8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) March 21, 2014

GSE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-14785	52-1868008
(State or other jurisdiction	(Commission File Number)	(I.R.S. Employer
of incorporation)		Identification No.)

1332 Londontown Blvd, Sykesville, MD  21784

(Address of principal executive office and zip code)

(410) 970-7800

Registrant's telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation or the registrant under any of the following provisions (see General Instructions A.2 below):

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

Form 8-K

Item 2.02 Results of Operations and Financial Condition

On March 26, 2014 the Company announced its financial results for the year ended December 31, 2013. The earnings release is attached hereto as Exhibit 99.1 to this Form 8-K.

Item 4.01 Changes in Registrant's Certifying Accountant

(a)Dismissal of independent registered public accounting firm.

On March 21, 2014, KPMG LLP ("KPMG") was dismissed as the Company's independent registered public accounting firm.  The change was recommended by the Audit Committee and approved by the Board of Directors. The audit reports of KPMG on the consolidated financial statements of the Company as of and for the years ended December 31, 2013 and 2012 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

During the Company's two most recent fiscal years ended December 31, 2013 and 2012 and through March 26, 2014, the Company did not have any disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its reports.

For the years ended December 31, 2013 and 2012, there have been the following reportable events as that term is described in Item 304(a)(1)(v) of Regulation S-K.

In 2012, the Company implemented a new system for financial reporting and accumulation of financial data. The new financial system is a significant component of the Company's internal control over financial reporting, but was not adopted in response to any deficiency in its internal controls. As of December 31, 2012, the Company had not completed the evaluation of the completeness, design and operating effectiveness of the internal controls over the new financial system, and therefore concluded that a material weakness in internal control over financial reporting existed. During the fourth quarter of 2013, the Company completed an evaluation of the completeness, design and operating effectiveness of the internal controls over the new financial reporting system and remediated the material weakness.

In addition, the Company believes that the following is a material weakness in its internal control over financial reporting as of December 31, 2013. The Company's internal control over expense cut-off is not designed appropriately to prevent or detect errors that could be material to the Company's financial statements. The Company has one employee who was responsible for both review of the vendor invoices for appropriate accounting treatment as well as recording the invoices in the appropriate period. As a result of this material weakness in the design of its internal control over financial reporting, the Company performed additional review and analysis over its consolidated financial statements for the year ended December 31, 2013. As a result of these procedures, the Company believes that its consolidated financial statements are presented in accordance with U.S. Generally Accepted Accounting Principles.

A letter from KPMG is attached as Exhibit 16.1 to this Form 8-K.

(b)Engagement of new independent registered public accounting firm.

As a result of the Audit Committee's request for proposal to determine the Company's independent registered public accounting firm for the year ending December 31, 2014, the Audit Committee selected BDO USA, LLP ("BDO").

The Company did not engage BDO in any prior consultations during the Company's fiscal years ended December 31, 2013 or December 31, 2012, or the subsequent period through the date of the filing of this Form 8-K regarding either: (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements; or (b) any matter that was the subject of either a disagreement or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).

Item 9.01 Financial Statements and Exhibits

(c)  Exhibits

16.1 Letter from KPMG LLP.

99.1Press release, dated March 26, 2014, announcing the Company's financial results for the year ended December 31, 2013.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		GSE SYSTEMS, INC.
Date:  March 26, 2014	/s/ Jeffery G. Hough
		Jeffery G. Hough
		Senior Vice President and
		Chief Financial Officer

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

GSE SYSTEMS ANNOUNCES 2013 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS

Q4 2013 OVERVIEW

· Revenue of $12.3 million compared to $12.7 million in Q4 2012.

· Net loss of $162,000, or $0.01 per diluted share, compared to a net loss of $330,000, or $0.02 per diluted share, in Q4 2012.

· EBITDA improves to $175,000 from EBITDA loss of $317,000 in Q4 2012.

At December 31, 2013

· Total cash and equivalents of $15.6 million, or $0.87 per diluted share (at February 28, 2014, cash and equivalents totaled $20.8 million, or $1.16 per diluted share).

· Working capital of $26.0 million.

· $0 long-term debt.

· Backlog of $38.0 million.

Sykesville, MD – March 26, 2014 - GSE Systems, Inc. ("GSE" or "the Company") (NYSE MKT: GVP), a global energy services solutions provider, today announced financial results for the fourth quarter ("Q4") and year ended December 31, 2013.

Jim Eberle, Chief Executive Officer of GSE, commented, "We continue to make progress at navigating a challenging business environment. Results in Q4 2013 reflected contributions from previously announced cost-saving initiatives and derivative gains. Our business development efforts continue in earnest, and we intend to add additional senior business development assets to accelerate this process.  During Q4 2013, we booked approximately $11.3 million of new orders, which followed $11.1 million of orders logged in Q3 2013.   Our business continues to be negatively impacted by delays in customers' decisions with respect to more than $21 million of potential orders. We expect to win a number of these awards during the year, some of which could be substantial in size, scope, and financial impact."

