10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)
☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended June 30, 2015
	or
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____

Commission File Number 001-14785

GSE Systems, Inc.

(Exact name of registrant as specified in its charter)

Delaware	52-1868008
(State of incorporation)	(I.R.S. Employer Identification Number)
1332 Londontown Blvd., Suite 200, Sykesville MD	21784
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:  (410) 970-7800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ]   No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes [ X ]   No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☐	Non-accelerated filer ☐	Smaller reporting company ☒
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in rule 12(b)-2 of the Exchange Act).    Yes  [  ]  No [X]

There were 17,887,859 shares of common stock, with a par value of $.01 per share outstanding as of August 12, 2015.

1

GSE SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and June 30, 2014	4
	Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and June 30, 2014	5
	Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 2015	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and June 30, 2014	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49
PART II.	OTHER INFORMATION	50
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	51
Item 6.	Exhibits	51
	SIGNATURES	52

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	Unaudited
	June 30, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	9,755		$	13,583
Restricted cash		1,232			613
Contract receivables, net		15,962			15,830
Prepaid expenses and other current assets		2,159			1,703
Total current assets		29,108			31,729
Equipment, software and leasehold improvements		7,135			7,055
Accumulated depreciation		(5,377	)		(5,229	)
Equipment, software and leasehold improvements, net		1,758			1,826
Software development costs, net		2,157			1,414
Goodwill		5,612			5,612
Intangible assets, net		1,035			1,279
Long-term restricted cash		3,291			3,591
Other assets		443			548
Total assets	$	43,404		$	45,999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit	$	-		$	339
Accounts payable		1,679			2,330
Accrued expenses		1,695			1,554
Accrued compensation and payroll taxes		2,728			2,595
Billings in excess of revenue earned		8,230			8,684
Accrued warranty		1,573			1,456
Current contingent consideration		2,775			2,842
Other current liabilities		516			473
Total current liabilities		19,196			20,273
Contingent consideration		2,130			1,948
Other liabilities		208			38
Total liabilities		21,534			22,259
Stockholders' equity:
Preferred stock $.01 par value, 2,000,000 shares authorized,  shares issued and outstanding none in 2015 and 2014		-			-
Common stock $.01 par value, 30,000,000 shares authorized, shares issued 19,486,770 and 17,887,859 shares outstanding in both 2015 and 2014		195			195
Additional paid-in capital		73,188			72,917
Accumulated deficit		(47,153	)		(45,142	)
Accumulated other comprehensive loss		(1,361	)		(1,231	)
Treasury stock at cost, 1,598,911 shares in 2015 and 2014		(2,999	)		(2,999	)
Total stockholders' equity		21,870			23,740
Total liabilities and stockholders' equity	$	43,404		$	45,999

The accompanying notes are an integral part of these consolidated financial statements.

3

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months ended June 30,						Six Months ended June 30,
	2015			2014			2015			2014
Contract revenue	$	13,632		$	8,276		$	27,628		$	17,000
Cost of revenue		10,717			5,629			21,491			12,129
Gross profit		2,915			2,647			6,137			4,871
Operating expenses:
Selling, general and administrative		3,999			4,452			7,365			8,596
Depreciation		135			134			264			273
Amortization of definite-lived intangible assets		124			36			247			72
Total operating expenses		4,258			4,622			7,876			8,941
Operating loss		(1,343	)		(1,975	)		(1,739	)		(4,070	)
Interest income, net		21			28			48			59
Gain (loss) on derivative instruments, net		(31	)		5			(79	)		109
Other income (expense), net		(41	)		3			(80	)		(7	)
Loss before income taxes		(1,394	)		(1,939	)		(1,850	)		(3,909	)
Provision for income taxes		73			47			161			101
Net loss	$	(1,467	)	$	(1,986	)	$	(2,011	)	$	(4,010	)
Basic loss per common share	$	(0.08	)	$	(0.11	)	$	(0.11	)	$	(0.22	)
Diluted loss per common share	$	(0.08	)	$	(0.11	)	$	(0.11	)	$	(0.22	)

The accompanying notes are an integral part of these consolidated financial statements.

4

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Three Months ended June 30,						Six Months ended June 30,
	2015			2014			2015			2014
Net loss	$	(1,467	)	$	(1,986	)	$	(2,011	)	$	(4,010	)
Foreign currency translation adjustment, net of tax		106			(106	)		(130	)		(101	)
Comprehensive loss	$	(1,361	)	$	(2,092	)	$	(2,141	)	$	(4,111	)

The accompanying notes are an integral part of these consolidated financial statements.

5

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

(Unaudited)

	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Treasury Stock
	Shares		Amount		Capital		Deficit			Loss			Shares			Amount			Total
Balance, December 31, 2014		19,487	$	195	$	72,917	$	(45,142	)	$	(1,231	)		(1,599	)	$	(2,999	)	$	23,740
Stock-based compensation expense		-		-		271		-			-			-			-			271
Foreign currency translation adjustment		-		-		-		-			(130	)		-			-			(130	)
Net loss		-		-		-		(2,011	)		-			-			-			(2,011	)
Balance, June 30, 2015		19,487	$	195	$	73,188	$	(47,153	)	$	(1,361	)		(1,599	)	$	(2,999	)	$	21,870

The accompanying notes are an integral part of these consolidated financial statements.

6

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months ended June 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(2,011	)	$	(4,010	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		264			273
Amortization of definite-lived intangible assets		247			72
Capitalized software amortization		195			95
Change in fair value of contingent consideration		433			47
Stock-based compensation expense		271			339
Equity loss on investments		78			38
(Gain) loss on derivative instruments		79			(109	)
Changes in assets and liabilities:
Contract receivables		(138	)		9,985
Prepaid expenses and other assets		(406	)		268
Accounts payable, accrued compensation and accrued expenses		(392	)		(2,006	)
Billings in excess of revenue earned		(440	)		(650	)
Accrued warranty reserves		117			(211	)
Other liabilities		103			(627	)
Net cash provided by (used in) operating activities		(1,600	)		3,504
Cash flows from investing activities:
Capital expenditures		(195	)		(141	)
Capitalized software development costs		(938	)		(349	)
Restrictions of cash as collateral under letters of credit		(1,156	)		-
Releases of cash as collateral under letters of credit		837			34
Net cash used in investing activities		(1,452	)		(456	)
Cash flows from financing activities:
Payments on line of credit		(339	)		-
Payments of the liability-classified contingent consideration arrangements		(318	)		(500	)
Net cash used in financing activities		(657	)		(500	)
Effect of exchange rate changes on cash		(119	)		(88	)
Net increase (decrease) in cash and cash equivalents		(3,828	)		2,460
Cash and cash equivalents at beginning of year		13,583			15,643
Cash and cash equivalents at end of period	$	9,755		$	18,103

The accompanying notes are an integral part of these consolidated financial statements.

7

GSE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months ended June 30, 2015 and 2014

(Unaudited)

1. Basis of Presentation and Revenue Recognition

Basis of Presentation

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the "Company" or "GSE") without independent audit.  In the opinion of the Company's 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 ("GAAP") have been condensed or omitted.  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 the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 19, 2015.  Certain reclassifications have been made to prior period amounts to conform to the current presentation.

The Company has two reportable segments as follows:

· Performance Improvement Solutions

Our Performance Improvement Solutions business segment encompasses all of the solution-oriented technologies and services traditionally associated with GSE which focus on both our client's people and their plants and operations. This segment includes various simulation, training and engineering products and services delivered across the breadth of industries we serve. Our simulation solutions include platforms ranging from (1) the non-specific plant systems of our EnVision product line used to teach fundamental processes to newly hired employees, to (2) custom plant-specific simulators used to train plant operators, to (3) engineering-grade simulation solutions used to help clients verify and validate control systems prior to new plant construction or modification of existing plants, to (4) engineering-grade simulation solutions used for human factors engineering. Training applications include turnkey and custom training services and 3D visualization training products to make training more effective. Our engineering services include plant design, automation and control systems design, functional safety and compliance analysis, and engineering consultations.

· Staff Augmentation

Staff Augmentation services provide specialized workforce solutions primarily to the nuclear industry. These employees work at our clients' facilities under client direction. Examples of staff augmentation positions include instructors, procedure writers, work management specialists, planners, outage execution specialists, corrective action and self-assessment specialists, and training material developers. This business is managed through our Hyperspring, LLC subsidiary. The business model, management focus, margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio. Hyperspring has been providing these services since 2005.

Financial information about the two business segments are provided in Note 15 of the accompanying Consolidated Financial Statements.

The preparation of financial statements in conformity with 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.  The Company's most significant estimates relate to revenue recognition on long-term contracts, product warranties, capitalization of software development costs, valuation of goodwill and intangible assets acquired, valuation of contingent consideration issued in business acquisitions, and the recoverability of deferred tax assets.  Actual results could differ from these estimates and those differences could be material.

8

Revenue Recognition on Long-Term Contracts

The Company recognizes revenue through (1) fixed price contracts on the sale of uniquely designed systems containing hardware, software and other materials as well as (2) time and material contracts primarily through staff augmentation support and service agreements.

In accordance with U.S. generally accepted accounting principles ("GAAP"), our Performance Improvement Solutions segment accounts for revenue under fixed-price contracts using the percentage-of-completion method. This methodology recognizes revenue and earnings as work progresses on the contract and is based on an estimate of the revenue and earnings earned to date, less amounts recognized in prior periods. The Company bases its estimate of the degree of completion of the contract by reviewing the relationship of costs incurred to date to the expected total costs that will be incurred on the project. Estimated contract earnings are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimate is recognized in the period in which the change is identified. Estimated losses are charged against earnings in the period such losses are identified. The Company recognizes revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim.

Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to the Company's revenue recognition as a significant change in the estimates can cause the Company's revenue and related margins to change significantly from the amounts estimated in the early stages of the project.

As the Company recognizes revenue under the percentage-of-completion method, it provides an accrual for estimated future warranty costs based on historical and projected claims experience. The Company's long-term contracts generally provide for a one-year warranty on parts, labor and any bug fixes as it relates to software embedded in the systems.

The Company's system design contracts do not normally provide for "post customer support service" (PCS) in terms of software upgrades, software enhancements or telephone support. In order to obtain PCS, the customers normally must purchase a separate contract. Such PCS arrangements are generally for a one-year period renewable annually and include customer support, unspecified software upgrades, and maintenance releases. The Company recognizes revenue from these contracts ratably over the life of the agreements.

Revenue from the sale of software licenses which do not require significant modifications or customization for the Company's modeling tools are recognized when the license agreement is signed, the license fee is fixed and determinable, delivery has occurred, and collection is considered probable.

9

We evaluate our contracts for multiple deliverables under ASC 605-25 Revenue Recognition-Multiple Element Arrangements, and when appropriate, separate the contracts into separate units of accounting for revenue recognition. Contracts with multiple element arrangements typically include, but are not limited to, components such as training, licenses, and PCS, as described above, embedded in the agreement. When a contract contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Amounts allocated to training and support services are based on VSOE and revenue is deferred until the services have been performed. Amounts allocated to software licenses are also based on VSOE. Revenue related to software licenses is recognized once the license has been delivered.

The Company recognizes revenue under time and materials contracts primarily from staff augmentation and certain consulting agreements. Revenue on time and material contracts is recognized as services are rendered and performed. Under a typical time-and-materials billing arrangement, customers are billed on a regularly scheduled basis, such as biweekly or monthly. At the end of each accounting period, revenue is estimated and accrued for services performed since the last billing cycle. These unbilled amounts are billed the following month.

For the three and six months ended June 30, 2015 and 2014, the following customers provided more than 10% of the Company's consolidated revenue:

	Three Months ended June 30,		Six Months ended June 30,
	2015	2014	2015	2014
Tennessee Valley Authority	18.7 %	0.0 %	19.9 %	0.0 %
Public Service Enterprise Group Inc.	11.7 %	0.6 %	10.2 %	0.6 %

10

2. Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today's guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance will be effective for the Company in the first quarter of its fiscal year ending December 31, 2018, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently in the process of evaluating the impact of its pending adoption of this ASU on the Company's consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018.

11

3. Basic and Diluted Loss Per Common Share

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

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

(in thousands, except for share amounts)	Three Months ended						Six Months ended
	June 30,						June 30,
	2015			2014			2015			2014
Numerator:
Net loss	$	(1,467	)	$	(1,986	)	$	(2,011	)	$	(4,010	)
Denominator:
Weighted-average shares outstanding for basic earnings per share		17,887,859			17,887,859			17,887,859			17,887,859
Effect of dilutive securities:
Employee stock options		-			-			-			-
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share		17,887,859			17,887,859			17,887,859			17,887,859
Shares related to dilutive securities excluded because inclusion would be anti-dilutive		2,513,321			2,736,703			2,580,942			2,727,435

12

4. Acquisition

Hyperspring, LLC

On November 14, 2014, (the "Closing Date") the Company, through its operating subsidiary, GSE Power Systems, Inc. (now GSE Performance Solutions, Inc. "GSE Performance"),  acquired Hyperspring, LLC ("Hyperspring") pursuant to a Membership Interests Purchase Agreement ("Purchase Agreement") with the sellers of Hyperspring ("Sellers").  Hyperspring, headquartered in Huntsville, Alabama, specializes in training and development, plant operations support services, and staff augmentation, primarily in the United States nuclear industry.  Hyperspring operates as a wholly-owned subsidiary of GSE Performance.  The purchase price allocation included customer relationship intangible assets valued at $779,000 which are being amortized over seven years.

GSE Performance paid the Sellers an aggregate of $3.0 million in cash at the closing date. In addition, GSE may be required, pursuant to the terms of the Purchase Agreement, to pay the Sellers up to an additional $8.4 million if Hyperspring attains certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017. Accordingly, the total cash paid to the former Hyperspring members may total $11.4 million.  Included in this $11.4 million is a $1.2 million payment to the Hyperspring members if Hyperspring is successful in renewing its contract with the Tennessee Valley Authority ("TVA") for a two year period for substantially the same scope as was currently being provided and with substantially the same economics.  As a result of TVA delaying the long-term contract award, GSE amended the purchase agreement with the former members of Hyperspring to extend the date that Hyperspring has to obtain a long-term contract with TVA from May 15, 2015 to December 31, 2015.  None of the other terms of the Hyperspring purchase agreement changed as a result of this amendment.

If Hyperspring is not successful in renewing the TVA contract, GSE may still be required to pay the Sellers up to an additional $8.4 million. The $1.2 million TVA payment will then be divided into three increments of $400,000 each and added to the annual payments which will be made to the former Hyperspring members if they attain certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017.

In conjunction with the Hyperspring acquisition, GSE Performance invested $250,000 for a 50% interest in IntelliQlik, LLC ("IntelliQlik").  IntelliQlik is developing a software platform for online learning and learning management for the energy market.  GSE Performance is obligated to contribute an additional $250,000 should IntelliQlik attain certain development milestones by September 30, 2015.  IntelliQlik is jointly owned by GSE Performance and a former member of Hyperspring.

To assist our clients in creating world-class internal training and performance improvement programs, GSE is building an E2E (Entry2Expert) Performance Solution.  The E2E Performance Solution includes a set of integrated and scalable products and services that provide a structured training program, from employee selection and onboarding through continuous skills improvement for experienced employees.  The Hyperspring acquisition, through its staff of instructors, engineers and specialists, and the IntelliQlik training platform, once completed, will increase the breadth of solutions that GSE can offer within the E2E Performance Solution program.

13

The following table summarizes the purchase price and purchase price allocation for the acquisition of Hyperspring, LLC, acquired on November 14, 2014.

(in thousands)
Cash purchase price	$	3,000
Fair value of contingent consideration		3,953
Total purchase price	$	6,953
Purchase price allocation:
Cash	$	152
Contract receivables		1,719
Prepaid expenses and other current assets		23
Property and equipment, net		12
Intangible assets		779
Goodwill		5,612
Total assets		8,297
Line of credit		749
Accounts payable, accrued expenses, and other liabilities		586
Billings in excess of revenue earned		9
Total liabilities		1,344
Net assets acquired	$	6,953

14

Pro forma results.  Our consolidated financial statements include the operating results of Hyperspring as of the date of acquisition.  For the six months ended June 30, 2015 and 2014, the unaudited pro forma financial information below assumes that our material business acquisition of Hyperspring occurred on January 1, 2014.

(in thousands except per share data)	(unaudited)
	Three Months ended								Six Months ended
	June 30,								June 30,
Pro forma financial information including the acquisition of Hyperspring	2015				2014				2015				2014
Revenue		$	13,632			$	12,760			$	27,628			$	25,968
Operating loss			(918	)			(1,943	)			(1,506	)			(4,013	)
Net loss			(1,043	)			(1,955	)			(1,777	)			(3,955	)
Loss per common share — basic		$	(0.06	)		$	(0.11	)		$	(0.10	)		$	(0.22	)
Loss per common share — diluted		$	(0.06	)		$	(0.11	)		$	(0.10	)		$	(0.22	)

Contingent Consideration

Accounting Standards Codification 805, Business Combinations ("ASC 805") requires that contingent consideration be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement and discount the liabilities to present value using a weighted-average cost of capital. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods, 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.

As of June 30, 2015 and December 31, 2014, current contingent consideration totaled $2.8 million and $2.8 million, respectively.  As of June 30, 2015 and December 31, 2014, we also had accrued contingent consideration totaling $2.1 million and $1.9 million, respectively, which represents the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

(in thousands)
	June 30,		December 31,
	2015		2014
Hyperspring, LLC	$	2,383	$	2,152
IntelliQlik, LLC		213		213
EnVision Systems, Inc.		179		477
Current contingent consideration	$	2,775	$	2,842
Hyperspring, LLC	$	2,130	$	1,948
Contingent consideration	$	2,130	$	1,948

15

5. Contract Receivables

Contract receivables represent balances due from a broad base of both domestic and international customers.  All contract receivables are considered to be collectible within twelve months. Recoverable costs and accrued profit not billed represent costs incurred and associated profit accrued on contracts that will become billable upon future milestones or completion of contracts.

The components of contract receivables are as follows:

(in thousands)	June 30,			December 31,
	2015			2014
Billed receivables	$	10,410		$	10,792
Recoverable costs and accrued profit not billed		5,554			5,060
Allowance for doubtful accounts		(2	)		(22	)
Total contract receivables, net	$	15,962		$	15,830

Recoverable costs and accrued profit not billed totaled $5.6 million and $5.1 million as of June 30, 2015 and December 31, 2014, respectively.  During July 2015, the Company invoiced $2.2 million of the unbilled amounts.

The following customers accounted for more than 10% of the Company's consolidated contract receivables as of June 30, 2015 and December 31, 2014, respectively:

	June 30, 2015	December 31, 2014
China Nuclear Power Engineering Company	15.2 %	3.9 %
State Nuclear Power Automation System Engineering Co.	5.8 %	10.2 %

6. Software Development Costs

Certain computer software development costs 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, and 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 investment to its estimated fair value based on future undiscounted cash flows.  The excess of any unamortized software development costs over the related net realizable value is written down and charged to cost of revenue.

Software development costs capitalized were $432,000 and $938,000 for the three and six months ended June 30, 2015, respectively, and $194,000 and $349,000 for the three and six months ended June 30, 2014, respectively.  Total amortization expense was $105,000 and $195,000 for the three and six months ended June 30, 2015, respectively, and $63,000 and $95,000 for the three and six months ended June 30, 2014, respectively.

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7. Goodwill and Intangible Assets

Goodwill

We review goodwill for impairment annually as of November 30 and whenever events or changes in circumstances indicate the carrying value of an asset 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. generally accepted accounting principles. After the acquisition of Hyperspring, LLC ("Hyperspring") on November 14, 2014, our reporting units are: (i) Performance Improvement Solutions and (ii) Staff Augmentation.  At June 30, 2015 and December 31, 2014, the $5.6 million of goodwill balance was related to the Hyperspring acquisition and is assigned to our Staff Augmentation segment.

Accounting Standards Update ("ASU") 2011-08, Testing Goodwill for Impairment ("ASU 2011-08") permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under ASU 2011-08, an entity is not required to perform step one of the goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. As of June 30, 2015, no impairment has been recognized on goodwill.

Intangible Assets Subject to Amortization

The Company's intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, contract backlog and technology.  Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset.  Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contract backlog and contractual customer relationships which are recognized in proportion to the related projected revenue streams.   The Company reviews specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets.

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8. Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures ("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.

Level 3:  inputs are unobservable and reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at June 30, 2015 and December 31, 2014 based upon the short-term nature of the assets and liabilities.

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The following table presents assets and liabilities measured at fair value at June 30, 2015:

	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	$	9,332	$	-		$	-	$	9,332
Foreign exchange contracts		-		115			-		115
Total assets	$	9,332	$	115		$	-	$	9,447
Foreign exchange contracts	$	-	$	(133	)	$	-	$	(133	)
Total liabilities	$	-	$	(133	)	$	-	$	(133	)

The following table presents assets and liabilities measured at fair value at December 31, 2014:

	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	$	11,661	$	-		$	-	$	11,661
Foreign exchange contracts		-		92			-		92
Total assets	$	11,661	$	92		$	-	$	11,753
Foreign exchange contracts	$	-	$	(24	)	$	-	$	(24	)
Total liabilities	$	-	$	(24	)	$	-	$	(24	)

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9. Derivative Instruments

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

As of June 30, 2015, the Company had foreign exchange contracts outstanding of approximately 2.6 million Euro, 0.4 million Pounds Sterling, and 0.5 million Australian Dollars at fixed rates.  The contracts expire on various dates through December 2016.  At December 31, 2014, the Company had contracts outstanding of approximately 1.4 million Euro, 0.3 million Pounds Sterling, 0.8 million Australian Dollars, and 0.5 million Malaysian Ringgits at fixed rates.

The Company has not designated any of the foreign exchange contracts outstanding as hedges and has recorded the estimated fair value of the contracts in the consolidated balance sheets as follows:

	June 30,			December 31,
(in thousands)	2015			2014
Asset derivatives
Prepaid expenses and other current assets	$	115		$	71
Other assets		-			21
		115			92
Liability derivatives
Other current liabilities		(35	)		(23	)
Other liabilities		(98	)		(1	)
		(133	)		(24	)
Net fair value	$	(18	)	$	68

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The changes in the fair value of the foreign exchange contracts are included in net gain (loss) on derivative instruments in the consolidated statements of operations.

