting; or clarity for companies that enter into forward contracts to purchase additional shares of an equity security that would then require the investee to account for the investment via the Equity Method. This ASU is applicable for public companies starting with fiscal years beginning after December 31, 2020 and interim periods within those fiscal years. The Company plans to adopt ASU 2020-01 in Q1 of Fiscal 2021 and does not currently hold any investments at cost, and thus expects no impact to its financial statements.

In September 2020, the FASB issued ASU 2020-10, Codification Improvements, which is part of an ongoing attempt to improve the consistency of the codification. Previously the option to disclose information it the footnotes to the financial statements was in one of two sections: Disclosure Section (Section 50) or Other Presentation Matters (Section 45). ASU 2020-10 conforms the disclosure requirements into Section 50 and provides additional information on specific guidance that was previously unclear or not included in the codification. This ASU is applicable for public companies starting with fiscal years beginning after December 15, 2020, with early adoption available for interim and annual financial statements not already filed and using the retrospective approach. Currently, the Company is reviewing the guidance for applicability; however, the FASB does not believe that this should change any of the current reporting or disclosure requirements. The Company plans to adopt ASU 2020-10 starting in Q1 of Fiscal 2021 and expects no material impact to its consolidated financial statements.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.

v3.21.1
Earnings per Share
12 Months Ended
Dec. 31, 2020
Earnings per Share [Abstract]  
Earnings per Share
3  Earnings per share

Basic earnings per share is based on the weighted average number of outstanding common shares for the period.  Diluted earnings per share adjusts the weighted average shares outstanding for the potential dilution that could occur if outstanding vested stock options were exercised. Basic and diluted earnings per share are based on the weighted average number of outstanding shares for the period.

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,
 
  
2020
  
2019
 
Numerator:
      
Net (loss) income attributed to common stockholders
 
$
(10,537
)
 
$
(12,085
)
         
Denominator:
        
Weighted-average shares outstanding for basic earnings per share
  
20,439,157
   
20,062,021
 
         
Effect of dilutive securities:
        
Employee stock options and warrants
  
-
   
-
 
         
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share
  
20,439,157
   
20,062,021
 
         
Shares related to dilutive securities excluded because inclusion would be anti-dilutive
  
-
   
314,234
 

Conversion of certain outstanding stock options was not assumed for the years ended December 31, 2020 and 2019 because the impact would have been anti-dilutive.

v3.21.1
Paycheck Protection Program Loan
12 Months Ended
Dec. 31, 2020
Paycheck Protection Program Loan [Abstract]  
Paycheck Protection Program Loan
4  Paycheck Protection Program Loan

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act’s purpose is to extend liquidity to small businesses and assist in retaining employees during the COVID-19 pandemic. On April 23, 2020, GSE was approved for and on the next day received a $10 million PPP Loan (“PPP Loan” or “Loan”) from the Small Business Administration (SBA) as part of the CARES Act from the Bank. On June 5, 2020, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. This new law acted to ease some of the burden of the first legislation in order to expand the amount of forgiveness available.

The aim of the PPP Loan is to provide funding for businesses for certain payroll and nonpayroll costs. Proceeds for the PPP Loan are eligible for complete forgiveness, if used at least 60% for payroll cost with up to 40% for certain other nonpayroll costs. Forgiveness for amounts less than the total amount of the PPP Loan ($10 million) is allowed, retaining 60/40 requirements, but will be limited based upon the amount of funds used for payroll costs and further reduced by a full-time employee and salary/hourly rate wage reduction limitation. GSE has relied primarily on eligible wages and expenses and is well within the ratios.

The SBA has stated that PPP loans above $2 million will be subjected to audited for appropriate usage of the funds and confirmation of loan forgiveness. GSE stated, as part of the initial application, that the receipt of such funds was required in order to maintain its employees during the pandemic, and GSE was confident in its ability to report on the proper use the funds and obtain full forgiveness. GSE has also prepared and performed extensive review in its submission of the mandated Form 3590 – PPP Loan Necessity Questionnaire and remains confident to that end.

The terms of the loan are as follows: The July 5 legislation provides for an automatic 10 months deferment, after the coverage period, on the first payment, placing it on August 9, 2021. Subsequent payments, in accordance with our loan documentation, will occur monthly in equal monthly proportions, beginning with the first full month following the deferment period and will be comprised of principal and interest, with the loan fully due on April 23, 2022. Although the first payment is not required until September 2021, the loan balance accrues at an interest rate of 1% from April 23, 2020. If the loan is forgiven, the related interest incurred is also forgiven.

