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 March 31, 2018
	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 or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer",  and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  	Accelerated filer  	Non-accelerated filer 	Smaller reporting company 
Emerging growth company ☐		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[  ]

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 19,636,973 shares of common stock, with a par value of $0.01 per share outstanding as of April 30, 2018.

GSE SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	2
	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2018, and March 31, 2017	3
	Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2018, and March 31, 2017	4
	Unaudited Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 2018	5
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and March 31, 2017	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	39
	SIGNATURES	40

1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31, 2018		December 31, 2017
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,763	$	19,111
Restricted cash		647		960
Contract receivables, net		18,757		13,997
Prepaid expenses and other current assets		2,680		2,795
Total current assets		33,847		36,863
Equipment, software, and leasehold improvements		5,102		4,782
Accumulated depreciation		(3,828)		(3,719)
Equipment, software, and leasehold improvements, net		1,274		1,063
Software development costs, net		677		690
Goodwill		8,431		8,431
Intangible assets, net		2,456		2,604
Deferred tax assets		6,336		7,167
Other assets		37		37
Total assets	$	53,058	$	56,855
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	557	$	1,251
Accrued expenses		3,523		2,276
Accrued compensation		2,975		2,866
Billings in excess of revenue earned		12,592		14,543
Accrued warranty		1,186		1,433
Contingent consideration		-		1,701
Other current liabilities		1,410		1,182
Total current liabilities		22,243		25,252
Other liabilities		1,453		1,931
Total liabilities		23,696		27,183
Commitments and contingencies
Stockholders' equity:
Preferred stock $0.01 par value, 2,000,000 shares authorized, no shares issued and outstanding		-		-
Common stock $0.01 par value, 30,000,000 shares authorized, 21,215,884 and 21,024,395 shares issued and 19,616,973 and 19,425,484 shares outstanding in 2018 and 2017		212		210
Additional paid-in capital		77,376		76,802
Accumulated deficit		(43,711)		(42,870)
Accumulated other comprehensive loss		(1,516)		(1,471)
Treasury stock at cost, 1,598,911 shares in 2018 and 2017		(2,999)		(2,999)
Total stockholders' equity		29,362		29,672
Total liabilities and stockholders' equity	$	53,058	$	56,855

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

2

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three months ended March 31,
		2018	2017
Revenue	$	22,895	$	16,342
Cost of revenue		17,997		12,220
Gross profit		4,898		4,122
Operating expenses:
Selling, general and administrative		4,527		3,592
Research and development		329		402
Restructuring charges		917		45
Depreciation		103		76
Amortization of definite-lived intangible assets		150		64
Total operating expenses		6,026		4,179
Operating loss		(1,128)		(57)
Interest income, net		22		27
Loss on derivative instruments, net		(156)		(160)
Other income (expense), net		25		(3)
Loss before income taxes		(1,237)		(193)
Provision for income taxes		259		73
Net loss	$	(1,496)	$	(266)
Basic loss per common share	$	(0.08)	$	(0.01)
Diluted loss per common share	$	(0.08)	$	(0.01)

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

3

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Three months ended March 31,
	2018		2017
Net loss	$	(1,496)	$	(266)
Foreign currency translation adjustment		(45)		93
Comprehensive loss	$	(1,541)	$	(173)

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

4

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total
	Shares		Amount							Shares	Amount
Balance, January 1, 2018	21,024	$	210	$	76,802	$	(42,870)	$	(1,471)	(1,599)	$	(2,999)	$	29,672
Cumulative effect of adopting ASC 606	-		-		-		655		-	-		-		655
Stock-based compensation expense	-		-		595		-		-	-		-		595
Common stock issued for options exercised	110		1		56		-		-	-		-		57
Common stock issued for RSUs vested	82		1		(1)		-		-	-		-		-
Vested RSU shares withheld to pay taxes	-		-		(76)		-		-	-		-		(76)
Foreign currency translation adjustment	-		-		-		-		(45)	-		-		(45)
Net loss	-		-		-		(1,496)		-	-		-		(1,496)
Balance, March 31, 2018	21,216	$	212	$	77,376	$	(43,711)	$	(1,516)	(1,599)	$	(2,999)	$	29,362

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

5

GSE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three months ended March 31,
	2018		2017
Cash flows from operating activities:
Net loss	$	(1,496)	$	(266)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		103		76
Amortization of definite-lived intangible assets		150		64
Amortization of capitalized software development costs		118		117
Stock-based compensation expense		627		596
Loss on derivative instruments, net		156		160
Deferred income taxes		(90)		-
Changes in assets and liabilities:
Contract receivables, net		(4,683)		4,937
Prepaid expenses and other assets		(12)		(523)
Accounts payable, accrued compensation, and accrued expenses		647		(1,184)
Billings in excess of revenue earned		(1,127)		(3,279)
Accrued warranty		(75)		67
Other liabilities		154		325
Cash (used in) provided by operating activities		(5,528)		1,090
Cash flows from investing activities:
Capital expenditures		(318)		(44)
Capitalized software development costs		(105)		(29)
Cash used in investing activities		(423)		(73)
Cash flows from financing activities:
Proceeds from issuance of common stock on the exercise of stock options		57		62
Contingent consideration payments to Hyperspring, LLC		(1,701)		(597)
RSUs withheld to pay taxes		(76)		(672)
Cash used in financing activities		(1,720)		(1,207)
Effect of exchange rate changes on cash		10		68
Net decrease in cash, cash equivalents and restricted cash		(7,661)		(122)
Cash, cash equivalents, and restricted cash, beginning balance		20,071		22,887
Cash, cash equivalents, and restricted cash, ending balance	$	12,410	$	22,765
Cash and cash equivalents, beginning balance	$	19,111	$	21,747
Restricted cash, beginning balance		960		1,140
Cash, cash equivalents, and restricted cash, beginning balance	$	20,071	$	22,887
Cash and cash equivalents, ending balance	$	11,763	$	21,625
Restricted cash, ending balance		647		1,140
Cash, cash equivalents, and restricted cash, ending balance	$	12,410	$	22,765

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

6

GSE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the Company, GSE, we, us, or our) and are unaudited. 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 (U.S. 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, 2017, filed with the Securities and Exchange Commission on March 16, 2018.

The Company has two reportable segments as follows:

● Performance Improvement Solutions (approximately 43% of revenue)

Our Performance Improvement Solutions segment primarily encompasses our technical engineering and power plant high-fidelity simulation solutions and interactive computer based tutorials/simulation focused on the process industry. This segment includes various simulation products, engineering services, and operation training systems delivered across the industries we serve: primarily nuclear and fossil fuel power generation, as well as the process industries. Our simulation solutions include the following: (1) simulation software and services, including operator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for the fossil power industry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems to newly hired employees and for ongoing workforce development and training. GSE and its predecessors have been providing these services since 1976.

● Nuclear Industry Training and Consulting (approximately 57% of revenue)

Nuclear Industry Training and Consulting provides highly specialized and skilled nuclear operations instructors, procedure writers, technical engineers, and other consultants to the nuclear power industry. These employees work at our clients' facilities under client direction. Examples of these highly skilled positions are senior reactor operations instructors, procedure writers, project managers, work management specialists, planners and training material developers. This business is managed through the Hyperspring and Absolute subsidiaries. The business model, management focus, margins and other factors clearly separate this business line from the rest of the Company's product and service portfolio. GSE and its predecessors have been providing these services since 1997.

Financial information about the two business segments is provided in Note 18 of the accompanying condensed consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. The Company's most significant estimates relate to revenue recognition on contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock based compensation awards, and the recoverability of deferred tax assets. Actual results could differ from these estimates and those differences could be material.

7

Revenue recognition

The Company derives its revenue through three broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3) Training and Consulting services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware, software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the training simulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under the SDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward complete satisfaction of the performance obligation. PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.

In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to 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.

The SDB contracts generally provide a one to two-year base warranty on the systems. The base warranty will not be accounted for as a separate performance obligation under the contract because it does not provide the customer with a service in addition to the assurance that the completed project complies with agreed-upon specifications. Warranties extended beyond our typical two-year period will be evaluated on a case by case basis to determine if it provides more than just assurance that the product operates as intended, which requires carve-out as a separate performance obligation.

Revenue from the sale of standalone software licenses, which do not require significant modification or customization is recognized upon its delivery to the customer. Delivery is considered to have occurred when the customer receives a copy of the software and is able to use and benefit from the software.

A software license sale contract with multiple deliverables typically includes the following elements: license, installation and training services and PCS. The total transaction price of a software license sale contract is typically fixed, and is allocated to the identified performance obligations based on their relative standalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license revenue is recognized when the software license is delivered to the customer; installation and training revenue is recognized when the installation and training is completed without regard to a detailed evaluation of the point in time criteria due to the short-term nature of the installation and training services (one to two days on average); and PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.

The contracts within the training and consulting services revenue stream are primarily time and materials (T&M) based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed per type of work, as well as approved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance with Accounting Standards Codification (ASC) 606-10-55-18, we elected to apply the "right to invoice" practical expedient, under which we recognize revenue in the amount to which we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary worker multiplied by the bill rate for the type of work, as well as approved expenses incurred.

For contracts with multiple performance obligations, we allocate the contract price to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers.

8

2. Recent Accounting Pronouncements

Accounting pronouncements recently adopted

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which provides guidance for revenue recognition. Subsequently, the FASB issued a series of updates to the revenue recognition guidance in ASC 606, Revenue from Contracts with Customers (ASC 606). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, the new accounting standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for the fiscal year ending December 31, 2018 and interim periods therein.

We adopted ASU 2014-09 and all the related updates (collectively, the new revenue standard) on January 1, 2018 using the modified retrospective transition method. The new revenue standard was applicable to (1) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment of $0.7 million to the opening balance of accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

This adoption primarily affected our software license sales with multiple deliverables, which typically include the following elements: license, installation and training services and PCS. Under the legacy revenue recognition standard, due to the lack of vendor specific objective evidence (VSOE), revenue was recognized ratably over the PCS period. Under the new revenue standard, the total transaction price is allocated to the identified performance obligations based on their relative standalone selling prices, and revenue is recognized as the performance obligations are satisfied.

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 is as follows (in thousands):

	Balance at January 1, 2018
	As Reported		Adoption of ASC 606		As Adjusted
Contract receivables, net	$	13,997	$	(10)	$	13,987
Deferred tax assets		7,167		(241)		6,926
Billings in excess of revenue earned		14,543		(906)		13,637
Accumulated deficit		(42,870)		655		(42,215)

The impact of adoption on our consolidated statement of operations and balance sheet was as follows (in thousands):

Income Statement

	For the three months ended March 31, 2018
	As Reported		Balance without adoption of ASC 606		Effect of Change
Revenue	$	22,895	$	22,852	$	43
Gross profit		4,898		4,855		43
Provision for income taxes		259		231		(28)
Net loss		(1,496)		(1,511)		15

Balance Sheet

	March 31, 2018
	As Reported		Balance without adoption of ASC 606		Effect of Change
Contract receivables, net	$	18,757	$	18,874	$	(117)
Deferred tax assets		6,336		6,605		(269)
Billings in excess of revenue earned		12,592		13,648		(1,056)
Accumulated deficit		(43,711)		(44,381)		670

9

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The new guidance addresses eight specific cash flow issues and applies to all entities that are required to present a statement of cash flows. ASU 2016-15 was effective for fiscal reporting periods beginning after December 15, 2017, including interim reporting periods within those fiscal years. We adopted ASU 2016-15 on January 1, 2018, on a retrospective basis. Upon the adoption of ASU 2016-15, cash payments made to settle a contingent consideration liability from an acquisition in excess of the amount recognized at the acquisition date are classified as operating activities, which were previously presented as financing activities. The comparative statement of cash flows has been restated to include only the payments made to settle the contingent liability related to the original amount recognized at the acquisition date in the financing activities; previously, the payment of $254,000 related to fair value adjustment and interest accretion of the contingent liability was included in financing activities.

