GSE SYSTEMS INC, 10-Q filed on 16 Aug 21
v3.21.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2021
Jul. 31, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2021  
Current Fiscal Year End Date --12-31  
Document Transition Report false  
Entity Registrant Name GSE Systems, Inc.  
Entity Incorporation, State or Country Code DE  
Entity File Number 001-14785  
Entity Tax Identification Number 52-1868008  
Entity Address, Address Line One 1332 LONDONTOWN BLVD  
Entity Address, City or Town SYKESVILLE  
Entity Address, State or Province MD  
Entity Address, Postal Zip Code 21784  
City Area Code 410  
Local Phone Number 970-7874  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Small Business true  
Entity Common Stock, Shares Outstanding   20,863,518
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0000944480  
Title of 12(b) Security Common Stock, $0.01 Par Value  
Trading Symbol GVP  
Security Exchange Name NASDAQ  
v3.21.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 3,829 $ 6,702
Contract receivables, net 11,368 10,494
Prepaid expenses and other current assets 5,287 1,554
Total current assets 20,484 18,750
Equipment, software and leasehold improvements, net 791 616
Software development costs, net 575 630
Goodwill 13,339 13,339
Intangible assets, net 3,589 4,234
Operating lease right-of-use assets, net 1,279 1,562
Other assets 58 59
Total assets 40,115 39,190
Current liabilities:    
Line of credit 2,317 3,006
PPP Loan, current portion 10,118 5,034
Accounts payable 1,005 570
Accrued expenses 1,430 1,297
Accrued compensation 2,389 1,505
Billings-in-excess of revenue earned 4,693 5,285
Accrued warranty 547 665
Income taxes payable 1,623 1,621
Other current liabilities 1,393 2,498
Total current liabilities 25,515 21,481
PPP Loan, noncurrent portion 0 5,034
Operating lease liabilities noncurrent 1,315 1,831
Other noncurrent liabilities 282 339
Total liabilities 27,112 28,685
Commitments and contingencies (Note 16)
Stockholders' equity:    
Preferred stock $.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, 22,460,679 and 22,192,569 shares issued, 20,861,768 and 20,593,658 shares outstanding, respectively 225 222
Additional paid-in capital 80,024 79,687
Accumulated deficit (64,165) (65,191)
Accumulated other comprehensive loss (82) (1,214)
Treasury stock at cost, 1,598,911 shares (2,999) (2,999)
Total stockholders' equity 13,003 10,505
Total liabilities and stockholders' equity $ 40,115 $ 39,190
v3.21.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jun. 30, 2021
Dec. 31, 2020
Stockholders' equity:    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 60,000,000 60,000,000
Common stock, shares issued (in shares) 22,460,679 22,192,569
Common stock, shares outstanding (in shares) 20,861,768 20,593,658
Treasury stock at cost (in shares) 1,598,911 1,598,911
v3.21.2
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]        
Revenue $ 13,522 $ 14,340 $ 26,626 $ 32,045
Cost of revenue 10,833 10,778 21,009 24,368
Gross profit 2,689 3,562 5,617 7,677
Operating expenses:        
Selling, general and administrative 3,522 4,722 7,256 9,670
Research and development 154 179 311 389
Restructuring charges 0 0 808 10
Loss on impairment 0 0 0 4,302
Depreciation 71 70 147 178
Amortization of definite-lived intangible assets 303 444 643 1,114
Total operating expenses 4,050 5,415 9,165 15,663
Operating loss (1,361) (1,853) (3,548) (7,986)
Interest expense, net (49) (187) (103) (428)
Gain on derivative instruments, net 0 47 0 4
Other income, net 4,637 24 4,638 53
Income (loss) before income taxes 3,227 (1,969) 987 (8,357)
(Benefit from) provision for income taxes (4) 180 (39) 50
Net income (loss) $ 3,231 $ (2,149) $ 1,026 $ (8,407)
Net income (loss) per common share - basic (in dollars per share) $ 0.16 $ (0.11) $ 0.05 $ (0.41)
Net income (loss) per common share - diluted (in dollars per share) $ 0.16 $ (0.11) $ 0.05 $ (0.41)
Weighted average shares outstanding used to compute net income (loss) per share - basic (in shares) 20,647,426 20,407,958 20,638,116 20,375,446
Weighted average shares outstanding used to compute net income (loss) per share - diluted (in shares) 20,702,003 20,407,958 20,638,116 20,375,446
v3.21.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [Abstract]        
Net income (loss) $ 3,231 $ (2,149) $ 1,026 $ (8,407)