We realized all possible PPP Loan (“PPP Loan” or “Loan”) forgiveness expenses through the 24 week coverage period during the 2020 fiscal year. We have applied for forgiveness in Q1 of 2021, with expected response in Q2 of 2021. Any balance unforgiven by the SBA and accruing 1% interest since inception will be payable starting on the date instructed by the SBA and in equal monthly payments with the final balance due by April 23, 2022. Loan forgiveness is achieved by applying for forgiveness with the Company’s lender, the Bank, with costs eligible for forgiveness as incurred and receiving final clearance from the SBA. The Bank has successfully completed their review and provided the loan forgiveness application and support to the SBA on February 26, 2021 for their process to begin, legislated to take no more than an additional 90 days. Upon receipt of the funds, a Loan Payable – PPP balance of $10 million was recorded and a related interest was accrued and booked through Q4 2020. As of December 31, 2020, GSE reported half of the loan balance and accrued interest as a short term payable.

The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that (1) the use of PPP Loan amount shall be limited to certain qualifying expenses, (2) 100% of the principal amount of the loan is guaranteed by the Small Business Administration.

The SBA provides for certain customary events of default, including if the Company (i) fails to do anything required by the Note and other Loan Documents; (ii) does not disclose, or anyone acting on its behalf does not disclose, any material fact to the Bank or the SBA; (iii) makes, or anyone acting on its behalf makes, a materially false or misleading representation to lender or the SBA; (iv) reorganizes, merges, consolidates or otherwise changes ownership or business structure without the Bank’s prior written consent; (v) takes certain prohibited actions after the Bank makes a determination that the PPP Loan is not entitled to full forgiveness. Upon default the Bank may require immediate payment of all amounts owing under the PPP Loan or file suit and obtain judgment.

As of December 31, 2020, we had $10.0 million of outstanding PPP Loan and accrued interest of $69 thousand as debt in our consolidated balance sheets. We classified $5.0 million as current and $5.0 million as noncurrent in our consolidated balance sheets. We recorded $69 thousand of interest expense during the year end December 31, 2020.

As of December 31, 2020, management believes the Company was in full compliance with all requirements in order to apply for forgiveness under the PPP Loan.

v3.21.1
Revenue
12 Months Ended
Dec. 31, 2020
Revenue [Abstract]  
Revenue
5.  Revenue

We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers. We primarily generate revenue through three distinct revenue streams: (1) System Design and Build ("SDB"), (2) Software and (3) Training and Consulting Services across our Performance and NITC segments. We recognize revenue from SDB and software contracts mainly through our Performance segment. We recognize training and consulting service contracts through both segments.

The following table represents a disaggregation of revenue by type of goods or services for the years ended December 31, 2020 and 2019, along with the reportable segment for each category:
(in thousands)

 
Twelve Months Ended December 31,
 
  
2020
  
2019
 
Performance Improvement Solutions segment
      
System Design and Build
 
$
11,197
  
$
19,573
 
Point in time
  
316
   
299
 
Over time
  
10,881
   
19,274
 
         
Software
  
3,873
   
2,883
 
Point in time
  
1,411
   
386
 
Over time
  
2,462
   
2,497
 
         
Training and Consulting Services
  
17,720
   
23,320
 
Point in time
  
110
   
68
 
Over time
  
17,610
   
23,252
 
         
Nuclear Industry Training and Consulting segment
        
Training and Consulting Services
  
24,830
   
37,199
 
Point in time
  
21
   
63
 
Over time
  
24,809
   
37,136
 
         
Total revenue
 
$
57,620
  
$
82,975
 

SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule established in our contracts. We generally have two main performance obligations: (1) the training simulator build and (2) the Post Contract Support ("PCS") period. Fees for PCS are normally paid in advance of the related service period. 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. 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 over time as control transfers to a customer. 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 become known.
 
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 previous estimates.
 
Management judgments and estimates involved in the initial creation and subsequent updates to the Company’s estimates-at-completion and related profit recognized are critical to our revenue recognition associated with SDB contracts. Inputs and assumptions requiring significant management judgment included anticipated direct labor, subcontract labor, and other direct costs required to deliver on unfinished performance obligations.

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

We recognize Training and Consulting Services revenue as services are performed and bill our customers for services that we have provided on a regular basis (i.e. weekly, biweekly or monthly) and in time with revenue recognition.

Contract asset, which we classify as unbilled receivables, relates to performance under the contract for obligations that are satisfied but not yet billed. Contract assets are recognized as revenue as they occur.