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

For the three and six months ended June 30, 2015 and 2014, the Company recognized a net gain (loss) on its derivative instruments as outlined below:

	Three Months ended June 30,						Six Months ended June 30,
(in thousands)	2015			2014			2015			2014
Foreign exchange contracts- change in fair value	$	(86	)	$	11		$	(86	)	$	254
Remeasurement of related contract receivables,  billings in excess of revenue earned, and  subcontractor accruals		55			(6	)		7			(145	)
Gain (loss) on derivative instruments, net	$	(31	)	$	5		$	(79	)	$	109

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10. Stock-Based Compensation

The Company recognizes compensation expense for all equity-based compensation awards issued to employees, directors and non-employees that are expected to vest.  Compensation cost is based on the fair value of awards as of the grant date.  The Company recognized $137,000 and $161,000 of stock-based compensation expense for the three months ended June 30, 2015 and 2014, respectively, under the fair value method and recognized $271,000 and $339,000 of stock-based compensation expense for the six months ended June 30, 2015 and 2014, respectively.  The Company granted 0 and 50,000 stock options for the three and six months ended June 30, 2015, respectively.  The fair value of the options granted for the six months ended June 30, 2015 was $40,000.  The Company granted 0 and 60,000 stock options for the three and six months ended June 30, 2014, respectively.  The fair value of the granted options at the grant date was $56,000.

11.  Long-Term Debt

At June 30, 2015 and December 31, 2014, the Company had no long-term debt.

Lines of Credit

Susquehanna Bank

At June 30, 2015, the Company had a Master Loan and Security Agreement and Revolving Credit Note with Susquehanna Bank ("Susquehanna").  The Company and its subsidiary, GSE Performance Solutions, Inc., were jointly and severally liable as co-borrowers.  The Loan Agreement provides a $7.5 million revolving line of credit for the purpose of (i) issuing stand-by letters of credit and (ii) providing working capital. Working capital advances bear interest at a rate equal to the Wall Street Journal Prime Rate of Interest, floating with a floor of 4 1/2%.  The agreement expires on June 30, 2016.

As collateral for the Company's obligations, the Company granted a first lien and security interest in all of the assets of the Company, including but not limited to, accounts receivable, proceeds and products, intangibles, trademarks, patents, intellectual property, machinery and equipment.

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On September 9, 2014, the Company signed a Third Comprehensive Amendment to the Master Loan and Security Agreement.  According to the Third Amendment, the Company is to maintain a segregated cash collateral account at Susquehanna Bank equal to the greater of (i) $3.0 million or (ii) the aggregate principal amounts of all Loans outstanding under the Revolving Credit Facility (including any issued and outstanding letters of credit, working capital advances, and negative foreign exchange positions) as security for the Company's obligations.  Under this Amendment, Susquehanna Bank shall have complete and unconditional control over the cash collateral account.

On September 30, 2014, Susquehanna Bank collateralized the outstanding letters of credit issued under the line of credit.  At June 30, 2015 and December 31, 2014, the cash collateral account totaled $4.5 million and $4.2 million, respectively. The balances were classified as restricted cash on the balance sheet.

Effective for the quarter ending June 30, 2015, Susquehanna Bank modified the financial covenants in the Company's financing documents.  The amendment to the Master Loan and Security Agreement reduced the number of restrictive covenants from four to two, as depicted below.  The credit agreement still contains certain restrictive covenants regarding future acquisitions and incurrence of debt. 

		As of
	Covenant	June 30, 2015
Minimum tangible capital base	Must Exceed $10.5 million	$13.1 million
Quick ratio	Must Exceed 1.00 : 1.00	1.52 : 1.00

As of June 30, 2015, the Company was in compliance with its covenants as defined above.

IberiaBank

At June 30, 2015, Hyperspring, LLC has a $1.0 million working capital line of credit with IberiaBank for a one year period.  Under the executed promissory note, interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal resulting in an effective interest rate of 4.25%. The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.

On July 6, 2015, Hyperspring renewed its $1.0 million working capital line of credit with IberiaBank under the same terms for a one year period.  The line of credit expires on July 6, 2016.

Letters of Credit and Bonds

As of June 30, 2015, the Company has fourteen standby letters of credit and one surety bond totaling $4.5 million which represent advance payment and performance bonds on twelve contracts.  The Company has deposited the full value of fourteen standby letters of credit in escrow accounts, amounting to $4.5 million, which have been restricted in that the Company does not have access to these funds until the related letters of credit have expired.  The cash has been recorded on the Company's balance sheet at June 30, 2015 as restricted cash.

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12. Product Warranty

As the Company recognizes revenue under the percentage-of-completion method, it provides an accrual for estimated future warranty costs based on historical experience and projected claims.  The activity in the warranty account is as follows:

(in thousands)
Balance at December 31, 2014	$	1,456
Warranty provision		369
Warranty claims		(209	)
Currency adjustment		(43	)
Balance at June 30, 2015	$	1,573

13. Income Taxes

The Company files 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 from years 1997 forward and is subject to foreign tax examinations by tax authorities for years 2007 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.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the 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 appropriately accounted for its uncertain tax positions.

The Company expects to pay income taxes in India and the UK in 2015.  In 2014, the Company paid income taxes in the UK and India.  The Company has a full valuation allowance on its U.S., Swedish, and Chinese net deferred tax assets at June 30, 2015.

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14. Preferred Stock Rights

On March 21, 2011, the Board of Directors of the Company declared a dividend, payable to holders of record as of the close of business on April 1, 2011, of  one preferred stock purchase right (a "Right") for each outstanding share of common stock, par value $0.01 per share, of the Company (the "Common Stock").  In addition, the Company will issue one Right with each new share of Common Stock issued.  In connection therewith, on March 21, 2011, the Company entered into a Stockholder Protection Rights Agreement (as amended from time to time, the Rights Agreement) with Continental Stock Transfer & Trust Company, as Rights Agent, which has a term of three years, unless amended by the Board of Directors in accordance with the terms of the Rights Agreement.  On March 21, 2014, the Rights Agreement was amended to extend the term an additional two years.  The Rights Agreement will now expire on March 21, 2016.  The Rights trade with and are inseparable from the Common Stock and are not evidenced by separate certificates unless they become exercisable.  Each Right entitles its holder to purchase from the Company one-hundredth of a share of participating preferred stock having economic and voting terms similar to the Common Stock at an exercise price of $8.00 per Right, subject to adjustment in accordance with the terms of the Rights Agreement, once the Rights become exercisable.  Under the Rights Agreement, the Rights become exercisable if any person or group acquires 20% or more of the Common Stock or, in the case of any person or group that owned 20% or more of the Common Stock as of March 21, 2011, upon the acquisition of any additional shares by such person or group.  The Company, its subsidiaries, employee benefit plans of the Company or any of its subsidiaries and any entity holding Common Stock for or pursuant to the terms of any such plan are accepted.  Upon exercise of the Right in accordance with the Rights Agreement, the holder would be able to purchase a number of shares of Common Stock from the Company having an aggregate market price (as defined in the Rights Agreement) equal to twice the then-current exercise price for an amount in cash equal to the then-current exercise price.  In addition, the Company may, in certain circumstances and pursuant to the terms of the Rights Agreement, exchange the Rights for one share of Common Stock or an equivalent security for each Right or, alternatively, redeem the Rights for $0.001 per Right.  The Rights will not prevent a takeover of our Company, but may cause substantial dilution to a person that acquires 20% or more of the Company's Common Stock.

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15.Segment Information

The Company has two reportable business segments.  The Performance Improvement Solutions business segment provides simulation, training and engineering products and services delivered across the breadth of industries we serve.  Solutions include simulation for both training and engineering applications.  Example training applications include turnkey and custom training services, while engineering services include plant design verification and validation. We provide these services across all our market segments.  Contracts typically range from ten months to three years.

The Staff Augmentation services segment provides specialized workforce solutions primarily to the U.S. nuclear industry, working at our clients' facilities.  This business is managed through our Hyperspring, LLC subsidiary.  The business model, management focus, margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio.  Hyperspring has been providing these services since 2005.

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated loss before income tax expense:

(in thousands)	Three Months ended June 30,						Six Months ended June 30,
	2015			2014			2015			2014
Contract revenue:
Performance Improvement Solutions	$	8,191		$	8,276		$	17,007		$	17,000
Staff Augmentation		5,441			-			10,621			-
	$	13,632		$	8,276		$	27,628		$	17,000
Operating income (loss):
Performance Improvement Solutions	$	(1,192	)	$	(1,955	)	$	(1,968	)	$	(4,023	)
Staff Augmentation		362			-			662			-
Loss on change in fair value of contingent consideration, net		(513	)		(20	)		(433	)		(47	)
Operating loss	$	(1,343	)	$	(1,975	)	$	(1,739	)	$	(4,070	)
Interest income, net		21			28			48			59
Gain (loss) on derivative instruments, net		(31	)		5			(79	)		109
Other income (expense), net		(41	)		3			(80	)		(7	)
Loss before income taxes	$	(1,394	)	$	(1,939	)	$	(1,850	)	$	(3,909	)

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16. Subsequent Events

In July 2015, GSE entered into a separation and release agreement with James A. Eberle, Chief Executive Officer. Effective July 31, 2015, Mr. Eberle resigned his position as Chief Executive Officer and as a director on GSE's board of directors. GSE will incur $380,000 in severance expense related to the termination of Mr. Eberle.

GSE appointed Kyle Loudermilk as Chief Executive Officer effective August 3, 2015.  In connection with his appointment, GSE's Board of Directors granted 850,000 restricted stock units ("RSUs") to Mr. Loudermilk for a six year performance period ending on June 30, 2021.  The RSUs granted to Mr. Loudermilk are classified as equity awards because the RSUs will be paid in GSE common stock upon vesting.  The RSUs have four vesting tranches based on GSE's stock price.  The 850,000 RSUs will vest as follows:

· 200,000 RSUs will vest if the Volume Weighted Average Price ("VWAP") of the Company's common stock as quoted by the NYSE MKT exceeds $2.50 for a 90 consecutive trading day period.

· An additional 200,000 RSUs will vest if the VWAP of the Company's common stock as quoted by the NYSE MKT exceeds $3.25 for a 90 consecutive trading day period.

· An additional 200,000 RSUs will vest if the VWAP of the Company's common stock as quoted by the NYSE MKT exceeds $4.25 for a 90 consecutive trading day period.

· An additional 250,000 RSUs will vest if the VWAP of the Company's common stock as quoted by the NYSE MKT exceeds $6.00 for a 90 consecutive trading day period.

The RSU equity awards are measured at the grant date fair value and are not remeasured at the end of the reporting period. Total expense related to the RSUs is expected to be $631,000.  The RSUs will be amortized over the life that each tranche is expected to vest, or as follows:

(in thousands)
Five months ended December 31, 2015	$	89
Year ended December 31, 2016		212
Year ended December 31, 2017		205
Year ended December 31, 2018		98
Year ended December 31, 2019		27
	$	631

On July 6, 2015, Hyperspring, LLC renewed its $1.0 million working capital line of credit with IberiaBank for a one year period.  Under the executed promissory note, interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal resulting in an effective interest rate of 4.25%.  The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.  The line of credit expires on July 6, 2016.

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

GSE Systems, Inc. ("GSE Systems", "GSE" or the "Company") is a world leader in real-time high fidelity simulation.  The Company provides simulation and educational solutions and services to the nuclear and fossil electric utility industry, and the chemical and petrochemical industries.

For years we have described ourselves as a simulation company, providing mainly simulation solutions to improve designs, de-risk projects and train operators. Our acquisition of Hyperspring, LLC and investment in IntelliQlik, LLC in November 2014 are helping to accelerate our transformation into a Performance Improvement Company. We improve plant performance with a combination of simulation, engineering and plant services that help clients improve their plant's profitability, productivity and safety, and assist in decommissioning the plants at the end of their life cycle. We improve human performance by providing technologies and services that systematically help clients in recruiting and selecting the right person for the job and training that individual throughout their career from entry-level to expert.

GSE is the parent company of:

· GSE Performance Solutions, Inc. (formerly GSE Power Systems, Inc.), a Delaware corporation;

· GSE Power Systems, AB, a Swedish corporation;

· GSE Engineering Systems (Beijing) Co. Ltd., a Chinese limited liability company;

· GSE Systems, Ltd., a Scottish limited liability company;

· EnVision Systems (India) Pvt. Ltd., an Indian limited liability company; and

· Hyperspring, LLC, an Alabama limited liability company.

The Company has a 50% interest in IntelliQlik, LLC, a Delaware limited liability company and a 50% interest in General Simulation Engineering RUS LLC, a Russian closed joint-stock company.

The Company has two reportable business segments:  Performance Improvement Solutions which provides simulation, engineering, and training solutions and services to the nuclear and fossil fuel power industry and to the chemical and petrochemical industries and Staff Augmentation which provides personnel to fulfill staff positions on a short-term basis to energy industry customers.

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Cautionary Statement Regarding Forward-Looking Statements

This report contains 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, as amended.  The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements.  Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results.  We use words such as "expects", "intends", "believes", "may", "will" and "anticipates" to indicate forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including, but not limited to, those factors set forth under Item 1A - Risk Factors of the Company's 2014 Annual Report on Form 10-K and those other risks and uncertainties detailed in the Company's periodic reports and registration statements filed with the Securities and Exchange Commission. We caution that these risk factors may not be exhaustive.  We operate in a continually changing business environment, and new risk factors emerge from time to time.  We cannot predict these new risk factors, nor can we assess the effect, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ from those expressed or implied by these forward-looking statements.

If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially from those contemplated by the forward-looking statements.  Even if all of the foregoing assumptions and expectations prove correct, actual results may still differ materially from those expressed in the forward-looking statements as a result of factors we may not anticipate or that may be beyond our control.  While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences could be significant.  We do not undertake to update any forward-looking statements made by us, whether as a result of new information, future events or otherwise.  You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report.

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General Business Environment

With the acquisition of Hyperspring, we now operate through two reportable business segments.  We are organized by operating groups primarily based upon the services performed by each group.  Each operating group consists of business units which are focused on providing specific products and services to certain classes of customers or within targeted markets.  Marketing and communications, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level.  Business development and sales resources are aligned with operating groups to support existing customer accounts and new customer development.  Our two business segments are:

· Performance Improvement Solutions

As evidenced through the change in the company name of our U.S. operating company to GSE Performance Solutions, Inc., our Performance Improvement Solutions business segment encompasses all of the solution-oriented technologies and services traditionally associated with GSE which focus on both our client's people and their plants and operations.  This segment includes various simulation, training and engineering products and services delivered across the breadth of industries we serve.  Our simulation solutions include platforms ranging from (1) the non-specific plant systems of our EnVision product line used to teach fundamental processes to newly hired employees, to (2) custom plant-specific simulators used to train plant operators, to (3) engineering-grade simulation solutions used to help clients verify and validate control systems prior to new plant construction or modification of existing plants, to (4) engineering-grade simulation solutions used for human factors engineering.  Training applications include turnkey and custom training services and 3D visualization training products to make training more effective.  Our engineering services include plant design, automation and control systems design, functional safety and compliance analysis, and engineering consultations.

· Staff Augmentation

Staff Augmentation services provide specialized workforce solutions primarily to the nuclear industry.  These employees work at our clients' facilities under client direction.  Examples of staff augmentation positions include instructors, procedure writers, work management specialists, planners, outage execution specialists, corrective action and self-assessment specialists, and training material developers.  This business is managed through our Hyperspring LLC subsidiary.  The business model, management focus, margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio.  Hyperspring has been providing these services since 2005.

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We believe the most serious future challenge facing the industries we serve is not their access to technology, their access to markets, nor their access to operating capital.  Instead the challenge will be their access to a trained and efficient workforce.  This challenge manifests itself due to both the knowledge that will be lost as a large percentage of the experienced workforce reaches retirement age in the next ten years and the replacement of these experienced workers by a new generation who have different learning styles and work expectations.

This belief is supported by the following trends as reported in the U.S. Department of Energy's National Energy Technology Laboratory 2013 report entitled Emerging Workforce Trends in the U.S. Energy and Mining Industries: A Call to Action.

· About 1/3 of the U.S. energy industry workforce is comprised of "baby boomers" (those born between 1946 and 1964), and they are poised to retire in great numbers by the end of this decade,

· There are too few younger workers in the pipeline to replace them, and many of the younger workers lack the necessary science, technology, engineering and math skills needed for many energy jobs,

· There is a critical need to capture the knowledge of experienced employees before they leave.

Exacerbating this workforce trend is the continuing domestic and global population increases which will continue to increase the overall demand for energy.  As the U.S.' current educational system is not able to provide the needed trained workers in adequate numbers, the onus is on the energy industry itself to address its training needs at both entry levels and more senior levels.  A complete lifecycle of training, from a worker's entry into the energy industry through to the achievement of expert knowledge and skills, is now required for the energy industry more than ever.

Business leaders are recognizing the problem and the challenge ahead.  A study published in Harvard Business Review (May 28, 2013) revealed that Boards of Directors identified Talent Management as their number one concern.  Those same executives rated their companies very poorly on key elements of talent management including attracting, hiring, assessing and developing top talent.

As companies are always under pressure to improve productivity, reduce costs and improve operating margins, energy industry companies have been working to create leaner, more competent organizations that can rapidly respond to a changing environment.  Increasing pressures to improve profitability have resulted in flatter organizational structures within companies with less middle management to exercise control.  According to the International Atomic Energy Agency (IAEA) article, A Systematic Approach to Human Performance Improvement in Nuclear Power Plants: Training Solutions, companies understand and value the potential contribution that every employee can make to their overall success.  As a result, companies have been emphasizing the quality of their human performance processes and the building of excellent educational processes for their employees.

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Entry2Expert Performance Cycle

To assist our clients in creating world-class internal training and performance improvement programs, we are building the E2E (Entry2Expert) Performance Solution, a set of integrated and scalable products and services which provide a structured program from employee selection and onboarding through continuous skills improvement for experienced employees.  GSE can now provide the right training solution for the right step in each employee's career.

The major elements of the E2E Performance Solution include:

· Employee Screening and Selection:  Leveraging the use of simulation and providing experts in employee assessments, we help clients ensure their candidates for employment possess both technical aptitude as well as personality traits suited for the specific job functions.

· Training Needs Assessments:  We help clients define their specific training needs by analyzing the job functions and processes specific to their plant.  This is the first step in creating a structured training program that will provide consistent and predictable results.

· Training Program Development: Following the ADDIE (Analyze, Design, Develop, Implement, and Evaluate) model for training program management, we can structure the entire training program for the client, including training media and modes, such as self-paced e-Learning, instructor-led classroom, in-depth simulation, and serious gaming.

· Self-Paced Training Tutorials:  We have a full complement of e-Learning material.  The products include basic equipment and component fundamentals that are applicable across a variety of industries, as well as comprehensive training for the oil and gas and refining markets.  Using a blended learning approach, students learn the overall purpose of plant systems, the major equipment, and how the equipment is operated and controlled.  This methodology ensures the students know the basics before entering a plant-specific training program.  We have delivered over 500 such tutorial programs in multiple languages worldwide.

· Instructor-Led Training:  We provide classroom and simulator instructors as adjunct staff or to teach turnkey training programs using training materials that either we or the client have developed.  Turnkey courses include ANSI Fundamentals (math and sciences), Generic Fundamentals (nuclear plant components, systems, and reactor theory), Senior Reactor Operator (SRO) Certification, and Engineering Systems Program courses.

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· Universal Training Simulators:  These products complement the Self-Paced Training Tutorials by reinforcing what the student learned in the tutorial by putting it into practice on the Universal Simulator.  The simulation models are high fidelity and engineering correct, but represent a typical plant or typical process, versus the exact replication of a client's plant.  We have delivered over 250 such simulation models to clients consisting of major oil companies and educational institutions.

· Part-Task Training Simulators:  Like the Universal Simulators, we provide other unique training solutions such as a generic nuclear plant simulator, VPanel displays which replicate control room hardware and simulator solutions specific to industry need, such as Severe Accident models to train on and aid in the understanding of events such as the Fukushima Daiichi accident.

· 3D Visualization:  Being able to visualize complex processes, or detailed maintenance tasks significantly improves understanding and retention while reducing the learning process.  We provide 3D visualization solutions to help customers "see" and understand the internal workings complex systems such as nuclear reactors, or how to maintain complicated pieces of equipment.  Blending the learning strategy of incorporating 3D visualization with high-fidelity, real-time simulation models enables us to provide the energy industry with better, faster, and less costly training in an immersive environment that is ideally suited for the next generation workforce.

· Plant-Specific Operator Training Simulators:  These simulators provide an exact replication of the plant control room and plant operations.  They provide the highest level of realism and training and allow users to practice their own plant-specific procedures.  Clients can safely practice startup, shutdown, normal operations, as well as response to abnormal events we all hope they never have to experience in real life.  We have delivered nearly 450 plant-specific simulators to clients in the nuclear power, fossil power and process industries worldwide.

The goal of our E2E performance lifecycle offering is to ensure superior human achievement in the dimensions of:

· Recruiting, screening, and selecting the right workforce

· Shortening the learning process

· Reduce human errors

· Mitigate effects of retirement and turnover

· Improve workforce agility

· Achieve and maintain certifications and compliance

· All of which improve our customers' bottom lines

  The dramatic increase in energy demand world-wide over the next 30 years will require significant amounts of training for new employees and also require new plants using energy of all sources.   Obviously, these new plants will need to be engineered and designed prior to construction, and due to their high-fidelity our modeling tools will be increasingly used to verify and validate control system and overall plant designs.

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Design2Decom Performance Cycle

  Just like the Entry2Expert (E2E) process helps improve the performance of our customers' people, Design2Decom (D2D) encompasses a range of services and technologies aimed at improving plant performance. From getting a client's system on-line faster, to operating safety, and support from experienced staff throughout the lifecycle, services include:

· Engineering Consultancy, Project Execution and Project Management:  Whether in the feasibility, concept or detail design stages of a plant or for plant modifications, we help clients design and implement engineering projects across several disciplines:

o Instrumentation Engineering

o Control Systems Engineering

o Automation Design Engineering

o Electrical Design Engineering

· Virtual commissioning of plants.  Our high-fidelity, simulation-based engineering solutions test design assumptions and provide feedback throughout the design process for:

o Integrated systems design validation

o Control strategy design validation

o Human factors engineering support

o Operating procedure validation

o Control system validation

· Safety and Compliance:  Our engineering expert de-risk operations through engineering assessments and remediation services to ensure safety and legislative compliance in the following areas:

o Functional Safety

o Electrical Safety

o Hazardous Areas Safety

o Arc Flash Safety

o Alarm Management

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· Specialized Plant Support: As our customers' experienced staffs retire, access to experts that can help with specialized plant projects is critical.  Through the acquisition of Hyperspring, we also provide expert support either through staff augmentation or turnkey projects for the following:

o Procedure Development

o Training Material Upgrade and Development

o Work Management

o Outage Execution

o Planning and Scheduling

o Corrective Actions

o Self-Assessments

o Equipment Reliability

· Decommissioning:  As plants reach the end of their useful life, decommissioning and deconstruction is a critical service, particularly in the nuclear industry where contaminated material must be handled in safe and precise manners.  Our engineering, simulation and visualization capabilities enable clients to plan for, train for, and execute decommissioning while minimizing exposure to hazardous materials and saving money.