Cumulative translation adjustment 26 206 1,132 20
Comprehensive income (loss) $ 3,257 $ (1,943) $ 2,158 $ (8,387)
v3.21.2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Total
Balance at Dec. 31, 2019 $ 218 $ 79,400 $ (54,654) $ (1,846) $ (2,999) $ 20,119
Balance (in shares) at Dec. 31, 2019 21,839       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 324 0 0 $ 0 324
Common stock issued for RSUs vested (in shares) 311          
Common stock issued for RSUs vested $ 3 (3) 0 0 0 0
Shares withheld to pay taxes 0 (45) 0 0 0 (45)
Foreign currency translation adjustment 0 0 0 20 0 20
Net income (loss) 0 0 (8,407) 0   (8,407)
Balance at Jun. 30, 2020 $ 221 79,676 (63,061) (1,826) $ (2,999) 12,011
Balance (in shares) at Jun. 30, 2020 22,150       (1,599)  
Balance at Mar. 31, 2020 $ 219 79,495 (60,912) (2,032) $ (2,999) 13,771
Balance (in shares) at Mar. 31, 2020 21,979       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 177 0 0 $ 0 177
Common stock issued for RSUs vested (in shares) 171          
Common stock issued for RSUs vested $ 2 (2) 0 0 0 0
Shares withheld to pay taxes 0 6 0 0 0 6
Foreign currency translation adjustment 0 0 0 206 0 206
Net income (loss) 0 0 (2,149) 0 0 (2,149)
Balance at Jun. 30, 2020 $ 221 79,676 (63,061) (1,826) $ (2,999) 12,011
Balance (in shares) at Jun. 30, 2020 22,150       (1,599)  
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       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 501 0 0 $ 0 501
Common stock issued for RSUs vested (in shares) 268          
Common stock issued for RSUs vested $ 3 (3) 0 0 0 0
Shares withheld to pay taxes 0 (161) 0 0 0 (161)
Foreign currency translation adjustment 0 0 0 1,132 0 1,132
Net income (loss) 0 0 1,026 0 0 1,026
Balance at Jun. 30, 2021 $ 225 80,024 (64,165) (82) $ (2,999) 13,003
Balance (in shares) at Jun. 30, 2021 22,461       (1,599)  
Balance at Mar. 31, 2021 $ 222 79,697 (67,396) (108) $ (2,999) 9,416
Balance (in shares) at Mar. 31, 2021 22,234       (1,599)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Stock-based compensation expense $ 0 463 0 0 $ 0 463
Common stock issued for RSUs vested (in shares) 227          
Common stock issued for RSUs vested $ 3 (2) 0 0 0 1
Shares withheld to pay taxes 0 (134) 0 0 0 (134)
Foreign currency translation adjustment 0 0 0 26 0 26
Net income (loss) 0 0 3,231 0 0 3,231
Balance at Jun. 30, 2021 $ 225 $ 80,024 $ (64,165) $ (82) $ (2,999) $ 13,003
Balance (in shares) at Jun. 30, 2021 22,461       (1,599)  
v3.21.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Cash flows from operating activities:    
Net income (loss) $ 1,026 $ (8,407)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Loss on impairment 0 4,302
Depreciation 147 178
Amortization of intangible assets 643 1,114
Amortization of capitalized software development costs 204 159
Amortization of deferred financing costs 5 0
Stock-based compensation expense 501 324
Bad debt expense (133) 93
(Gain) loss on derivative instruments, net 0 (4)
Deferred income taxes 0 57
Gain on sale of assets 0 (5)
Changes in assets and liabilities:    
Contract receivables, net (727) 4,656
Prepaid expenses and other assets (5,690) 531
Accounts payable, accrued compensation and accrued expenses 1,510 309
Billings-in-excess of revenue earned (599) (396)
Accrued warranty (179) (110)
Other liabilities 2,163 (781)
Net cash (used in) provided by operating activities (1,129) 2,020
Cash flows from investing activities:    
Capital expenditures (322) (1)
Proceeds from sale of equipment 0 11
Capitalized software development costs (149) (152)
Net cash used in investing activities (471) (142)
Cash flows from financing activities:    
Proceeds from line of credit 800 3,500
Repayment of line of credit (1,489) 0
Repayment of insurance premium (406) 0
Repayment of long-term debt 0 (8,595)
Proceeds from Paycheck Protection Program Loan 0 10,000
Shares withheld to pay taxes (161) (45)
Deferred financing costs 0 (70)
Net cash (used in) provided by financing activities (1,256) 4,790
Effect of exchange rate changes on cash (17) (61)
Net (decrease) increase in cash and cash equivalents (2,873) 6,607
Cash, cash equivalents at beginning of the period 6,702 11,691
Cash and cash equivalents at the end of the period $ 3,829 $ 18,298
v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2021
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