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, 2020
  
December 31, 2019
 
Billings in excess of revenue earned (BIE)
 
$
5,285
  
$
7,613
 
Revenue recognized in the period from amounts included in BIE at the beginning of the period
 
$
6,691
   
9,089
 

For the year ended December 31, 2020, the Company recognized revenue of $0.3 million related to performance obligations satisfied in previous periods.
 
As of December 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 $22.1 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) Revenue from contracts with customers, 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.

v3.21.1
Restructuring Expenses
12 Months Ended
Dec. 31, 2020
Restructuring Expenses [Abstract]  
Restructuring Activities
6.  Restructuring expenses

International Restructuring
 
On December 27, 2017, the Board of Directors 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 has undertaken other related cost-savings measures. As a result of these efforts, GSE has recorded total restructuring charges of approximately $3.1 million, primarily related to workforce reductions, contracts termination costs and asset write-offs due to the exit activities. We recorded a restructuring charge of $0.1 million and $1.0 million for the years ended December 31, 2019 and December 31, 2020, respectively. In addition to the restructuring costs incurred to date, the Company has an estimated $1.2 million of cumulative translation adjustments that will be charged against net income (loss) and an estimated $0.8 million of tax benefit 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 2021.

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 EOC 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 2019. As a result of this plan, we incurred $0.2 million and $0.7 million restructuring cost to align the workforce to the expected level of business for the years ended December 31, 2020 and 2019, respectively.

Lease abandonment

As of  December 31, 2019, management decided to cease-use, abandoned, 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 the on-going international restructuring plans to right size the organization. Management determined the square footage which would remain in use and took steps to ensure 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. No additional charges were incurred for the year ended December 31, 2020.

The following table shows the abandoned square footage and right out 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
 

The following table shows the total restructuring costs:

 
Total 2020
Restructuring Costs
  
Total 2019 Restructuring Costs
 
Restructuring Costs
      
Lease termination costs
 
$
-
  
$
1,625
 
International restructuring
  
1,119
   
106
 
Employee termination benefits
  
178
   
747
 
Total
 
$
1,297
  
$
2,478
 

Expected Restructuring Costs

GSE expects no additional restructuring costs under the international restructuring plan, except currency translation adjustments and the related tax benefits upon liquidation of foreign entities in 2021. As a part of the DP restructuring, the right sizing effort had led to the lease abandonment and related impairment as mentioned above. In a continuing effort to align the Company’s workforce and by extension the available workspace, we expect future restructuring as we continue to migrate out of the Sykesville office. At this time management is unable to estimate the ultimate restructuring costs or timeline over which these costs will be recognized.

v3.21.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets [Abstract]  
Goodwill and Intangible Assets
7.  Goodwill and Intangible Assets

Intangible Assets Subject to Amortization

During the first quarter of fiscal 2020, we determined that the impact of the COVID-19 pandemic on the Company's operations was an indicator of a triggering event that could result in potential impairment of goodwill. As such we performed a Step 1 goodwill analysis whereby we compared the fair value of each reporting unit to its respective carrying value, Based upon this analysis, we determined the fair value of goodwill at the reporting unit levels exceeded the carrying value and thus there was no impairment for the period ended March 31, 2020. The Step 1 analysis was updated as of December 31, 2020 for our annual impairment test, and did not identify any impairment of goodwill as of such date. We also had no goodwill impairment for the year ended December 31, 2019.

Our goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptions regarding estimates of growth rates used to forecast revenue, operating margin and terminal value as well as determining the appropriate risk-adjusted discount rates and other factors that impact fair value determinations.

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 it's largest customer has been adversely impacted. The DP Engineering customer contracts and relationships were the major components of the definite-lived intangible assets recognized in connection with the acquisition. 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 in accordance with the related impairment guidance. As a result, it was determined that a material impairment had occurred, requiring an impairment of $5.6 million of goodwill recorded in 2019.

Due to the impact of the COVID-19 pandemic, definite-lived intangible assets were reviewed for impairment. The undiscounted cash flows evidenced impairment for the DP Engineering asset group as such, we used a discounted cash flow model to determine the fair value of the DP Engineering asset group and recorded an impairment charge of $4.3 million as of the period ended March 31, 2020.

The Company’s intangible assets impairment analysis includes the use of undiscounted cash flow and discounted cash flow models that requires management to make assumptions regarding estimates of growth rates used to forecast revenue, operating margin and terminal value as well as determining the appropriate risk-adjusted discount rates and other factors that impact fair value determinations.

Management determined no additional triggering impact occurred during the year ended December 31, 2020.