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash (ASU 2016-18). The new guidance applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. This update is intended to reduce diversity in cash flow presentation of restricted cash and restricted cash equivalents and requires entities to include all cash and cash equivalents, both restricted and unrestricted, in the beginning-of-period and end-of-period totals presented on the statement of cash flows. We adopted ASU 2016-18 effective January 1, 2018, on a retrospective basis. As the result of the adoption of ASU 2016-18, we restated the statement of cash flows for the comparative period to include both restricted and unrestricted cash in the beginning-of-period and end-of-period totals, and eliminated the transfers between restricted and unrestricted cash in the statement of cash flows.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the definition of a Business, which amends the definition of a business. ASU 2017-01 was effective for acquisitions commencing on or after December 15, 2017, with early adoption permitted. We adopted ASU 2017-01 effective January 1, 2018. ASU 2017-01 will be applied prospectively to acquisitions commencing on or after the effective date.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (ASU 2017-09). The new guidance is intended to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance on ASC 718, Compensation – Stock Compensation. Entities are required to apply modification accounting for any change to an award, except for a change that is deemed to be purely administrative in nature. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based award require an entity to apply modification accounting in ASC 718. The amendments in this update were effective for all entities and for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. We adopted ASU 2017-09 effective January 1, 2018, on a prospective basis. The adoption of this standard did not have a significant impact to our financial statements or financial statement disclosures.

10

Accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We are still evaluating the impact of the pending adoption of the new standard on the consolidated financial statements, and we expect that, upon adoption, the recognition of ROU assets and lease liabilities could be material.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The ASU is effective for public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on the Company's consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04).  ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the reporting unit's carrying value exceeds its fair value, limited to the carrying value of the goodwill. ASU 2017-04 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2019. We are currently evaluating the potential impact of the adoption of ASU 2017-04 on our consolidated financial statements.

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 outstanding vested stock options were exercised.

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
	March 31,
	2018		2017
Numerator:
Net loss	$	(1,496)	$	(266)
Denominator:
Weighted-average shares outstanding for basic loss per share		19,514,385		19,094,382
Effect of dilutive securities:
Stock options and restricted stock units		-		-
Adjusted weighted-average shares outstanding and assumed conversions for diluted loss per share		19,514,385		19,094,382
Shares related to dilutive securities excluded because inclusion would be anti-dilutive		763,200		564,833

11

4. Acquisition

On September 20, 2017, GSE, through its wholly-owned subsidiary GSE Performance Solutions, Inc. (Performance Solutions), acquired 100% of the capital stock of Absolute Consulting, Inc. (Absolute) for $8.8 million pursuant to the Stock Purchase Agreement by and among Performance Solutions and the sellers of Absolute. The purchase price was subject to a customary working capital adjustment resulting in total consideration of $9.5 million. An indemnification escrow of $1.0 million was funded from the cash paid to the sellers and is available to GSE and Performance Solutions to satisfy indemnification claims until September 20, 2019. The acquisition of Absolute was completed on an all-cash transaction basis.

Absolute is a provider of technical consulting and staffing solutions to the global nuclear power industry. Located in Navarre, Florida, Absolute has established long-term relationships with blue-chip customers primarily in the nuclear power industry. The acquisition of Absolute is expected to strengthen the Company's global leadership in nuclear training and consulting solutions, add new capacities to our technical consulting and staffing solutions offerings and bring highly complementary customers, while deepening relationships with existing clients.

The following table summarizes the consideration paid to acquire Absolute and the fair value of the assets acquired and liabilities assumed at the date of the transaction.

(in thousands)
Total purchase price	$	9,521
Purchase price allocation:
Cash	$	455
Contract receivables		5,121
Prepaid expenses and other current assets		68
Property, and equipment, net		184
Intangible assets		2,569
Accounts payable, accrued expenses, and other liabilities		(78)
Accrued compensation		(1,617)
Total identifiable net assets		6,702
Goodwill		2,819
Net assets acquired	$	9,521

The goodwill is primarily attributable to the additional capacities to offer broader solutions to new and existing customers and the expected enhanced cost and growth synergies as a result of the acquisition. The total amount of goodwill that is expected to be tax deductible is $2.8 million. All of the $2.8 million of goodwill was assigned to our Nuclear Industry Training and Consulting segment.

The fair value of the assets acquired includes gross trade receivables of $5.1 million, which was collected in full after acquisition. GSE did not acquire any other class of receivable as a result of the acquisition of Absolute.

The Company identified $2.6 million of other intangible assets, including customer relationships and trademarks/names, with amortization periods of three to 10 years. The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:

Intangible Assets	Weighted average amortization period	Fair Value
	(in years)	(in thousands)
Customer relationships	10	$	1,856
Trademarks/Names	3		713
Total		$	2,569

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5. Restructuring Activities

On December 27, 2017, the board of GSE Systems, Inc. approved an international restructuring plan to streamline and optimize the Company's global operations. Beginning in December 2017, GSE has been in the process of consolidating its engineering services and R&D activities to Maryland and ceasing an unprofitable non-core business in the U.K. As a result, the Company will be closing its offices in Nyköping, Sweden; Chennai, India; and Stockton-on-Tees, UK. These actions are designed to improve Company productivity by eliminating duplicate employee functions and increasing GSE's focus on its core business, improving efficiency and maintaining the full range of engineering capabilities while reducing costs and organizational complexity.

GSE expects to eliminate approximately 40 positions due to these changes, primarily in Europe and India, and will undertake other cost-savings measures. The restructuring plan is expected to be completed in 2018. As a result of these efforts, GSE expects to record a restructuring charge of approximately $1.8 million, primarily related to workforce reductions, contract termination costs and asset write-offs due to the exit activities. As of March 31, 2018, we had recorded a restructuring charge of $1.7 million. The amounts to be transferred from cumulative translation adjustments and included in determining net income for the period, in which the liquidation of these foreign entities are completed, are not included in the estimated total amount of restructuring charge. We expect to record the remaining charges and the translation adjustments by the end of 2018.

The following tables summarize the restructuring costs and restructuring liabilities:

(in thousands)

	March 31, 2018
	Total Expected Costs		Costs Incurred to Date		Expected Costs Remaining
Employee termination benefits	$	736	$	729	$	7
Lease termination costs		555		519		36
Assets write-offs/impairment		222		222		-
Other restructuring costs		272		180		92
Total Restructuring costs	$	1,785	$	1,650	$	135

The restructuring costs related to our Performance Improvement Solutions segment and are included in the consolidated statement of operations within the "Restructuring charges" line caption.

	Employee termination benefits		Lease termination costs		Other Restructuring costs		Total
Balance as of January 1, 2018	$	465	$	-	$	33	$	498
Accruals		264		519		134		917
Payments		(406)		-		(5)		(411)
Currency translation and other adjustments		1		119		-		120
Balance as of March 31, 2018	$	324	$	638	$	162	$	1,124

The accrued employee termination benefits were included in "accrued compensation" line, and the accrued lease termination costs and other restructuring costs were included in "accrued expenses" in the consolidated balance sheets.

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6. Contingent Consideration

Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Under ASC 805, Business Combinations, contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

As of December 31, 2017, the remaining contingent consideration, related to our acquisition of Hyperspring in 2014 was $1.7 million, all of which was paid in January 2018. There was no contingent liability as of March 31, 2018.

7. Contract Receivables

Contract receivables represent the Company's unconditional rights to considerations due from a broad base of both domestic and international customers. All contract receivables are considered to be collectible within twelve months.

The components of contract receivables are as follows:

(in thousands)	March 31,		December 31,
	2018		2017
Billed receivables	$	10,823	$	8,154
Unbilled receivables		8,071		5,980
Allowance for doubtful accounts		(137)		(137)
Total contract receivables, net	$	18,757	$	13,997

During April 2018, the Company invoiced $2.8 million of the unbilled amounts related to the balance at March 31, 2018.

As of March 31, 2018 and December 31, 2017, the Company had one customer that accounted for 25.8% and 26.7%, respectively, of its consolidated contract receivables.

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8.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

(in thousands)	March 31,		December 31,
	2018		2017
Inventory	$	733	$	755
Income taxes receivable		363		418
Prepaid expenses		628		549
Other current assets		956		1,073
Total prepaid expenses and other current assets	$	2,680	$	2,795

At March 31, 2018 and December 31, 2017, prepaid expenses and other current assets are comprised primarily of inventory and other current assets. Inventory is being purchased to support the construction of three major nuclear simulation projects related to a significant contract that was executed during the first quarter of 2016. Inventory is recorded at the lower of cost or net realizable value in accordance with ASC 330, Inventory. Other current assets primarily includes value-added tax receivables and cash deposited in a Swedish tax account.

9. Software Development Costs, Net

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 carrying amount of such asset to its estimated fair value based on the future discounted cash flows. The excess of any unamortized computer software costs over the related fair value is written down and charged to operations.

Software development costs capitalized were approximately $105,000 and $29,000 for the three months ended March 31, 2018 and 2017, respectively.  Total amortization expense was approximately $118,000 and $117,000 for the three months ended March 31, 2018 and 2017, respectively.

10. Goodwill and Intangible Assets

The Company's intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, trade names, non-compete agreements, and contract backlog.

The Company reviews goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company tests goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. After the acquisition of Hyperspring on November 14, 2014, the Company determined that it had two reporting units, which are the same as our two operating segments: (i) Performance Improvement Solutions; and (ii) Nuclear Industry Training and Consulting (which includes Hyperspring and Absolute).  As of March 31, 2018, and December 31, 2017, goodwill of $8.4 million related to the Nuclear Industry Training and Consulting segment. No events or circumstances occurred during the current reporting period that would indicate impairment of such goodwill.

Amortization of intangible assets other than goodwill is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contract backlog and customer relationships which are recognized in proportion to the related projected revenue streams. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. The Company does not have any intangible assets with indefinite useful lives, other than goodwill. There were no indications of impairment of intangible assets during the current reporting period.

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11. Fair Value of Financial Instruments

ASC 820, Fair Value Measurement (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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

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

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

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.

At March 31, 2018, and December 31, 2017, the Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate fair value based upon their short-term nature.

For the three months ended March 31, 2018, the Company did not have any transfers between fair value Level 1, Level 2 or Level 3.  The Company did not hold any non-financial assets or non-financial liabilities subject to fair value measurements on a recurring basis at March 31, 2018.

The following table presents assets and liabilities measured at fair value at March 31, 2018:

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds	$	2,780	$	-	$	-	$	2,780
Foreign exchange contracts		-		83		-		83
Total assets	$	2,780	$	83	$	-	$	2,863
Liability awards		-		(272)		-		(272)
Total liabilities	$	-	$	(272)	$	-	$	(272)

Money market funds at both March 31, 2018 and December 31, 2017 are included in cash and cash equivalents in the respective consolidated balance sheets.

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The following table presents assets and liabilities measured at fair value at December 31, 2017:

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds	$	3,240	$	-	$	-	$	3,240
Foreign exchange contracts		-		201		-		201
Total assets	$	3,240	$	201	$	-	$	3,441
Liability awards		-		(242)		-		(242)
Contingent consideration		-		-		(1,701)		(1,701)
Total liabilities	$	-	$	(242)	$	(1,701)	$	(1,943)

The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the three months ended March 31, 2018:

(in thousands)
Balance, January 1, 2018	$	1,701
Payments made on contingent liabilities		(1,701)
Change in fair value		-
Balance, March 31, 2018	$	-

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12. Derivative Instruments

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

As of March 31, 2018, the Company had foreign exchange contracts outstanding of approximately 162.5 million Japanese Yen and 0.2 million Australian Dollars at fixed rates. The contracts expire on various dates through December 2018. At December 31, 2017, the Company had contracts outstanding of approximately 162.5 million Japanese Yen, 24,000 Euro, and 0.2 million Australian Dollars at fixed rates.