The goal of Design2Decom (D2D) is to help clients optimize plant performance and compliance in terms of the following:

· Finding design errors during engineering rather than construction allowing plant startup to occur sooner, saving countless man-hours and dollars while simultaneously allowing revenue generation sooner. 

· Ensuring plants are safely operated within the regulatory requirements.

· Providing expert support for specialized projects and to augment an aging workforce.

· Limiting cost and hazards exposure through intelligent decommissioning solutions.

Our two overarching solution sets, Entry2Expert (E2E) and Design2Decom (D2D) bring together the collection of skills GSE has amassed over more than 40 years from its traditional roots in custom simulation to the acquisition of the specialized engineering capabilities of TAS Holding, entry and intermediate level training solutions via our EnVision acquisition, and now extensive training and plant support capabilities by acquiring Hyperspring.

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Results of Operations

The following table sets forth the results of operations for the periods presented expressed in thousands of dollars and as a percentage of revenue:

(in thousands)	Three Months ended June 30,												Six Months ended June 30,
	2015			%			2014			%			2015			%			2014			%
Contract revenue	$	13,632			100.0	%	$	8,276			100.0	%	$	27,628			100.0	%	$	17,000			100.0	%
Cost of revenue		10,717			78.6	%		5,629			68.0	%		21,491			77.8	%		12,129			71.3	%
Gross profit		2,915			21.4	%		2,647			32.0	%		6,137			22.2	%		4,871			28.7	%
Operating expenses:
Selling, general and administrative		3,999			29.3	%		4,452			53.8	%		7,365			26.7	%		8,596			50.6	%
Depreciation		135			1.0	%		134			1.6	%		264			0.9	%		273			1.6	%
Amortization of definite-lived intangible assets		124			0.9	%		36			0.5	%		247			0.9	%		72			0.4	%
Total operating expenses		4,258			31.2	%		4,622			55.9	%		7,876			28.5	%		8,941			52.6	%
Operating loss		(1,343	)		(9.8	)%		(1,975	)		(23.9	)%		(1,739	)		(6.3	)%		(4,070	)		(23.9	)%
Interest income, net		21			0.2	%		28			0.4	%		48			0.2	%		59			0.3	%
Gain (loss) on derivative instruments, net		(31	)		(0.2	)%		5			0.1	%		(79	)		(0.3	)%		109			0.6	%
Other income (expense), net		(41	)		(0.4	)%		3			0.0	%		(80	)		(0.3	)%		(7	)		(0.1	)%
Loss before income taxes		(1,394	)		(10.2	)%		(1,939	)		(23.4	)%		(1,850	)		(6.7	)%		(3,909	)		(23.0	)%
Provision for income taxes		73			0.6	%		47			0.6	%		161			0.6	%		101			0.6	%
Net loss	$	(1,467	)		(10.8	)%	$	(1,986	)		(24.0	)%	$	(2,011	)		(7.3	)%	$	(4,010	)		(23.6	)%

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Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience.  Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

A summary of the Company's significant accounting policies as of December 31, 2014 is included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.  Certain of our accounting policies require higher degrees of judgment than others in their application.  These include revenue recognition on long-term contracts, capitalization of computer software development costs, valuation of contingent consideration issued in business acquisitions, and the recoverability of deferred tax assets.  These critical accounting policies and estimates are discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the 2014 Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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Results of Operations - Three and Six Months ended June 30, 2015 versus Three and Six Months ended June 30, 2014

Contract Revenue.  Total contract revenue for the three months ended June 30, 2015 totaled $13.6 million, which was 64.7% more than the $8.3 million total revenue for the three months ended June 30, 2014. For the six months ended June 30, 2015, contract revenue totaled $27.6 million, which was 62.5% greater than the $17.0 million of revenue for the six months ended June 30, 2014.  The increase in revenue was driven by the acquisition of Hyperspring, represented by our Staff Augmentation segment, depicted below.

	Three Months ended						Six Months ended
	June 30,						June 30,
(in thousands)	2015			2014			2015		2014
Contract Revenue:
Performance Improvement Solutions		$	8,191		$	8,276	$	17,007		$	17,000
Staff Augmentation			5,441			-		10,621			-
Total Contract Revenue		$	13,632		$	8,276	$	27,628		$	17,000

Performance Improvement Solutions revenue decreased 1.0% from $8.3 million for the three months ended June 30, 2014 to $8.2 million for the three months ended June 30, 2015.  For the three months ended June 30, 2015, Performance Improvement Solutions had a $1.1 million increase in Fossil project revenue compared to the three months ended June 30, 2014.  The increase in Fossil project revenue from Performance Improvement Solutions was offset by decreases in project revenue in a mix of other industries during those same periods.  We recorded total Performance Improvement Solutions orders of $12.7 million in the three months ended June 30, 2015 as compared to $9.6 million in the three months ended June 30, 2014. Performance Improvement Solutions revenue remained flat at $17.0 million for both the six months ended June 30, 2015 and 2014, respectively.  For the six months ended June 30, 2015, Performance Improvement Solutions had a $2.4 million increase in Fossil project revenue compared to the six months ended June 30, 2014.  The increase in Fossil project revenue was offset by decreases in project revenue in a mix of other industries, keeping revenue stable for the six months ended June 30, 2014 compared to the six months ended June 30, 2015.   We recorded total Performance Improvement Solutions orders of $23.9 million in the six months ended June 30, 2015 as compared to $15.9 million in the six months ended June 30, 2014.

As discussed earlier, our Staff Augmentation business segment was created due to the acquisition of Hyperspring, LLC on November 14, 2014.  Revenue for the three months ended June 30, 2015 totaled $5.4 million.  Staff Augmentation orders totaled $6.1 million during the same period.  Revenue for the six months ended June 30, 2015 totaled $10.6 million; orders totaled $13.0 million during the same period.

At June 30, 2015, backlog was $57.5 million: $48.5 million for the Performance Improvement Solutions business segment and $9.0 million for Staff Augmentation.  At December 31, 2014, the Company's backlog was $48.4 million: $41.7 million for the Performance Improvement Solutions business segment and $6.7 million for Staff Augmentation.

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Gross Profit.  Gross profit totaled $2.9 million for the three months ended June 30, 2015 compared to $2.6 million for the same period in 2014.  As a percentage of revenue, gross profit decreased from 32.0% for the three months ended June 30, 2014 to 21.4% for the three months ended June 30, 2015.  The addition of the Staff Augmentation segment, which has an overall gross profit lower than the Company's historical Performance Improvement Solution segment gross profit, has contributed to the decrease in gross profit percentage for the three months ended June 30, 2015.

	Three Months ended												Six Months ended
	June 30,												June 30,
(in thousands)	2015			%			2014			%			2015			%			2014			%
Gross Profit:
Performance Improvement Solutions		$	2,325		28.4	%		$	2,647		32.0	%		$	5,030		29.6	%		$	4,871		28.7	%
Staff Augmentation			590		10.8	%			-		0.0	%			1,107		10.4	%			-		0.0	%
Consolidated Gross Profit		$	2,915		21.4	%		$	2,647		32.0	%		$	6,137		22.2	%		$	4,871		28.7	%

Performance Improvement Solutions had gross profit of $2.3 million or 28.4% of revenue for the three months ended June 30, 2015 compared to $2.6 million or 32.0% of revenue compared to the three months ended June 30, 2014.  The reduction in gross profit as a percentage of revenue reflects lower margins on Training and Process Simulation projects in 2015.

Performance Improvement Solutions' gross profit of $5.0 million or 29.6% of revenue for the six months ended June 30, 2015 increased $0.1 million from $4.9 million or 28.7% of revenue for the six months ended June 30, 2014.  The increase in gross margin percent for Performance Improvement Solutions for the six months ended June 30, 2015 as compared to the same period in 2014 is mainly due to:

· The restructuring of our Swedish operations in 2014 which has reduced their operations overhead costs and facility expenses,

· The completion in 2014 of a process simulation project that had a 14% gross margin, and

· Higher margined engineering consulting projects in 2015 for our UK subsidiary.

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Selling, General and Administrative Expenses.  Selling, general and administrative ("SG&A") expenses totaled $4.0 million in the three months ended June 30, 2015, a 10.2% decrease from the $4.5 million for the same period in 2014.  For the six months ended June 30, 2015 and 2014, SG&A expenses totaled $7.4 million and $8.6 million, respectively.  The decreases reflect the following spending variances:

· Business development and marketing costs decreased from $1.6 million for the three months ended June 30, 2014 to $1.4 million for the three months ended June 30, 2015, and decreased from $3.0 million for the six months ended June 30, 2014 to $2.8 million for the six months ended June 30, 2015. Bidding and proposal costs, a component of business development costs which are the costs of operations personnel assisting with the preparation of contract proposals, were $214,000 and $392,000 for the three months ended June 30, 2015 and 2014, respectively, and $499,000 and $769,000 for the six months ended June 30, 2015 and 2014, respectively.

· The Company's general and administrative expenses ("G&A") increased to $2.2 million from $2.1 million for the three months ended June 30, 2015 and 2014, respectively, and decreased to $3.8 million from $4.2 million for the six months ended June 30, 2015 and 2014, respectively.  Some components of G&A are as follows:

o For the three months ended June 30, 2015 and 2014, contingent consideration accretion expense was $513,000 and $20,000, respectively.  For the six months ended June 30, 2015 and 2014, contingent consideration accretion expense was $433,000 and $47,000, respectively.  The increase in contingent consideration is a result of the Hyperspring acquisition on November 14, 2014 and is associated with the deferred contingent consideration due to the former Hyperspring members if certain EBITDA targets are met and if their current contract with TVA is renewed.

o Beginning in 2015, the Company retained an executive search company to assist with the search for a new CEO.  For the three and six months ended June 30, 2015, the Company incurred $43,000 and $140,000, respectively, in retainer fees related to the search for a new CEO.  No expenses were incurred in 2014 related to the Company's CEO search.

o During the three and six months ended June 30, 2014, the Company incurred severance costs of $193,000 and $474,000, respectively, associated with the downsizing of the Swedish operations.  In addition, we recorded a $137,000 charge in the second quarter of 2014 related to the renegotiation of our Swedish office lease to downsize the size of the office.  During the three and six months ended June 30, 2015, the Company did not incur any severance costs.

o The Company incurred foreign currency exchange gains of $94,000 for the three months ended June 30, 2015 compared to gains of $56,000 for the three months ended June 30, 2014.  For the six months ended June 30, 2015, the Company incurred foreign currency exchange gains of $125,000 compared to foreign currency losses of $114,000 for the six months ended June 30, 2014.

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· Gross spending on software product development ("development") expenses for the three and six months ended June 30, 2015 totaled $820,000 and $1.7 million, respectively, as compared to $1.0 million and $1.8 million for the three and six months ended June 30, 2014, respectively. The Company capitalized $432,000 and $938,000 of product development expenses for the three and six months ended June 30, 2015, respectively, and $194,000 and $349,000 for the same periods in 2014, respectively.  Net development spending decreased from $816,000 for the three months ended June 30, 2014 to $387,000 for the three months ended June 30, 2015 and decreased from $1.4 million for the six months ended June 30, 2014 to $784,000 for the six months ended June 30, 2015.

o Spending on simulator software development and modeling tools totaled $590,000 and $1.2 million for the three and six months ended June 30, 2015, respectively.  Spending on software product development totaled $783,000 and $1.4 million for the three and six months ended June 30, 2014, respectively.  The Company's development expenses were mainly related to a new configuration management system and the maintenance of JADE™ and SimExec®applications.

o During the three months ended June 30, 2015 the Company completed its new Propane Refrigeration Process and Feed Gas Conditioning Process computer based tutorial and simulation training tools. Development expense related to the EnVision product line totaled $227,000 and $138,000 for the three months ended June 30, 2015 and 2014, respectively.  For the six months ended June 30, 2015 and 2014, EnVision incurred $499,000 and $222,000 of development expense, respectively.

o The Company's 3D visualization team, which develops 3D technology to add to our training programs, incurred $3,000 and $36,000 of costs related to this effort during the three and six months ended June 30, 2015, respectively, as compared to $89,000 and $135,000 for the same periods in 2014, respectively.

Depreciation.  Depreciation expense totaled $135,000 and $134,000 for the three months ended June 30, 2015 and 2014, respectively.  For the six months ended June 30, 2015 and 2014, depreciation expense totaled $264,000 and $273,000, respectively.

Amortization of Definite-lived Intangible Assets. Amortization expense related to definite-lived intangible assets totaled $124,000 and $36,000 for the three months ended June 30, 2015 and 2014, respectively.  For the six months ended June 30, 2015 and 2014, amortization expense related to definite-lived intangible assets totaled $247,000 and $72,000, respectively.

In conjunction with the Hyperspring acquisition on November 14, 2014, we recorded $779,000 of customer-related intangible assets which is being amortized on a waterfall basis over seven years.  We recognized $92,000 and $183,000 of amortization expense for the Hyperspring intangibles for the three and six months ended June 30, 2015, respectively.

The balance of the intangible asset amortization at June 30, 2015 relates to the net Hyperspring, EnVision and TAS intangible assets.  Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contractual customer relationships and contract backlog which are recognized in proportion to the related projected revenue streams.

Operating Loss.  The Company had an operating loss of $1.3 million (9.8% of revenue) during the three months ended June 30, 2015, as compared with an operating loss of $2.0 million (23.9% of revenue) for the same period in 2014.  For the six months ended June 30, 2015 and 2014, the Company had an operating loss of $1.7 million (6.3% of revenue) and an operating loss of $4.1 million (23.9% of revenue), respectively.  The variances were due to the factors outlined above.

Interest Income, Net.  Net interest income totaled $21,000 and $28,000 for the three months ended June 30, 2015 and 2014, respectively.  For the six months ended June 30, 2015 and 2014, net interest income totaled $48,000 and $59,000, respectively.

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Gain (Loss) on Derivative Instruments, Net.  The Company periodically enters into forward foreign exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates on foreign-denominated trade receivables.  As of June 30, 2015, the Company had foreign exchange contracts outstanding of approximately 2.6 million Euro, 0.4 Pounds Sterling, and 0.5 million Australian Dollars at fixed rates.  The contracts expire on various dates through December 2016.  The Company has not designated the contracts as hedges and has recognized losses on the change in the estimated fair value of the contracts of $86,000 for both the three and six months ended June 30, 2015, respectively.

As of June 30, 2014, the Company had foreign exchange contracts outstanding of approximately 1.3 million Euro and 0.1 million Pounds Sterling at fixed rates.  The contracts expire on various dates through May 2016.  The Company had not designated the contracts as hedges and had recognized losses on the change in the estimated fair value of the contracts of $11,000 and $254,000 for the three and six months ended June 30, 2014, respectively.

The foreign currency denominated contract receivables, billings in excess of revenue earned, and subcontractor accruals that are related to the outstanding foreign exchange contracts were remeasured into the functional currency using the current exchange rate at the end of the period.  For the three and six months ended June 30, 2015, the Company recognized gains of $55,000 and $7,000, respectively, from the remeasurement of such contract receivables, billings in excess of revenue earned and subcontractor accruals.  For the same periods in 2014, the Company recognized losses of $6,000 and $146,000, respectively.

Other Income (Expense), Net.  For the three and six months ended June 30, 2015, the Company recognized other expense, net of $41,000 and $80,000, respectively.  For the three and six months ended June 30, 2014, the Company recognized other income, net of $3,000 and other expense, net of $7,000, respectively. The major components of other expense, net included the following items:

· On November 14, 2014, in conjunction with the Hyperspring acquisition, the Company invested $250,000 for a 50% interest in IntelliQlik, LLC ("IntelliQlik") and is obligated to contribute an additional $250,000 upon the attainment by IntelliQlik of certain development milestones by September 30, 2015. IntelliQlik is jointly owned by GSE Performance and one of the former members of Hyperspring. For the three and six months ended June 30, 2015, the Company recognized equity losses of $40,000 and $79,000, respectively, on its investment in IntelliQlik.

· On May 22, 2013, the Company and Electrobalt Holding, a Russian Federation closed joint-stock company, created a 50/50 joint venture called General Simulation Engineering RUS Limited Liability Company ("GSE RUS"). For the three and six months ended June 30, 2014, the Company recognized losses of $10,000 and $38,000, respectively, relating to its pro rata share of operating results from GSE-RUS.  Although the company's entire investment in GSE-RUS was written off by the end of December 2014, we have not received a request for additional funding from the joint venture and, due to the political issues with Russia regarding the conflict in Ukraine, we do not intend to contribute additional equity in the foreseeable future.

· The Company had other miscellaneous losses of $1,000 for the three and six months ended June 30, 2015, respectively. For the three and six months ended June 30, 2014, the Company had other miscellaneous income of $13,000 and $31,000, respectively.

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Provision (Benefit) for Income Taxes

The Company files 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 from years 1997 and forward and is subject to foreign tax examinations by tax authorities for years 2007 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.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense.  The Company has appropriately accounted for its uncertain tax positions.

The Company expects to pay income taxes in India and the UK in 2015.  In 2014, the Company paid income taxes to the UK and India.  The Company has a full valuation allowance on its U.S., Chinese and Swedish net deferred tax assets at June 30, 2015.

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Liquidity and Capital Resources

As of June 30, 2015, the Company's cash and cash equivalents totaled $9.8 million compared to $13.6 million at December 31, 2014.

Cash provided by (used in) operating activities.  For the six months ended June 30, 2015, net cash used in operations totaled $1.6 million.  Significant changes in the Company's assets and liabilities in the six months ended June 30, 2015 included:

· A $138,000 increase in the Company's contract receivables.  The Company's trade receivables, net of the allowance for doubtful accounts, decreased from $10.8 million at December 31, 2014 to $10.4 million at June 30, 2015.  At June 30, 2015, trade receivables outstanding for more than 90 days, net of the bad debt reserve, totaled approximately $2.1 million as compared to $0.4 million at December 31, 2014.  The Company believes the entire 90-day balance at June 30, 2015 will be received.  The Company's unbilled receivables increased by approximately $0.5 million to $5.6 million at June 30, 2015 as compared to December 31, 2014.  The increase in the unbilled receivables is due to the timing of contracted billing milestones of the Company's current projects.  In July 2015, the Company invoiced $2.2 million of the unbilled amounts; the balance is expected to be invoiced and collected within one year.

· A $392,000 decrease in accounts payable, accrued compensation and accrued expenses.  The decrease was due to the timing of payments made by the Company to vendors and subcontractors.

For the six months ended June 30, 2014, net cash provided by operations totaled $3.5 million.  Significant changes in the Company's assets and liabilities in the six months ended June 30, 2014 included:

· A $10.0 million decrease in the Company's contract receivables.  The Company's trade receivables, net of the allowance for doubtful accounts, decreased from $19.0 million at December 31, 2013 to $8.4 million at June 30, 2014.  At June 30, 2014, trade receivables outstanding for more than 90 days, net of the bad debt reserve, totaled approximately $2.5 million as compared to $0.6 million at December 31, 2013.  The Company's unbilled receivables increased by approximately $0.5 million to $6.0 million at June 30, 2014 as compared to December 31, 2013.  The increase in the unbilled receivables was due to the timing of contracted billing milestones of the Company's current projects.  

· A $2.0 million decrease in accounts payable, accrued compensation, and accrued expenses.  The decrease was due to the timing of payments made by the Company to vendors and subcontractors.

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Cash used in investing activities.  Net cash used in investing activities totaled $1.5 million for the six months ended June 30, 2015.  Capital expenditures totaled $195,000 and capitalized software development costs totaled $938,000 for the six months ended June 30, 2015. Restrictions of cash as collateral under letters of credit totaled $1.2 million for the six months ended June 30, 2015.  Releases of restricted cash as collateral under letters of credit totaled $837,000 for the six months ended June 30, 2015.

Net cash used in investing activities totaled $456,000 for the six months ended June 30, 2014.  Capital expenditures totaled $141,000 and capitalized software development costs totaled $349,000 for the six months ended June 30, 2014.  Releases of restricted cash as collateral under letters of credit totaled $34,000 for the six months ended June 30, 2014.

Cash used in financing activities.  Cash used in financing activities totaled $657,000 for the six months ended June 30, 2015. Hyperspring has a working capital line of credit with IberiaBank.  The Company paid down $339,000 of the outstanding balance of the line of credit during the six months ended June 30, 2015.  During the six months ended June 30, 2015, the Company made payments of $318,000 to the former EnVision Systems, Inc. members in accordance with the 2011 purchase agreement due to the achievement of certain revenue targets in 2014.

Net cash used in financing activities totaled $500,000 for the six months ended June 30, 2014.  During the six months ended June 30, 2014, the Company made payments of $500,000 in accordance with the 2011 purchase agreement due to the achievement of certain revenue targets in 2013.

At June 30, 2015, the Company had cash and cash equivalents of $9.8 million.  The Company believes that its (i) cash and cash equivalents and (ii) cash generated from normal operations will be sufficient to fund its working capital and other requirements for at least the next twelve months.

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Credit Facilities

Susquehanna Bank

At June 30, 2015, the Company had a Master Loan and Security Agreement and Revolving Credit Note with Susquehanna Bank ("Susquehanna").  The Company and its subsidiary, GSE Performance Solutions, Inc., were jointly and severally liable as co-borrowers.  The Loan Agreement provides a $7.5 million revolving line of credit for the purpose of (i) issuing stand-by letters of credit and (ii) providing working capital. Working capital advances bear interest at a rate equal to the Wall Street Journal Prime Rate of Interest, floating with a floor of 4 1/2%.  The agreement expires on June 30, 2016.

As collateral for the Company's obligations, the Company granted a first lien and security interest in all of the assets of the Company, including but not limited to, accounts receivable, proceeds and products, intangibles, trademarks, patents, intellectual property, machinery and equipment.

On September 9, 2014, the Company signed a Third Comprehensive Amendment to the Master Loan and Security Agreement.  According to the Third Amendment, the Company is to maintain a segregated cash collateral account at Susquehanna Bank equal to the greater of (i) $3.0 million or (ii) the aggregate principal amounts of all Loans outstanding under the Revolving Credit Facility (including any issued and outstanding letters of credit, working capital advances, and negative foreign exchange positions) as security for the Company's obligations.  Under this Amendment, Susquehanna Bank shall have complete and unconditional control over the cash collateral account.