Mr. Eberle concluded, "We remain cautious in our approach and outlook, and are committed to effecting additional cost savings, as necessary.  We are particularly focused on diversifying our revenue base and solutions portfolio.  We expect to achieve these goals via a number of avenues, including strategic acquisitions. We are in various stages of discussions with potential acquisition opportunities, and are confident in our ability to consummate at least one material transaction during 2014."

Q4 2013 RESULTS

Q4 2013 revenue declined 3.2% to $12.3 million from $12.7 million in Q4 2012.  The reduction in revenue mainly reflects a $1.7 million decrease in fossil simulation revenue in Q4 2013. Fossil-fueled power utilities continue to delay capital improvement expenditures because of economic uncertainties regarding the continuing viability of coal-fired power plants in light of the low cost of natural gas and additional U.S. regulations contained in the Clean Air and Clean Water Acts.  Partially offsetting this decrease was a $1.1 million increase in revenue generated by the Company's Slovakia simulator project.

Gross profit in Q4 2013 was $3.6 million, or 29.5% of revenue, as compared to $4.3 million, or 33.2% of revenue, in Q4 2012.  The reduction in gross profit as a percent of revenue mainly reflects a significant reduction in Q4 revenue from our Swedish operations, which have historically generated up to 80% of their revenue from Japanese nuclear utility customers, coupled with a decline in their fossil revenue from German customers.  GSE downsized its Swedish operations in Q4 2013.

Operating loss for Q4 2013 was $0.5 million compared to an operating loss of $0.1 million in Q4 2012.

Gain on of derivatives was $0.5 million in Q4 2013, compared to a loss of $0.2 million in Q4 2012.

Provision for income taxes was $0.2 million in Q4 2013 as compared to a benefit of $0.2 million in Q4 2012.  The Q4 2013 provision mainly reflects the establishment of a full valuation allowance against the deferred tax asset of our Swedish operations.

The net loss for Q4 2013 was $0.2 million, or $0.01 per basic and diluted share, compared to a net loss of $0.3 million, or $0.02 per basic and diluted share, in the same period last year.

EBITDA (Earnings before interest, taxes, depreciation and amortization) for Q4 2013 was $0.2 million compared to an EBITDA loss of $0.3 million in Q4 2012.

Backlog at December 31, 2013 was $38.0 million compared to $51.9 million at December 31, 2012.

GSE's cash position at December 31, 2013 was $15.6 million, excluding $1.1 million of restricted cash, as compared to cash and equivalents of $17.6 million, excluding $2.2 million of restricted cash at September 30, 2013.  At December 31, 2013, the Company had an $8.8 million receivable from the Slovakian utility, $7.9 million of which was collected in Q1 2014.

2013 Overview

2013 revenue decreased 9.0% to $47.6 million from $52.2 million in 2012, reflecting the impact of $32.0 million of orders logged in 2013 as compared to $52.2 million of orders in 2012.  As an aftermath to the 2011 Fukushima earthquake and tsunami, the Japanese have shut down all of their nuclear reactors and the Germans have announced plans to shut down all of their nuclear reactors by 2022.  Accordingly, the Company has seen significant reductions in orders and revenue from nuclear customers in both Japan and Germany, two traditionally strong sources of revenue.  For the year ended December 31, 2013, revenue generated from nuclear simulation customers in Japan decreased by $4.2 million and revenue generated from nuclear simulation customers in Germany decreased by $1.6 million, as compared to the prior year.

In 2013, gross profit declined to $10.4 million, or 21.9% of revenue, from $17.7 million, or 33.9% of revenue, in 2012.  Gross profit in 2013 was negatively impacted by a one-time $2.2 million write-down of capitalized software development costs in Q2 2013; absent this charge, gross profit in 2013 would have been $12.6 million, or 26.5% of revenues.  Gross profit in 2013 was also impacted by a higher percentage of total revenue associated with the Slovakian project (24.2% in 2013 as compared to 6.5% in 2012), which has a substantially lower gross profit margin than GSE's normal gross profit margin due to an inordinate amount of hardware being supplied.  Lower EnVision product revenue in 2013, which has an overall gross profit that is substantially higher than GSE's normal gross profit margin, also contributed to the lower overall gross profit in 2013.

GSE recorded a one-time, non-cash goodwill impairment charge of $4.5 million in Q2 2013.

Operating loss was $10.7 million in 2013 compared to operating income of $2.0 million in 2012.

Net loss was $10.5 million, or $0.58 per diluted share, ub 2013 compared to a net income of $1.2 million, or $0.06 per diluted share, in 2012.

EBITDA loss was $3.1 million compared to EBITDA of $2.6 million in 2012.

CONFERENCE CALL

Management will host a conference call this afternoon at 4:30 pm Eastern Time to discuss Q4 results and other matters.

Interested parties may participate in the call by dialing:

· (877) 407-9753 (Domestic) or

· (201) 493-6739 (International)

The conference call will also be accessible via the following link:

http://www.investorcalendar.com/IC/CEPage.asp?ID=172528

ABOUT GSE SYSTEMS, INC.