The Company has not designated the foreign exchange contracts as hedges and recorded the estimated net fair values of the contracts on the consolidated balance sheets as follows:

	March 31,		December 31,
(in thousands)	2018		2017
Asset derivatives
Prepaid expenses and other current assets	$	83	$	201
Net fair value	$	83	$	201

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

The foreign currency denominated contract receivables, billings in excess of revenue earned, and subcontractor accruals that are related to the outstanding foreign exchange contracts are remeasured at the end of each period into 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 loss on derivative instruments, net, in the consolidated statements of operations.

For the three months ended March 31, 2018 and 2017, the Company recognized a net loss on its derivative instruments as outlined below:

	Three months ended March 31,
(in thousands)	2018		2017
Foreign exchange contracts - change in fair value	$	(118)	$	(86)
Remeasurement of related contract receivables,  and billings in excess of revenue earned		(38)		(74)
Loss on derivative instruments, net	$	(156)	$	(160)

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13. Stock-Based Compensation

The Company recognizes stock-based compensation expense for all equity-based awards issued to employees, directors and non-employees that are expected to vest.  Stock-based compensation expense is based on the fair value of awards as of the grant date.  The Company recognized $595,000 and $614,000 of stock-based compensation expense related to equity awards for the three months ended March 31, 2018 and 2017, respectively, under the fair value method. In addition to the stock-based compensation expense recognized, the Company also recognized $32,000 and $(18,000) of expense related to the change in the fair value of cash-settled restricted stock units (RSUs) during the three months ended March 31, 2018 and 2017, respectively.

During the three months ended March 31, 2018, the Company granted 210,092 time-based RSUs to employees with an aggregate fair value of $682,799. During the three months ended March 31, 2017, the Company granted 223,802 time-based RSUs to employees with an aggregate fair value of $783,000. A portion of the time-based RSUs vest quarterly in equal amounts over the course of eight quarters and the remainder vest annually in equal amounts over the course of three years. The fair value of the time-based RSUs is expensed ratably over the requisite service period, which ranges from one to three years.

During the three months ended March 31, 2018 and 2017, the Company did not grant performance-based RSUs or stock options.

14. Debt

Line of Credit

Citizens Bank

The Company entered into a three-year, $5.0 million revolving line of credit facility (RLOC) with Citizens Bank on December 29, 2016, to fund general working capital needs. Working capital advances bear interest of one-month LIBOR plus 2.25% per annum and letter of credit fees are 1.25% per annum. The Company is not required to maintain a restricted cash collateral account at Citizens Bank for outstanding letters of credit and working capital advances.

The maximum availability under the RLOC is subject to a borrowing base equal to 80% of eligible accounts receivable, and is reduced for any issued and outstanding letters of credit and working capital advances.  At March 31, 2018, there were no outstanding borrowings on the RLOC and two letters of credit totaling $0.7 million. The amount available at March 31, 2018, after consideration of the borrowing base, letters of credit and working capital advances was approximately $4.3 million.

The credit facility agreement is subject to standard financial covenants and reporting requirements. At March 31, 2018, the Company was in compliance with its financial covenants.

BB&T Bank

At March 31, 2018, the Company had two letters of credit with BB&T totaling $0.6 million, which have expired and are pending release by the bank and customer.  At March 31, 2018 and December 31, 2017, the cash collateral account with BB&T totaled $0.6 million and $1.0 million, respectively. The balances were classified as restricted cash on the consolidated balance sheets.

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15. Product Warranty

The Company accrues for estimated warranty costs at the time the related revenue is recognized based on historical experience and projected claims. The Company's SDB contracts generally provide a one to two-year base warranty on the systems. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $1.2 million, while the remaining $0.7 million is classified as long-term within other liabilities. The activity in the accrued warranty accounts is as follows:

(in thousands)
Balance, January 1, 2018	$	1,953
Current period provision		28
Current period claims		(103)
Currency adjustment		5
Balance at March 31, 2018	$	1,883

16. Revenue

We generate revenue primarily through three broad revenue streams: 1) SDB, 2) Software, and 3) Training and Consulting Services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The following table represents a disaggregation of revenue by type of goods or services for the three months ended March 31, 2018 and 2017, along with the reportable segment for each category:

(in thousands)	Three Months Ended March 31,
	2018		2017(1)
Performance Improvement Solutions
System Design and Build	$	7,495	$	7,319
Software		869		456
Training and Consulting Services		1,537		1,895
Nuclear Industry Training and Consulting
Training and Consulting Services		12,994		6,672
Total revenue	$	22,895	$	16,342

⁽¹⁾ Prior period amounts have not been adjusted under the modified retrospective transition method for the adoption of ASC 606.

SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule as established in our contracts. The transaction price for software contracts is generally fixed. Fees for software are normally due in advance of or shortly after delivery of the software. Fees for PCS are normally paid in advance of the service period. For Training and Consulting Services, the customers are generally billed on a regular basis, such as weekly, biweekly or monthly, for services provided. Contract liability, which we classify as billing in excess of revenue earned, relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as performance obligations are satisfied.

The following table reflects the balance of contract liabilities and the revenue recognized in the reporting period that was included in the contract liabilities from contracts with customers:

(in thousands)

	March 31, 2018		December 31, 2017
Billings in excess of revenue earned (BIE)	$	12,592	$	14,543
Revenue recognized in the period from amounts included in BIE at the beginning of the period	$	5,115		N/A

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For an SDB contract, we generally have two main performance obligations: the training simulator build and PCS. The training simulator build generally includes hardware, software, and labor. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method. In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to 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.

For the three months ended March 31, 2018, the Company did not recognize significant revenue related to performance obligations satisfied in previous periods.

As of March 31, 2018, the aggregate amount of transaction price allocated to the remaining performance obligations of SDB and Software contracts is $35.6 million. The Company will recognize the revenue as the performance obligations are satisfied, which is expected to occur over the next 12 months.

Training and consulting services contracts are primarily T&M based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates, which are fixed per type of work, as well as approved expenses incurred. As part of our adoption of ASU 2014-09, we have elected to use the optional exemption under ASC 606-10-50-14(b), pursuant to which we have excluded disclosures of transaction prices allocated to remaining performance obligations under such contracts and when we expect to recognize the revenue.

17. Income Taxes

The following table presents the provision for income taxes and the effective tax rates:

	Three months ended March 31,
($ in thousands)	2018		2017
Provision for income taxes	$	259	$	73
Effective tax rate		(20.9%)		(37.8%)

The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. Tax expense in 2018 is comprised mainly of federal income tax expense, foreign income tax expense, and state taxes. Tax expense in 2017 is comprised mainly of foreign income tax expense, Alternative Minimum Tax, state taxes, and deferred tax expense relating to the tax amortization of goodwill.

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Our effective tax rate was (20.9%) for the three months ended March 31, 2018. The difference in our effective tax rate and the U.S. statutory federal income tax rate of 21% was primarily due to our China subsidiary which had a taxable income for the three months ended March 31, 2018 and the accruals related to uncertain tax positions for certain foreign tax contingencies.

Because of its net operating loss carryforwards, the Company is subject to U.S. federal and state income tax examinations from the year 1997 and forward. The Company is subject to foreign tax examinations by tax authorities for years 2011 forward for Sweden, 2014 forward for China, and 2015 forward for both India and the UK.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense.

The Company recognizes deferred tax assets to the extent that it is believed that these assets are more likely than not to be realized. The Company has evaluated all positive and negative evidence and determined that it will continue to assess a full valuation allowance on its Swedish and U.K. net deferred assets as of March 31, 2018. The Company has determined that it is more likely than not that it will realize the benefits of its deferred taxes in the U.S, China, and India.

The Company recognizes the tax on GILTI as a period cost in the period the tax is incurred. Under this policy, we have not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.

The Company has made an entity classification (CTB) election to treat GSE UK as a disregarded entity effective January 1, 2018. Therefore, as of January 1, 2018, GSE UK is treated as a branch of the US for tax purposes. Accordingly, GSE UK's 2018 first quarter activity has been included in the US Company's income tax provision.

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18. Segment Information

The Company has two reportable business segments.  The Performance Improvement Solutions 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. The Company provides these services across all market segments. Contract terms are typically less than two years.

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

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 taxes:

(in thousands)	Three months ended
	March 31,
	2018		2017
Revenue:
Performance Improvement Solutions	$	9,901	$	9,670
Nuclear Industry Training and Consulting		12,994		6,672
	$	22,895	$	16,342
Operating income:
Performance Improvement Solutions	$	(790)	$	(110)
Nuclear Industry Training and Consulting		(338)		307
Change in fair value of contingent consideration, net		-		(254)
Operating loss		(1,128)		(57)
Interest income, net		22		27
Loss on derivative instruments, net		(156)		(160)
Other income (expense), net		25		(3)
Loss before income taxes	$	(1,237)	$	(193)

Effective January 2018, and due to the acquisition of Absolute, the Performance Improvement Solutions allocated corporate overhead to the Nuclear Industry Training and Consulting segment. For the three months ended March 31, 2018 and 2017, a total of $1.2 million and $0.6 million of corporate overhead, respectively, was allocated to Nuclear Industry Training and Consulting segment. Prior period amounts were reclassified to reflect the change.

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19. Subsequent Events

On May 14, 2018, we announced that the Company acquired True North Consulting, LLC (True North) on May 11, 2018, a leading provider of specialty engineering solutions to the nuclear power industry. Founded in 1999 in Montrose, Colorado, True North generated revenue of approximately $11 million for the year ended December 31, 2017, of which over 85% came from the nuclear power industry. True North employs roughly 60 full-time and part-time professionals with expertise in areas such as in-service testing for engineering programs focused on ASME OM code including Appendix J, balance of plant programs, thermal performance, in-service inspection for specialty engineering including ASME Section XI and software solutions.

The Company acquired True North for approximately $9.8 million in cash, consisting of approximately $8.3 million paid at close and approximately $1.5 million held in escrow for indemnity and leadership retention purposes. The transaction closed on May 11, 2018. Due to the timing and complexity of the acquisition, the Company had not completed the purchase accounting for the acquisition on the report issuance date.

On May 11, 2018, the Company entered into an amended and restated credit agreement with Citizen's Bank, consisting of a five-year $5 million revolving line of credit and a five-year $25 million delayed draw term loan facility to fund acquisitions approved by the Lender. We drew down approximately $10.3 million to fund the acquisition of True North. Interest is based on a LIBOR spread of 200 to 275 basis points, depending on pre-defined leverage thresholds defined in the agreement.

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

GSE is a world leader in real-time high-fidelity simulation, and provides a wide range of simulation, consulting, training, and engineering solutions to the global power and process industries. We provide customers with simulation, engineering and plant services that help clients reduce risks associated with operating their plants, increase revenue through improved plant and employee performance, and lower costs through improved operational efficiency. In addition, we provide professional services that systematically help clients fill key vacancies in the organization on a short-term basis, primarily in procedures, engineering, technical support, and training focused on regulatory compliance and certification in the nuclear power industry. Our operations also include interactive computer-based tutorials and simulation software for the refining, chemical, and petrochemical industries.