GSE Systems, Inc. is a leading provider of professional and technical engineering, staffing services and simulation software to clients in the power and process industries. References in this report to "GSE" or "we" or "our" or "the Company" are to GSE Systems, Inc. and our subsidiaries, collectively.

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2020 was derived from our audited financial statements, but it does not include all disclosures required by U.S. GAAP.

The results of operations for interim periods are not necessarily an indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission on April 13, 2021.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Our most significant estimates relate to revenue recognition on contracts with customers, product warranties, valuation of goodwill and intangible assets acquired including the determination of fair value in impairment tests, valuation of long-lived assets to be disposed of, valuation of stock-based compensation awards, and the recoverability of deferred tax assets. Actual results of these and other items not listed could differ from these estimates and those differences could be material.

COVID-19

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” or “workforce solutions”) customers paused or delayed as clients reduce 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. Reductions in orders and other negative changes to orders experienced at the beginning of the pandemic have started to reverse in 2021, but not at the level expected as ongoing COVID concerns continue to hinder the pace of recovery. We continue to closely 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 2020 we had several projects (primarily in our NITC business segment) delayed and new orders postponed because of the COVID-19 pandemic. We amended our credit facility with Citizens Bank, N.A. (“the 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. We signed a Ninth Amendment and Reaffirmation Agreement (the “Ninth Amendment”) with the 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. We have experienced delays in commencing new projects and thus our ability to earn revenue has been delayed for these projects. Reductions in orders and other negative changes to orders experienced at the beginning of the pandemic have started to reverse in 2021, but not at the level expected as ongoing COVID concerns continue to hinder the pace of recovery. This deterioration in the recovery plan has resulted in breaching the Minimum Liquidity ratio subsequent to June 30, 2021 and we projected breaching the Leverage and Fixed Charges ratio covenant. (See Note 10).  Our working capital position on June 30, 2021 was a deficit of $5.0 million. This working capital deficit was primarily due to the $10.1 million of current maturities on our loan pursuant to the Paycheck Protection Program at June 30, 2021. On August 5, 2021, the Company received approval from Small Business Administration (SBA) that the PPP loan including all accrued interest thereon was forgiven. (See Note 17).

The COVID-19 macroeconomic environment is considered fluid and although recovery is anticipated to steadily occur over the next 12 months, issues that could result for the delta virus could cause a further decline in revenue or stress our ability to meet covenant requirements.  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 to support the broader economy. We have recorded $5.1 million employee retention tax credits made available under the CARES Act. However, the timing of these elements taking place are not predictable and may not serve to mitigate our situation or improve the Company's health. Following the Ninth Amendment, our new covenant compliance remains dependent on meeting future projections, which are subject to the variability and unknown speed and extent of post-COVID-19 recovery.

The Company's management continues to explore raising capital through its access to the public markets or entering into alternative financing arrangements. Continued negative trends in operating results could be mitigated through various cost cutting measures including adjustments to headcount or compensation, vendor augmentation or delay of investment initiatives in the Company's corporate office.

These actions, which are further supported by positively trending macroeconomic conditions, and the potential of recovery of business and orders may ease the risk of further bank covenant violations. However, when considering the unpredictability of the above, there continues to be substantial doubt the Company will continue as a going concern.
v3.21.2
Recent Accounting Pronouncements
6 Months Ended
Jun. 30, 2021
Recent Accounting Pronouncements [Abstract]  
Recent Accounting Pronouncements
Note 2 - Recent Accounting Pronouncements

Accounting pronouncements recently adopted

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 hold 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 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2020-01 on January 1, 2021. This standard did not have a significant impact to our consolidated financial statements since the Company does not currently hold any investments at cost.

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 in 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. however, the FASB does not believe that this should change any of the current reporting or disclosure requirements. The Company adopted ASU 2020-10 on January 1, 2021. The adoption of this standard did not have a material impact to our consolidated financial statements.

Accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. 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.