On September 30, 2014, Susquehanna Bank collateralized the outstanding letters of credit issued under the line of credit.  At June 30, 2015, the cash collateral account totaled $4.2 million and was classified as restricted cash on the balance sheet.

Effective for the quarter ending June 30, 2015, Susquehanna Bank modified the financial covenants in the Company's financing documents.  The amendment to the Master Loan and Security Agreement reduced the number of restrictive covenants from four to two, as depicted below.  The credit agreement still contains certain restrictive covenants regarding future acquisitions and incurrence of debt.

		As of
	Covenant	June 30, 2015
Minimum tangible capital base	Must Exceed $10.5 million	$13.1 million
Quick ratio	Must Exceed 1.00 : 1.00	1.52 : 1.00

As of June 30, 2015, the Company was in compliance with its covenants as defined above.

46

At June 30, 2015, Hyperspring, LLC had a $1.0 million working capital line of credit with IberiaBank.  Under the executed promissory note, interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal resulting in an effective interest rate of 4.25%. The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.

On July 6, 2015, Hyperspring renewed its $1.0 million working capital line of credit with IberiaBank under the same terms.  The line of credit expires on July 6, 2016.

At December 31, 2014 the outstanding balance on the line of credit was $339,000.  At June 30, 2015, no balance was outstanding on the line of credit.

Letters of Credit and Bonds

As of June 30, 2015, the Company had fourteen standby letters of credit and one surety bond totaling $4.5 million which represent advance payment and performance bonds on twelve contracts.  The Company has deposited the full value of fourteen standby letters of credit in escrow accounts, amounting to $4.5 million, which have been restricted in that the Company does not have access to these funds until the related letters of credit have expired.  The cash has been recorded on the Company's balance sheet at June 30, 2015 as restricted cash.

47

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

The Company's market risk is principally confined to changes in foreign currency exchange rates.  The Company's exposure to foreign exchange rate fluctuations arises in part from customer contracts that are denominated in currencies other than the Company's functional currency as well as from inter-company accounts in which costs incurred in one entity are charged to other entities in different foreign jurisdictions.  The Company is also exposed to foreign exchange rate fluctuations as the financial results of all foreign subsidiaries are translated into U.S. dollars in consolidation.  As exchange rates vary, those results when translated may vary from expectations and adversely impact overall expected profitability.

The Company utilizes forward foreign currency exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates.  The principal currencies for which such forward exchange contracts are entered into are the Pound Sterling, the Euro and the Australian Dollar.  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.

As of June 30, 2015, the Company had foreign exchange contracts outstanding of approximately 2.6 million Euro, 0.4 million Pounds Sterling, and 0.5 million Australian Dollars at fixed rates.  The contracts expire on various dates through December 2016.  The Company had not designated the contracts as hedges and had recognized a loss of $87,000 in the estimated fair value of the contracts for the three and six months ended June 30, 2015, respectively.  A 10% fluctuation in the foreign currency exchange rates up or down as of June 30, 2015 would have increased/decreased the change in the estimated fair value of the contracts by $1,800.

As of June 30, 2014, the Company had foreign exchange contracts outstanding of approximately 1.3 million Euro and 0.1 million Pounds Sterling at fixed rates.  The contracts expire on various dates through May 2016.  The Company had not designated the contracts as hedges and had recognized gains on the change in the estimated fair value of the contracts of $10,000 and $254,000 for the three and six months ended June 30, 2014, respectively.  A 10% fluctuation in the foreign currency exchange rates up or down as of June 30, 2014 would have increased/decreased the change in the estimated fair value of the contracts by $4,500.

48

Item 4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by it in its reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to management, including the Company's Chief Executive Officer ("CEO"), who is its principal executive officer, and Chief Financial Officer ("CFO"), who is its principal financial officer, to allow timely decisions regarding required disclosure.  At the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management including our CEO and our CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13-15(e) of the Exchange Act.  Based on the evaluation of our disclosure controls and procedures as of June 30, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

(b)  Changes in internal control over financial reporting

There were no changes in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

(c)  Limitation of Effectiveness of Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate this risk.

49

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A.  Risk Factors

The Company has no material changes to the disclosure on this matter made in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosures

Not applicable.

50

Item 5. Other Information

None

Item 6. Exhibits

10.1	Promissory Note related to the $1,000,000 Line of Credit, dated July 6, 2015, filed herewith.
10.2	Business Loan Agreement related to the $1,000,000 Line of Credit, dated July 6, 2015, filed herewith.
10.3	Amendment No. 5 to the Susquehanna Bank Agreement, dated as of July 31, 2015.  Filed herewith.
10.4	Amendment No. 4 to the Susquehanna Bank Agreement, dated as of December 31, 2014.  Filed herewith.
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

51

SIGNATURES

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

Date:  August 13, 2015GSE SYSTEMS, INC.

/S/ KYLE J. LOUDERMILK

Kyle J. Loudermilk

Chief Executive Officer

(Principal Executive Officer)

/S/ JEFFERY G. HOUGH

Jeffery G. Hough

Senior Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

52

EX-10.1

Exhibit 10.1

PROMISSORY NOTE

Principal

Loan Date

Maturity

Loan No

Call/Coll

Account

Officer

Initials

$

1000 000.00

07-06-2015

07-06-2016

5300290394

4A / 401

HAF6942

3970

References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations.

Borrower:

Hyperspring, LLC 400 Meridian Street, Ste. 105 Huntsville, AL 35802

Lender:

IBERIABANK Madison – Alabama 53 Hughes Road Huntsville, AL 35758

Principal Amount:  $1,000,000.00 Date of Note: July 6, 2015

PROMISE TO PAY. Hyperspring, LLC ("Borrower") promises to pay to IBERIABANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid Interest on July 6, 2016. In addition, Borrower will pay regular monthly payments of all accrued unpaid Interest due as of each payment date, beginning August 6, 2015, with all subsequent Interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any late charges; and then to any unpaid collection costs. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE.  The Interest rate on this Note is subject to change from time to time based on changes in an independent index which is the PRIME RATE OF INTEREST AS PUBLISHED IN THE MONEY RATE SECTION OF THE WALL STREET JOURNAL (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each DAY. Borrower understands that Lender may make loans based on other rates as well. The index currently is 3.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate of 1.000 percentage point over the Index, resulting In an Initial rate of 4.250% per annum based on a year of 360 days. NOTICE: Under no circumstances will the Interest rate on this Note be more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note Is computed on a 365/360 basis; that Is, by applying the ratio of the Interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance Is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender In writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid Interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment Instrument that Indicates that the payment constitutes "payment In full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: IBERIABANK, Madison - Alabama, 53 Hughes Road, Huntsville, AL  35758.

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $25.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 17.000% per annum based on a year of 360 days. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower falls to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default In Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement. purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents Is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made). any member withdraws from Borrower, or any other termination of Borrower's existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there Is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or   a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

LENDER'S RIGHTS. Upon the occurrence of any default described in the "Death or Insolvency" or "Creditor or Forfeiture Proceedings" clauses, to the extent that any such default by a guarantor relates to the matters described in the clause "Death or insolvency" of the paragraph entitled "DEFAULT", the entire unpaid principal balance under this Note and all accrued unpaid interest shall become immediately due, without notice, declaration or other action by Lender, and then Borrower will pay that amount. Upon the occurrence of any other default described in that paragraph, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lenders legal expenses whether or not there is a lawsuit, including attorneys' fees and expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, In addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Alabama without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Alabama.

DISHONORED ITEM FEE.  Borrower will pay a fee to Lender of $15.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.

COLLATERAL. Borrower acknowledges this Note is secured by UCC Collateral.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the Instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A)  Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, Including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender, (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender: or (E) Lender in good faith believes Itself Insecure.

ARBITRATION. Borrower and Lender agree that all disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this Note or otherwise, Including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of   the American Arbitration Association In effect at the time the claim is filled, upon request of either party. No act to take or dispose of any collateral securing this Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without Judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing this Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing this Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, Interpretation, and enforcement of this arbitration provision.

CERTIFICATION STATEMENT. The undersigned certifies that all statements, documents and information furnished to the Bank are correct and complete and shall be until this Note is paid in full.

PRIOR NOTE. This is a renewal of the Original Promissory Note dated November 16, 2012in the amount of $1,000,000.00.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, end unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of lime) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lenders security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made.  The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ ANO UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

THIS NOTE IS GIVEN UNDER SEAL AND ITIS INTENDED THAT THIS NOTE IS AND SHALL CONSTITUTE ANO HAVE THE EFFECT OF A SEALEDINSTRUMENT ACCORDING TO LAW.

BORROWER:

HYPERSPRING, LLC

GSE PERFORMANCE SOLUTIONS, INC., Member of Hyperspring, LLC

By:	/s/ Jeffery G. Hough
	Jeffery G. Hough, Vice President and CFO of GSE Performance Solutions, Inc.

EX-10.2

BUSINESS LOAN AGREEMENT (ASSET BASED)

Principal

Loan Date

Maturity

Loan No

Call/Coll

Account

Officer

Initials

$

1000 000.00

07-06-2015

07-06-2016

5300290394

4A / 401

HAF6942

3970

References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations.

Borrower:

Hyperspring, LLC 400 Meridian Street, Ste. 105 Huntsville, AL 35802

Lender:

IBERIABANK Madison – Alabama 53 Hughes Road Huntsville, AL 35758

THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated July 6, 2015, is made and executed between Hyperspring, LLC ("Borrower") and IBERIABANK ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) In granting, renewing, or extending any Loan, Lenders relying upon Borrower's representations, warranties, and agreements as set forth In this Agreement: (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of July 6, 2015, and shall continue in full force and effect until such time as all of Borrower's Loans In favor of Lender have been paid in full, including principal, interest, costs, expenses, attorney's fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.

LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows:

Conditions Precedent to Each Advance. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender:

(1) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender.

(2) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request.

(3) The security interests In the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force end effect.

(4) All guaranties required by Lender for the credit facility(ies) shall have been executed by each Guarantor, delivered to Lender and be in full force and effect.

(5) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, books, records, and operations, and Lender shall be satisfied as to their condition.

(6) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable.

(7) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate."

Making Loan Advances.  Advances under this credit facility, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by authorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be convulsively deemed to have been made at the request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower maintained with Lender or (2) when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day.

Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid.

Loan Account. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect.

COLLATERAL. To secure payment of the Primary Credit Facility and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security interests in such property and assets as Lender may require. Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any Insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender:

Perfection of Security Interests. Borrower agrees to execute all documents perfecting Lender's Security interest and to take whatever actions are requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and Lender will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest In the Collateral. Borrower promptly will notify Lender before any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender before any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender In writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity.

Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings. Records related to Accounts (Receivables) are or will be located at 400 Meridian Street, Ste. 105, Huntsville, AL 35B02. The above is an accurate and complete list of all locations at which Borrower keeps or maintains business records concerning Borrower's collateral.

Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender schedules of Accounts and schedules of Eligible Accounts in form and substance satisfactory to the Lender. Thereafter supplemental schedules shall be delivered according to the following schedule: With respect to Eligible Account s, schedules shall be delivered within fifteen (15) days of month-end in the form of a borrowing base certificate.

Representations and Warranties Concerning Accounts. With respect to the Accounts, Borrower represents and warrants to Lender: (1) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (2)  All Account information listed on schedules delivered to Lender will be true and correct, subject to Immaterial variance; and (3) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect, examine, and audit Borrower's records and to confirm with Account Debtors the accuracy of such Accounts.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the Initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) guaranties; (3) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.

Borrowers Authorization. Borrower shall have provided in form and substance satisfactory to Lender property certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents end instruments as Lender or its counsel, may require.

Fees and Expenses Under This Agreement. Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable.

Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to ender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any loan, and at all times any Indebtedness exists:

Organization. Borrower is a limited liability company which Is, and at all times shall be, duly organized, validly existing, and In good standing under and by virtue of the laws of the State of Alabama. Borrower is duly authorized to transact business in all other states in which Borrower Is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign limited liability company in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 400 Meridian Street, Ste. 105, Huntsville, AL 35802. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrowers state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keeping full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrowers business activities.

Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of ail assumed business names under which Borrower does business: None.

Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrowers articles of organization or membership agreements, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrowers properties.

Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrowers financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or In writing to ender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrowers properties free and dear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrowers properties are titled in Borrowers legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.

Hazardous Substances. Except as disclosed to and acknowledged by ender in writing, Borrower represents and warrants that: (1) During the period of Borrowers ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation ail Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as ender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by ender shall be at Borrower's expense and for Lenders purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances.  Borrower hereby  (1) releases and waives any future claims against Lender for Indemnity or contribution In the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, inducting the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

Litigation and Claims. No litigation, claim, Investigation, administrative proceeding or similar action (Including those for unpaid taxes) against Borrower Is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by ender in writing.

Taxes. To the best of Borrower's knowledge, all of Borrowers tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower In good faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or Indirectly securing repayment of Borrowers Loan and Note, that would be prior or that may in any way be superior to ender's Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with ender that, so long as this Agreement remains In effect, Borrower will:

Notices of Claims and Litigation. Promptly inform ender in writing of (1) all material adverse changes in Borrowers financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.

Financial Statements. Furnish Lender with the following:

Annual Statements.  As soon as available, but in no event later than sixty (60) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, prepared by Borrower.

Interim Statements.  As soon as available, but in no event later than forty-five (45) days after the end of each fiscal quarter, Borrowers balance sheet and profit and loss statement for the period ended, prepared by Borrower.

Additional Requirements.

Borrowing Base Certificate. As soon as available, but in no event later than fifteen (15) days after the end of each fiscal month, Borrower's Borrowing Base Certificate.

Guarantor Annual Statements. As soon as available, but In no event later than one hundred fifty (150) days after the end of each fiscal year, Guarantor's balance sheet and Income statement for the year ended, audited by a certified public accountant satisfactory to Lender.

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

Additional Information.  Furnish such additional information and statements, as Lender may request from time to time.

Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each Insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security Interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.

Insurance Reports.  Furnish to Lender, upon request of Lender, reports on each existing Insurance policy showing  such information as Lender may reasonably request, including without limitation the following: (1)  the name of the insurer; (2) the risks insured: (3) the amount of the pol cy: (4) the properties insured: (5)  the then current property values on the basis of which insurance has been obtained, and the manner of determining those values: and  (6)  the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Guaranties.  Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender's forms, and in the amount and under the conditions set forth in those guaranties.

Name of Guarantor	Amount
GSE Systems, Inc.	Unlimited

Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default In connection with any other such agreements.

Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charge and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments. taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, Income, or profits, prior to the date on which penalties would attach, and all lawful claims that, If unpaid, might become a lien or charge upon any of Borrower's properties, Income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, In the Related Documents, and in ell other Instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel: provide written notice to Lender of any change in executive and management personnel: conduct its business affairs in a reasonable and prudent manner.

EnvironmentalStudies. Promptly conduct and complete, at Borrower's expense, all such Investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, Including without limitation, the Americans With Disabilities Act.  Borrower may contest In good faith any such law, ordinance,   or regulation and withhold compliance during any proceeding, Including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, In Lender's sole opinion, Lender's Interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.

Inspection. Permit employees or agents of Lender at any reasonable time to Inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (Including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records al all reasonable limes and to provide Lender with copies of any records it may request, all at Borrower's expense.

Environmental Compliance and Reports.  Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and In compliance with the conditions of a permit Issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from  any governmental agency or Instrumentality concerning any Intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or Its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest In the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security Interests, encumbrances and other claims, al any lime levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear Interest at the rate charged under the Note, or the maximum rate permitted by law, whichever is less, from the date Incurred or paid by Lender to the date of repayment by Borrower.  All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either the term of any applicable insurance policy: or (2) the remaining term of the Note: or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Indebtedness end Liens. (1) Except for trade debt incurred In the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital teases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.

Continuity of Operations.  (1)  Engage in any business activities substantially different than those in which Borrower is presently engaged, cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) make any distribution with respect to any capital account, whether by reduction of capital or otherwise.

Loans, Acquisitions and Guarantees. (1) Loan, Invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.

Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings,  or Is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open In the future. However, this does not Include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, In favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty , representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower, or any other termination of Borrower's existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Defective Collateralization.  This Agreement or any of the Related Documents ceases to be in full force and effect (Including failure of any collateral document to create a valid and perfected security Interest or lien) at any time and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shell not apply If there Is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or   a surety bond for the creditor or forfeiture proceeding, In an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes Incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Adverse Change. A material adverse change occurs In Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.

Insecurity. Lender in good faith believes itself insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (Including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness Immediately will become due and payable, all without notice of any kind to Borrower, except that In the case of an Event of Default of the type described In the "Insolvency" subsection above, such acceleration shall be automatic end not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.

PRIOR LOAN AGREEMENTS. This Business Loan Agreement (Asset Based) supersedes all prior Business Loan Agreements (Asset Based) between Lender and Borrower.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing end signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorney s' Fees; Expenses. Borrower agrees to pay upon demand ell of Lender's costs and expenses, Including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses Include Lender's attorneys' fees and legal expenses whether or not there Is a lawsuit, including attorneys' fees and legal expenses for  bankruptcy proceedings (Including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services.  Borrower also shall pay all court costs end such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as any notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan Irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Alabama without regard to its conflicts of law provisions.  This Agreement has been accepted by Lender in the State of Alabama.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal Invalid, or unenforceable as to any other circumstance.  If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legal ty, validity or enforceability of any other provision of this Agreement.

Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, Including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall insure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower In this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made,  and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid In full, or until this Agreement shall be terminated In the manner provided above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

DEFINITIONS. The following capitalized words end terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Account. The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Borrower (or to a third party granter acceptable to Lender).

Account Debtor. The words "Account Debtor" mean the person or entity obligated upon an Account.

Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf under the terms and conditions of this Agreement.

Agreement. The word "Agreement" means this Business Loan Agreement (Asset Based), as this Business Loan Agreement (Asset Based) may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement (Asset Based) from time to time.

Borrower. The word "Borrower" means Hyperspring, LLC and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Borrowing Base. The words "Borrowing Base" mean, as determined by Lender from time to time, the lesser of (1) $1,000,000.00 or (2) 80.000% of the aggregate amount of Eligible Accounts.

Business Day. The words "Business Day• mean a day on which commercial banks are open In the State of Alabama.

Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted In the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a   security device, or any other security or lien Interest whatsoever, whether created by law, contract, or otherwise. The word Collateral also includes without limitation all collateral described in the Collateral section of this Agreement.

Eligible Accounts. The words "Eligible Accounts" mean at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender. The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender In writing, Eligible Accounts do not include:

(1) Accounts with respect to which the Account Debtor is a member, employee or agent of Borrower.

(2) Accounts with respect to which the Account Debtor Is affiliated with Borrower.

(3) Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional.

(4) Accounts with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are supported by insurance, bonds or other assurances satisfactory to Lender.

(5) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower.

(6) Accounts which are subject to dispute, counter claim, or setoff.

(7) Accounts with respect to which the goods have not been shipped or delivered or the services have not been rendered, to the Account Debtor.

(8) Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory.

(9) Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become Insolvent or falls generally to pay its debts (Including its payrolls) as such debts become due.

(10) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States.

(11) Accounts which have not been paid in full within ninety (90) days from the invoice date. The entire balance of any Account of any single Account Debtor will be ineligible whenever the portion of the Account which has not been paid within ninety (90) days from the Invoice date is in excess of 25.000% of the total amount outstanding on the Account.

(12) That portion of the Accounts of any single Account Debtor which exceeds 40.000% of all of Borrower's Accounts.

(13) Accounts which are subject to contractual arrangements between Borrower and the Account Debtor based on a percent completion or that are subject to contract fulfillment requirements.

(14) Accounts with respect to which the Borrower is required to have a bond posted on its behalf to secure Borrower's performance.

(15) That portion of any Account constituting retainage that is being withheld by the Account Debtor pending completion to the Account Debtor's satisfaction of Borrower's performance under a contract.

(16) Accounts related to medical or insurance receivables.

(17) Accounts with respect to which the Account Debtor is a person.

Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Ac1 of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Ac1of 1986,Pub. L. No.99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Ac1, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default sec1ion of this Agreement.

Expiration Date. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement.

GAAP. The word "GAAP" means generally accepted accounting principles.

Grantor. The word "Grantor" means each and all of the persons or entitles granting a Security Interest in any Collateral for the Loan, Including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.

Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or Infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and Include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws.  The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word "indebtedness" means the Indebtedness evidenced by the Note or Related Documents, including all principal and Interest together with all other Indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Lender. The word "Lender" means IBERIABANK, its successors and assigns.

Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Note. The word "Note" means the Note dated July 6, 2015 and executed by Hyperspring, LLC in the principal amount of $1,000,000.00, together with all renewals of, extensions of, modifications of, refinancing of, consolidations of, and substitutions for the note or credit agreement.

Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of material men, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security Interests upon or in any property acquired or held by Borrower In the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens•;  (5)  liens and security interests which, as of the date of this Agreement , have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which In the aggregate constitute an Immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.

Primary Credit Facility. The words "Primary Credit Facility" mean the credit facility described In the Line of Credit section of this Agreement.

Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether In the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract , or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS.  THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS DATED JULY 6, 2015.

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENOED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

BORROWER:

HYPERSPRING, LLC

GSE PERFORMANCE SOLUTIONS, INC., Member of Hyperspring, LLC

By:	/s/ Jeffery G. Hough
	Jeffery G. Hough, Vice President and CFO of GSE Performance Solutions, Inc.