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

(in thousands)
 
As of December 31, 2020
 
  
Gross Carrying Amount
  
Accumulated Amortization
  
Impact of Impairment
  
Net
 
Amortized intangible assets:
            
Customer relationships
 
$
11,730
  
$
(5,504
)
 
$
(3,102
)
 
$
3,124
 
Trade names
  
2,467
   
(1,020
)
  
(778
)
  
669
 
Developed technology
  
471
   
(471
)
  
-
   
-
 
Non-contractual customer relationships
  
433
   
(433
)
  
-
   
-
 
Noncompete agreement
  
949
   
(336
)
  
(422
)
  
191
 
Alliance agreement
  
527
   
(277
)
  
-
   
250
 
Others
  
167
   
(167
)
  
-
   
-
 
Total
 
$
16,744
  
$
(8,208
)
 
$
(4,302
)
 
$
4,234
 

(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
 

Amortization expense related to definite-lived intangible assets totaled 1.9 million and $2.4 million for the years ended December 31, 2020 and 2019, 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:
   
2021
 
$
1,213
 
2022
  
911
 
2023
  
640
 
2024
  
435
 
Thereafter
  
1,035
 
  
$
4,234
 

Goodwill

The change in the net carrying amount of goodwill from January 1, 2019 through December 31, 2019 is noted below, there were no changes in goodwill during 2020:

(in thousands)
 
Performance
Improvement
Solutions
  
Nuclear Industry
Training and
Consulting
  
Total
 
Net book value at January 1, 2019
 
$
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
 

v3.21.1
Contract Receivables
12 Months Ended
Dec. 31, 2020
Contract Receivables [Abstract]  
Contract Receivables
8.  Contract Receivables

Contract receivables represent the Company's unconditional rights to consideration due from a broad base of both domestic and international customers. Net 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,
 
  
2020
  
2019
 
Billed receivables
 
$
5,694
  
$
11,041
 
Unbilled receivables
  
5,160
   
6,624
 
Allowance for doubtful accounts
  
(360
)
  
(458
)
Total contract receivables, net
 
$
10,494
  
$
17,207
 

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, 2020 and 2019, the Company recorded allowances for doubtful accounts of $103 thousand and $31 thousand, respectively.
 
During January 2021, the Company invoiced $3.7 million of the unbilled amounts related to the balance at December 31, 2020.

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

(in thousands)
 
As of and for the
 
  
Years ended December 31,
 
  
2020
  
2019
 
       
Beginning balance
 
$
458
  
$
427
 
Current year provision
  
103
   
31
 
Current year write-offs
  
(201
)
  
-
 
Ending balance
 
$
360
  
$
458
 

v3.21.1
Prepaid Expenses and Other Current Assets
12 Months Ended
Dec. 31, 2020
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,
 
  
2020
  
2019
 
Income tax receivable
 
$
136
  
$
237
 
Prepaid expenses
  
883
   
861
 
Other current assets
  
535
   
782
 
Total
 
$
1,554
  
$
1,880
 

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.

v3.21.1
Equipment, Software, and Leasehold Improvements
12 Months Ended
Dec. 31, 2020
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,
 
  
2020
  
2019
 
Computer and equipment
 
$
2,229
  
$
2,266
 
Software
  
1,695
   
1,693
 
Leasehold improvements
  
660
   
664
 
Furniture and fixtures
  
848
   
900
 
   
5,432
   
5,523
 
Accumulated depreciation
  
(4,816
)
  
(4,584
)
Equipment, software and leasehold improvements, net
 
$
616
  
$
939
 

Depreciation expense was $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively.

v3.21.1
Product Warranty
12 Months Ended
Dec. 31, 2020
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,
 
  
2020
  
2019
 
       
Beginning balance
 
$
1,323
  
$
1,621
 
         
Current year provision
  
(205
)
  
(133
)
         
Current year claims
  
(203
)
  
(164
)
         
Currency adjustment
  
7
   
(1
)
         
Ending balance
 
$
922
  
$
1,323
 

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

 
December 31,
 
  
2020
  
2019
 
Current
 
$
665
  
$
921
 
Non-current
  
257
   
402
 
Total Warranty
 
$
922
  
$
1,323
 

v3.21.1
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2020
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 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. For 2019. 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.
 
As of December 31, 2020 and 2019, we considered the recorded value of certain of our financial assets and liabilities, which consist primarily of cash and cash equivalents, contract receivable and accounts payable, to approximate fair value based upon their short-term nature.

During the years ended December 31, 2020 and 2019, the Company did not have any transfers into or out of Level 3.