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.
v3.21.2
Basic and Diluted Loss per Share
6 Months Ended
Jun. 30, 2021
Basic and Diluted Loss per Share [Abstract]  
Basic and Diluted Loss per Share
Note 3 - Basic and Diluted Loss 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 per common share were as follows:

(in thousands, except for share data)
 
Three months ended
   
Six months ended
 
   
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
Numerator:
                       
     Net income (loss) attributed to common stockholders
 
$
3,231
   
$
(2,149
)
 
$
1,026
   
$
(8,407
)
                                 
Denominator:
                               
Weighted-average shares outstanding for basic earnings per share
   
20,647,426
     
20,407,958
     
20,638,116
     
20,375,446
 
                                 
Effect of dilutive securities:
                               
Employee stock options
   
54,577
     
-
     
-
     
-
 
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share
   
20,702,003
     
20,407,958
     
20,638,116
     
20,375,446
 
                                 
Shares related to dilutive securities excluded because inclusion would be anti-dilutive
   
-
     
74,732
     
20,005
     
56,373
 
v3.21.2
Coronavirus Aid, Relief and Economic Security Act
6 Months Ended
Jun. 30, 2021
Coronavirus Aid, Relief and Economic Security Act [Abstract]  
Coronavirus Aid, Relief and Economic Security Act
Note 4 - Coronavirus Aid, Relief and Economic Security Act

Paycheck Protection Program Loan (PPP Loan)

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) 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 loan pursuant to a Paycheck Protection Program Note (the “PPP Loan”) from Citizens Bank, N.A. pursuant to the CARES Act.  Pursuant to the CARES Act, the PPP Loan was guaranteed by the U.S. Small Business Administration (“SBA”) and eligible for forgiveness under certain circumstances. Repayment of the PPP Loan was scheduled to begin on August 9, 2021.

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 subject to audit for appropriate usage of the funds and confirmation of loan forgiveness. GSE has stated, as part of the initial application, that the receipt of such funds were 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 July 5 legislation provides for an automatic 10 month 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 forgiveness expenses through the 24 week coverage period during the 2020 fiscal year. We applied for forgiveness in Q1 of 2021 with expected response in Q2 of 2021 (although the exact timing of a response from the SBA is not free from doubt). 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 expenses 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. SBA provided through regulation that its process would take no more than 90 days. Upon receipt of the funds, a Loan Payable – PPP balance of $10 million was recorded and related interest expense is being accrued. As of June 30, 2021, GSE reported 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, and (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 June 30, 2021, we had $10 million of principal remained outstanding on the PPP Loan together with accrued interest of $118 thousand as debt, which are classified as current in our consolidated balance sheets. We recorded $25 and $50 thousand of interest expense during the three and six months ended June 30, 2021.

On August 5, 2021, the Company received approval from Small Business Administration ("SBA") that the PPP loan including all accrued interest thereon was forgiven. (See Note 17).

Employee Retention Credits (ERC)

Employee retention tax credits made available under the CARES Act allow eligible employers claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. During the second quarter of 2021, we performed analysis to determine our eligibility for the Employee Retention Credit for the first quarter of 2021. We amended certain payroll tax filings and applied for a refund of $2.4 million in June 2021. For the second quarter of 2021, we have applied for a refund of $1.8 million from the IRS with the timely filing of Form 941 and have already recognized a benefit of $0.9 million in value from unremitted payroll taxes as allowable. We believe we are also eligible to receive the employee retention credit in the third quarter of 2021 and we are reducing our payroll taxes as permitted under the Coronavirus Aid, Relief and Economic Security Act.
v3.21.2
Contract Receivables
6 Months Ended
Jun. 30, 2021
Contract Receivables [Abstract]  
Contract Receivables
Note 5 - Contract Receivables
 
Contract receivables represent our unconditional rights to consideration due from our domestic and international customers. We expect to collect all contract receivables within the next twelve months.

The components of contract receivables were as follows:

(in thousands)
 
June 30, 2021
   
December 31, 2020
 
             
Billed receivables
 
$
4,004
   
$
5,694
 
Unbilled receivables
   
7,577
     
5,160
 
Allowance for doubtful accounts
   
(213
)
   
(360
)
Total contract receivables, net
 
$
11,368
   
$
10,494
 

Management reviews collectability of receivables periodically and records an allowance for doubtful accounts to reduce the Company's receivables to their net realizable value when management determines it is probable that we will not be able to collect all amounts due from customers. The allowance for doubtful accounts is based on historical trends of past due accounts, write-offs, specific identification and review of customer accounts.