LENDER:

IBERIABANK

By:	/s/ T. Chris Patty
	Authorized Signer

EX-10.3

Exhibit 10.3

FIFTH COMPREHENSIVE AMENDMENT TO FINANCING DOCUMENTS

THISFIFTHCOMPREHENSIVEAMENDMENTTOFINANCING

DOCUMENTS (this "Amendment") is dated effective as of July 31, 2015, by and among GSE SYSTEMS, INC., a Delaware corporation ("GSE") and GSE  PERFORMANCE SOLUTIONS, INC., a Delaware corporation and successor by merger to GSE Envision LLC, a New Jersey limited liability company and also formerly known as GSE Power Systems, Inc. ("GSE Performance Solutions"), (GSE and GSE Performance Solutions, each a "Co-Borrower" and collectively, the "Co-Borrowers") and BRANCH BANKING AND TRUST COMPANY, a North Carolina banking corporation (the "Bank") which bank is the successor by merger to SUSQUEHANNA BANK, formerly a Pennsylvania state chartered commercial banking corporation ("Susquehanna"); witnesseth:

RECITALS

WHEREAS, pursuant to a Master Loan and Security Agreement dated November 22, 2011 by and among GSE, GSE Power Systems, Inc. and GSE EnVision Inc. (collectively, the "Original Borrowers") and Susquehanna (the "Original Agreement"), as amended by that certain Comprehensive Amendment to Financing Documents dated March 31, 2012 (the "First Amendment"), and that certain Letter Agreement dated July 29, 2013 from Susquehanna (the "Letter Agreement"), as amended by that certain Second Comprehensive Amendment to Financing documents dated April 8, 2014 (the "Second Amendment"), as amended by that certain Third Comprehensive Amendment to Financing Documents dated September 9, 2014 (the "Third Amendment"), as amended by that certain Fourth Comprehensive Amendment to Financing Documents dated December 31, 2014 (the "Fourth Amendment") (the Original Agreement, the First Amendment, the Letter Agreement, the Second Amendment, the Third Amendment and the Fourth Amendment are collectively, the "Loan Agreement"), Susquehanna extended a revolving credit facility to the Original Borrowers in the principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) (the "Credit Facility"), as evidenced by a Revolving Credit Note given by the Original Borrowers in favor of Susquehanna dated November 22, 2011 in the face amount of $7,500,000, which note was amended and restated in its entirety by that certain Amended and Restated Revolving Credit Note from the Co-Borrowers in favor of Susquehanna dated March 31, 2012; and

WHEREAS, effective August 1, 2015, the Bank is successor by merger to Susquehanna and has assumed Susquehanna's obligations under the Financing Documents (as defined in the Loan Agreement); and

WHEREAS, the Bank and the Co-Borrowers have determined to modify certain provisions of the Financing Documents, all in accordance with the provisions of this Amendment.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and the Co-Borrowers agree as follows:

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012655-0025

1. Recitals. The Bank and the Co-Borrowers acknowledge that the above Recitals to this Amendment are true and correct, and agree that the same are incorporated by reference into the body of this Amendment. Unless otherwise specifically defined herein, all capitalized terms used in this Amendment shall have the same meanings ascribed to such terms in the Loan Agreement.

2. Amendments to Financing Documents. The Financing Documents are hereby modified as follows:

a. The testing of the Cash Flow Coverage Ratio set forth in Section 5.1 of the Loan Agreement is suspended for the through the period ending June 30, 2016. The next applicable testing period will be for the calendar quarter ending September 30, 2016.

b. The Minimum Tangible Capital Base requirement set forth in Section 5.2 of the Loan Agreement is hereby decreased to Ten Million Five Hundred Thousand Dollars ($10,500,000) beginning with the quarter ending June 30, 2015, and for each quarter thereafter.

c. The Quick Ratio set forth in Section 5.3 of the Loan Agreement is hereby amended to reflect a new Quick Ratio requirement of 1.0 to 1.0, beginning with the quarter ending June 30, 2015, and for each quarter thereafter.

d. The Tangible Capital Base Ratio requirement set forth in Section 5.4 of the Loan Agreement is hereby deleted effective for the quarter ending June 30, 2015.

The modifications described herein are limited precisely as written and shall not be deemed to (i) be a consent to or a waiver or modification of any other term or condition of the Loan Agreement or any of the other Financing Documents, or (ii) prejudice any right or rights which the Bank may now have or may have in the future under or in connection with the Loan Agreement or any of the other Financing Documents.

Except for the agreements to the modifications described herein (the "Modifications"), no delay by the Bank in the pursuit of the Bank's rights and remedies shall, and none of the foregoing is intended (and should not be deemed or construed) to, constitute a waiver of any other rights and/or remedies Bank may have under the Loan Agreement and/or any of the other Financing Documents or otherwise available to Bank at law or in equity, or a waiver of any other known or any unknown default or event of default which exists on the date hereof, or a course of conduct or course of dealing on the part of the Bank. Except for the Modifications, the Bank reserves any and all rights and remedies available to it under the Loan Agreement and/or any of the other Financing Documents, or otherwise available to it at law or in equity, all of which remain in full force and effect.

3. Grants of Liens and Security Interests; Reaffirmation of Debt. Each Co-Borrower each hereby grants, re-grants and confirms the grant of all liens and security interest in and to all collateral described in the Financing Documents as collateral for the Credit Facility as amended by this Amendment on the terms set forth in the Financing Documents.  Each Co-Borrower also

hereby reaffirms its respective joint and several obligations to repay the Credit Facility, all in accordance with the terms of the Financing Documents.

4. Fees, Costs, and Expenses. The Co-Borrowers shall pay to the Bank on demand all costs and expenses both now and hereafter reasonably paid or incurred with respect to the preparation, negotiation, execution, administration and enforcement of this Amendment and all documents related thereto, including, without limitation, attorneys' fees and expenses, recording costs, recordation and other taxes, appraisal fees, costs of record searches, title company premiums and costs, fees and expenses for environmental audits and survey costs.

5. Representations and Warranties. In order to induce the Bank to enter into this Amendment, the Co-Borrowers each represent and warrant to the Bank that as of the date hereof

(a) except as otherwise disclosed in writing to the Bank, no Event of Default exists under the provisions of any of the Financing Documents, (b) no event exists which, with the giving of notice or lapse of time, or both, could or would constitute an Event of Default under the provisions of any of the Financing Documents, (c) all of the representations and warranties of the Co-Borrowers in the Financing Documents, are true and correct in all material respects on the date hereof as if the same were made on the date hereof, (d) all collateral for the Credit Facility as amended by this Amendment is free and clear of all assignments, security interests, liens and other encumbrances of any kind and nature whatsoever except for those granted or permitted under the provisions of the Financing Documents, (e) no material adverse change has occurred in the business, financial condition, prospects or operations of any Co-Borrower since the date of the financial statements most recently furnished to the Bank in accordance with the provisions of the Financing Documents, and (f) the Financing Documents (as amended by this Amendment) constitute the legal, valid and binding obligations of the Co-Borrowers enforceable in accordance with their terms except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. If any of the foregoing representations and warranties shall prove to be false, incorrect or misleading in any material respect, the Bank may, in its absolute and sole discretion, declare that an Event of Default has occurred and exists under the provisions of each of the Financing Documents.

6. Applicable Law, Etc. This Amendment shall be governed by the laws of the State of Maryland and may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute one and the same instrument.

7. Binding Effect. This Amendment shall be binding upon and inure to the benefit of the Bank and each Co-Borrower and their respective heirs, successors and assigns.

8. Amendment Only. This Amendment is an amendment and modification  of certain provisions of the Financing Documents. All of the provisions of the Financing Documents are incorporated herein by reference and shall remain and continue in full force and effect as amended by this Amendment. Each Co-Borrower hereby ratifies and confirms all of its respective obligations, liabilities and indebtedness under the provisions of the Financing Documents as amended by this Amendment. The Bank and each Co-Borrower agree it is their intention that nothing herein shall be construed to extinguish, release or discharge or constitute,

create or effect a novation of, or an agreement to extinguish, any of the obligations, indebtedness and liabilities of any Co-Borrower or any other party under the provisions of the Financing Documents, or any assignment or pledge to the Bank of, or any security interest or lien granted to the Bank in or on, any collateral and security for such obligations, indebtedness and liabilities.

[SIGNATURE PAGE FOLLOWS]

IN   WITNESS   WHEREOF,   each  Co-Borrower   and  the  Bank   have   executed   this

Amendment under their respective seals, the day and year first written above.

WITNESS/ ATTEST:CO-BORROWERS:

GSE SYSTEMS, INC.

By:/s/ Jeffery G. Hough

Jeffery G. Hough

Senior Vice President and Chief Financial Officer

GSE PERFORMANCE  SOLUTIONS, INC.

By:/s/ Jeffery G. Hough

Jeffery G. Hough

Senior Vice President and Chief Financial Officer

BRANCH BANKING AND TRUST COMPANY

By:/s/ Robert P. Whelen, Jr.

Robert P. Whelen, Jr.,

Senior Vice President

EX-10.4

Exhibit 10.4

FOURTH COMPREHENSIVE AMENDMENT TO FINANCING DOCUMENTS

THISFOURTHCOMPREHENSIVEAMENDMENTTOFINANCING

DOCUMENTS (this "Amendment ") is dated effective as of December 31, 2014, by and among GSE SYSTEMS, INC., a Delaware corporation ("GSE") and GSE PERFORMANCE SOLUTIONS, INC., a Delaware corporation and successor by merger to GSE Envision LLC, a New Jersey limited liability company and also formerly known as GSE Power Systems, Inc. ("GSE Performance Solutions"), (GSE and GSE Performance Solutions, each a "Co-Borrower" and collectively, the "Co-Borrowers") and SUSQUEHANNA BANK, a Pennsylvania state chartered commercial banking corporation (the "Bank"); witnesseth:

RECITALS

WHEREAS, pursuant to a Master Loan and Security Agreement dated November 22, 2011 by and among GSE, GSE Power Systems, Inc. and GSE EnVision Inc. (collectively, the "Original Borrowers") and the Bank (the "Original Agreement") , as amended by that certain Comprehensive Amendment to Financing Documents dated March 31, 2012 (the "First Amendment") , and that certain Letter Agreement dated July 29, 2013 from the Bank (the "Letter Agreement"), as amended by that certain Second Comprehensive Amendment to Financing documents dated April 8, 2014 (the "Second Amendment "), as amended by that certain Third Comprehensive Amendment to Financing Documents dated September 9, 2014 (the "Third Amendment") (the Original Agreement, the First Amendment, the Letter Agreement, the Second Amendment and the Third Amendment are collectively, the "Loan Agreement "), the Bank extended a revolving credit facility to the Original Borrowers in the principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) (the "Credit Facility"), as evidenced by a Revolving Credit Note given by the Original Borrowers in favor of the Bank dated November 22, 2011 in the face amount of $7,500,000, which note was amended and restated in its entirety by that certain Amended and Restated Revolving Credit Note from the Co-Borrowers in favor of the Bank dated March 31, 2012; and

WHEREAS, pursuant to Articles of Merger filed with the New Jersey Secretary of State on March 30, 2012, GSE EnVision, Inc. merged into GSE Envision LLC, a New Jersey limited liability company ("Envision"), as documented in the First Amendment ;

WHEREAS, pursuant to the Articles of Merger filed with the Delaware Secretary of State on December 22, 2014, Envision merged into GSE Power Systems, Inc.; and

WHEREAS, pursuant to a Certificate of Amendment filed with the Delaware Secretary of State on December 31, 2014, GSE Power Systems, Inc. changed its name to GSE Performance Solutions, Inc.; and

WHEREAS , the Bank and the Co-Borrowers have determined to modify certain provisions of the Financing Documents (as defined in the Loan Agreement), all in accordance with the provisions of this Amendment.

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NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and the Co-Borrowers agree as follows:

1. Recitals. The Bank and the Co-Borrowers acknowledge that the above Recitals to this Amendment are true and correct, and agree that the same are incorporated by reference into the body of this Amendment. Unless otherwise specifically defined herein, all capitalized tenus used in this Amendment shall have the same meanings ascribed to such terms in the Loan Agreement.

2. Amendments to Financing Documents.

a. The Co-Borrowers hereby request and the Bank consents to a waiver of a provision set forth in Section 5.12(a) of the Loan Agreement to allow for the merger of GSE Envision , LLC into GSE Power Systems, Inc., and a change in the name of GSE Performance Solutions. All references in the Financing Documents to "GSE Envision LLC" or "GSE Power Systems, Inc." are hereby amended to read "GSE Performance Solutions, Inc.". The Co- Borrowers hereby certify that (i) GSE Performance Solutions continues to be a corporation organized under the laws of the State of Delaware; (ii) that there have been no changes to the respective principal place of business of either of the Co-Borrowers, or to the location of their respective assets; and (iii) there have been no changes to the ownership of either of the Co- Borrowers.

b. The Loan Agreement  is hereby amended by  deleting Section 4.15 in its

entirety and inserting the following new Section 4.15 in lieu thereof:

"4.15 Operating and Deposit Accounts; Cash Collateral Account. Maintain their primary operating and depository accounts at the Bank. In addition, the Co-Borrowers shall maintain one or more segregated cash collateral account(s) at the Bank equal to the greater of (i) $3,000,000 or (ii) the aggregate principal amounts of all Loans outstanding under the Revolving Credit Facility (including all exposure and obligations of the Bank under any issued and outstanding Letters of Credit, working capital advances, negative foreign exchange positions, and under any Foreign Currency Accounts and Foreign Exchange Contract established by the Bank on behalf of, or for the benefit of, any of the Co-Borrowers from time to time, and including any additional letters of credit or other financial accommodations made available by the Bank to or on behalf of the Borrower in the future) as security for the Co-Borrowers' obligations hereunder and under the other Financing Documents (collectively, the "Cash Collateral Account"). The initial account numbers for the Cash Collateral Account are: Account No . I 0014201254 (relating to Revolving Credit Advances and general Letters of Credit), Account No. 10010483625, 10010488343 and 10010488368 (relating to Chinese  Letters of Credit) and Account No. 990220000007 (relating to the Euro Foreign Currency Account) , and the parties anticipate that additional account numbers may be added from time to time to the extent that the Co-Borrowers ' request additional financial accommodations from

the Bank under the Revolving Credit Facility.  Each Co-Borrower hereby pledges to the Bank and grants a security interest to the Bank as collateral for all of Co- Borrowers ' obligations under the  Financing Documents, in the Cash Collateral Account, and Co-Borrowers agree and confirm that the Bank shall have complete and unconditional control over the Cash Collateral Account. The Cash Collateral Account shall remain in place until all amounts under the Revolving  Credit Facility have been repaid or retired (including but not limited to the expiration or release of all Letters of Credit, Foreign Exchange Contracts and Foreign Currency Accounts and other financial accommodations made available by the Bank for the benefit of the Co-Borrowers under the Revolving Credit Facility), such that the Bank has no further exposure or obligation thereunder. "

c. The Bank agrees to waive compliance by the Co-Borrowers of the financial covenants set forth in Sections 5.1, 5.2, 5.3 and 5.4 of the Loan Agreement for the testing measurement date of December 31, 2014 (the "Waiver"). Each of these financial covenants remain in full force and effect for the quarter ending March 31, 2015 and for each quarter thereafter. The Co-Borrowers jointly and severally agree to pay to the Bank a covenants waiver fee of Fifteen Thousand Dollars ($15,000) upon the execution of this Agreement for the Bank's agreement to waive said covenants. The Bank's agreement to waive the said financial covenants is a one-time waiver only of the compliance by the Co-Borrowers of the financial covenants in Sections 5.1, 5.2, 5.3 and 5.4 of the Loan Agreement for the testing date of December 31, 2014, and no other consent or waiver is hereby granted, nor should any other consent or waiver be implied.

The Waiver described herein is limited precisely as written and shall not be deemed to (i) be a consent to or a waiver of any other term or condition of the Loan Agreement or any of the other Financing Documents , or (ii) prejudice any right or rights which the Bank may now have or may have in the future under or in connection with the Loan Agreement or any of the other Financing Documents .

Except for the granting of the Waiver described herein, no delay by the Bank in the pursuit of the Bank's rights and remedies shall, and none of the foregoing is intended (and should not be deemed or construed) to, constitute a waiver of any other  rights  and/or remedies Bank may have under the Loan Agreement and/or any of the other Financing Documents or otherwise available to Bank at law or in equity, or a waiver of any other known or any unknown default or event of default which exists on the date hereof, or a course of conduct or course of dealing on the part of the Bank. Except for the granting of the Waiver, the Bank reserves any and all rights and remedies available to it under the Loan Agreement and/or any of the other Financing Documents, or otherwise available to it at law or in equity, all of which remain in full force and effect.

3. Grants of Liens and Security Interests; Reaffirmation of Debt. Each Co-Borrower each hereby grants, re-grants and confirms the grant of all liens and security interest in and to all collateral described in the Financing Documents as collateral for the Credit Facility as amended by this Amendment on the terms set forth in the Financing Documents.   Each Co-Borrower also

hereby reaffirms its respective joint  and several obligations to repay the Credit Facility,  all in

accordance with the terms of the Financing Documents .

4. Fees, Costs, and Expenses. The Co-Borrowers shall pay to the Bank on demand all costs and expenses both now and hereafter reasonably paid or incurred with respect to the preparation, negotiation , execution, administration and enforcement of this Amendment and all documents related thereto, including, without limitation, attorneys' fees and expenses, recording costs, recordation and other taxes, appraisal fees, costs of record searches, title company premiums and costs, fees and expenses for environmental audits and survey costs.

5. Representations  and Warranties.In order to induce the Bank to enter into this Amendment, the Co-Borrowers each represent and warrant to the Bank that as of the date hereof

(a) except as otherwise disclosed in writing to the Bank, no Event of Default exists under the provisions of any of the Financing Documents, (b) no event exists which, with the giving of notice or lapse of time, or both , could or would constitute an Event of Default under the provisions of any of the Financing Documents , (c) all of the representations and warranties of the Co-Borrowers in the Financing Documents, are true and correct in all material respects on the date hereof as if the same were made on the date hereof, (d) all collateral for the Credit Facility as amended by this Amendment is free and clear of all assignments , security interests, liens and other encumbrances of any kind and nature whatsoever except for those granted or permitted under the provisions of the Financing Documents, (e) no material adverse change has occurred in the business, financial condition, prospects or operations of any Co-Borrower since the date of the financial statements most recently furnished to the Bank in accordance with the provisions of the Financing Documents , and (f) the Financing Documents (as amended by this Amendment) constitute the legal, valid and binding obligations of the Co-Borrowers enforceable in accordance with their terms except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. If any of the foregoing representations and warranties shall prove to be false, incorrect or misleading in any material respect, the Bank may, in its absolute and sole discretion, declare that an Event of Default has occurred and exists under the provisions of each of the Financing Documents.

6. Applicable Law, Etc. This Amendment shall be governed by the laws of the State of Maryland and may be executed in any number of duplicate originals or counterparts , each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute one and the same instrument.

7. Binding Effect. This Amendment  shall be binding upon and inure to the benefit of the Bank and each Co-Borrower and their respective heirs, successors and assigns.

8. Amendment  Only.This Amendment is an amendment and modification of certain provisions of the Financing Documents. All of the provisions of the Financing Documents are incorporated herein by reference and shall remain and continue in full force and effect as amended by this Amendment. Each Co-Borrower hereby ratifies and confirms all of its respective obligations, liabilities and indebtedness under the provisions of the Financing Documents as amended by this Amendment. The Bank and each Co-Borrower agree it is their intention that nothing herein shall be construed to extinguish, release or discharge or constitute,

create or effect a novation of, or an agreement to extinguish, any of the obligations, indebtedness and liabilities of any Co-Borrower or any other party under the provisions of the Financing Documents, or any assignment or pledge to the Bank of, or any security interest or lien granted to the Bank in or on, any collateral and security for such obligations , indebtedness and liabilities.

[SIGNATURE PAGE FOLLOWS]

IN   WITNESS   WHEREOF,   each  Co-Borrower   and  the  Bank   have   executed   this

Amendment under their respective seals, the day and year first written above.

WITNESS/ ATTEST:CO-BORROWERS:

GSE SYSTEMS, INC.

By:/s/ Jeffery G. Hough

Jeffery G. Hough

Senior Vice President and Chief Financial Officer

GSE PERFORMANCE  SOLUTIONS, INC.

By:/s/ Jeffery G. Hough

Jeffery G. Hough

Senior Vice President and Chief Financial Officer

SUSQUEHANNA BANK

By:/s/ Robert P. Whelen, Jr.

Robert P. Whelen, Jr.,

Senior Vice President

#519679 v6

012655-0025

EX-31.1

Exhibit 31.1

Certification of the Chief Executive Officer

I, Kyle J. Loudermilk, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GSE Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting;

Date:  August 13, 2015	/s/ Kyle J. Loudermilk
	Kyle J. Loudermilk
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of the Chief Financial Officer

I, Jeffery G. Hough, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GSE Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting;

Date:  August 13, 2015	/s/ Jeffery G. Hough
	Jeffery G. Hough
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of GSE Systems, Inc. (the "Company") for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kyle J. Loudermilk, Chief Executive Officer of the Company, and I, Jeffery G. Hough, Senior Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 13, 2015	/s/ Kyle J. Loudermilk	/s/ Jeffery G. Hough
	Kyle J. Loudermilk	Jeffery G. Hough
	Chief Executive Officer	Senior Vice President and Chief
		Financial Officer

XML

Acquisition, Contingent Consideration by Acquisition (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Other Current Liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Contingent Consideration, Liability	$ 2,775	$ 2,842
Other non current liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Contingent Consideration, Liability	2,130	1,948
Hyperspring, LLC [Member] | Other Current Liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Contingent Consideration, Liability	2,383	2,152
Hyperspring, LLC [Member] | Other non current liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Contingent Consideration, Liability	2,130	1,948
IntelliQlik, LLC [Member] | Other Current Liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Contingent Consideration, Liability	213	213
EnVision Systems, Inc. [Member] | Other Current Liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Contingent Consideration, Liability	$ 179	$ 477

XML

Long-Term Debt (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) Right	Dec. 31, 2014 USD ($)
Performance Bond Abstract
Number of Standby Letters of Credit | Right	14
Number of Surety Bonds | Right	1
Letter of Credit and Surety Bonds	$ 4,500
Number of Performance and Bid Bonds issued in relation to contracts | Right	12
Number of stand by letters of credit deposited in escrow accounts | Right	14
Restricted cash and investments	$ 4,500	$ 4,200
Susquehanna Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Principal amount of the line of credit	$ 7,500
Line of Credit Facility, Affiliated Borrower	GSE Systems, Inc. and GSE Performance Solutions, Inc.
Line of Credit Facility, Interest Rate Description	Working capital advances bear interest at a rate equal to the Wall Street Journal Prime Rate of Interest, floating with a floor of 4 1/2%
Line of credit facility term	2 years
Expiration date of credit agreement	Jun. 30, 2016
Minimum Cash Balance Requirement	$ 3,000
Susquehanna Bank [Member] | Revolving Credit Facility [Member] | Minimum tangible capital base [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Covenant Terms	Must Exceed $10.5 million
Line of Credit Facility, Covenant Compliance	$13.1 million
Susquehanna Bank [Member] | Revolving Credit Facility [Member] | Quick Ratio [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Covenant Terms	Must Exceed 1.00 : 1.00
Line of Credit Facility, Covenant Compliance	1.52 : 1.00
IberiaBank [Member] | Line of Credit [Member]
Line of Credit Facility [Line Items]
Principal amount of the line of credit	$ 1,000
Line of Credit Facility, Affiliated Borrower	Hyperspring, LLC
Line of Credit Facility, Interest Rate Description	interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal
Line of Credit Facility, Interest Rate During Period	4.25%
Line of Credit Facility, Collateral	The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.
Line of credit facility term	5 months 9 days
Expiration date of credit agreement	Jun. 30, 2015
Line of Credit Facility, Fair Value of Amount Outstanding	$ 0	$ 339

XML

Derivative Instruments, Gain (Loss) On Derivative Instruments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Derivative Instruments, Gain (Loss) [Line Items]
Foreign exchange contracts- change in fair value	$ (86)	$ 11	$ (86)	$ 254
Remeasurement of related contract receivables, billings in excess of revenue earned, and subcontractor accruals	55	(6)	7	(145)
(Gain) loss on derivative instruments, net	$ (31)	$ 5	$ (79)	$ 109

XML

Product Warranty (Tables)

6 Months Ended

Jun. 30, 2015

Product Warranty [Abstract]

Activities in the product warranty accounts

As the Company recognizes revenue under the percentage-of-completion method, it provides an accrual for estimated future warranty costs based on historical experience and projected claims.  The activity in the warranty account is as follows:

(in thousands)
Balance at December 31, 2014	$	1,456
Warranty provision		369
Warranty claims		(209	)
Currency adjustment		(43	)
Balance at June 30, 2015	$	1,573

XML

Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2015

Recent Accounting Pronouncements Not Yet Adopted [Abstract]

New accounting standards

2. Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today's guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance will be effective for the Company in the first quarter of its fiscal year ending December 31, 2018, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently in the process of evaluating the impact of its pending adoption of this ASU on the Company's consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018.