GSE Systems, Inc. is a world leader in real-time high-fidelity simulation, providing a wide range of simulation, training and engineering solutions to the energy and process industries. Its comprehensive and modular solutions help customers achieve performance excellence in design, training and operations. GSE's products and services are tailored to meet specific client requirements such as scope, budget and timeline. The Company has over four decades of experience, more than 1,100 installations, and hundreds of customers in over 50 countries spanning the globe. GSE Systems is headquartered in Sykesville (Baltimore), Maryland, with offices in St. Marys, Georgia; Madison, New Jersey; Cary, North Carolina; Chennai, India; Nyköping, Sweden; Stockton-on-Tees, UK; Glasgow, UK; and Beijing, China. Information about GSE Systems is available at www.gses.com.

FORWARD LOOKING STATEMENTS

We make statements in this press release that are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements reflect our current expectations concerning future events and results. We use words such as "expect," "intend," "believe," "may," "will," "should," "could," "anticipates," and similar expressions to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other important factors that could cause our actual performance or achievements to be materially different from those we project. For a full discussion of these risks, uncertainties, and factors, we encourage you to read our documents on file with the Securities and Exchange Commission, including those set forth in our periodic reports under the forward-looking statements and risk factors sections. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Company Contact	The Equity Group Inc.
Jim Eberle	Devin Sullivan
Chief Executive Officer	Senior Vice President
GSE Systems, Inc.	(212) 836-9608
(410) 970-7950	dsullivan@equityny.com
	Thomas Mei
	Associate
	(212) 836-9614
	tmei@equityny.com

GSE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
	(unaudited)
	Three Months ended						Year ended
	December 31,						December 31,
	2013			2012			2013			2012
Contract revenue	$	12,262		$	12,665		$	47,562		$	52,246
Cost of revenue		8,649			8,366			34,981			34,509
Write-down of capitalized software development costs		-			-			2,174			-
Gross profit		3,613			4,299			10,407			17,737
Selling, general and administrative		3,917			4,202			15,836			14,865
Goodwill impairment loss		-			-			4,462			-
Depreciation		136			156			570			562
Amortization of definited-lived intangible assets		52			78			207			313
Operating expenses		4,105			4,436			21,075			15,740
Operating income (loss)		(492	)		(137	)		(10,668	)		1,997
Interest income, net		20			41			105			162
Gain (loss) on derivative instruments		486			(157	)		265			(121	)
Other expense, net		(7	)		(257	)		(67	)		(175	)
Income (loss) before income taxes		7			(510	)		(10,365	)		1,863
Provision (benefit) for income taxes		169			(180	)		146			689
Net income (loss)	$	(162	)	$	(330	)	$	(10,511	)	$	1,174
Basic income (loss) per common share	$	(0.01	)	$	(0.02	)	$	(0.58	)	$	0.06
Diluted income (loss) per common share	$	(0.01	)	$	(0.02	)	$	(0.58	)	$	0.06
Weighted average shares outstanding - Basic		17,905,977			18,346,965			18,150,915			18,383,564
Weighted average shares outstanding - Diluted		17,905,977			18,346,965			18,150,915			18,458,456

GSE SYSTEMS, INC AND SUBSIDIARIES
Selected balance sheet data
	December 31, 2013		December 31, 2012
Cash and cash equivalents	$	15,643	$	22,386
Restricted cash - current		45		743
Current assets		43,944		50,057
Long-term restricted cash		1,021		1,192
Total assets		48,827		62,564
Current liabilities	$	17,953	$	20,275
Long-term liabilities		487		1,459
Stockholders' equity		30,387		40,830

EBITDA Reconciliation

EBITDA is not a measure of financial performance under generally accepted accounting principles ("GAAP").  Management believes EBITDA, in addition to operating profit, net income and other GAAP measures, is useful to investors to evaluate the Company's results because it excludes certain items that are not directly related to the Company's core operating performance. Investors should recognize that EBITDA might not be comparable to similarly-titled measures of other companies.  This measure should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP.  A reconciliation of EBITDA to the most directly comparable GAAP measure in accordance with SEC Regulation G follows:

	Three Months ended						Year ended
	December 31,						December 31,
	2013			2012			2013			2012
Net income (loss)	$	(162	)	$	(330	)	$	(10,511	)	$	1,174
Interest income, net		(20	)		(41	)		(105	)		(162	)
Provision (benefit) for income taxes		169			(180	)		146			689
Write-down of capitalized software development costs		-			-			2,174			-
Depreciation and amortization		188			234			777			875
Goodwill impairment loss		-			-			4,462			-
EBITDA	$	175		$	(317	)	$	(3,057	)	$	2,576

EX-16.1

Exhibit 16.1

Securities and Exchange Commission Washington, D.C. 20549

Ladies and Gentlemen:

We were previously principal accountants for GSE Systems, Inc. and, under the date of March 26, 2014, we reported on the consolidated financial statements of GSE Systems, Inc. as of December 31, 2013 and for each of the years in the three-year period then ended. On March 24, 2014, we were dismissed. We have read GSE Systems Inc.'s statements included under Item 4.01 of its Form 8-K dated March 26, 2014, and we agree with such statements.

Very truly yours,

/s/  KPMG LLP

Baltimore, Maryland

March 26, 2014