During the six months ended June 30, 2021 and 2020, we recorded bad debt (recovery) expense of $(133) thousand and $93 thousand, respectively.

During the month of July 2021, we invoiced $2.9 million of the unbilled amounts as of the three months ended June 30, 2021.

As of June 30, 2021 and December 31, 2020, we had no customer that accounted over 10% of our consolidated contract receivables.
v3.21.2
Goodwill and Intangible Assets
6 Months Ended
Jun. 30, 2021
Goodwill and Intangible Assets [Abstract]  
Goodwill and Intangible Assets
Note 6 - Goodwill and Intangible Assets

During the three months ended March 31, 2020, we recognized an impairment charge of $4.3 million certain intangible assets as a result of the affect of the COVID-19 pandemic on our operations. This analysis did not evidence impairment of goodwill.

Our Step 1 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.

The Company monitors operating results and events and circumstances that may indicate potential impairment of intangible assets. 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 concluded that there were no triggering events that occurred during the three and six months ended June 30, 2021.

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

(in thousands)
 
As of June 30, 2021
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
 
Amortized intangible assets:
                 
Customer relationships
 
$
8,628
   
$
(6,005
)
 
$
2,623
 
Trade names
   
1,689
     
(1,064
)
   
625
 
Developed technology
   
471
     
(471
)
   
-
 
Non-contractual customer relationships
   
433
     
(433
)
   
-
 
Noncompete agreement
   
527
     
(383
)
   
144
 
Alliance agreement
   
527
     
(330
)
   
197
 
Others
   
167
     
(167
)
   
-
 
Total
 
$
12,442
   
$
(8,853
)
 
$
3,589
 

(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
 

Amortization expense related to definite-lived intangible assets totaled $0.3 million and $0.4 million for the  three months ended June 30, 2021 and 2020 and $0.6 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years and thereafter:
 
(in thousands)
     
Years ended December 31:
     
2021 remainder
 
$
569
 
2022
   
911
 
2023
   
640
 
2024
   
435
 
2025
   
335
 
Thereafter
   
699
 
Total
 
$
3,589
 
v3.21.2
Equipment, Software and Leasehold Improvements
6 Months Ended
Jun. 30, 2021
Equipment, Software and Leasehold Improvements [Abstract]  
Equipment, Software and Leasehold Improvements
Note 7 -  Equipment, Software and Leasehold Improvements

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

(in thousands)
           
   
June 30, 2021
   
December 31, 2020
 
Computer and equipment
 
$
2,226
   
$
2,229
 
Software
   
2,010
     
1,695
 
Leasehold improvements
   
659
     
660
 
Furniture and fixtures
   
839
     
848
 
     
5,734
     
5,432
 
Accumulated depreciation
   
(4,943
)
   
(4,816
)
Equipment, software and leasehold improvements, net
 
$
791
   
$
616
 

Depreciation expense was $147 thousand and $178 thousand for the six months ended June 30, 2021 and 2020, respectively. Capitalization of internal-use software cost of $165 thousand and $315 thousand were recorded in software for the three and six months ended June 30, 2021.
v3.21.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2021
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments
Note 8 - Fair Value of Financial Instruments
 
ASC 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The levels of the fair value hierarchy established by ASC 820 are:

Level 1:  inputs are quoted prices, unadjusted, in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2:  inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. A Level 2 input must be observable for substantially the full term of the asset or liability.

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 June 30, 2021 and December 31, 2020, 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.

For the six months ended June 30, 2021, we did not have any transfers into or out of Level 3.

The following table presents assets measured at fair value at June 30, 2021:

(in thousands)
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Total
 
                         
Money market funds
 
$
15
   
$
-
   
$
-
   
$
15
 
Total assets
   
15
     
-
     
-
     
15
 

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

(in thousands)
 
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Total
 
                         
Money market funds
 
$
435
   
$
-
   
$
-
   
$
435
 
Total assets
 
$
435
   
$
-
   
$
-
   
$
435
 
v3.21.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2021
Stock-Based Compensation [Abstract]  
Stock-Based Compensation
Note 9 - Stock-Based Compensation

We recognize compensation expense for all equity-based compensation awards issued to employees and directors that are expected to vest. Stock compensation is calculated based upon the fair value of awards as of the grant date. During the three months ended June 30, 2021 and 2020, we recognized $0.5 million in stock-based compensation expense and $0.2 million of stock-based compensation expense related to equity awards, respectively. We recognized $0.5 million and $0.3 million of stock-based compensation expense related to equity awards for the six months ended June 30, 2021 and 2020, respectively, under the fair value method. In addition to the equity-based compensation expense recognized, the Company recognized stock-based compensation related to the change in the fair value of cash-settled restricted stock units (RSUs) $0 thousand and $6 thousand for the six months ended June 30,2021 and 2020, respectively. There was no change in the fair value of cash settled RSUs for the three months ended June 30, 2021 and 2020.