XML

Income Taxes (Details)	6 Months Ended
	Jun. 30, 2015
Income Taxes [Abstract]
Minimum probability of uncertain tax position to be recognized (in hundredths)	50.00%
Minimum percentage of tax position realized upon ultimate settlement (in hundredths)	50.00%

XML

Goodwill and Intangible Assets (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($)
Goodwill [Roll Forward]
Net book value at December 31, 2014	$ 5,612
Goodwill impairment loss	0
Foreign currency translation	0
Goodwill, Period Increase (Decrease), Total	0
Net book value at June 30, 2015	$ 5,612

XML

Basic and Diluted Loss Per Common Share (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Numerator:
Net loss	$ (1,467)	$ (1,986)	$ (2,011)	$ (4,010)
Denominator:
Weighted-average shares outstanding for basic earnings per share (in shares)	17,887,859	17,887,859	17,887,859	17,887,859
Effect of dilutive securities:
Employee stock options (in shares)	0	0	0	0
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share (in shares)	17,887,859	17,887,859	17,887,859	17,887,859
Shares related to dilutive securities excluded because inclusion would be anti-dilutive (in shares)	2,513,321	2,736,703	2,580,942	2,727,435

XML

Segment Information (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) Segment	Jun. 30, 2014 USD ($)
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]
Number of reportable business segments | Segment			2
Segment Reporting Information, Profit (Loss) [Abstract]
Revenues	$ 13,632	$ 8,276	$ 27,628	$ 17,000
Operating loss	(1,343)	(1,975)	(1,739)	(4,070)
Gain on change in fair value of contingent consideration, net	513	20	433	47
Interest income, net	21	28	48	59
(Gain) loss on derivative instruments, net	(31)	5	(79)	109
Other income (expense), net	(41)	3	(80)	(7)
Loss before income taxes	(1,394)	(1,939)	$ (1,850)	(3,909)
Performance Improvement Solutions [Member]
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]
Contract range, minimum			10 months
Contract range, maximum			3 years
Segment Reporting Information, Profit (Loss) [Abstract]
Revenues	8,191	8,276	$ 17,007	17,000
Operating loss	(1,192)	(1,955)	(1,968)	(4,023)
Staff Augmentation [Member]
Segment Reporting Information, Profit (Loss) [Abstract]
Revenues	5,441	0	10,621	0
Operating loss	$ 362	$ 0	$ 662	$ 0

XML

Stock-Based Compensation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Stock-Based Compensation [Abstract]
Pre-tax share based compensation expense	$ 137,000	$ 161,000	$ 271,000	$ 339,000
Shares granted under stock options (in shares)	0	0	50,000	60,000
Fair value of shares granted under stock option plan	$ 0	$ 0	$ 40,000	$ 56,000

XML

Recent Accounting Pronouncements Not Yet Adopted

6 Months Ended

Jun. 30, 2015

Recent Accounting Pronouncements Not Yet Adopted [Abstract]

Recent Accounting Pronouncements Not Yet Adopted [Text Block]

2. Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today's guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance will be effective for the Company in the first quarter of its fiscal year ending December 31, 2018, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently in the process of evaluating the impact of its pending adoption of this ASU on the Company's consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018.

XML

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets and liabilities measured at fair value [Abstract]
Money market fund	$ 9,332	$ 11,661
Foreign exchange contracts - Assets	115	92
Total assets	9,447	11,753
Foreign exchange contracts - Liabilities	133	24
Total liabilities	133	24
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets and liabilities measured at fair value [Abstract]
Money market fund	9,332	11,661
Foreign exchange contracts - Assets	0	0
Total assets	9,332	11,661
Foreign exchange contracts - Liabilities	0	0
Total liabilities	0	0
Significant Other Observable Inputs (Level 2) [Member]
Assets and liabilities measured at fair value [Abstract]
Money market fund	0	0
Foreign exchange contracts - Assets	115	92
Total assets	115	92
Foreign exchange contracts - Liabilities	133	24
Total liabilities	133	24
Significant Unobservable Inputs (Level 3) [Member]
Assets and liabilities measured at fair value [Abstract]
Money market fund	0	0
Foreign exchange contracts - Assets	0	0
Total assets	0	0
Foreign exchange contracts - Liabilities	0	0
Total liabilities	$ 0	$ 0

XML

Contract Receivables (Tables)

6 Months Ended

Jun. 30, 2015

Contract Receivables [Abstract]

Components of contract receivables

The components of contract receivables are as follows:

(in thousands)	June 30,			December 31,
	2015			2014
Billed receivables	$	10,410		$	10,792
Recoverable costs and accrued profit not billed		5,554			5,060
Allowance for doubtful accounts		(2	)		(22	)
Total contract receivables, net	$	15,962		$	15,830

Concentration Risk [Line Items]

Contract receivable by major customers

The following customers accounted for more than 10% of the Company's consolidated contract receivables as of June 30, 2015 and December 31, 2014, respectively:

	June 30, 2015	December 31, 2014
China Nuclear Power Engineering Company	15.2 %	3.9 %
State Nuclear Power Automation System Engineering Co.	5.8 %	10.2 %

XML

Acquisition (Tables)

6 Months Ended

Jun. 30, 2015

Acquisition [Abstract]

Schedule of Business Acquisitions, by Acquisition

The following table summarizes the purchase price and purchase price allocation for the acquisition of Hyperspring, LLC, acquired on November 14, 2014.

(in thousands)
Cash purchase price	$	3,000
Fair value of contingent consideration		3,953
Total purchase price	$	6,953
Purchase price allocation:
Cash	$	152
Contract receivables		1,719
Prepaid expenses and other current assets		23
Property and equipment, net		12
Intangible assets		779
Goodwill		5,612
Total assets		8,297
Line of credit		749
Accounts payable, accrued expenses, and other liabilities		586
Billings in excess of revenue earned		9
Total liabilities		1,344
Net assets acquired	$	6,953

Schedule of Pro Forma Results

Pro forma results.  Our consolidated financial statements include the operating results of Hyperspring as of the date of acquisition.  For the six months ended June 30, 2015 and 2014, the unaudited pro forma financial information below assumes that our material business acquisition of Hyperspring occurred on January 1, 2014.

(in thousands except per share data)	(unaudited)
	Three Months ended								Six Months ended
	June 30,								June 30,
Pro forma financial information including the acquisition of Hyperspring	2015				2014				2015				2014
Revenue		$	13,632			$	12,760			$	27,628			$	25,968
Operating loss			(918	)			(1,943	)			(1,506	)			(4,013	)
Net loss			(1,043	)			(1,955	)			(1,777	)			(3,955	)
Loss per common share — basic		$	(0.06	)		$	(0.11	)		$	(0.10	)		$	(0.22	)
Loss per common share — diluted		$	(0.06	)		$	(0.11	)		$	(0.10	)		$	(0.22	)

Schedule of Business Acquisitions by Acquisition, Contingent Consideration [Table Text Block]

As of June 30, 2015 and December 31, 2014, current contingent consideration totaled $2.8 million and $2.8 million, respectively.  As of June 30, 2015 and December 31, 2014, we also had accrued contingent consideration totaling $2.1 million and $1.9 million, respectively, which represents the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

(in thousands)
	June 30,		December 31,
	2015		2014
Hyperspring, LLC	$	2,383	$	2,152
IntelliQlik, LLC		213		213
EnVision Systems, Inc.		179		477
Current contingent consideration	$	2,775	$	2,842
Hyperspring, LLC	$	2,130	$	1,948
Contingent consideration	$	2,130	$	1,948

XML

Derivative Instruments, Foreign Exchange Contracts (Details) - Foreign Exchange Contract [Member] € in Millions, £ in Millions, MYR in Millions, AUD in Millions	6 Months Ended
	Jun. 30, 2015 EUR (€)	Jun. 30, 2015 AUD	Jun. 30, 2015 GBP (£)	Dec. 31, 2014 EUR (€)	Dec. 31, 2014 AUD	Dec. 31, 2014 MYR	Dec. 31, 2014 GBP (£)
Derivative [Line Items]
Derivative, Maturity Date	Dec. 01, 2016
United Kingdom, Pounds
Derivative [Line Items]
Foreign exchange contract outstanding | £			£ 0.4				£ 0.3
Euro Member Countries, Euro
Derivative [Line Items]
Foreign exchange contract outstanding	€ 2.6			€ 1.4
Australia, Dollars
Derivative [Line Items]
Foreign exchange contract outstanding | AUD		AUD 0.5			AUD 0.8
Malaysia, Ringgits
Derivative [Line Items]
Foreign exchange contract outstanding | MYR						MYR 0.5

XML

Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value of Financial Instruments [Abstract]

Assets and liabilities measured at fair value

The following table presents assets and liabilities measured at fair value at June 30, 2015:

	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	$	9,332	$	-		$	-	$	9,332
Foreign exchange contracts		-		115			-		115
Total assets	$	9,332	$	115		$	-	$	9,447
Foreign exchange contracts	$	-	$	(133	)	$	-	$	(133	)
Total liabilities	$	-	$	(133	)	$	-	$	(133	)

The following table presents assets and liabilities measured at fair value at December 31, 2014:

	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	$	11,661	$	-		$	-	$	11,661
Foreign exchange contracts		-		92			-		92
Total assets	$	11,661	$	92		$	-	$	11,753
Foreign exchange contracts	$	-	$	(24	)	$	-	$	(24	)
Total liabilities	$	-	$	(24	)	$	-	$	(24	)

XML

Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2015

Derivative Instruments [Abstract]

Estimated fair value of the contracts in the consolidated balance sheets

The Company has not designated any of the foreign exchange contracts outstanding as hedges and has recorded the estimated fair value of the contracts in the consolidated balance sheets as follows:

	June 30,			December 31,
(in thousands)	2015			2014
Asset derivatives
Prepaid expenses and other current assets	$	115		$	71
Other assets		-			21
		115			92
Liability derivatives
Other current liabilities		(35	)		(23	)
Other liabilities		(98	)		(1	)
		(133	)		(24	)
Net fair value	$	(18	)	$	68

Derivative Instruments, Gain (Loss) [Table Text Block]

For the three and six months ended June 30, 2015 and 2014, the Company recognized a net gain (loss) on its derivative instruments as outlined below:

	Three Months ended June 30,						Six Months ended June 30,
(in thousands)	2015			2014			2015			2014
Foreign exchange contracts- change in fair value	$	(86	)	$	11		$	(86	)	$	254
Remeasurement of related contract receivables,  billings in excess of revenue earned, and  subcontractor accruals		55			(6	)		7			(145	)
Gain (loss) on derivative instruments, net	$	(31	)	$	5		$	(79	)	$	109

XML

Basis of Presentation and Revenue Recognition

6 Months Ended

Jun. 30, 2015

Basis of Presentation and Revenue Recognition [Abstract]

Basis of Presentation and Revenue Recognition

1. Basis of Presentation and Revenue Recognition

Basis of Presentation

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the "Company" or "GSE") without independent audit.  In the opinion of the Company's 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 ("GAAP") have been condensed or omitted.  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 the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 19, 2015.  Certain reclassifications have been made to prior period amounts to conform to the current presentation.

The Company has two reportable segments as follows:

· Performance Improvement Solutions

Our Performance Improvement Solutions business segment encompasses all of the solution-oriented technologies and services traditionally associated with GSE which focus on both our client's people and their plants and operations. This segment includes various simulation, training and engineering products and services delivered across the breadth of industries we serve. Our simulation solutions include platforms ranging from (1) the non-specific plant systems of our EnVision product line used to teach fundamental processes to newly hired employees, to (2) custom plant-specific simulators used to train plant operators, to (3) engineering-grade simulation solutions used to help clients verify and validate control systems prior to new plant construction or modification of existing plants, to (4) engineering-grade simulation solutions used for human factors engineering. Training applications include turnkey and custom training services and 3D visualization training products to make training more effective. Our engineering services include plant design, automation and control systems design, functional safety and compliance analysis, and engineering consultations.

· Staff Augmentation

Staff Augmentation services provide specialized workforce solutions primarily to the nuclear industry. These employees work at our clients' facilities under client direction. Examples of staff augmentation positions include instructors, procedure writers, work management specialists, planners, outage execution specialists, corrective action and self-assessment specialists, and training material developers. This business is managed through our Hyperspring, LLC subsidiary. The business model, management focus, margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio. Hyperspring has been providing these services since 2005.

Financial information about the two business segments are provided in Note 15 of the accompanying Consolidated Financial Statements.

The preparation of financial statements in conformity with 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.  The Company's most significant estimates relate to revenue recognition on long-term contracts, product warranties, capitalization of software development costs, valuation of goodwill and intangible assets acquired, valuation of contingent consideration issued in business acquisitions, and the recoverability of deferred tax assets.  Actual results could differ from these estimates and those differences could be material.

Revenue Recognition on Long-Term Contracts

The Company recognizes revenue through (1) fixed price contracts on the sale of uniquely designed systems containing hardware, software and other materials as well as (2) time and material contracts primarily through staff augmentation support and service agreements.

In accordance with U.S. generally accepted accounting principles ("GAAP"), our Performance Improvement Solutions segment accounts for revenue under fixed-price contracts using the percentage-of-completion method. This methodology recognizes revenue and earnings as work progresses on the contract and is based on an estimate of the revenue and earnings earned to date, less amounts recognized in prior periods. The Company bases its estimate of the degree of completion of the contract by reviewing the relationship of costs incurred to date to the expected total costs that will be incurred on the project. Estimated contract earnings are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimate is recognized in the period in which the change is identified. Estimated losses are charged against earnings in the period such losses are identified. The Company recognizes revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim.

Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to the Company's revenue recognition as a significant change in the estimates can cause the Company's revenue and related margins to change significantly from the amounts estimated in the early stages of the project.

As the Company recognizes revenue under the percentage-of-completion method, it provides an accrual for estimated future warranty costs based on historical and projected claims experience. The Company's long-term contracts generally provide for a one-year warranty on parts, labor and any bug fixes as it relates to software embedded in the systems.

The Company's system design contracts do not normally provide for "post customer support service" (PCS) in terms of software upgrades, software enhancements or telephone support. In order to obtain PCS, the customers normally must purchase a separate contract. Such PCS arrangements are generally for a one-year period renewable annually and include customer support, unspecified software upgrades, and maintenance releases. The Company recognizes revenue from these contracts ratably over the life of the agreements.

Revenue from the sale of software licenses which do not require significant modifications or customization for the Company's modeling tools are recognized when the license agreement is signed, the license fee is fixed and determinable, delivery has occurred, and collection is considered probable.

We evaluate our contracts for multiple deliverables under ASC 605-25 Revenue Recognition-Multiple Element Arrangements, and when appropriate, separate the contracts into separate units of accounting for revenue recognition. Contracts with multiple element arrangements typically include, but are not limited to, components such as training, licenses, and PCS, as described above, embedded in the agreement. When a contract contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Amounts allocated to training and support services are based on VSOE and revenue is deferred until the services have been performed. Amounts allocated to software licenses are also based on VSOE. Revenue related to software licenses is recognized once the license has been delivered.

The Company recognizes revenue under time and materials contracts primarily from staff augmentation and certain consulting agreements. Revenue on time and material contracts is recognized as services are rendered and performed. Under a typical time-and-materials billing arrangement, customers are billed on a regularly scheduled basis, such as biweekly or monthly. At the end of each accounting period, revenue is estimated and accrued for services performed since the last billing cycle. These unbilled amounts are billed the following month.

For the three and six months ended June 30, 2015 and 2014, the following customers provided more than 10% of the Company's consolidated revenue:

	Three Months ended June 30,		Six Months ended June 30,
	2015	2014	2015	2014
Tennessee Valley Authority	18.7 %	0.0 %	19.9 %	0.0 %
Public Service Enterprise Group Inc.	11.7 %	0.6 %	10.2 %	0.6 %

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Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2015

Long-Term Debt [Abstract]

Susquehanna Bank Loan Agreement debt covenants

Effective for the quarter ending June 30, 2015, Susquehanna Bank modified the financial covenants in the Company's financing documents.  The amendment to the Master Loan and Security Agreement reduced the number of restrictive covenants from four to two, as depicted below.  The credit agreement still contains certain restrictive covenants regarding future acquisitions and incurrence of debt. 

		As of
	Covenant	June 30, 2015
Minimum tangible capital base	Must Exceed $10.5 million	$13.1 million
Quick ratio	Must Exceed 1.00 : 1.00	1.52 : 1.00

As of June 30, 2015, the Company was in compliance with its covenants as defined above.

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Contract Receivables (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Jul. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Contract Receivables [Abstract]
Maximum term of contract receivables (in months)		12 months
Components of contract receivables [Abstract]
Billed receivables		$ 10,410	$ 10,792
Recoverable costs and accrued profit not billed		5,554	5,060
Allowance for doubtful accounts		2	22
Total contract receivables, net		$ 15,962	$ 15,830
Unbilled Contract Receivables Billed during July 2015	$ 2,200
State Nuclear Power Automation System Engineering Co. [Member]
Concentration Risk [Line Items]
Percentage of contract receivables accounted by major customers (in hundredths)		5.80%	10.20%
China Nuclear Power Engineering Company [Member]
Concentration Risk [Line Items]
Percentage of contract receivables accounted by major customers (in hundredths)		15.20%	3.90%

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Subsequent Events (Details) - Jun. 30, 2015	USD ($) Right $ / shares shares
IberiaBank [Member] | Line of Credit [Member]
Subsequent Event [Line Items]
Line of Credit Facility, Affiliated Borrower	Hyperspring, LLC
Principal amount of the line of credit	$ 1,000,000
Expiration date of credit agreement	Jun. 30, 2015
Line of credit facility term	5 months 9 days
Line of Credit Facility, Collateral	The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.
Line of Credit Facility, Interest Rate Description	interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal
Line of Credit Facility, Interest Rate During Period	4.25%
Subsequent Event [Member]
Subsequent Event [Line Items]
Subsequent Event, Date	Jul. 31, 2015
Severance Costs	$ 380,000
Subsequent Event 2 [Member]
Subsequent Event [Line Items]
Subsequent Event, Date	Aug. 03, 2015
Subsequent Event 2 [Member] | Restricted Stock Units (RSUs) [Member]
Subsequent Event [Line Items]
Granted Restricted Stock Units | shares	850,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	6 years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Date	Jun. 30, 2021
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 631,000
Share-based Compensation Arrangement by Share-based Payment Award, Description	In connection with his appointment, GSE’s Board of Directors granted 850,000 restricted stock units (“RSUs”) to Mr. Loudermilk for a six year performance period ending on June 30, 2021. The RSUs granted to Mr. Loudermilk are classified as equity awards because the RSUs will be paid in GSE common stock upon vesting. The RSUs have four vesting traunches based on GSE’s stock price. The RSU equity awards are measured at the grant date fair value and are not remeasured at the end of the reporting period
Shared Based Compensation Arrangements By Share Based Payment Number of Vesting Tranches | Right	4
Share Based Compensation Nonvested Awards Compensation Cost To Be Recognized Through Current Fiscal Year	$ 89,000
Share Based Compensation Nonvested Awards Compensation Cost To Be Recognized Next Calendar Year	212,000
Share Based Compensation Nonvested Awards Compensation Cost To Be Recognized Second Calendar Year	205,000
Share Based Compensation Nonvested Awards Compensation Cost To Be Recognized Third Calendar Year	98,000
Share Based Compensation Nonvested Awards Compensation Cost To Be Recognized Fourth Calendar Year	$ 27,000
Subsequent Event 2 [Member] | Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche One [Member]
Subsequent Event [Line Items]
Granted Restricted Stock Units | shares	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award	200,000 RSUs will vest if the Volume Weighted Average Price (“VWAP”) of the Company’s common stock as quoted by the NYSE MKT exceeds $2.50 for a 90 consecutive trading day period.
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit | $ / shares	$ 2.5
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Date Range Lower Range Limit	90 days
Subsequent Event 2 [Member] | Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche Two [Member]
Subsequent Event [Line Items]
Granted Restricted Stock Units | shares	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award	200,000 RSUs will vest if the Volume Weighted Average Price (“VWAP”) of the Company’s common stock as quoted by the NYSE MKT exceeds $3.25 for a 90 consecutive trading day period.
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit | $ / shares	$ 3.25
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Date Range Lower Range Limit	90 days
Subsequent Event 2 [Member] | Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche Three [Member]
Subsequent Event [Line Items]
Granted Restricted Stock Units | shares	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award	200,000 RSUs will vest if the Volume Weighted Average Price (“VWAP”) of the Company’s common stock as quoted by the NYSE MKT exceeds $4.25 for a 90 consecutive trading day period.
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit | $ / shares	$ 4.25
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Date Range Lower Range Limit	90 days
Subsequent Event 2 [Member] | Restricted Stock Units (RSUs) [Member] | Share Based Compensation Award Tranche Four Member [Member]
Subsequent Event [Line Items]
Granted Restricted Stock Units | shares	250,000
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award	200,000 RSUs will vest if the Volume Weighted Average Price (“VWAP”) of the Company’s common stock as quoted by the NYSE MKT exceeds $6.00 for a 90 consecutive trading day period.
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit | $ / shares	$ 6
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Date Range Lower Range Limit	90 days
Subsequent Event 3 [Member]
Subsequent Event [Line Items]
Subsequent Event, Date	Jul. 06, 2015
Subsequent Event 3 [Member] | IberiaBank [Member] | Line of Credit [Member]
Subsequent Event [Line Items]
Line of Credit Facility, Affiliated Borrower	Hyperspring, LLC
Principal amount of the line of credit	$ 1,000,000
Expiration date of credit agreement	Jul. 06, 2016
Line of credit facility term	1 year
Line of Credit Facility, Collateral	The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.
Line of Credit Facility, Interest Rate Description	interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal
Line of Credit Facility, Interest Rate During Period	4.25%