The following table presents assets measured at fair value at December 31, 2020:

 
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
 
$
435
  
$
-
  
$
-
  
$
435
 
                 
Total assets
 
$
435
  
$
-
  
$
-
  
$
435
 

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
)

As of December 31, 2019, we had classified our foreign exchange contracts within other assets. Our interest rate swap contract and liability awards were classified within other noncurrent assets as of the period ended December 31, 2019.

v3.21.1
Debt
12 Months Ended
Dec. 31, 2020
Debt [Abstract]  
Long-Term Debt
13.  Debt

On December 29, 2016, we entered a 3-year $5.0 million revolving line of credit facility with the Bank to fund general working capital needs and acquisitions. On May 11, 2018, we entered into 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 (the “RLOC”) to include a letter of credit sub-facility and not be subject to a borrowing base and (b) to add a $25 million term loan facility, available to finance permitted acquisitions over the following 18 months. The credit facility was subject to certain financial covenants and reporting requirements  and was scheduled to mature in five years on May 11, 2023 and accrued interest at the one-month USD LIBOR, plus a margin that varies depending on our overall leverage ratio. The RLOC had required monthly payments of only interest, with principal due at maturity, while our term loan draws required monthly payments of principal and interest based on an amortization schedule. Our obligations under the Credit Agreement was guaranteed by our wholly owned subsidiaries Hyperspring, Absolute, True North, DP Engineering and by any future material domestic subsidiaries (collectively, "the Guarantors").

On January 6, 2020, due to an expected violation of our covenants, we entered into the Sixth Amendment and Reaffirmation Agreement with an effective date of December 31, 2019, 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 $4.3 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. We incurred $20 thousand of debt issuance costs related to this amendment.

On April 17, 2020, effective March 31, 2020, we entered into the Seventh Amendment and Reaffirmation Agreement, which required 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 incurred $50 thousand of debt issuance costs related to this amendment.

On August 28, 2020, we signed the Eighth Amendment and Reaffirmation Agreement, “the Eighth Amendment”, with an effective date of June 29, 2020, due to violating our minimum Adjusted EBITDA covenant during the three months ended June 30, 2020. As part of the amendment, we agreed to pay $10 million to the Bank during the three months ended September 30, 2020, of which $0.7 million was paid to reduce our RLOC. We paid $9.1 million of our long-term debt and paid out $0.2 million for the unwinding of the interest rate swap agreement during the quarter. We incurred $10 thousand in additional debt issuance costs related to the amendment, which we expensed along with a $70 thousand previously deferred debt issuance cost during the year ended December 31, 2020.

The Eighth Amendment removed our minimum Adjusted EBITDA covenant and changed our other debt covenants on an ongoing basis as follows: our maximum fixed charge coverage ratio will be tested quarterly as of the last day of each quarter, beginning with the quarter ending December 31, 2021 and must be 1.00 to 1.00; our leverage ratio will be tested quarterly, starting on March 31, 2021 as follows: (i) 3.00 to 1.00 for the period ending March 31, 2021; (ii) 2.75 to 1.00 for the period ending on June 30, 2021, (iii) 2.50 to 1.00 for the period ending on September 30, 2021, and (iv) 2.00 to 1.00 for the period ending on December 31, 2021 and for the periods ending on each December 31st, March 31st, June 30th and September 30th thereafter. We are also required to maintain a minimum of $3.5 million in aggregate USA liquidity, which was tested on September 15, 2020 and will be tested bi-weekly on an on-going basis.

On March 29, 2021, due to a projected violation of Q1 2021 leverage ratio, we signed the Ninth Amendment and Reaffirmation Agreement with an effective date of March 29, 2021 (See Note 25).

Revolving Line of Credit (“RLOC”)

During the year ended December 31, 2020, we paid down $0.7 million on our RLOC as part of the Eighth Amendment, discussed above. Subsequently, we were able to draw down $0.7 million on the RLOC to fund our working capital needs. As of December 31, 2020, we had outstanding borrowings of $3.0 million under the RLOC and three letters of credit totaling $933 thousand outstanding to certain of our customers. After consideration of letters of credit, the amount available under the RLOC was approximately $1.1 million as of December 31, 2020. At December 31, 2019, there were no outstanding borrowings under the RLOC and four letters of credit totaling $1.2 million were outstanding. The amount available at December 31, 2019, after consideration of the letters of credit was approximately $3.8 million.

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 provided, we remain in compliance with our covenants. As discussed in Note 25, we entered into a 9th Amendment on our credit facility, as such our covenants have been waived through June 30, 2021. Letter of credit issuance fees range between 1.25% and 2.00% of the value of the letter of credit, depending on our overall leverage ratio. We pay an unused RLOC fee quarterly based on the average daily unused balance.