During the three and six months ended June 30, 2021, we granted approximately 804,661 time-based RSUs with an aggregate fair value of approximately $1.4 million, respectively. During the three and six months ended June 30, 2020, we granted approximately 10,000 and 40,000 time-based RSUs with an aggregate fair value of $10 thousand and $31 thousand, respectively. A portion of the time-based RSUs vest quarterly in equal amounts over the course of eight quarters, and the remainder vest annually in equal amounts over the course of one to three years.
GSE’s 1995 long-term incentive program ("LTIP") provides for the issuance of performance-vesting and time-vesting restricted stock units to certain executives and employees. Vesting of the performance-vesting restricted stock units ("PRSU") is contingent upon the employee's continued employment and the Company's achievement of certain performance goals during designated performance periods as established by the Compensation Committee of the Company's Board of Directors. We recognize compensation expense, net of estimated forfeitures, for PRSU's on a straight-line basis over the performance period based on the probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PRSUs that are expected to vest, based on the probability and extent to which the performance goals will be met, and take into account these estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the performance period, we make a cumulative adjustment to compensation expense based on the revised number of shares expected to be earned.
During the three and six months ended June 30, 2021, we did not grant any performance-based RSUs to employees.
During the three months ended June 30, 2020, we did not grant any performance-based RSUs to employees and during the six months ended June 30, 2020, we granted approximately 510,000 performance-based RSUs to key employees with an aggregate fair-value of $0.6 million. These awards vest over three years based upon achieving certain financial metrics achieved during fiscal 2022 for revenue and Adjusted EBITDA. The Company did not grant any stock options for three and six months ended June 30, 2021 and 2020.
v3.21.2
Debt
6 Months Ended
Jun. 30, 2021
Debt [Abstract]  
Debt
Note 10 - 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 on May 11, 2023 and accrue interest at the 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 are guaranteed by our wholly owned subsidiaries, Hyperspring, Absolute, True North, DP Engineering and by any future material domestic subsidiaries (collectively, “the Guarantors”).

During 2020, the COVID-19 pandemic impacted our operations and our projected ability to comply with certain financial covenants. As such, we amended the credit facility at various dates in 2020 to revise our fixed charge ratio and leverage ratio requirements as well as our Adjusted EBITDA requirement.

In exchange for relaxed covenants or waivers of covenants for certain periods, we were required to curtail our term debt. During 2020, we repaid approximately $18.5 million of term debt and we were required to maintain certain levels or USA liquidity, which are tested bi-weekly.

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, with our bank to waive the fixed charge coverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and we agreed, for each quarter thereafter, that the fixed charge coverage ratio shall not be less than 1.10 to 1.00. In addition, we agreed to not exceed a maximum leverage ratio and starting on September 30, 2021 as follows: (i) 3.25 to 1.00 for the period ending September 30, 2021; (ii) 3.00 to 1.00 for the period ending on December 31, 2021, (iii) 2.75 to 1.00 for the period ending March 31, 2022; (iv) 2.50 to 1.00 for the period ending June 30, 2022 and (v) 2.00 to 1.00 for the periods ending September 30, 2022 and each December 31st, March 31st, June 30th and September 30th thereafter. We are also required to maintain a minimum of $2.5 million in aggregate USA liquidity. As part of the amendment, we agreed, at closing, (i) to make a $0.5 million pay down of RLOC; (ii) RLOC commitment to be reduced to $4.25 million; and (iii) $0.5 million of RLOC will only be available for issuance of Letters of Credit. We also agreed to pay $0.5 million to reduce RLOC to $3.75 million by June 30, 2021 and to $3.5 million by September 30, 2021. Commencing December 31, 2021 and on the last day of each quarter, we will pay $75 thousand to reduce the RLOC. We incurred $25 thousand fees related to this amendment during the year ended December 31, 2020.