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 9,755	$ 13,583
Restricted cash	1,232	613
Contract receivables, net	15,962	15,830
Prepaid expenses and other current assets	2,159	1,703
Total current assets	29,108	31,729
Equipment, software and leasehold improvements	7,135	7,055
Accumulated depreciation	5,377	5,229
Equipment, software and leasehold improvements, net	1,758	1,826
Software development costs, net	2,157	1,414
Goodwill	5,612	5,612
Intangible assets, net	1,035	1,279
Long-term restricted cash	3,291	3,591
Other assets	443	548
Total assets	43,404	45,999
Current liabilities:
Line of credit	0	339
Accounts payable	1,679	2,330
Accrued expenses	1,695	1,554
Accrued compensation and payroll taxes	2,728	2,595
Billings in excess of revenue earned	8,230	8,684
Accrued warranty	1,573	1,456
Current contingent consideration	2,775	2,842
Other current liabilities	516	473
Total current liabilities	19,196	20,273
Contingent consideration	2,130	1,948
Other liabilities	208	38
Total liabilities	21,534	22,259
Stockholder's equity:
Preferred stock $.01 par value, 2,000,000 shares authorized, shares issued and outstanding none in 2015 and 2014	0	0
Common stock $.01 par value, 30,000,000 shares authorized, shares issued 19,486,770 and 17,887,859 shares outstanding in both 2015 and 2014	195	195
Additional paid-in capital	73,188	72,917
Accumulated deficit	(47,153)	(45,142)
Accumulated other comprehensive loss	(1,361)	(1,231)
Treasury stock at cost, 1,598,911 shares in 2015 and 2014	2,999	2,999
Total stockholders' equity	21,870	23,740
Total liabilities and stockholders' equity	$ 43,404	$ 45,999

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Derivative Instruments, Fair Values Derivatives, Balance Sheet Location (Details) - Foreign Exchange Contract [Member] - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Asset derivatives	$ 115	$ 92
Liability derivatives	133	24
Net fair value	(18)	68
Other Current Assets [Member]
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Asset derivatives	115	71
Other Noncurrent Assets [Member]
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Asset derivatives	0	21
Other Current Liabilities [Member]
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Liability derivatives	35	23
Other Noncurrent Liabilities [Member]
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Liability derivatives	$ 98	$ 1

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 6 months ended Jun. 30, 2015 - USD ($)	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Treasury Stock	Total
Balance at Dec. 31, 2014	$ 195,000	$ 72,917,000	$ (45,142,000)	$ (1,231,000)	$ (2,999,000)	$ 23,740,000
Balance (in shares) at Dec. 31, 2014	19,486,770				(1,598,911)	17,887,859
Stock-based compensation expense		271,000				$ 271,000
Foreign currency translation adjustment, net of tax				(130,000)		(130,000)
Net loss			(2,011,000)			(2,011,000)
Balance at Jun. 30, 2015	$ 195,000	$ 73,188,000	$ (47,153,000)	$ (1,361,000)	$ (2,999,000)	$ 21,870,000
Balance (in shares) at Jun. 30, 2015	19,486,770				(1,598,911)	17,887,859

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Subsequent Events (Tables)

6 Months Ended

Jun. 30, 2015

Subsequent Events [Abstract]

Schedule of Subsequent Events [Table Text Block]

The RSU equity awards are measured at the grant date fair value and are not remeasured at the end of the reporting period. Total expense related to the RSUs is expected to be $631,000.  The RSUs will be amortized over the life that each tranche is expected to vest, or as follows:

(in thousands)
Five months ended December 31, 2015	$	89
Year ended December 31, 2016		212
Year ended December 31, 2017		205
Year ended December 31, 2018		98
Year ended December 31, 2019		27
	$	631

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Segment Information

6 Months Ended

Jun. 30, 2015

Segment Information [Abstract]

Segment Information

15.Segment Information

The Company has two reportable business segments.  The Performance Improvement Solutions business segment provides simulation, training and engineering products and services delivered across the breadth of industries we serve.  Solutions include simulation for both training and engineering applications.  Example training applications include turnkey and custom training services, while engineering services include plant design verification and validation. We provide these services across all our market segments.  Contracts typically range from ten months to three years.

The Staff Augmentation services segment provides specialized workforce solutions primarily to the U.S. nuclear industry, working at our clients' facilities.  This business is managed through our Hyperspring, LLC subsidiary.  The business model, management focus, margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio.  Hyperspring has been providing these services since 2005.

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated loss before income tax expense:

(in thousands)	Three Months ended June 30,						Six Months ended June 30,
	2015			2014			2015			2014
Contract revenue:
Performance Improvement Solutions	$	8,191		$	8,276		$	17,007		$	17,000
Staff Augmentation		5,441			-			10,621			-
	$	13,632		$	8,276		$	27,628		$	17,000
Operating income (loss):
Performance Improvement Solutions	$	(1,192	)	$	(1,955	)	$	(1,968	)	$	(4,023	)
Staff Augmentation		362			-			662			-
Loss on change in fair value of contingent consideration, net		(513	)		(20	)		(433	)		(47	)
Operating loss	$	(1,343	)	$	(1,975	)	$	(1,739	)	$	(4,070	)
Interest income, net		21			28			48			59
Gain (loss) on derivative instruments, net		(31	)		5			(79	)		109
Other income (expense), net		(41	)		3			(80	)		(7	)
Loss before income taxes	$	(1,394	)	$	(1,939	)	$	(1,850	)	$	(3,909	)

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Basis of Presentation and Revenue Recognition (Details) - Segment	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Basis of Presentation and Revenue Recognition [Abstract]
Number of reportable segment			2
Term of warranty (in years)			1 year
Period of post customer support service (PCS) (in years)			1 year
Revenue [Member]
Revenue by major customers [Abstract]
Concentration Risk, Benchmark Description			the following customers provided more than 10% of the Company’s consolidated revenue
Revenue [Member] | Tennessee Valley Authority [Member]
Revenue by major customers [Abstract]
Percentage of revenue contributed by major customers (in hundredths)	18.70%	0.00%	19.90%	0.00%
Revenue [Member] | Public Service Enterprise Group Inc. [Member]
Revenue by major customers [Abstract]
Percentage of revenue contributed by major customers (in hundredths)	11.70%	0.60%	10.20%	0.60%

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Basis of Presentation and Revenue Recognition (Policies)

6 Months Ended

Jun. 30, 2015

Basis of Presentation and Revenue Recognition [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the "Company" or "GSE") without independent audit.  In the opinion of the Company's 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 ("GAAP") have been condensed or omitted.  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 the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 19, 2015.  Certain reclassifications have been made to prior period amounts to conform to the current presentation.

The Company has two reportable segments as follows:

· Performance Improvement Solutions

Our Performance Improvement Solutions business segment encompasses all of the solution-oriented technologies and services traditionally associated with GSE which focus on both our client's people and their plants and operations. This segment includes various simulation, training and engineering products and services delivered across the breadth of industries we serve. Our simulation solutions include platforms ranging from (1) the non-specific plant systems of our EnVision product line used to teach fundamental processes to newly hired employees, to (2) custom plant-specific simulators used to train plant operators, to (3) engineering-grade simulation solutions used to help clients verify and validate control systems prior to new plant construction or modification of existing plants, to (4) engineering-grade simulation solutions used for human factors engineering. Training applications include turnkey and custom training services and 3D visualization training products to make training more effective. Our engineering services include plant design, automation and control systems design, functional safety and compliance analysis, and engineering consultations.

· Staff Augmentation

Staff Augmentation services provide specialized workforce solutions primarily to the nuclear industry. These employees work at our clients' facilities under client direction. Examples of staff augmentation positions include instructors, procedure writers, work management specialists, planners, outage execution specialists, corrective action and self-assessment specialists, and training material developers. This business is managed through our Hyperspring, LLC subsidiary. The business model, management focus, margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio. Hyperspring has been providing these services since 2005.

Financial information about the two business segments are provided in Note 15 of the accompanying Consolidated Financial Statements.

The preparation of financial statements in conformity with 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.  The Company's most significant estimates relate to revenue recognition on long-term contracts, product warranties, capitalization of software development costs, valuation of goodwill and intangible assets acquired, valuation of contingent consideration issued in business acquisitions, and the recoverability of deferred tax assets.  Actual results could differ from these estimates and those differences could be material.

Revenue Recognition

Revenue Recognition on Long-Term Contracts

The Company recognizes revenue through (1) fixed price contracts on the sale of uniquely designed systems containing hardware, software and other materials as well as (2) time and material contracts primarily through staff augmentation support and service agreements.

In accordance with U.S. generally accepted accounting principles ("GAAP"), our Performance Improvement Solutions segment accounts for revenue under fixed-price contracts using the percentage-of-completion method. This methodology recognizes revenue and earnings as work progresses on the contract and is based on an estimate of the revenue and earnings earned to date, less amounts recognized in prior periods. The Company bases its estimate of the degree of completion of the contract by reviewing the relationship of costs incurred to date to the expected total costs that will be incurred on the project. Estimated contract earnings are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimate is recognized in the period in which the change is identified. Estimated losses are charged against earnings in the period such losses are identified. The Company recognizes revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim.

Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to the Company's revenue recognition as a significant change in the estimates can cause the Company's revenue and related margins to change significantly from the amounts estimated in the early stages of the project.

As the Company recognizes revenue under the percentage-of-completion method, it provides an accrual for estimated future warranty costs based on historical and projected claims experience. The Company's long-term contracts generally provide for a one-year warranty on parts, labor and any bug fixes as it relates to software embedded in the systems.

The Company's system design contracts do not normally provide for "post customer support service" (PCS) in terms of software upgrades, software enhancements or telephone support. In order to obtain PCS, the customers normally must purchase a separate contract. Such PCS arrangements are generally for a one-year period renewable annually and include customer support, unspecified software upgrades, and maintenance releases. The Company recognizes revenue from these contracts ratably over the life of the agreements.

Revenue from the sale of software licenses which do not require significant modifications or customization for the Company's modeling tools are recognized when the license agreement is signed, the license fee is fixed and determinable, delivery has occurred, and collection is considered probable.

We evaluate our contracts for multiple deliverables under ASC 605-25 Revenue Recognition-Multiple Element Arrangements, and when appropriate, separate the contracts into separate units of accounting for revenue recognition. Contracts with multiple element arrangements typically include, but are not limited to, components such as training, licenses, and PCS, as described above, embedded in the agreement. When a contract contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Amounts allocated to training and support services are based on VSOE and revenue is deferred until the services have been performed. Amounts allocated to software licenses are also based on VSOE. Revenue related to software licenses is recognized once the license has been delivered.

The Company recognizes revenue under time and materials contracts primarily from staff augmentation and certain consulting agreements. Revenue on time and material contracts is recognized as services are rendered and performed. Under a typical time-and-materials billing arrangement, customers are billed on a regularly scheduled basis, such as biweekly or monthly. At the end of each accounting period, revenue is estimated and accrued for services performed since the last billing cycle. These unbilled amounts are billed the following month.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net loss	$ (2,011)	$ (4,010)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	264	273
Amortization of definite-lived intangible assets	247	72
Capitalized software amortization	195	95
Gain on change in fair value of contingent consideration, net	433	47
Stock-based compensation expense	271	339
Equity loss on investments	(78)	(38)
(Gain) loss on derivative instruments, net	(79)	109
Changes in assets and liabilities:
Contract receivables	138	(9,985)
Prepaid expenses and other assets	406	(268)
Accounts payable, accrued compensation and accrued expenses	(392)	(2,006)
Billings in excess of revenue earned	(440)	(650)
Accrued warranty reserves	117	(211)
Other liabilities	103	(627)
Net cash provided by (used in) operating activities	(1,600)	3,504
Cash flows from investing activities:
Capital expenditures	195	141
Capitalized Software Development Costs	938	349
Restrictions of cash as collateral under letters of credit	1,156	0
Releases of cash as collateral under letters of credit	837	34
Net cash used in investing activities	(1,452)	(456)
Cash flows from financing activities:
Payments on line of credit	(339)	0
Payments of the liability-classified contingent consideration arrangements	318	500
Net cash used in financing activities	(657)	(500)
Effect of exchange rate changes on cash	(119)	(88)
Net increase (decrease) in cash and cash equivalents	(3,828)	2,460
Cash and cash equivalents at beginning of year	13,583	15,643
Cash and cash equivalents at end of period	$ 9,755	$ 18,103

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
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
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	19,486,770	19,486,770
Treasury stock, shares acquired (in shares)	1,598,911	1,598,911
Common Stock, Shares, Outstanding	17,887,859	17,887,859

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2015

Stock-Based Compensation [Abstract]

Stock-Based Compensation

10. Stock-Based Compensation

The Company recognizes compensation expense for all equity-based compensation awards issued to employees, directors and non-employees that are expected to vest.  Compensation cost is based on the fair value of awards as of the grant date.  The Company recognized $137,000 and $161,000 of stock-based compensation expense for the three months ended June 30, 2015 and 2014, respectively, under the fair value method and recognized $271,000 and $339,000 of stock-based compensation expense for the six months ended June 30, 2015 and 2014, respectively.  The Company granted 0 and 50,000 stock options for the three and six months ended June 30, 2015, respectively.  The fair value of the options granted for the six months ended June 30, 2015 was $40,000.  The Company granted 0 and 60,000 stock options for the three and six months ended June 30, 2014, respectively.  The fair value of the granted options at the grant date was $56,000.

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Document and Entity Information - USD ($)	6 Months Ended
	Jun. 30, 2015	Aug. 13, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	GSE SYSTEMS INC
Entity Central Index Key	0000944480
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float	$ 27,315,219
Entity Common Stock, Shares Outstanding		17,887,859
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015

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Long-Term Debt

6 Months Ended

Jun. 30, 2015

Long-Term Debt [Abstract]

Long-Term Debt

11.  Long-Term Debt

At June 30, 2015 and December 31, 2014, the Company had no long-term debt.

Lines of Credit

Susquehanna Bank

At June 30, 2015, the Company had a Master Loan and Security Agreement and Revolving Credit Note with Susquehanna Bank ("Susquehanna").  The Company and its subsidiary, GSE Performance Solutions, Inc., were jointly and severally liable as co-borrowers.  The Loan Agreement provides a $7.5 million revolving line of credit for the purpose of (i) issuing stand-by letters of credit and (ii) providing working capital. Working capital advances bear interest at a rate equal to the Wall Street Journal Prime Rate of Interest, floating with a floor of 4 1/2%.  The agreement expires on June 30, 2016.

As collateral for the Company's obligations, the Company granted a first lien and security interest in all of the assets of the Company, including but not limited to, accounts receivable, proceeds and products, intangibles, trademarks, patents, intellectual property, machinery and equipment.

On September 9, 2014, the Company signed a Third Comprehensive Amendment to the Master Loan and Security Agreement.  According to the Third Amendment, the Company is to maintain a segregated cash collateral account at Susquehanna Bank equal to the greater of (i) $3.0 million or (ii) the aggregate principal amounts of all Loans outstanding under the Revolving Credit Facility (including any issued and outstanding letters of credit, working capital advances, and negative foreign exchange positions) as security for the Company's obligations.  Under this Amendment, Susquehanna Bank shall have complete and unconditional control over the cash collateral account.

On September 30, 2014, Susquehanna Bank collateralized the outstanding letters of credit issued under the line of credit.  At June 30, 2015 and December 31, 2014, the cash collateral account totaled $4.5 million and $4.2 million, respectively. The balances were classified as restricted cash on the balance sheet.

Effective for the quarter ending June 30, 2015, Susquehanna Bank modified the financial covenants in the Company's financing documents.  The amendment to the Master Loan and Security Agreement reduced the number of restrictive covenants from four to two, as depicted below.  The credit agreement still contains certain restrictive covenants regarding future acquisitions and incurrence of debt. 

		As of
	Covenant	June 30, 2015
Minimum tangible capital base	Must Exceed $10.5 million	$13.1 million
Quick ratio	Must Exceed 1.00 : 1.00	1.52 : 1.00

As of June 30, 2015, the Company was in compliance with its covenants as defined above.

IberiaBank

At June 30, 2015, Hyperspring, LLC has a $1.0 million working capital line of credit with IberiaBank for a one year period.  Under the executed promissory note, interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal resulting in an effective interest rate of 4.25%. The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.

On July 6, 2015, Hyperspring renewed its $1.0 million working capital line of credit with IberiaBank under the same terms for a one year period.  The line of credit expires on July 6, 2016.

Letters of Credit and Bonds

As of June 30, 2015, the Company has fourteen standby letters of credit and one surety bond totaling $4.5 million which represent advance payment and performance bonds on twelve contracts.  The Company has deposited the full value of fourteen standby letters of credit in escrow accounts, amounting to $4.5 million, which have been restricted in that the Company does not have access to these funds until the related letters of credit have expired.  The cash has been recorded on the Company's balance sheet at June 30, 2015 as restricted cash.

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Consolidated Statements of Operations (Unaudited)
Contract revenue	$ 13,632	$ 8,276	$ 27,628	$ 17,000
Cost of revenue	10,717	5,629	21,491	12,129
Gross profit	2,915	2,647	6,137	4,871
Operating expenses:
Selling, general and administrative	3,999	4,452	7,365	8,596
Depreciation	135	134	264	273
Amortization of definite-lived intangible assets	124	36	247	72
Total operating expenses	4,258	4,622	7,876	8,941
Operating loss	(1,343)	(1,975)	(1,739)	(4,070)
Interest income, net	21	28	48	59
(Gain) loss on derivative instruments, net	(31)	5	(79)	109
Other income (expense), net	(41)	3	(80)	(7)
Loss before income taxes	(1,394)	(1,939)	(1,850)	(3,909)
Provision for income taxes	73	47	161	101
Net loss	$ (1,467)	$ (1,986)	$ (2,011)	$ (4,010)
Basic loss per common share	$ (0.08)	$ (0.11)	$ (0.11)	$ (0.22)
Diluted loss per common share	$ (0.08)	$ (0.11)	$ (0.11)	$ (0.22)

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Contract Receivables

6 Months Ended

Jun. 30, 2015

Contract Receivables [Abstract]

Contract Receivables

5. Contract Receivables

Contract receivables represent balances due from a broad base of both domestic and international customers.  All contract receivables are considered to be collectible within twelve months. Recoverable costs and accrued profit not billed represent costs incurred and associated profit accrued on contracts that will become billable upon future milestones or completion of contracts.

The components of contract receivables are as follows:

(in thousands)	June 30,			December 31,
	2015			2014
Billed receivables	$	10,410		$	10,792
Recoverable costs and accrued profit not billed		5,554			5,060
Allowance for doubtful accounts		(2	)		(22	)
Total contract receivables, net	$	15,962		$	15,830

Recoverable costs and accrued profit not billed totaled $5.6 million and $5.1 million as of June 30, 2015 and December 31, 2014, respectively.  During July 2015, the Company invoiced $2.2 million of the unbilled amounts.

The following customers accounted for more than 10% of the Company's consolidated contract receivables as of June 30, 2015 and December 31, 2014, respectively:

	June 30, 2015	December 31, 2014
China Nuclear Power Engineering Company	15.2 %	3.9 %
State Nuclear Power Automation System Engineering Co.	5.8 %	10.2 %

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Acquisition

6 Months Ended

Jun. 30, 2015

Acquisition [Abstract]

Acquisition

4. Acquisition

Hyperspring, LLC

On November 14, 2014, (the "Closing Date") the Company, through its operating subsidiary, GSE Power Systems, Inc. (now GSE Performance Solutions, Inc. "GSE Performance"),  acquired Hyperspring, LLC ("Hyperspring") pursuant to a Membership Interests Purchase Agreement ("Purchase Agreement") with the sellers of Hyperspring ("Sellers").  Hyperspring, headquartered in Huntsville, Alabama, specializes in training and development, plant operations support services, and staff augmentation, primarily in the United States nuclear industry.  Hyperspring operates as a wholly-owned subsidiary of GSE Performance.  The purchase price allocation included customer relationship intangible assets valued at $779,000 which are being amortized over seven years.

GSE Performance paid the Sellers an aggregate of $3.0 million in cash at the closing date. In addition, GSE may be required, pursuant to the terms of the Purchase Agreement, to pay the Sellers up to an additional $8.4 million if Hyperspring attains certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017. Accordingly, the total cash paid to the former Hyperspring members may total $11.4 million.  Included in this $11.4 million is a $1.2 million payment to the Hyperspring members if Hyperspring is successful in renewing its contract with the Tennessee Valley Authority ("TVA") for a two year period for substantially the same scope as was currently being provided and with substantially the same economics.  As a result of TVA delaying the long-term contract award, GSE amended the purchase agreement with the former members of Hyperspring to extend the date that Hyperspring has to obtain a long-term contract with TVA from May 15, 2015 to December 31, 2015.  None of the other terms of the Hyperspring purchase agreement changed as a result of this amendment.

If Hyperspring is not successful in renewing the TVA contract, GSE may still be required to pay the Sellers up to an additional $8.4 million. The $1.2 million TVA payment will then be divided into three increments of $400,000 each and added to the annual payments which will be made to the former Hyperspring members if they attain certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017.

In conjunction with the Hyperspring acquisition, GSE Performance invested $250,000 for a 50% interest in IntelliQlik, LLC ("IntelliQlik").  IntelliQlik is developing a software platform for online learning and learning management for the energy market.  GSE Performance is obligated to contribute an additional $250,000 should IntelliQlik attain certain development milestones by September 30, 2015.  IntelliQlik is jointly owned by GSE Performance and a former member of Hyperspring.