Cautionary Statement Regarding Forward-Looking Statements

This report and the documents incorporated by reference herein contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are based on management's assumptions, expectations and projections about us, and the industry within which we operate, and that have been made pursuant to the Private Securities Litigation Reform Act of 1995 reflecting our expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as "anticipate", "believe", "continue", "estimate", "intend", "may", "plan", "potential", "predict", "expect", "should", "will" and similar expressions, or the negative of these terms or other comparable terminology, have been used to identify these forward-looking statements. These forward-looking statements may also use different phrases. These statements regarding our expectations reflect our current beliefs and are based on information currently available to us. Accordingly, these statements by their nature are subject to risks and uncertainties, including those listed under Item 1A - Risk Factors in our most recent annual report on Form 10-K, which could cause our actual growth, results, performance and business prospects and opportunities to differ from those expressed in, or implied by, these forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Except as otherwise required by federal securities law, we are not obligated to update or revise these forward looking statements to reflect new events or circumstances. We caution you that a variety of factors, including but not limited to the factors described under Item 1A - Risk Factors in our most recent annual report on Form 10-K, could cause our business conditions and results to differ materially from what is contained in forward-looking statements.

Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected.  Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in Item 1A - Risk Factors in our most recent annual report on Form 10-K in connection with any forward-looking statements that may be made by us. You should not place undue reliance on any forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC.

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General Business Environment

We operate through two reportable business segments: Performance Improvement Solutions and Nuclear Industry Training and Consulting. Each segment focuses on delivering solutions to customers within our targeted markets - primarily the power and process industries. 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 generally aligned with each segment to support existing customer accounts and new customer development.  The following is a description of our business segments:

Performance Improvement Solutions (approximately 43% of revenue)

Our Performance Improvement Solutions segment primarily encompasses our power plant high-fidelity simulation solutions and interactive computer based tutorials/simulation focused on the process industry. This segment includes various simulation products, engineering services, and operation training systems delivered across the industries we serve: primarily nuclear and fossil fuel power generation, as well as the process industries. Our simulation solutions include the following: (1) simulation software and services, including operator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for the fossil power industry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems to newly hired employees and for ongoing workforce development and training. GSE and its predecessors have been providing these services since 1976.

Nuclear Industry Training and Consulting (approximately 57% of revenue)

Nuclear Industry Training and Consulting provides highly specialized and skilled nuclear operations instructors, procedure writers, technical engineers, and other consultants to the nuclear power industry. These employees work at our clients' facilities under client direction. Examples of these highly skilled positions are senior reactor operations instructors, procedure writers, project managers, work management specialists, planners and training material developers. This business is managed through Hyperspring and the newly acquired Absolute subsidiaries. The business model, management focus, margins and other factors clearly separate this business line from the rest of the Company's product and service portfolio. GSE and its predecessors have been providing these services since 1997.

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Business Strategy

Our objective is to provide a powerful technology-enabled engineering and training/consulting services platform focused primarily on the nuclear power industry. We offer our differentiated suite of products and services to adjacent markets such as fossil power and the process industries where our offerings are a natural fit with a clear and compelling value proposition for the market. Our primary growth strategy is twofold: (1) seek acquisitions to accelerate our overall growth in a manner that is complementary to our core business and (2) expand organically within our core markets by leveraging our market leadership position and drive increased usage and product adoption via new products and services. To accomplish this, we will pursue the following activities:

Pursue roll-up acquisition strategy. We intend to complement our organic growth strategy through selective acquisitions including, but not limited to, the following: technical engineering; training, staffing and consulting service businesses focused on the power industry particular nuclear; value added components for nuclear power plants; and software utilized in the power industry, both domestic and international. We are focusing our efforts on acquisitions that would enhance our existing portfolio of products and services, strengthen our relationships with our existing customers, and potentially expand our footprint to include new customers in our core served industries. We have made several acquisitions since 2011 and believe the opportunity exists to acquire businesses that are complementary to ours, allowing us to accelerate our growth strategy.

In January 2011, we acquired a software company called EnVision Systems Inc., which provided interactive multi-media tutorials and simulation models, primarily to the process industries. We have integrated the technology assets from this acquisition and expanded the firm's application to other industries, and we intend to repeat this successful process. In November 2014, we acquired Hyperspring, which enabled GSE to offer highly skilled nuclear operations and consulting personnel with unique know-how to our client base of nuclear power plants. This deepened our relationship with existing clients and won business for us at new client sites in the nuclear industry. This acquisition has proven to be synergistic, enabling cross selling domestically, and in 2015, the expansion of these offerings to international customers for the first time. In September 2017, we acquired Absolute, a provider of technical consulting and staffing solutions to the global nuclear power industry, located in Navarre, Florida and on May 11, we acquired True North Consulting, LLC, a leading provider of specialty engineering solutions to the nuclear power industry, located in Montrose, Colorado.  The acquisitions of Absolute and True North are expected to strengthen the Company's global leadership in the nuclear services area. The acquisitions add new capabilities to the GSE solution offering, and bring new highly complementary customers to GSE while deepening GSE relationships with existing clients. The acquisitions of Absolute and True North are a significant proof point of the thesis that GSE is a compelling platform for consolidating a fragmented vendor ecosystem for nuclear power. The acquisitions adds significant scale and focus to the business, while positioning GSE as a "go to" provider of technical and consulting solutions to the power industry, in particular nuclear power.

Expand our total addressable market. Our focus on growth means introducing product capabilities or new product and service categories that create value for our customers and therefore expand our total addressable market. Currently we are working on initiatives to expand our solution offerings in both our business segments which may include, but not be limited to, the following: expanding our software product portfolio to the industries we serve with enhanced power and process simulation tools and systems that are complementary to our core offerings; delivering enhanced learning management systems/solutions; offering fully outsourced training solutions to our customers; adding work flow process improvement solutions; tailoring operational reporting and business intelligence solutions to address the unique need of our end user markets; and adding new services to broaden our market reach.

Initiatives such as these will broaden our scope and enable us to engage more deeply with the segments we serve. We have delivered a compelling solution, the GSE GPWR^TM Generic Pressurized Water Reactor simulation technology, proving that our modeling technology can be sold via traditional license terms and conditions to the nuclear industry ecosystem. We have both upgraded and expanded the EnVision™ library of simulation and eLearning tutorials for the process industries with specific new products for training clients in the upstream segment of the oil and gas industry including launching a new cloud-based training platform, EnVision™ Learning On-Demand, that significantly extends the capabilities of its industry leading EnVision™ tutorials and simulations. We continue to provide cutting edge training systems by adapting our technology to systems to meet the specific needs of customers such as U.S. government laboratories.

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Research and development (R&D).We invest in R&D to deliver unique solutions that add value to our end-user markets. We have delivered nuclear core and Balance-of-Plant modeling and visualization systems to the industry. To address the nuclear industry's need for more accurate simulation of both normal and accident scenarios, we provide our DesignEP^® and RELAP5-HD^® solutions. Our entire JADE^TM suite of simulation software, including industry leading JTOPMERET^® and JElectric^TM software, provides the most accurate simulation of Balance-of-Plant and electrical systems available to the nuclear and fossil plant simulation market. The significant enhancements we have made to our SimExec^® and OpenSim^TM platforms enables customers to be more efficient in the daily operation of their simulators. We are bringing SimExec^® and OpenSim^TM together into a next generation unified environment that will add new capabilities as requested by clients and driven by market need.

We intend to continue to make pragmatic and measured investments in R&D that first and foremost are driven by the market, and are complementary to advancing our growth strategy. Such investments in R&D may result in on-going enhancement of existing solutions as well as the creation of new solutions to serve our target markets, ensuring that we add greater value, in an easier to use fashion, at lower cost of ownership than any alternative available to customers. GSE has pioneered a number of industry standards over our lifetime and will continue to be one of the most innovative companies in our industry.

Strengthen and develop our talent. Our experienced employees and management team are our most valuable resources. Attracting, training, and retaining top talent is critical to our success. To achieve our talent goals, we intend to remain focused on providing our employees with entrepreneurial opportunities to increase client contact within their areas of expertise and to expand our business within our service offerings. We will also continue to provide our employees with training, personal and professional growth opportunities, performance-based incentives including opportunities for stock ownership, bonuses and competitive benefits as benchmarked to our industry and locations.

Continue to deliver industry-recognized high-quality services. We have developed a strong reputation for quality services based upon our industry-recognized depth of experience, ability to attract and retain quality professionals, and expertise across multiple service sectors. We have received industry certificates and awards including being recognized for outstanding work on projects by Bechtel's Nuclear, Security & Environmental global business unit (NS&E) at the Bechtel Supply Chain Recognition awards in April 2016. In addition, we have a recognized high-value brand as one of the most respected providers of software and services to the nuclear industry, as evidenced by our marquee client base and significant market wins over the past years. A recently conducted survey of clients with projects underway and/or just delivered validates our brand with a Net Promoter Score of +72, a compelling score for an industrial technology and services company.

Expand international operations in selected markets. We believe there are additional opportunities for us to market our software and services to international customers, and to do so in a cost-effective manner. For example, we believe partnerships with Value Added Resellers (VAR) could significantly expand our sales pipeline for the EnVision™ software suite. In 2016, we entered into a reseller agreement with an entity in the Middle East that has an established track record of success selling simulation and workforce development solutions to the process industries throughout the region. Such VARs may yield positive results for our pursuit of international nuclear opportunities globally (see industry trends below). We may explore the creation of appropriate joint ventures to target nuclear new-build and maintenance programs in key regions.

Employees.  As of March 31, 2018, we had approximately 447 employees, which includes approximately 160 in our Performance Improvement segment and 287 in our Nuclear Industry Training and Consulting segment. We have approximately 100 licensed engineers and other advanced degreed professionals. To date, we have been able to locate and engage highly qualified employees as needed and we expect our growth efforts to be addressed through attracting top talent.

Backlog.  As of March 31, 2018, we had approximately $72.4 million of total gross revenue backlog, which included $41.5 million of Performance Improvement Solutions backlog and $30.9 million of Nuclear Industry Training and Consulting backlog.With respect to our backlog, it includes only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts. Our backlog includes future expected revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client.  We calculate backlog without regard to possible project reductions or expansions or potential cancellations unless and until such changes may occur.

Backlog is expressed in terms of gross revenue and, therefore, may include significant estimated amounts of third-party or pass-through costs to subcontractors and other parties.  Because backlog is not a defined accounting term, our computation of backlog may not necessarily be comparable to that of our industry peers.

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Products and Services

Performance Improvement Solutions

To assist our clients in creating world-class internal training and engineering improvement processes, we offer a set of integrated and scalable products and services which provide a structured program focused on continuous skills improvement for experienced employees to engineering services, which include plant design verification and validation. We provide the right solutions to solve our clients' most pressing needs.

For workforce development and training, students and instructors alike must have a high degree of confidence that their power plant simulator truly reflects plant behavior across the entire range of operations. To achieve this, GSE's simulation solution starts with the most robust engineering approach possible. Using state-of-the-art modeling tools combined with our leading nuclear power modeling expertise, GSE provides simulation solutions that achieve unparalleled fidelity and accuracy. The solutions that GSE provides are also known for ease of use, resulting in increased productivity by end-users. For these reasons, GSE has delivered more nuclear power plant simulators than any other company in the world.

For virtual commissioning, designers of first-of-a-kind plants or existing plants need a highly accurate dynamic simulation platform to model a wide variety of design assumptions and concepts from control strategies to plant behavior to human factors. Because new builds and upgrades to existing plants result in new technology being deployed, often involving the integration of disparate technologies for the first time, a high-fidelity simulator allows designers to see the interaction between systems for the very first time. With our combination of simulation technology and expert engineering, GSE was chosen to build first-of-a-kind simulators for the AP1000, PBMR, and small modular reactors such as those being built by NuScale.

Examples of the types of simulators we sell include, but are not limited to, the following:

● Universal Training Simulators:  These products complement the Self-Paced Training Tutorials by reinforcing what the student learned in the tutorial, 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, rather than the exact replication of a client's plant. We have delivered over 360 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 and VPanel^® displays, which replicate control room hardware and simulator solutions specific to industry needs such as severe accident models to train on and aid in the understanding of events like the Fukushima Daiichi accident.

● 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. Since our inception, we have delivered over 480 plant-specific simulators to clients in the nuclear power, fossil power and process industries worldwide.