We have experienced delays in commencing new projects and thus our ability to recognize revenue has been delayed for some contracts. Reductions in orders and other negative changes to orders experienced at the beginning of the pandemic have started to reverse in 2021, but not at the level expected as ongoing COVID concerns continue to hinder the pace of recovery. This deterioration in the recovery plan has resulted in breaching the Minimum Liquidity ratio subsequent to June 30, 2021 and projected breaching the Leverage and Fixed Charges ratio covenant.

Revolving Line of Credit (“RLOC”)

During the six months ended June 30, 2021, we paid for $1.5 million and had a draw of $0.8 million on our RLOC. As of June 30, 2021, we had outstanding borrowings of $2.3 million under the RLOC and three letters of credit totaling $933 thousand outstanding to certain of our customers. The total borrowing capacity under RLOC was $3.8 million as of June 30, 2021. After consideration of letters of credit, and the $0.5 million reserved for issuance of new letters of credit, there was no amount available for borrowing under the RLOC.

We intend to continue using the RLOC for short-term working capital needs when capacity is available and the issuance of letters of credit in connection with business operations provided, we remain in compliance with our covenants. As discussed above, we signed the Ninth 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 a fee for unused RLOC quarterly based on the average daily unused balance.
v3.21.2
Product Warranty
6 Months Ended
Jun. 30, 2021
Product Warranty [Abstract]  
Product Warranty
Note 11 - Product Warranty

We accrue for estimated warranty costs at the time the related revenue is recognized and based on historical experience and projected claims. Our System Design and Build contracts generally include a one base warranty on the systems. The portion of our warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $547 thousand, and the remaining $197 thousand is classified as long-term within other liabilities.

The activity in the accrued warranty accounts during the current period is as follows:

(in thousands)
     
Balance at January 1, 2021
 
$
922
 
Current period provision
   
(124
)
Current period claims
   
(54
)
Currency adjustment
   
-
Balance at June 30, 2021
 
$
744
 
v3.21.2
Revenue
6 Months Ended
Jun. 30, 2021
Revenue [Abstract]  
Revenue
Note 12 - 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 (workforce solutions) 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 three and six months ended June 30, 2021 and 2020, along with the reporting segment for each category:

(in thousands)
 
Three months ended
   
Six months ended
 
   
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
Performance Improvement Solutions segment
                       
System Design and Build
 
$
1,227
   
$
3,249
   
$
3,089
   
$
7,062
 
Point in time
   
-
     
-
     
-
     
-
 
Over time
   
1,227
     
3,249
     
3,089
     
7,062
 
                                 
Software and Support
   
766
     
723
     
1,579
     
1,633
 
Point in time
   
127
     
444
     
222
     
1,084
 
Over time
   
639
     
279
     
1,357
     
549
 
                                 
Training and Consulting Services
   
4,869
     
4,300
     
9,275
     
9,288
 
Point in time
   
16
     
19
     
84
     
48
 
Over time
   
4,853
     
4,281
     
9,191
     
9,240
 
                                 
Nuclear Industry Training and Consulting segment
                               
Training and Consulting Services
   
6,660
     
6,068
     
12,683
     
14,062
 
Point in time
   
163
     
-
     
249
     
-
 
Over time
   
6,497
     
6,068
     
12,434
     
14,062
 
                                 
Total revenue
 
$
13,522
   
$
14,340
   
$
26,626
   
$
32,045
 

The following table reflects revenue recognized in the reporting periods presented that was included in contract liabilities from contracts with customers as of the beginning of the periods presented:

(in thousands)
 
Three months ended
   
Six months ended
 
   
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
 
$
1,115
   
$
939
   
$
3,304
   
$
4,701
 
v3.21.2
Income Taxes
6 Months Ended
Jun. 30, 2021
Income Taxes [Abstract]  
Income Taxes
Note 13 - Income Taxes

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

(in thousands)
 
Three months ended
   
Six months ended
 
   
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
Income (loss) before income taxes
 
$
3,227
   
$
(1,969
)
 
$
987
   
$
(8,357
)
(Benefit from) provision for income taxes
   
(4
)
   
180
     
(39
)
   