To assist our clients in creating world-class internal training and performance improvement programs, GSE is building an E2E (Entry2Expert) Performance Solution.  The E2E Performance Solution includes a set of integrated and scalable products and services that provide a structured training program, from employee selection and onboarding through continuous skills improvement for experienced employees.  The Hyperspring acquisition, through its staff of instructors, engineers and specialists, and the IntelliQlik training platform, once completed, will increase the breadth of solutions that GSE can offer within the E2E Performance Solution program.

The following table summarizes the purchase price and purchase price allocation for the acquisition of Hyperspring, LLC, acquired on November 14, 2014.

(in thousands)
Cash purchase price	$	3,000
Fair value of contingent consideration		3,953
Total purchase price	$	6,953
Purchase price allocation:
Cash	$	152
Contract receivables		1,719
Prepaid expenses and other current assets		23
Property and equipment, net		12
Intangible assets		779
Goodwill		5,612
Total assets		8,297
Line of credit		749
Accounts payable, accrued expenses, and other liabilities		586
Billings in excess of revenue earned		9
Total liabilities		1,344
Net assets acquired	$	6,953

Pro forma results.  Our consolidated financial statements include the operating results of Hyperspring as of the date of acquisition.  For the six months ended June 30, 2015 and 2014, the unaudited pro forma financial information below assumes that our material business acquisition of Hyperspring occurred on January 1, 2014.

(in thousands except per share data)	(unaudited)
	Three Months ended								Six Months ended
	June 30,								June 30,
Pro forma financial information including the acquisition of Hyperspring	2015				2014				2015				2014
Revenue		$	13,632			$	12,760			$	27,628			$	25,968
Operating loss			(918	)			(1,943	)			(1,506	)			(4,013	)
Net loss			(1,043	)			(1,955	)			(1,777	)			(3,955	)
Loss per common share — basic		$	(0.06	)		$	(0.11	)		$	(0.10	)		$	(0.22	)
Loss per common share — diluted		$	(0.06	)		$	(0.11	)		$	(0.10	)		$	(0.22	)

Contingent Consideration

Accounting Standards Codification 805, Business Combinations ("ASC 805") requires that contingent consideration be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement and discount the liabilities to present value using a weighted-average cost of capital. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods, 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.

As of June 30, 2015 and December 31, 2014, current contingent consideration totaled $2.8 million and $2.8 million, respectively.  As of June 30, 2015 and December 31, 2014, we also had accrued contingent consideration totaling $2.1 million and $1.9 million, respectively, which represents the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.

(in thousands)
	June 30,		December 31,
	2015		2014
Hyperspring, LLC	$	2,383	$	2,152
IntelliQlik, LLC		213		213
EnVision Systems, Inc.		179		477
Current contingent consideration	$	2,775	$	2,842
Hyperspring, LLC	$	2,130	$	1,948
Contingent consideration	$	2,130	$	1,948

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Subsequent Events

6 Months Ended

Jun. 30, 2015

Subsequent Events [Abstract]

Subsequent Events [Text Block]

16. Subsequent Events

In July 2015, GSE entered into a separation and release agreement with James A. Eberle, Chief Executive Officer. Effective July 31, 2015, Mr. Eberle resigned his position as Chief Executive Officer and as a director on GSE's board of directors. GSE will incur $380,000 in severance expense related to the termination of Mr. Eberle.

GSE appointed Kyle Loudermilk as Chief Executive Officer effective August 3, 2015.  In connection with his appointment, GSE's Board of Directors granted 850,000 restricted stock units ("RSUs") to Mr. Loudermilk for a six year performance period ending on June 30, 2021.  The RSUs granted to Mr. Loudermilk are classified as equity awards because the RSUs will be paid in GSE common stock upon vesting.  The RSUs have four vesting tranches based on GSE's stock price.  The 850,000 RSUs will vest as follows:

· 200,000 RSUs will vest if the Volume Weighted Average Price ("VWAP") of the Company's common stock as quoted by the NYSE MKT exceeds $2.50 for a 90 consecutive trading day period.

· An additional 200,000 RSUs will vest if the VWAP of the Company's common stock as quoted by the NYSE MKT exceeds $3.25 for a 90 consecutive trading day period.

· An additional 200,000 RSUs will vest if the VWAP of the Company's common stock as quoted by the NYSE MKT exceeds $4.25 for a 90 consecutive trading day period.

· An additional 250,000 RSUs will vest if the VWAP of the Company's common stock as quoted by the NYSE MKT exceeds $6.00 for a 90 consecutive trading day period.

The RSU equity awards are measured at the grant date fair value and are not remeasured at the end of the reporting period. Total expense related to the RSUs is expected to be $631,000.  The RSUs will be amortized over the life that each tranche is expected to vest, or as follows:

(in thousands)
Five months ended December 31, 2015	$	89
Year ended December 31, 2016		212
Year ended December 31, 2017		205
Year ended December 31, 2018		98
Year ended December 31, 2019		27
	$	631

On July 6, 2015, Hyperspring, LLC renewed its $1.0 million working capital line of credit with IberiaBank for a one year period.  Under the executed promissory note, interest is payable monthly at the rate of 1.00 percentage points over the prime rate of interest as published in the money rate section of the Wall Street Journal resulting in an effective interest rate of 4.25%.  The line is secured by all accounts of Hyperspring and guaranteed by GSE Systems, Inc.  The line of credit expires on July 6, 2016.

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Product Warranty

6 Months Ended

Jun. 30, 2015

Product Warranty [Abstract]

Product Warranty

12. Product Warranty

As the Company recognizes revenue under the percentage-of-completion method, it provides an accrual for estimated future warranty costs based on historical experience and projected claims.  The activity in the warranty account is as follows:

(in thousands)
Balance at December 31, 2014	$	1,456
Warranty provision		369
Warranty claims		(209	)
Currency adjustment		(43	)
Balance at June 30, 2015	$	1,573

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2015

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

8. Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures ("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.

Level 3:  inputs are unobservable and reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at June 30, 2015 and December 31, 2014 based upon the short-term nature of the assets and liabilities.

The following table presents assets and liabilities measured at fair value at June 30, 2015:

	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	$	9,332	$	-		$	-	$	9,332
Foreign exchange contracts		-		115			-		115
Total assets	$	9,332	$	115		$	-	$	9,447
Foreign exchange contracts	$	-	$	(133	)	$	-	$	(133	)
Total liabilities	$	-	$	(133	)	$	-	$	(133	)

The following table presents assets and liabilities measured at fair value at December 31, 2014:

	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	$	11,661	$	-		$	-	$	11,661
Foreign exchange contracts		-		92			-		92
Total assets	$	11,661	$	92		$	-	$	11,753
Foreign exchange contracts	$	-	$	(24	)	$	-	$	(24	)
Total liabilities	$	-	$	(24	)	$	-	$	(24	)

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Software Development Costs

6 Months Ended

Jun. 30, 2015

Software Development Costs [Abstract]

Software Development Costs

6. Software Development Costs

Certain computer software development costs 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, and 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 investment to its estimated fair value based on future undiscounted cash flows.  The excess of any unamortized software development costs over the related net realizable value is written down and charged to cost of revenue.

Software development costs capitalized were $432,000 and $938,000 for the three and six months ended June 30, 2015, respectively, and $194,000 and $349,000 for the three and six months ended June 30, 2014, respectively.  Total amortization expense was $105,000 and $195,000 for the three and six months ended June 30, 2015, respectively, and $63,000 and $95,000 for the three and six months ended June 30, 2014, respectively.

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

7. Goodwill and Intangible Assets

Goodwill

We review goodwill for impairment annually as of November 30 and whenever events or changes in circumstances indicate the carrying value of an asset 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. generally accepted accounting principles. After the acquisition of Hyperspring, LLC ("Hyperspring") on November 14, 2014, our reporting units are: (i) Performance Improvement Solutions and (ii) Staff Augmentation.  At June 30, 2015 and December 31, 2014, the $5.6 million of goodwill balance was related to the Hyperspring acquisition and is assigned to our Staff Augmentation segment.

Accounting Standards Update ("ASU") 2011-08, Testing Goodwill for Impairment ("ASU 2011-08") permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under ASU 2011-08, an entity is not required to perform step one of the goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. As of June 30, 2015, no impairment has been recognized on goodwill.

Intangible Assets Subject to Amortization

The Company's intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, contract backlog and technology.  Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset.  Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contract backlog and contractual customer relationships which are recognized in proportion to the related projected revenue streams.   The Company reviews specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets.

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Derivative Instruments

6 Months Ended

Jun. 30, 2015

Derivative Instruments [Abstract]

Derivative Instruments

9. Derivative Instruments

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

As of June 30, 2015, the Company had foreign exchange contracts outstanding of approximately 2.6 million Euro, 0.4 million Pounds Sterling, and 0.5 million Australian Dollars at fixed rates.  The contracts expire on various dates through December 2016.  At December 31, 2014, the Company had contracts outstanding of approximately 1.4 million Euro, 0.3 million Pounds Sterling, 0.8 million Australian Dollars, and 0.5 million Malaysian Ringgits at fixed rates.

The Company has not designated any of the foreign exchange contracts outstanding as hedges and has recorded the estimated fair value of the contracts in the consolidated balance sheets as follows:

	June 30,			December 31,
(in thousands)	2015			2014
Asset derivatives
Prepaid expenses and other current assets	$	115		$	71
Other assets		-			21
		115			92
Liability derivatives
Other current liabilities		(35	)		(23	)
Other liabilities		(98	)		(1	)
		(133	)		(24	)
Net fair value	$	(18	)	$	68

The changes in the fair value of the foreign exchange contracts are included in net gain (loss) on derivative instruments in the consolidated statements of operations.

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

For the three and six months ended June 30, 2015 and 2014, the Company recognized a net gain (loss) on its derivative instruments as outlined below:

	Three Months ended June 30,						Six Months ended June 30,
(in thousands)	2015			2014			2015			2014
Foreign exchange contracts- change in fair value	$	(86	)	$	11		$	(86	)	$	254
Remeasurement of related contract receivables,  billings in excess of revenue earned, and  subcontractor accruals		55			(6	)		7			(145	)
Gain (loss) on derivative instruments, net	$	(31	)	$	5		$	(79	)	$	109

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2015

Segment Information [Abstract]

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated loss before income tax expense:

(in thousands)	Three Months ended June 30,						Six Months ended June 30,
	2015			2014			2015			2014
Contract revenue:
Performance Improvement Solutions	$	8,191		$	8,276		$	17,007		$	17,000
Staff Augmentation		5,441			-			10,621			-
	$	13,632		$	8,276		$	27,628		$	17,000
Operating income (loss):
Performance Improvement Solutions	$	(1,192	)	$	(1,955	)	$	(1,968	)	$	(4,023	)
Staff Augmentation		362			-			662			-
Loss on change in fair value of contingent consideration, net		(513	)		(20	)		(433	)		(47	)
Operating loss	$	(1,343	)	$	(1,975	)	$	(1,739	)	$	(4,070	)
Interest income, net		21			28			48			59
Gain (loss) on derivative instruments, net		(31	)		5			(79	)		109
Other income (expense), net		(41	)		3			(80	)		(7	)
Loss before income taxes	$	(1,394	)	$	(1,939	)	$	(1,850	)	$	(3,909	)

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Preferred Stock Rights (Details)	6 Months Ended
	Jun. 30, 2015 $ / shares	Dec. 31, 2014 $ / shares	Mar. 21, 2011 shares Right $ / shares
Preferred Stock Rights
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock Rights Agreement [Member]
Preferred Stock Rights
Date on which dividends payable was declared by Board of Directors	Mar. 21, 2011
Number of preferred stock purchase right declared for each outstanding common stock (per right) | Right			1
Common stock, par value (in dollars per share)			$ 0.01
Number of rights issued with each issuance of common stock (per right) | Right			1
Term of stockholder protection rights agreement	3 years
Rights Agreement Amendment Date	Mar. 21, 2014
Term of the Rights Agreement extension	2 years
Rights Agreement Expiration Date	Mar. 21, 2016
Fraction of participating preferred stock that can be exercised as a result of right | shares			0.01
Exercise price of right (in dollars per share)			$ 8.00
Minimum percentage of common stock owned for right to become exercisable (in hundredths)			20.00%
Redemption price per right (in dollars per share)			0.001
Number of common stock exchange for rights (in shares) | shares			1
Percentage of common stock acquired to cause substantial dilution (in hundredths)			20.00%

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Preferred Stock Rights

6 Months Ended

Jun. 30, 2015

Preferred Stock Rights [Abstract]

Preferred Stock Rights [Text Block]

14. Preferred Stock Rights

On March 21, 2011, the Board of Directors of the Company declared a dividend, payable to holders of record as of the close of business on April 1, 2011, of  one preferred stock purchase right (a "Right") for each outstanding share of common stock, par value $0.01 per share, of the Company (the "Common Stock").  In addition, the Company will issue one Right with each new share of Common Stock issued.  In connection therewith, on March 21, 2011, the Company entered into a Stockholder Protection Rights Agreement (as amended from time to time, the Rights Agreement) with Continental Stock Transfer & Trust Company, as Rights Agent, which has a term of three years, unless amended by the Board of Directors in accordance with the terms of the Rights Agreement.  On March 21, 2014, the Rights Agreement was amended to extend the term an additional two years.  The Rights Agreement will now expire on March 21, 2016.  The Rights trade with and are inseparable from the Common Stock and are not evidenced by separate certificates unless they become exercisable.  Each Right entitles its holder to purchase from the Company one-hundredth of a share of participating preferred stock having economic and voting terms similar to the Common Stock at an exercise price of $8.00 per Right, subject to adjustment in accordance with the terms of the Rights Agreement, once the Rights become exercisable.  Under the Rights Agreement, the Rights become exercisable if any person or group acquires 20% or more of the Common Stock or, in the case of any person or group that owned 20% or more of the Common Stock as of March 21, 2011, upon the acquisition of any additional shares by such person or group.  The Company, its subsidiaries, employee benefit plans of the Company or any of its subsidiaries and any entity holding Common Stock for or pursuant to the terms of any such plan are accepted.  Upon exercise of the Right in accordance with the Rights Agreement, the holder would be able to purchase a number of shares of Common Stock from the Company having an aggregate market price (as defined in the Rights Agreement) equal to twice the then-current exercise price for an amount in cash equal to the then-current exercise price.  In addition, the Company may, in certain circumstances and pursuant to the terms of the Rights Agreement, exchange the Rights for one share of Common Stock or an equivalent security for each Right or, alternatively, redeem the Rights for $0.001 per Right.  The Rights will not prevent a takeover of our Company, but may cause substantial dilution to a person that acquires 20% or more of the Company's Common Stock.

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Basis of Presentation and Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2015

Basis of Presentation and Revenue Recognition [Abstract]

Percentage of revenue by major customers

For the three and six months ended June 30, 2015 and 2014, the following customers provided more than 10% of the Company's consolidated revenue:

	Three Months ended June 30,		Six Months ended June 30,
	2015	2014	2015	2014
Tennessee Valley Authority	18.7 %	0.0 %	19.9 %	0.0 %
Public Service Enterprise Group Inc.	11.7 %	0.6 %	10.2 %	0.6 %

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Product Warranty (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Activities in product warranty account [Abstract]
Balance at December 31, 2014	$ 1,456
Warranty provision	369
Warranty claims	209
Currency adjustment	(43)
Standard Product Warranty Accrual, Period Increase (Decrease), Total	117	$ (211)
Balance at June 30, 2015	$ 1,573

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Software Development Costs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Software Development Costs [Abstract]
Total capitalized software development cost	$ 432	$ 194	$ 938	$ 349
Capitalized software amortization	105	63	195	95
Capitalized Computer Software, Period Increase (Decrease), Total	$ 327	$ 131	$ 743	$ 254

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Consolidated Statements of Comprehensive Loss
Net loss	$ (1,467)	$ (1,986)	$ (2,011)	$ (4,010)
Foreign currency translation adjustment, net of tax	106	(106)	(130)	(101)
Comprehensive loss	$ (1,361)	$ (2,092)	$ (2,141)	$ (4,111)

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Basic and Diluted Loss Per Common Share

6 Months Ended

Jun. 30, 2015

Basic and Diluted Loss Per Common Share [Abstract]

Basic and Diluted Loss Per Common Share

3. Basic and Diluted Loss Per Common Share

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

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

(in thousands, except for share amounts)	Three Months ended						Six Months ended
	June 30,						June 30,
	2015			2014			2015			2014
Numerator:
Net loss	$	(1,467	)	$	(1,986	)	$	(2,011	)	$	(4,010	)
Denominator:
Weighted-average shares outstanding for basic earnings per share		17,887,859			17,887,859			17,887,859			17,887,859
Effect of dilutive securities:
Employee stock options		-			-			-			-
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share		17,887,859			17,887,859			17,887,859			17,887,859
Shares related to dilutive securities excluded because inclusion would be anti-dilutive		2,513,321			2,736,703			2,580,942			2,727,435

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Basic and Diluted Loss Per Common Share (Tables)

6 Months Ended

Jun. 30, 2015

Basic and Diluted Loss Per Common Share [Abstract]

Number of common shares and common share equivalents used in the determination of basic and diluted income (loss) per share

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

(in thousands, except for share amounts)	Three Months ended						Six Months ended
	June 30,						June 30,
	2015			2014			2015			2014
Numerator:
Net loss	$	(1,467	)	$	(1,986	)	$	(2,011	)	$	(4,010	)
Denominator:
Weighted-average shares outstanding for basic earnings per share		17,887,859			17,887,859			17,887,859			17,887,859
Effect of dilutive securities:
Employee stock options		-			-			-			-
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share		17,887,859			17,887,859			17,887,859			17,887,859
Shares related to dilutive securities excluded because inclusion would be anti-dilutive		2,513,321			2,736,703			2,580,942			2,727,435

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Acquisition (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
	Nov. 14, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Business Combinations Purchase Price Allocation [Abstract]
Goodwill		$ 5,612		$ 5,612		$ 5,612
Business Acquisition, Pro Forma Information [Abstract]
Revenue		13,632	$ 12,760	27,628	$ 25,968
Operating loss		(918)	(1,943)	(1,506)	(4,013)
Net loss		$ (1,043)	$ (1,955)	$ (1,777)	$ (3,955)
Loss per common share - basic		$ (0.06)	$ (0.11)	$ (0.10)	$ (0.22)
Loss per common share - diluted		$ (0.06)	$ (0.11)	$ (0.10)	$ (0.22)
Hyperspring, LLC [Member]
Business Acquisition [Line Items]
Business Acquisition, Name of Acquired Entity	Hyperspring, LLC
Business Acquisition, Effective Date of Acquisition	Nov. 14, 2014
Percentage of ownership interest acquired (in hundredths)	100.00%
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 11,400
Cash purchase price	3,000
Fair value of contingent consideration	3,953
Total purchase price	6,953
Business Combinations Purchase Price Allocation [Abstract]
Cash	152
Contract receivables	1,719
Prepaid expenses and other current assets	23
Property, plant and equipment, net	12
Intangible assets	779
Goodwill	5,612
Total assets	8,297
Line of credit	749
Accounts payable, accrued expenses and other liabilities	586
Billings in excess of revenue earned	9
Total liabilities	1,344
Net assets acquired	$ 6,953
Hyperspring, LLC [Member] | Contingent Consideration Case 1 [Member]
Business Acquisition [Line Items]
Business Acquisition Contingent Consideration Agreement
Hyperspring, LLC [Member] | Contingent Consideration Case 1 [Member] | EBITDA Target [Member]
Business Acquisition [Line Items]
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 7,200
Business Combination, Contingent Consideration Arrangements, Description	certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets
Hyperspring, LLC [Member] | Contingent Consideration Case 1 [Member] | Tennessee Valley Authority Renewal Target [Member]
Business Acquisition [Line Items]
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 1,200
Business Combination, Contingent Consideration Arrangements, Description	if Hyperspring is successful in renewing its contract with the Tennessee Valley Authority ("TVA") for a two year period for substantially the same scope as was currently being provided and with substantially the same economics. As a result of TVA delaying the long-term contract award, GSE amended the purchase agreement with the former members of Hyperspring to extend the date that Hyperspring has to obtain a long-term contract with TVA from May 15, 2015 to December 31, 2015. None of the other terms of the Hyperspring purchase agreement changed as a result of this amendment
Hyperspring, LLC [Member] | Contingent Consideration Case 2 [Member]
Business Acquisition [Line Items]
Business Acquisition Contingent Consideration Agreement
Hyperspring, LLC [Member] | Contingent Consideration Case 2 [Member] | EBITDA Target [Member]
Business Acquisition [Line Items]
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 8,400
Business Combination, Contingent Consideration Arrangements, Description	The $1.2 million TVA payment will then be divided into three increments of $400,000 each and added to the annual payments which will be made to the former Hyperspring members if they attain certain EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the three-year period ending November 13, 2017
Hyperspring, LLC [Member] | Contractual Customer Relationships [Member]
Business Combinations Purchase Price Allocation [Abstract]
Intangible assets	$ 779
Hyperspring, LLC [Member] | Contractual Customer Relationships [Member] | Maximum [Member]
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	7 years
Hyperspring, LLC [Member] | Customer Relationships [Member]
Business Combinations Purchase Price Allocation [Abstract]
Intangible assets	$ 0
Hyperspring, LLC [Member] | Developed Technology [Member]
Business Combinations Purchase Price Allocation [Abstract]
Intangible assets	0
Hyperspring, LLC [Member] | In Process Research and Development [Member]
Business Combinations Purchase Price Allocation [Abstract]
Intangible assets	0
Hyperspring, LLC [Member] | Domain Names and Other Marketing Related [Member]
Business Combinations Purchase Price Allocation [Abstract]
Intangible assets	$ 0
IntelliQlik, LLC [Member]
Business Acquisition [Line Items]
Business Acquisition, Name of Acquired Entity	IntelliQlik, LLC
Business Acquisition, Effective Date of Acquisition	Nov. 14, 2014
Percentage of ownership interest acquired (in hundredths)	50.00%
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 250
Payments to Acquire Equity Method Investments	$ 250

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Income Taxes

6 Months Ended

Jun. 30, 2015

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

The Company files 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 from years 1997 forward and is subject to foreign tax examinations by tax authorities for years 2007 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.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the 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 appropriately accounted for its uncertain tax positions.

The Company expects to pay income taxes in India and the UK in 2015.  In 2014, the Company paid income taxes in the UK and India.  The Company has a full valuation allowance on its U.S., Swedish, and Chinese net deferred tax assets at June 30, 2015.