Term Loans

We acquired DP Engineering on February 15, 2019 for approximately $13.5 million in cash, mainly from proceeds of $14.3 million from a term loan with our Bank. As of September 30, 2020, the loan is fully repaid including all accrued 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 payoff.

As part of the Eighth Amendment discussed above, we repaid all of $9.1 million outstanding balance on our term loan during the year ended December 31, 2020 December 31, 2020.

The Bank also agreed to remove its collateral agreement with the Company’s subsidiaries as part of the Eighth Amendment and repayment of our outstanding term loans during the year ended December 31, 2020 December 31, 2020.

Paycheck Protection Program Loan

We entered into the PPP Loan agreement with the Bank which was approved by the Bank and funded on April 23, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP Loan matures on April 24, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for ten months after the last day of the covered period, August 9, 2021. The PPP Loan funds were received on April 24, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that (1) the use of PPP Loan amount shall be limited to certain qualifying expenses, (2) 100% of the principal amount of the loan is guaranteed by the Small Business Administration and (3) an amount up to the full principal amount may qualify for loan forgiveness in accordance with the terms of CARES Act. We are not yet able to determine the amount that might be forgiven. As of December 31, 2020, the Company was in full compliance with respect to the PPP Loan and believes the eligible expenses accumulated during the coverage period satisfy forgiveness criteria.

v3.21.1
Derivative Instruments
12 Months Ended
Dec. 31, 2020
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

Our 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 loss on derivative instruments, net in the consolidated statements of operations.

We utilize 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 December 31, 2020, we had no foreign exchange contracts outstanding.

Interest Rate Risk Management

In June 2018, as part of our overall risk management policies, 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 on our outstanding term loans (see Note 13). The notional value amortizes monthly in equal amounts based on the 5-year principal repayment terms. Per the terms of the swap, we are required 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.

As discussed in Note 13, we signed the Eighth Amendment with our Bank and repaid the $9.1 million outstanding balance on our term loan. Accordingly, we exited the swap agreement related to this loan and paid $0.2 million in cash.

For the periods presented, we did not elect to designate any of our derivative contracts as hedges. Changes in the fair value of the derivative contracts are included in loss on derivative instruments, net in the consolidated statements of operations.

For the years ended December 31, 2020 and 2019, the Company recognized a net (loss) gain on its derivative instruments as outlined below:

 
Years ended December 31,
 
(in thousands)
 
2020
  
2019
 
       
Foreign exchange contracts- change in fair value
 
$
17
  
$
6
 
Interest rate swap - change in fair value
  
(49
)
  
(57
)
Remeasurement of related contract receivables and billings in excess of revenue earned
  
15
   
38
 
  
$
(17
)
 
$
(13
)

v3.21.1
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Taxes [Abstract]  
Income Taxes
15.  Income Taxes

The consolidated income before income taxes, by domestic and foreign sources, is as follows:

(in thousands)
 
Years ended December 31,
 
  
2020
  
2019
 
Domestic
 
$
(13,834
)
 
$
(6,671
)
Foreign
  
3,652
   
319
 
Total
 
$
(10,182
)
 
$
(6,352
)

The provision (benefit) for income taxes is as follows:

(in thousands)
 
Years ended December 31,
 
  
2020
  
2019
 
Current:
      
Federal
 
$
3
  
$
(30
)
State
  
67
   
60
 
Foreign
  
285
   
354
 
Subtotal
  
355
   
384
 
         
Deferred:
        
Federal
  
-
   
4,686
 
State
  
-
   
663
 
Foreign
  
-
   
-
 
Subtotal
  
-
   
5,349
 
Total
 
$
355
  
$
5,733
 

The effective income tax rate for the years ended December 31, 2020 and 2019 differed from the statutory federal income tax rate as presented below:

 
Effective Tax Rate percentage (%)
 
  
Years ended December 31,
 
  
2020
  
2019
 
Statutory federal income tax rate
  
21.0
%
  
21.0
%
State income taxes, net of federal tax benefit
  
3.7
%
  
(12.1
)%
Effect of foreign operations
  
(0.9
)%
  
(0.3
)%
Effect of foreign restructuring
  
(6.7
)%
  
0.0
%
Change in valuation allowance
  
(15.6
)%
  
(93.1
)%
Meals and Entertainment
  
(0.4
)%
  
(1.4
)%
Stock based compensation
  
(2.2
)%
  
(1.4
)%
GILTI Inclusion
  
(0.2
)%
  
0.0
%
Other permanent differences
  
0.0
%
  
(0.6
)%
Uncertain Tax Positions
  
(2.5
)%
  
0.9
%
Prior year reconciling items
  
0.3
%
  
(3.3
)%
     Effective tax rate
  
(3.5
)%
  
(90.3
)%

The difference between the effective rate and statutory rate in 2020 primarily resulted from a change in valuation allowance, permanent differences, accruals related to uncertain tax positions for certain foreign tax contingencies, foreign restructuring and the tax impact of stock compensation forfeitures.

Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. A summary of the tax effect of the significant components of the deferred income tax assets and liabilities is as follows:

(in thousands)
 
As of December 31,
 
  
2020
  
2019
 
Deferred tax assets:
      
Net operating loss carryforwards
 
$
5,406
  
$
4,396
 
Accruals
  
387
   
247
 
Reserves
  
309
   
408
 
Alternative minimum tax credit carryforwards
  
69
   
126
 
Stock-based compensation expense
  
251
   
539
 
Intangible assets
  
2,362
   
1,021
 
Goodwill
  
995
   
1,037
 
Operating lease liability
  
747
   
998
 
Other
  
271
   
464
 
Total deferred tax asset
  
10,797
   
9,236
 
Valuation allowance
  
(9,165
)
  
(7,576
)
Total deferred tax asset less valuation allowance
  
1,632
   
1,660
 
         
Deferred tax liabilities:
        
Software development costs
  
(164
)
  
(161
)
Fixed assets
  
(22
)
  
(7
)
Intangible assets
  
-
   
(22
)
Indefinite-lived intangibles
  
(967
)
  
(728
)
Operating lease - right of use asset
  
(379
)
  
(510
)
   Other
  
(100
)
  
(175
)
Total deferred tax liability
  
(1,632
)
  
(1,603
)
         
Net deferred tax asset
 
$
-
  
$
57
 

As of December 31, 2019, the Company had a deferred tax asset of $57 thousand for alternative minimum tax credits which became fully refundable in the first quarter of 2020 with the enactment of the CARES Act. Accordingly, the entire balance was reclassed to a Federal Tax Receivable account during the first quarter.

The Company files tax returns in the United States federal jurisdiction and in several state and foreign jurisdictions. Because of the net operating loss carryforwards, the Company is subject to U.S. federal and state income tax examinations for tax years 2000, and forward, and is subject to foreign tax examinations by tax authorities for the years 2015 and forward. Open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material to our financial position, results of operations or cash flows.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's ability to realize its deferred tax assets depends primarily upon the preponderance of positive evidence that could be demonstrated by three year cumulative positive earnings, reversal of existing deferred temporary differences, and generation of sufficient future taxable income to allow for the utilization of deductible temporary differences.
 
As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. This analysis is performed on a jurisdiction by jurisdiction basis.
 
The Company performed an analysis of the valuation allowance position for its worldwide deferred tax assets and determined that a valuation allowance continues to be necessary on its U.S. and foreign deferred tax assets at December 31, 2020.
 
At December 31, 2020, the Company’s largest deferred tax asset was $6.2 million of net operating losses, excluding the impact of uncertain tax positions. It primarily relates to a U.S. net operating loss carryforward of $6.2 million; $4.6 million of the net operating loss carryforward expires in various amounts between 2023 and 2037; $1.6 million of the net operating loss carryforward is an indefinite lived deferred tax asset. The Company does not believe that it is more likely than not that it will be able to realize its deferred tax assets for its U.S. and foreign deferred tax assets at December 31, 2020, therefore we have maintained a $9.2 million valuation allowance for our net deferred tax assets.

As of December 31, 2020 and 2019, the Company's consolidated cash and cash equivalents totaled $6.7 million and $11.7 million, respectively, including cash and cash equivalents held at non-U.S. entities totaling $3.1 million and $4.4 million, respectively. The non-U.S. entities include operating subsidiaries located in China.  The Company does not assert permanent reinvestment in China. Accordingly, the Company analyzed the cumulative earnings and profits and determined no US deferred liability exists given aggregated accumulated deficits.

Uncertain Tax Positions

During 2020 and 2019, the Company recorded tax liabilities for certain foreign tax contingencies. The Company recorded these uncertain tax positions in other current liabilities on the consolidated balance sheets.

The following table outlines the Company's uncertain tax liabilities, including accrued interest and penalties for each jurisdiction:

 
China
  
Ukraine
  
South Korea
  
UK
  
U.S.
    