50
 
Effective tax rate
   
(0.1
)%
   
(9.1
)%
   
(4.0
)%
   
(0.6
)%

Our income tax benefit for the interim periods presented is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. Total income tax benefit for the six months ended June 30, 2021 was comprised mainly of foreign tax benefit and state tax expense. Total income tax expense for the six months ended June 30, 2020 was comprised mainly of foreign and state tax expense.
Our effective income tax rate was (0.1)% and (4.0)% for the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2021, the difference between our income tax benefit at an effective tax rate of (0.1)% and (4.0)% respectively, and the U.S. statutory federal income tax rate of 21% was primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, a change in tax valuation allowance in our U.S. entity, and discrete item adjustments for U.S. and foreign taxes. For the three and six months ended June 30, 2020, the difference between our income tax expense at an effective tax rate of (9.1)% and (0.6)%, respectively, and the U.S. statutory federal income tax rate of 21% was primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, a change in tax valuation allowance in our U.S. and China subsidiaries, and discrete item adjustments for U.S. and foreign taxes.

Because of our net operating loss carryforwards, we are subject to U.S. federal and state income tax examinations from the year 2000 and forward and are subject to foreign tax examinations by tax authorities for years 2015 and forward.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. The Company has an estimated $0.8 million of tax benefit that will be realized in the third quarter of 2021 upon the expiration of the statute of limitations of the tax year in which the uncertain tax position was taken.

We recognize deferred tax assets to the extent that it is believed that these assets are more likely than not to be realized. We have evaluated all positive and negative evidence and determined that we will continue to assess a full valuation allowance on our U.S., China, and Slovakia net deferred assets as of June 30, 2021. We have determined that it is not more likely than not that the Company will realize the benefits of its deferred taxes in the U.S. and foreign jurisdictions.
v3.21.2
Leases
6 Months Ended
Jun. 30, 2021
Leases [Abstract]  
Leases
Note 14 - Leases

According to ASC 842 Leases (Topic 842), for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. Leases generally have remaining terms of one to six, whereas leases with an initial term of twelve months or less are not recognized on our consolidated balance sheet. We recognize lease expense for minimum lease payments on a straight-line basis over the term of the lease. We maintain leases of office facilities and equipment, and certain leases include options to renew or terminate. Renewal options are exercisable based upon our discretion and vary based on the nature of each lease, with renewal periods generally ranging from one to five. The term of the lease includes renewal periods, only if we are reasonably certain that we will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, we consider several factors, including but not limited to, the cost of moving to another location, the cost of disruption to our operations, the purpose or location of the leased asset and the terms associated with extending the lease.

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

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

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

       
As of
 
Operating Leases
 
Classification
 
June 30, 2021
   
December 31, 2020
 
                 
Leased Assets
               
Operating lease - right of use assets
 
Long term assets
 
$
1,279
   
$
1,562
 
                     
Lease Liabilities
                   
Operating lease liabilities - Current
 
Other current liabilities
   
1,099
     
1,138
 
Operating lease liabilities
 
Long term liabilities
   
1,315
     
1,831
 
        
$
2,414
   
$
2,969
 

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

The table below summarizes lease income and expense recorded in the consolidated statements of operations incurred during the three and six months ended June 30, 2021 and 2020, (in thousands):

         
Three months ended
   
Six months ended
 
Lease Cost
 
Classification
 
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
                             
Operating lease cost (1)
 
Selling, general and administrative expenses
 
$
177
   
$
321
   
$
369
   
$
418
 
Short-term leases costs (2)
 
Selling, general and administrative expenses
   
14
     
1
     
30
     
1
 
Sublease income (3)
 
Selling, general and administrative expenses
   
(32
)
   
(32
)
   
(64
)
   
(64
)
Net lease cost
 
 
 
$
159
   
$
290
   
$
335
   
$
355
 

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

The Company is obligated under certain noncancelable operating leases for office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of June 30, 2021 are as follows (in thousands):

 (in thousands)
 
Gross Future
Minimum Lease
Payments
 
2021 remainder
 
$
613
 
2022
   
1,171
 
2023
   
638
 
2024
   
122
 
2025
   
10
 
Thereafter     3
 
Total lease payments
 
$
2,557
 
Less: Interest
   
143
 
Present value of lease payments
 
$
2,414
 

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

Lease Term and Discount Rate
 
June 30, 2021
   
December 31, 2020
 
Weighted-average remaining lease term (years) Operating leases
   
2.24
     
2.64
 

               
Weighted-average discount rate Operating leases
   
5.00
%
   
5.00
%

The table below sets out the classification of lease payments in the consolidated statement of cash flows.

(in thousands)
 
Six months ended
 
Cash paid for amounts included in measurement of liabilities
 
June 30, 2021
   
June 30, 2020