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Nuclear Industry Training and Consulting

As our customers' experienced staff retire, access to experts that can help operate and train existing and new employees in how to operate their plants is essential to ensure safe ongoing plant operations. In addition, operating and training needs change over time and sometimes our clients require fixed priced discrete projects or specialized courses in contrast to straight staff augmentation. The industry needs operating personnel, including procedure writers, engineers, operators and instructors who can step in and use as well as update the client's operating methods, procedures, training material and more. Finding technical professionals and instructors, who know the subject, can perform the work or teach it to others and can adapt to the client's culture, is critical. GSE provides qualified professionals, instructors and turnkey projects/courses that work within the client's system and complement the operating or training methods they already have in place. Examples of our training program courses include senior reactor operator certification, generic fundamentals training, and simulation supervisor training. In addition, we also provide expert support through consulting or turnkey projects for procedure writing, technical engineers, project managers, training material upgrade and development, outage execution, planning and scheduling, corrective actions programs, and equipment reliability.

Webring together the collection of skills we have amassed over more than 40 years beginning with its traditional roots in custom high-fidelity simulation and training solutions for the power industries, extended through the acquisition of specialized engineering capabilities, enhanced by the entry and intermediate level training solutions of EnVision and the extensive nuclear industry training and consulting services of Absolute and 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. Effective January 1, 2018, we adopted ASU 2014-09 which is the new revenue standard. The comparative period revenue has not been restated and continues to be reported under the accounting standards in effect for those periods.

(in thousands)	Three months ended March 31,
	2018		%	2017		%
Revenue	$	22,895	100.0 %	$	16,342	100.0 %
Cost of revenue		17,997	78.6 %		12,220	74.8 %
Gross profit		4,898	21.4 %		4,122	25.2 %
Operating expenses:
Selling, general and administrative		4,527	19.8 %		3,592	22.0 %
Research and development		329	1.4 %		402	2.4 %
Restructuring charges		917	4.0 %		45	0.3 %
Depreciation		103	0.4 %		76	0.5 %
Amortization of definite-lived intangible assets		150	0.7 %		64	0.4 %
Total operating expenses		6,026	26.3 %		4,179	25.6 %
Operating loss		(1,128)	(4.9)%		(57)	(0.4)%
Interest income, net		22	0.1 %		27	0.2 %
Loss on derivative instruments, net		(156)	(0.7)%		(160)	(1.0)%
Other income (expense), net		25	0.1%		(3)	0.0%
Loss before income taxes		(1,237)	(5.4)%		(193)	(1.2)%
Provision for income taxes		259	1.1 %		73	0.4 %
Net loss	$	(1,496)	(6.5)%	$	(266)	(1.6)%

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Results of Operations - three months ended March 31, 2018 versus three months ended March 31, 2017

Revenue.  Revenue for the three months ended March 31, 2018 totaled $22.9 million, which was 40.1% greater than the $16.3 million of revenue for the three months ended March 31, 2017. The year over year increase in revenue was primarily driven by the respective increases in the two segments listed below:

(in thousands)	Three months ended
	March 31,
	2018		2017
Revenue:
Performance Improvement Solutions	$	9,901	$	9,670
Nuclear Industry Training and Consulting		12,994		6,672
Total revenue	$	22,895	$	16,342

Performance Improvement Solutions revenue increased 2.4% to $9.9 million for the three months ended March 31, 2018 from $9.7 million for the three months ended March 31, 2017. The change was mainly driven by an increase of $0.4 million due to more work performed for some major projects, which was partially offset by a decrease of $0.2 million from international subsidiaries as a result of the winding down of our international subsidiaries. We recorded total Performance Improvement Solutions orders of $5.9 million and $4.9 million for the three months ended March 31, 2018 and 2017, respectively.

Nuclear Industry Training and Consulting revenue increased 94.8% to $13.0 million for the three months ended March 31, 2018 from $6.7 million for the three months ended March 31, 2017.  The increase was primarily due to the acquisition of Absolute, which contributed $7.4 million to the current period revenue. The increase was partially offset by a decrease of $1.1 million from Hyperspring due to lower staff augmentation needs from two major customers. Nuclear Industry Training and Consulting orders totaled $18.8 million, with $9.7 million attributable to Absolute, and $14.9 million for the three months ended March 31, 2018 and 2017, respectively.

At March 31, 2018, backlog was $72.4 million: $41.5 million for the Performance Improvement Solutions segment and $30.9 million for Nuclear Industry Training and Consulting. At December 31, 2017, the Company's backlog was $71.4 million: $46.3 million for the Performance Improvement Solutions segment and $25.1 million for Nuclear Industry Training and Consulting.

Gross profit. Gross profit was $4.9 million, or 21.4%, for the three months ended March 31, 2018, compared to $4.1 million, or 25.2% for the same period in 2017.

(in thousands)	Three months ended
	March 31,
	2018		%	2017		%
Gross profit:
Performance Improvement Solutions	$	3,251	32.8%	$	3,044	31.5%
Nuclear Industry Training and Consulting		1,647	12.7%		1,078	16.2%
Total gross profit	$	4,898	21.4%	$	4,122	25.2%

The increase in gross margin percentage for Performance Improvement Solutions for the three months ended March 31, 2018 as compared to the same period in 2017 was mainly due to increased software sales which generally have a higher gross margin percentage than SDB sales. For the three months ended March 31, 2018 and 2017, our software sales accounted for 9% and 5% of the segment revenue, respectively.

The decrease in gross profit margin during 2018 for Nuclear Industry Training and Consulting was primarily driven by lower margin from Absolute projects. For the three months ended March 31, 2018, Absolute contributed 57.1% of the segment revenue with a gross profit margin of 11.2%.

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Selling, general and administrative expenses.  Selling, general and administrative (SG&A) expenses totaled $4.5 million and $3.6 million for the three months ended March 31, 2018 and 2017, respectively. Fluctuations in the components of SG&A spending were as follows:

($ in thousands)	Three months ended
	March 31,
	2018		%	2017		%
Selling, general and administrative expenses:
Corporate charges	$	3,337	73.7%	$	2,442	68.0%
Business development expenses		918	20.3%		685	19.0%
Facility operation & maintenance (O&M)		271	6.0%		211	5.9%
Contingent consideration accretion		-	0.0%		254	7.1%
Others		1	0.0%		-	0.0%
Total	$	4,527	100.0%	$	3,592	100.0%

Corporate charges increased $0.9 million primarily due to $0.3 million of higher bonus expense mainly due to a new post earnout bonus plan in 2018 for certain Hyperspring employees, $0.3 million of higher one-time professional fees associated with the adoption of the new revenue standard (ASC 606) and the impact of the Tax Cuts and Jobs Act and $0.2 million of general administrative expenses attributable to Absolute, which was acquired in September 2017.

The increase in business development expenses was primarily due to the acquisition of Absolute.

Contingent consideration accretion mainly represented fair value adjustments of the contingent consideration liability related to our 2014 Hyperspring acquisition. The earnout period expired in November 2017, and the final payment was made in January 2018, therefore no contingent consideration adjustment was recorded for the current period.

Research and development.  Research and development costs consist primarily of software engineering personnel and other related costs.  Research and development costs, net of capitalized software, totaled $329,000 and $402,000 for the three months ended March 31, 2018 and 2017, respectively. Before capitalization of software development costs, research and development totaled $434,000 and $431,000 for three months ended March 31, 2018 and 2017, respectively.

Restructuring charges. On December 27, 2017, the Board of GSE Systems, Inc. approved an international restructuring plan to streamline and optimize the Company's global operations and we announced we expected restructuring charges to total $1.8 million, excluding any tax impacts and cumulative translation adjustments. We recorded $0.7 million in the fourth quarter of 2017. For the three months ended March 31, 2018, restructuring charges totaled $0.9 million, including severance expense of $0.3 million, lease termination costs of $0.5 million and other costs of $0.1 million. As of March 31, 2018, we had recorded accumulated restructuring charges of $1.7 million, and we expect to record the remaining restructuring charges of approximately $0.1 million by the end of June 2018. These restructuring charges exclude cumulative translation adjustment losses of approximately $1.4 million, assuming currency rates at March 31, 2018, and will be recorded as a charge against net income upon liquidation of the respective foreign subsidiaries. We also expect to recognize tax benefits related to the liquidation of these subsidiaries that may offset the majority of the currency translation adjustment losses. Under the restructuring plan, the Company expects a total of $1.6 million cash outflow in 2018, which primarily includes severance expense, facility closing costs, and other restructuring costs. For the three months ended March 31, 2017, we recorded restructuring charges of $45,000, which represented true-up adjustments related to the restructuring plan initiated in 2015.

Depreciation. Depreciation expense totaled $103,000 and $76,000 for the three months ended March 31, 2018 and 2017, respectively. The increase in 2018 was primarily attributable to our acquisition of Absolute.

Amortization of definite-lived intangible assets. Amortization expense related to definite-lived intangible assets totaled $150,000 and $64,000 for the three months ended March 31, 2018, and 2017, respectively. Amortization expense increased $118,000 due to our acquisition of Absolute. The increase in amortization was partially offset by lower amortization of customer-related intangible assets that were recorded when we acquired Hyperspring in 2014.

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Loss on derivative instruments, net. Loss on derivative instruments relates to the Company's foreign exchange contracts and remeasurement of foreign currency-denominated contract receivables, billings in excess of revenue earned, and subcontractor accruals. These amounts are remeasured into the functional currency using the current exchange rate at the end of the period. For the three months ended March 31, 2018, we recognized a loss of $118,000 on the change in fair value of foreign exchange contracts, and a loss of $38,000 from the remeasurement of contract receivables, billings in excess of revenue earned and subcontractor accruals. For the three months ended March 31, 2017, we recognized a loss of $86,000 on the change in fair value of foreign exchange contracts, and a loss of $74,000 from the remeasurement of contract receivables, billings in excess of revenue earned and subcontractor accruals.

Other (expense) income, net.  The Company recognized $25,000 of other income, net and $3,000 of other expense, net for the three months ended March 31, 2018 and 2017, respectively.

Provision for income taxes.  Income tax expense was $259,000, or an effective income tax rate of (20.9%), for the three months ended March 31, 2018, compared to $73,000, or an effective income tax rate of (37.8%), for the three months ended March 31, 2017. The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. Tax expense in 2018 is comprised mainly of federal income tax expense, foreign income tax expense, and state taxes. Tax expense in 2017 is comprised mainly of foreign income tax expense, Alternative Minimum Tax, state taxes, and deferred tax expense relating to the tax amortization of goodwill.

The difference in our effective tax rate and the U.S. statutory federal income tax rate of 21% was primarily due to our China subsidiary which had taxable income for the three months ended March 31, 2018 and the accruals related to uncertain tax positions for certain foreign tax contingencies.

Because of its net operating loss carryforwards, the Company is subject to U.S. federal and state income tax examinations from the year 1997 and forward. The Company is subject to foreign tax examinations by tax authorities for years 2011 forward for Sweden, 2014 forward for China, and 2015 forward for both India and the UK.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense.

The Company has recorded full valuation allowance for its U.K. and Swedish net deferred tax assets at March 31, 2018.

Critical Accounting Policies and Estimates

In preparing the Company's consolidated financial statements, management makes several estimates and assumptions that affect the Company's reported amounts of assets, liabilities, revenues and expenses. The Company's most significant estimates relate to revenue recognition on contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock based compensation awards, and the recoverability of deferred tax assets. These critical accounting policies and estimates are discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in our most recent Annual Report on Form 10-K. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates may require adjustment.

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Liquidity and Capital Resources

As of March 31, 2018, the Company's cash, cash equivalents and restricted cash totaled $12.4 million compared to $20.1 million at December 31, 2017.