(in thousands)
 
Tax
  
Interest and Penalties
  
Tax
  
Interest and Penalties
  
Tax
  
Interest and Penalties
  
Tax
  
Interest and Penalties
  
Tax
  
Interest and Penalties
  
Total
 
                                  
Balance, January 1, 2019
 
$
204
  
$
285
  
$
82
  
$
72
  
$
461
  
$
111
  
$
-
  
$
-
  
$
996
  
$
4
  
$
2,215
 
Increases
  
-
   
33
   
-
   
-
   
93
   
67
   
-
   
-
   
-
   
2
   
195
 
Decreases
  
3
   
-
   
4
   
12
   
-
   
-
   
-
   
-
   
203
   
-
   
222
 
Balance, December 31, 2019
 
$
201
  
$
318
  
$
78
  
$
60
  
$
554
  
$
178
  
$
-
  
$
-
  
$
793
  
$
6
  
$
2,188
 
Increases
  
13
   
60
   
-
   
-
   
128
   
96
   
45
   
21
   
-
   
3
   
366
 
Decreases
  
-
   
-
   
64
   
50
   
-
   
-
   
-
   
-
   
-
   
-
   
114
 
Balance, December 31, 2020
 
$
214
  
$
378
  
$
14
  
$
10
  
$
682
  
$
274
  
$
45
  
$
21
  
$
793
  
$
9
  
$
2,440
 

v3.21.1
Capital Stock
12 Months Ended
Dec. 31, 2020
Capital Stock [Abstract]  
Capital Stock
16.  Capital Stock
 
The Company’s Board of Directors has authorized 62,000,000 total shares of stock of which 60,000,000 are designated as common stock and 2,000,000 are designated as preferred stock. The Board of Directors has the authority to establish one or more classes of preferred stock and to determine, within any class of preferred stock, the preferences, rights and other terms of such class.
 
As of December 31, 2020, the Company has reserved 6,017,632 shares of common stock for issuance; zero are reserved for shares upon exercise of outstanding stock options and 1,719,732 are reserved for shares upon vesting of restricted stock units.  The Company has 1,482,368 shares available for future grants under the Company’s 1995 Long-Term Incentive Plan.

v3.21.1
Stock-Based Compensation
12 Months Ended
Dec. 31, 2020
Stock-Based Compensation [Abstract]  
Stock-Based Compensation
17.  Stock-Based Compensation

Long-term incentive plan
 
During 1995, the Company established the 1995 Long-Term Incentive Stock Option Plan (the Plan), which permits the granting of stock options (including incentive stock options and nonqualified stock options) stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards or any combination of these to employees, directors or consultants. The Plan was amended and restated effective April 22, 2016 and expires on April 21, 2026; the total number of shares that could be issued under the Plan is 7,500,000. As of December 31, 2020, 4,297,900 shares have been issued under the Plan, zero stock options and 1,719,732 restricted stock units (RSUs) were outstanding under the Plan, while 1,482,368 shares remain for future grants under the Plan.

The Company recognizes compensation expense on a pro rata straight-line basis over the requisite service period for stock-based compensation awards with both graded and cliff vesting terms. The Company recognizes the cumulative effect of a change in the number of awards expected to vest in compensation expense in the period of change. The Company has not capitalized any portion of its stock-based compensation. The Company's forfeiture rate is based on actuals.
 
During the years ended December 31, 2020 and 2019, the Company recognized $0.4 million and $1.4 million, respectively, of stock-based compensation expense under the fair value method. Accordingly, the Company recognized associated deferred income tax expense (benefits) of $220 thousand and $86 thousand, respectively, during the years ended December 31, 2020 and 2019. During the years ended December 31, 2020 and 2019, there were approximately zero and $93 thousand of stock-based compensation expense related to the change in fair value of cash-settled RSUs, which the Company accounts for as a liability.

Stock options

Options to purchase shares of the Company’s common stock under the Plan expire in either seven years or ten years from the date of grant and become exercisable in three, five, or seven installments with a certain percentage of options vesting on the first anniversary of the grant date and additional options vesting on each of the subsequent anniversaries of the grant date, subject to acceleration under certain circumstances.

Information with respect to stock option activity as of and for the year ended December 31, 2020 is as follows:

 
Number
of Shares
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value (in thousands)
  
Weighted
Average
Remaining
Contractual Life
(Years)
 
             
Options outstanding at January 1, 2020
  
5,000
  
$
1.65
       
Options expired
  
(5,000
)
  
-
       
Options outstanding at December 31, 2020
  
-
   
-
  
$
-
   
-
 
Options exercisable at December 31, 2020
  
-