For the three months ended March 31, 2018 and 2017, net cash (used in) provided by operating activities was $(5.5) million and $1.1 million, respectively. The year over year change of $6.6 million in cash flows (used in) provided by operating activities was primarily driven by the change in contract receivables, billing in excess of revenue earned and accounts payable and accrued expenses, which was mainly due to timing differences of cash collections and payments. The majority of the cash outflows from operations was due to a significant increase in our contract receivables and unbilled revenues during the first quarter of 2018. These contract receivables and unbilled revenues related to a limited number of our larger customers, and the majority were billed or collected during April and May of 2018.

Net cash used in investing activities totaled $0.4 million and $0.1 million for the three months ended March 31, 2018 and 2017, respectively. The increase in cash outflow in 2018 was primarily due to $0.3 million increase in lease improvements and furniture and fixtures as we entered into a new lease agreement in December 2017 and relocated most of our corporate functions, including finance, legal, and R&D to a new office in Columbia, Maryland in March 2018.

For the three months ended March 31, 2018 and 2017, net cash used in financing activities totaled $1.7 million and $1.2 million, respectively. The increase in the cash outflow from financing activities is largely driven by the increase of $1.1 million in contingent consideration payments to the former Hyperspring owners as we paid off the earnout, which was partially offset by a decrease of $0.6 million in the Company's withholding of RSUs in order to pay employees' payroll withholding taxes on vested RSUs.

At March 31, 2018, the Company had cash, cash equivalents and restricted cash of $12.4 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.

Line of Credit

Citizens Bank

The Company entered into a three-year, $5.0 million revolving line of credit facility (RLOC) with Citizens Bank on December 29, 2016, to fund general working capital needs. Working capital advances bear interest of one-month LIBOR plus 2.25% per annum and letter of credit fees are 1.25% per annum.  The Company is not required to maintain a restricted cash collateral account at Citizens Bank for outstanding letters of credit and working capital advances. 

The maximum availability under the RLOC is subject to a borrowing base equal to 80% of eligible accounts receivable, and is reduced for any issued and outstanding letters of credit and working capital advances. At March 31, 2018, there were no outstanding borrowings on the RLOC and two letters of credit totaling $0.7 million. The amount available at March 31, 2018, after consideration of the borrowing base, letters of credit and working capital advances was approximately $4.3 million.

The credit facility agreement is subject to standard financial covenants and reporting requirements. At March 31, 2018, the Company was in compliance with its financial covenants.

On May 11, 2018, GSE entered into an amended and restated credit agreement with Citizen's Bank, consisting of a five-year $5 million revolving line of credit and a five-year $25 million delayed draw term loan facility to fund acquisitions approved by the Lender. At close, we drew down approximately $10.3 million to fund the acquisition of True North. Interest will be based on a LIBOR spread of 200 to 275 basis points, depending on pre-defined leverage thresholds defined in the agreement.

BB&T Bank

At March 31, 2018, we had two letters of credit with BB&T totaling $0.6 million, which expired and are pending on release by the bank and customer. At March 31, 2018 and December 31, 2017, the cash collateral account with BB&T totaled $0.6 million and $1.0 million, respectively and were classified as restricted cash on the consolidated balance sheets.

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Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are not measures of financial performance under generally accepted accounting principles ("GAAP"). Management believes EBITDA and Adjusted EBITDA, in addition to operating profit, net income and other GAAP measures, are useful to investors to evaluate the Company's results because it excludes certain items that are not directly related to the Company's core operating performance that may, or could, have a disproportionate positive or negative impact on our results for any particular period. Investors should recognize that EBITDA and Adjusted EBITDA might not be comparable to similarly-titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP. Reconciliation of non-GAAP EBITDA and Adjusted EBITDA to the most directly comparable GAAP measures are as follows:

(in thousands)

	Three months ended
	March 31,
	2018		2017
Net loss	$	(1,496)	$	(266)
Interest income, net		(22)		(27)
Provision for income taxes		259		73
Depreciation and amortization		371		257
EBITDA		(888)		37
Loss from the change in fair value of contingent consideration		-		254
Restructuring charges		917		45
Stock-based compensation expense		627		596
Loss on derivative instruments, net		156		160
Adjusted EBITDA	$	812	$	1,092

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Adjusted Net Income and Adjusted EPS Reconciliation (in thousands, except per share amounts)

Adjusted Net Income and adjusted earnings (loss) per share ("adjusted EPS") are not measures of financial performance under GAAP.  Management believes adjusted net income and adjusted EPS, in addition to other GAAP measures, provide meaningful supplemental information regarding our operational performance. Our management uses Adjusted Net Income and other non-GAAP measures to evaluate the performance of our business and make certain operating decisions (e.g., budgeting, planning, employee compensation and resource allocation). This information facilitates management's internal comparisons to our historical operating results as well as to the operating results of our competitors. Since management finds this measure to be useful, we believe that our investors can benefit by evaluating both non-GAAP and GAAP results.  These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP. A reconciliation of non-GAAP adjusted net income and adjusted EPS to GAAP net income, the most directly comparable GAAP financial measure, is as follows:

(in thousands)	Three months ended
	March 31,
	2018		2017
Net loss	$	(1,496)	$	(266)
Loss from the change in fair value of contingent consideration		-		254
Restructuring charges		917		45
Stock-based compensation expense		627		596
Loss on derivative instruments, net		156		160
Adjusted net income	$	204	$	789
Loss per share - diluted	$	(0.08)	$	(0.01)
Adjusted earnings per share - diluted (a)	$	0.01	$	0.04
Weighted average shares outstanding - Diluted (a)		19,902,752		19,502,057

(a) During the three months ended March 31, 2018 and 2017, the Company reported a GAAP net loss and positive adjusted net income. Accordingly, there were 388,367 and 407,675 dilutive shares from options and RSUs included in the adjusted earnings per common share calculation for the three months ended March 31, 2018 and 2017, respectively, that were considered anti-dilutive in determining the GAAP diluted loss per common share.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

Not required of a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

On September 20, 2017, the Company completed the acquisition of Absolute Consulting, Inc. Absolute constitutes 21% of total assets of the Company at March 31, 2018, and 32% of the Company's consolidated revenue for the three months ended March 31, 2018. As permitted by SEC guidance for newly acquired businesses, because it was not possible to complete an effective assessment of the acquired company's controls by the quarter-end, the Company's management has excluded Absolute from its evaluation of disclosure controls and procedures from the date of such acquisition through March 31, 2018.

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.

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.

38

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, 2017.

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.

Item 5. Other Information

None.

Item 6. Exhibits

2.1	Membership Interest Purchase Agreement, dated as of May 11, 2018, between True North Consulting LLC, Donald R. Horn, Jenny C. Horn, GSE Performance Solutions, Inc., and Donald R. Horn in his capacity as Seller Representative. Incorporated herein by reference to Exhibit 2.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2018.
10.1	Amended and Restated Credit and Security Agreement, dated as of May 11, 2018, by and among Citizens Bank, National Association, as Bank, and GSE Systems, Inc. and GSE Performance Solutions, Inc., as Borrower. Incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2018.
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

39

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:  May 15, 2018

GSE SYSTEMS, INC.

/S/ KYLE J. LOUDERMILK

Kyle J. Loudermilk

Chief Executive Officer

(Principal Executive Officer)

/S/ EMMETT A. PEPE

Emmett A. Pepe

Chief Financial Officer

(Principal Financial and Accounting Officer)

40

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:  May 15, 2018	/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, Emmett A. Pepe, 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:  May 15, 2018	/s/ Emmett A. Pepe
	Emmett A. Pepe
	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 March 31, 2018 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, Emmett A. Pepe, 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:  May 15, 2018	/s/ Kyle J. Loudermilk	/s/ Emmett A. Pepe
	Kyle J. Loudermilk	Emmett A. Pepe
	Chief Executive Officer	Chief Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 30, 2018
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 Common Stock, Shares Outstanding		19,636,973
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 11,763	$ 19,111
Restricted cash	647	960
Contract receivables, net	18,757	13,997
Prepaid expenses and other current assets	2,680	2,795
Total current assets	33,847	36,863
Equipment, software, and leasehold improvements	5,102	4,782
Accumulated depreciation	(3,828)	(3,719)
Equipment, software, and leasehold improvements, net	1,274	1,063
Software development costs, net	677	690
Goodwill	8,431	8,431
Intangible assets, net	2,456	2,604
Deferred tax assets	6,336	7,167
Other assets	37	37
Total assets	53,058	56,855
Current liabilities:
Accounts payable	557	1,251
Accrued expenses	3,523	2,276
Accrued compensation	2,975	2,866
Billings in excess of revenue earned	12,592	14,543
Accrued warranty	1,186	1,433
Current contingent consideration	0	1,701
Other current liabilities	1,410	1,182
Total current liabilities	22,243	25,252
Other liabilities	1,453	1,931
Total liabilities	23,696	27,183
Commitments and contingencies
Stockholders' equity:
Preferred stock $.01 par value, 2,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock $0.01 par value, 30,000,000 shares authorized, 21,215,884 and 21,024,395 shares issued and 19,616,973 and 19,425,484 shares outstanding in 2018 and 2017	212	210
Additional paid-in capital	77,376	76,802
Accumulated deficit	(43,711)	(42,870)
Accumulated other comprehensive loss	(1,516)	(1,471)
Treasury stock at cost, 1,598,911 shares	(2,999)	(2,999)
Total stockholders' equity	29,362	29,672
Total liabilities and stockholders' equity	$ 53,058	$ 56,855

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	2,000,000	2,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	21,215,884	21,024,395
Common stock, shares outstanding (in shares)	19,616,973	19,425,484
Treasury stock (in shares)	1,598,911	1,598,911

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]
Revenue	$ 22,895	$ 16,342
Cost of revenue	17,997	12,220
Gross profit	4,898	4,122
Operating expenses:
Selling, general and administrative	4,527	3,592
Research and development	329	402
Restructuring charges	917	45
Depreciation	103	76
Amortization of definite-lived intangible assets	150	64
Total operating expenses	6,026	4,179
Operating loss	(1,128)	(57)
Interest income, net	22	27
Loss on derivative instruments, net	(156)	(160)
Other income (expense), net	25	(3)
Loss before income taxes	(1,237)	(193)
(Benefit) provision for income taxes	259	73
Net loss	$ (1,496)	$ (266)
Basic loss per common share	$ (0.08)	$ (0.01)
Diluted loss per common share	$ (0.08)	$ (0.01)

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]
Net loss	$ (1,496)	$ (266)
Foreign currency translation adjustment	(45)	93
Comprehensive loss	$ (1,541)	$ (173)

XML

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]	Total
Cumulative Effect of New Accounting Principle in Period of Adoption			$ 655			$ 655
Balance (Scenario, Previously Reported [Member]) at Dec. 31, 2017			(42,870)			29,672
Balance at Dec. 31, 2017	$ 210	$ 76,802		$ (1,471)	$ (2,999)	$ 29,672
Balance (in shares) at Dec. 31, 2017	21,024,395				(1,598,911)	19,425,484
Stock-based compensation expense		595				$ 595
Common stock issued for options exercised (in shares)	109,513
Common stock issued for options exercised	$ 1	56				57
Common stock issued for RSUs vested (in shares)	81,976
Common stock issued for RSUs vested	$ 1	(1)				0
Vested RSU shares withheld to pay taxes		(76)				(76)
Foreign currency translation adjustment				(45)		(45)
Net income			(1,496)			(1,496)
Balance at Mar. 31, 2018	$ 212	$ 77,376	$ (43,711)	$ (1,516)	$ (2,999)	$ 29,362
Balance (in shares) at Mar. 31, 2018	21,215,884				(1,598,911)	19,616,973

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net loss	$ (1,496)	$ (266)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation	103	76
Amortization of definite-lived intangible assets	150	64
Amortization of capitalized software development costs	118	117
Change in fair value of contingent consideration, net	0	254
Stock-based compensation expense	627	596
Loss on derivative instruments, net	156	160
Deferred income taxes	(90)	0
Changes in assets and liabilities:
Contract receivables	(4,683)	4,937
Prepaid expenses and other assets	(12)	(523)
Accounts payable, accrued compensation and accrued expenses	647	(1,184)
Billings in excess of revenue earned	(1,127)	(3,279)
Accrued warranty	(75)	67
Other liabilities	154	325
Cash (used in) provided by operating activities	(5,528)	1,090
Cash flows from investing activities:
Capital expenditures	(318)	(44)
Capitalized software development costs	(105)	(29)
Cash used in investing activities	(423)	(73)
Cash flows from financing activities:
Proceeds from issuance of common stock on the exercise of stock options	57	62
Payments on contingent consideration	(1,701)	(597)
RSUs withheld to pay taxes	(76)	(672)
Cash used in financing activities	(1,720)	(1,207)
Effect of exchange rate changes on cash	10	68
Net (decrease) increase in cash and cash equivalents	(7,661)	(122)
Cash and cash equivalents	11,763	21,625
Restricted cash	647	1,140
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Total	$ 12,410	$ 22,765

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the Company, GSE, we, us, or our) and are unaudited. 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 (U.S. 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, 2017, filed with the Securities and Exchange Commission on March 16, 2018.

The Company has two reportable segments as follows:

● Performance Improvement Solutions (approximately 43% of revenue)

Our Performance Improvement Solutions segment primarily encompasses our technical engineering and power plant high-fidelity simulation solutions and interactive computer based tutorials/simulation focused on the process industry. This segment includes various simulation products, engineering services, and operation training systems delivered across the industries we serve: primarily nuclear and fossil fuel power generation, as well as the process industries. Our simulation solutions include the following: (1) simulation software and services, including operator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for the fossil power industry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems to newly hired employees and for ongoing workforce development and training. GSE and its predecessors have been providing these services since 1976.

● Nuclear Industry Training and Consulting (approximately 57% of revenue)

Nuclear Industry Training and Consulting provides highly specialized and skilled nuclear operations instructors, procedure writers, technical engineers, and other consultants to the nuclear power industry. These employees work at our clients' facilities under client direction. Examples of these highly skilled positions are senior reactor operations instructors, procedure writers, project managers, work management specialists, planners and training material developers. This business is managed through the Hyperspring and Absolute subsidiaries. The business model, management focus, margins and other factors clearly separate this business line from the rest of the Company's product and service portfolio. GSE and its predecessors have been providing these services since 1997.

Financial information about the two business segments is provided in Note 18 of the accompanying condensed consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. The Company's most significant estimates relate to revenue recognition on contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock based compensation awards, and the recoverability of deferred tax assets. Actual results could differ from these estimates and those differences could be material.

Revenue recognition

The Company derives its revenue through three broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3) Training and Consulting services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware, software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the training simulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under the SDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward complete satisfaction of the performance obligation. PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.

In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to 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.

The SDB contracts generally provide a one to two-year base warranty on the systems. The base warranty will not be accounted for as a separate performance obligation under the contract because it does not provide the customer with a service in addition to the assurance that the completed project complies with agreed-upon specifications. Warranties extended beyond our typical two-year period will be evaluated on a case by case basis to determine if it provides more than just assurance that the product operates as intended, which requires carve-out as a separate performance obligation.

Revenue from the sale of standalone software licenses, which do not require significant modification or customization is recognized upon its delivery to the customer. Delivery is considered to have occurred when the customer receives a copy of the software and is able to use and benefit from the software.

A software license sale contract with multiple deliverables typically includes the following elements: license, installation and training services and PCS. The total transaction price of a software license sale contract is typically fixed, and is allocated to the identified performance obligations based on their relative standalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license revenue is recognized when the software license is delivered to the customer; installation and training revenue is recognized when the installation and training is completed without regard to a detailed evaluation of the point in time criteria due to the short-term nature of the installation and training services (one to two days on average); and PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.

The contracts within the training and consulting services revenue stream are primarily time and materials (T&M) based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed per type of work, as well as approved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance with Accounting Standards Codification (ASC) 606-10-55-18, we elected to apply the "right to invoice" practical expedient, under which we recognize revenue in the amount to which we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary worker multiplied by the bill rate for the type of work, as well as approved expenses incurred.

For contracts with multiple performance obligations, we allocate the contract price to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers.

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2018

New Accounting Pronouncement and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 is as follows (in thousands):

	Balance at January 1, 2018
	As Reported		Adoption of ASC 606		As Adjusted
Contract receivables, net	$	13,997	$	(10)	$	13,987
Deferred tax assets		7,167		(241)		6,926
Billings in excess of revenue earned		14,543		(906)		13,637
Accumulated deficit		(42,870)		655		(42,215)

The impact of adoption on our consolidated statement of operations and balance sheet was as follows (in thousands):

Income Statement

	For the three months ended March 31, 2018
	As Reported		Balance without adoption of ASC 606		Effect of Change
Revenue	$	22,895	$	22,852	$	43
Gross profit		4,898		4,855		43
Provision for income taxes		259		231		(28)
Net loss		(1,496)		(1,511)		15

Balance Sheet

	March 31, 2018
	As Reported		Balance without adoption of ASC 606		Effect of Change
Contract receivables, net	$	18,757	$	18,874	$	(117)
Deferred tax assets		6,336		6,605		(269)
Billings in excess of revenue earned		12,592		13,648		(1,056)
Accumulated deficit		(43,711)		(44,381)		670

XML

Basic and Diluted Earnings (Loss) Per Common Share

3 Months Ended

Mar. 31, 2018

Basic and Diluted Earnings (Loss) Per Common Share [Abstract]

Basic and Diluted Earnings (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 outstanding vested stock options were exercised.

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
	March 31,
	2018		2017
Numerator:
Net loss	$	(1,496)	$	(266)
Denominator:
Weighted-average shares outstanding for basic loss per share		19,514,385		19,094,382
Effect of dilutive securities:
Stock options and restricted stock units		-		-
Adjusted weighted-average shares outstanding and assumed conversions for diluted loss per share		19,514,385		19,094,382
Shares related to dilutive securities excluded because inclusion would be anti-dilutive		763,200		564,833

XML

Acquisition

3 Months Ended

Mar. 31, 2018

Acquisition - Absolute [Abstract]

Acquisition - Absolute [Text Block]

4. Acquisition

On September 20, 2017, GSE, through its wholly-owned subsidiary GSE Performance Solutions, Inc. (Performance Solutions), acquired 100% of the capital stock of Absolute Consulting, Inc. (Absolute) for $8.8 million pursuant to the Stock Purchase Agreement by and among Performance Solutions and the sellers of Absolute. The purchase price was subject to a customary working capital adjustment resulting in total consideration of $9.5 million. An indemnification escrow of $1.0 million was funded from the cash paid to the sellers and is available to GSE and Performance Solutions to satisfy indemnification claims until September 20, 2019. The acquisition of Absolute was completed on an all-cash transaction basis.

Absolute is a provider of technical consulting and staffing solutions to the global nuclear power industry. Located in Navarre, Florida, Absolute has established long-term relationships with blue-chip customers primarily in the nuclear power industry. The acquisition of Absolute is expected to strengthen the Company's global leadership in nuclear training and consulting solutions, add new capacities to our technical consulting and staffing solutions offerings and bring highly complementary customers, while deepening relationships with existing clients.

The following table summarizes the consideration paid to acquire Absolute and the fair value of the assets acquired and liabilities assumed at the date of the transaction.

(in thousands)
Total purchase price	$	9,521
Purchase price allocation:
Cash	$	455
Contract receivables		5,121
Prepaid expenses and other current assets		68
Property, and equipment, net		184
Intangible assets		2,569
Accounts payable, accrued expenses, and other liabilities		(78)
Accrued compensation		(1,617)
Total identifiable net assets		6,702
Goodwill		2,819
Net assets acquired	$	9,521

The goodwill is primarily attributable to the additional capacities to offer broader solutions to new and existing customers and the expected enhanced cost and growth synergies as a result of the acquisition. The total amount of goodwill that is expected to be tax deductible is $2.8 million. All of the $2.8 million of goodwill was assigned to our Nuclear Industry Training and Consulting segment.

The fair value of the assets acquired includes gross trade receivables of $5.1 million, which was collected in full after acquisition. GSE did not acquire any other class of receivable as a result of the acquisition of Absolute.

The Company identified $2.6 million of other intangible assets, including customer relationships and trademarks/names, with amortization periods of three to 10 years. The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:

Intangible Assets	Weighted average amortization period	Fair Value
	(in years)	(in thousands)
Customer relationships	10	$	1,856
Trademarks/Names	3		713
Total		$	2,569

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Restructuring Activities

3 Months Ended

Mar. 31, 2018

Restructuring Activities [Abstract]

Restructuring and Related Activities Disclosure [Text Block]

5. Restructuring Activities

On December 27, 2017, the board of GSE Systems, Inc. approved an international restructuring plan to streamline and optimize the Company's global operations. Beginning in December 2017, GSE has been in the process of consolidating its engineering services and R&D activities to Maryland and ceasing an unprofitable non-core business in the U.K. As a result, the Company will be closing its offices in Nyköping, Sweden; Chennai, India; and Stockton-on-Tees, UK. These actions are designed to improve Company productivity by eliminating duplicate employee functions and increasing GSE's focus on its core business, improving efficiency and maintaining the full range of engineering capabilities while reducing costs and organizational complexity.

GSE expects to eliminate approximately 40 positions due to these changes, primarily in Europe and India, and will undertake other cost-savings measures. The restructuring plan is expected to be completed in 2018. As a result of these efforts, GSE expects to record a restructuring charge of approximately $1.8 million, primarily related to workforce reductions, contract termination costs and asset write-offs due to the exit activities. As of March 31, 2018, we had recorded a restructuring charge of $1.7 million. The amounts to be transferred from cumulative translation adjustments and included in determining net income for the period, in which the liquidation of these foreign entities are completed, are not included in the estimated total amount of restructuring charge. We expect to record the remaining charges and the translation adjustments by the end of 2018.

The following tables summarize the restructuring costs and restructuring liabilities:

(in thousands)

	March 31, 2018
	Total Expected Costs		Costs Incurred to Date		Expected Costs Remaining
Employee termination benefits	$	736	$	729	$	7
Lease termination costs		555		519		36
Assets write-offs/impairment		222		222		-
Other restructuring costs		272		180		92
Total Restructuring costs	$	1,785	$	1,650	$	135

The restructuring costs related to our Performance Improvement Solutions segment and are included in the consolidated statement of operations within the "Restructuring charges" line caption.

	Employee termination benefits		Lease termination costs		Other Restructuring costs		Total
Balance as of January 1, 2018	$	465	$	-	$	33	$	498
Accruals		264		519		134		917
Payments		(406)		-		(5)		(411)
Currency translation and other adjustments		1		119		-		120
Balance as of March 31, 2018	$	324	$	638	$	162	$	1,124

The accrued employee termination benefits were included in "accrued compensation" line, and the accrued lease termination costs and other restructuring costs were included in "accrued expenses" in the consolidated balance sheets.

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Contingent Consideration

3 Months Ended

Mar. 31, 2018

Contingent Consideration [Abstract]

Contingent Consideration

6. Contingent Consideration

Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Under ASC 805, Business Combinations, contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

As of December 31, 2017, the remaining contingent consideration, related to our acquisition of Hyperspring in 2014 was $1.7 million, all of which was paid in January 2018. There was no contingent liability as of March 31, 2018.

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Contract Receivables

3 Months Ended

Mar. 31, 2018

Contract Receivables [Abstract]

Contract Receivables

7. Contract Receivables

Contract receivables represent the Company's unconditional rights to considerations due from a broad base of both domestic and international customers. All contract receivables are considered to be collectible within twelve months.

The components of contract receivables are as follows:

(in thousands)	March 31,		December 31,
	2018		2017
Billed receivables	$	10,823	$	8,154
Unbilled receivables		8,071		5,980
Allowance for doubtful accounts		(137)		(137)
Total contract receivables, net	$	18,757	$	13,997

During April 2018, the Company invoiced $2.8 million of the unbilled amounts related to the balance at March 31, 2018.

As of March 31, 2018 and December 31, 2017, the Company had one customer that accounted for 25.8% and 26.7%, respectively, of its consolidated contract receivables.

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Prepaid Expenses and Other Current Assets

3 Months Ended

Mar. 31, 2018

Prepaid Expenses and Other Current Assets [Abstract]

Prepaid Expenses and Other Current Assets

8.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

(in thousands)	March 31,		December 31,
	2018		2017
Inventory	$	733	$	755
Income taxes receivable		363		418
Prepaid expenses		628		549
Other current assets		956		1,073
Total prepaid expenses and other current assets	$	2,680	$	2,795

At March 31, 2018 and December 31, 2017, prepaid expenses and other current assets are comprised primarily of inventory and other current assets. Inventory is being purchased to support the construction of three major nuclear simulation projects related to a significant contract that was executed during the first quarter of 2016. Inventory is recorded at the lower of cost or net realizable value in accordance with ASC 330, Inventory. Other current assets primarily includes value-added tax receivables and cash deposited in a Swedish tax account.

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Software Development Costs

3 Months Ended

Mar. 31, 2018

Software Development Costs [Abstract]

Software Development Costs

9. Software Development Costs, Net

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 carrying amount of such asset to its estimated fair value based on the future discounted cash flows. The excess of any unamortized computer software costs over the related fair value is written down and charged to operations.

Software development costs capitalized were approximately $105,000 and $29,000 for the three months ended March 31, 2018 and 2017, respectively.  Total amortization expense was approximately $118,000 and $117,000 for the three months ended March 31, 2018 and 2017, respectively.

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2018

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

10. Goodwill and Intangible Assets

The Company's intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, trade names, non-compete agreements, and contract backlog.

The Company reviews goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company tests goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. After the acquisition of Hyperspring on November 14, 2014, the Company determined that it had two reporting units, which are the same as our two operating segments: (i) Performance Improvement Solutions; and (ii) Nuclear Industry Training and Consulting (which includes Hyperspring and Absolute).  As of March 31, 2018, and December 31, 2017, goodwill of $8.4 million related to the Nuclear Industry Training and Consulting segment. No events or circumstances occurred during the current reporting period that would indicate impairment of such goodwill.

Amortization of intangible assets other than goodwill is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contract backlog and customer relationships which are recognized in proportion to the related projected revenue streams. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. The Company does not have any intangible assets with indefinite useful lives, other than goodwill. There were no indications of impairment of intangible assets during the current reporting period.

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2018

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

11. Fair Value of Financial Instruments

ASC 820, Fair Value Measurement (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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

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

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

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.

At March 31, 2018, and December 31, 2017, the Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate fair value based upon their short-term nature.

For the three months ended March 31, 2018, the Company did not have any transfers between fair value Level 1, Level 2 or Level 3.  The Company did not hold any non-financial assets or non-financial liabilities subject to fair value measurements on a recurring basis at March 31, 2018.

The following table presents assets and liabilities measured at fair value at March 31, 2018:

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds	$	2,780	$	-	$	-	$	2,780
Foreign exchange contracts		-		83		-		83
Total assets	$	2,780	$	83	$	-	$	2,863
Liability awards		-		(272)		-		(272)
Total liabilities	$	-	$	(272)	$	-	$	(272)

Money market funds at both March 31, 2018 and December 31, 2017 are included in cash and cash equivalents in the respective consolidated balance sheets.

The following table presents assets and liabilities measured at fair value at December 31, 2017:

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds	$	3,240	$	-	$	-	$	3,240
Foreign exchange contracts		-		201		-		201
Total assets	$	3,240	$	201	$	-	$	3,441
Liability awards		-		(242)		-		(242)
Contingent consideration		-		-		(1,701)		(1,701)
Total liabilities	$	-	$	(242)	$	(1,701)	$	(1,943)

The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the three months ended March 31, 2018:

(in thousands)
Balance, January 1, 2018	$	1,701
Payments made on contingent liabilities		(1,701)
Change in fair value		-
Balance, March 31, 2018	$	-

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Derivative Instruments

3 Months Ended

Mar. 31, 2018

Derivative Instruments [Abstract]

Derivative Instruments

12. Derivative Instruments

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

As of March 31, 2018, the Company had foreign exchange contracts outstanding of approximately 162.5 million Japanese Yen and 0.2 million Australian Dollars at fixed rates. The contracts expire on various dates through December 2018. At December 31, 2017, the Company had contracts outstanding of approximately 162.5 million Japanese Yen, 24,000 Euro, and 0.2 million Australian Dollars at fixed rates.

The Company has not designated the foreign exchange contracts as hedges and recorded the estimated net fair values of the contracts on the consolidated balance sheets as follows:

	March 31,		December 31,
(in thousands)	2018		2017
Asset derivatives
Prepaid expenses and other current assets	$	83	$	201
Net fair value	$	83	$	201

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

The foreign currency denominated contract receivables, billings in excess of revenue earned, and subcontractor accruals that are related to the outstanding foreign exchange contracts are remeasured at the end of each period into 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 loss on derivative instruments, net, in the consolidated statements of operations.

For the three months ended March 31, 2018 and 2017, the Company recognized a net loss on its derivative instruments as outlined below:

	Three months ended March 31,
(in thousands)	2018		2017
Foreign exchange contracts - change in fair value	$	(118)	$	(86)
Remeasurement of related contract receivables,  and billings in excess of revenue earned		(38)		(74)
Loss on derivative instruments, net	$	(156)	$	(160)

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2018

Stock-Based Compensation [Abstract]

Stock-Based Compensation

13. Stock-Based Compensation

The Company recognizes stock-based compensation expense for all equity-based awards issued to employees, directors and non-employees that are expected to vest.  Stock-based compensation expense is based on the fair value of awards as of the grant date.  The Company recognized $595,000 and $614,000 of stock-based compensation expense related to equity awards for the three months ended March 31, 2018 and 2017, respectively, under the fair value method. In addition to the stock-based compensation expense recognized, the Company also recognized $32,000 and $(18,000) of expense related to the change in the fair value of cash-settled restricted stock units (RSUs) during the three months ended March 31, 2018 and 2017, respectively.

During the three months ended March 31, 2018, the Company granted 210,092 time-based RSUs to employees with an aggregate fair value of $682,799. During the three months ended March 31, 2017, the Company granted 223,802 time-based RSUs to employees with an aggregate fair value of $783,000. A portion of the time-based RSUs vest quarterly in equal amounts over the course of eight quarters and the remainder vest annually in equal amounts over the course of three years. The fair value of the time-based RSUs is expensed ratably over the requisite service period, which ranges from one to three years.

During the three months ended March 31, 2018 and 2017, the Company did not grant performance-based RSUs or stock options.

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Long-Term Debt

3 Months Ended

Mar. 31, 2018

Long-Term Debt [Abstract]

Long-Term Debt

14. Debt

Line of Credit

Citizens Bank

The Company entered into a three-year, $5.0 million revolving line of credit facility (RLOC) with Citizens Bank on December 29, 2016, to fund general working capital needs. Working capital advances bear interest of one-month LIBOR plus 2.25% per annum and letter of credit fees are 1.25% per annum. The Company is not required to maintain a restricted cash collateral account at Citizens Bank for outstanding letters of credit and working capital advances.

The maximum availability under the RLOC is subject to a borrowing base equal to 80% of eligible accounts receivable, and is reduced for any issued and outstanding letters of credit and working capital advances.  At March 31, 2018, there were no outstanding borrowings on the RLOC and two letters of credit totaling $0.7 million. The amount available at March 31, 2018, after consideration of the borrowing base, letters of credit and working capital advances was approximately $4.3 million.

The credit facility agreement is subject to standard financial covenants and reporting requirements. At March 31, 2018, the Company was in compliance with its financial covenants.

BB&T Bank

At March 31, 2018, the Company had two letters of credit with BB&T totaling $0.6 million, which have expired and are pending release by the bank and customer.  At March 31, 2018 and December 31, 2017, the cash collateral account with BB&T totaled $0.6 million and $1.0 million, respectively. The balances were classified as restricted cash on the consolidated balance sheets.

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Product Warranty

3 Months Ended

Mar. 31, 2018

Product Warranty [Abstract]

Product Warranty

15. Product Warranty

The Company accrues for estimated warranty costs at the time the related revenue is recognized based on historical experience and projected claims. The Company's SDB contracts generally provide a one to two-year base warranty on the systems. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $1.2 million, while the remaining $0.7 million is classified as long-term within other liabilities. The activity in the accrued warranty accounts is as follows:

(in thousands)
Balance, January 1, 2018	$	1,953
Current period provision		28
Current period claims		(103)
Currency adjustment		5
Balance at March 31, 2018	$	1,883

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Revenue

3 Months Ended

Mar. 31, 2018

Revenue [Abstract]

Revenue [Text Block]

16. Revenue

We generate revenue primarily through three broad revenue streams: 1) SDB, 2) Software, and 3) Training and Consulting Services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The following table represents a disaggregation of revenue by type of goods or services for the three months ended March 31, 2018 and 2017, along with the reportable segment for each category:

(in thousands)	Three Months Ended March 31,
	2018		2017(1)
Performance Improvement Solutions
System Design and Build	$	7,495	$	7,319
Software		869		456
Training and Consulting Services		1,537		1,895
Nuclear Industry Training and Consulting
Training and Consulting Services		12,994		6,672
Total revenue	$	22,895	$	16,342

⁽¹⁾ Prior period amounts have not been adjusted under the modified retrospective transition method for the adoption of ASC 606.

SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule as established in our contracts. The transaction price for software contracts is generally fixed. Fees for software are normally due in advance of or shortly after delivery of the software. Fees for PCS are normally paid in advance of the service period. For Training and Consulting Services, the customers are generally billed on a regular basis, such as weekly, biweekly or monthly, for services provided. Contract liability, which we classify as billing in excess of revenue earned, relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as performance obligations are satisfied.

The following table reflects the balance of contract liabilities and the revenue recognized in the reporting period that was included in the contract liabilities from contracts with customers:

(in thousands)

	March 31, 2018		December 31, 2017
Billings in excess of revenue earned (BIE)	$	12,592	$	14,543
Revenue recognized in the period from amounts included in BIE at the beginning of the period	$	5,115		N/A

For an SDB contract, we generally have two main performance obligations: the training simulator build and PCS. The training simulator build generally includes hardware, software, and labor. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method. In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to 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.

For the three months ended March 31, 2018, the Company did not recognize significant revenue related to performance obligations satisfied in previous periods.

As of March 31, 2018, the aggregate amount of transaction price allocated to the remaining performance obligations of SDB and Software contracts is $35.6 million. The Company will recognize the revenue as the performance obligations are satisfied, which is expected to occur over the next 12 months.

Training and consulting services contracts are primarily T&M based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates, which are fixed per type of work, as well as approved expenses incurred. As part of our adoption of ASU 2014-09, we have elected to use the optional exemption under ASC 606-10-50-14(b), pursuant to which we have excluded disclosures of transaction prices allocated to remaining performance obligations under such contracts and when we expect to recognize the revenue.

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Income Taxes

3 Months Ended

Mar. 31, 2018

Income Taxes [Abstract]

Income Taxes

17. Income Taxes

The following table presents the provision for income taxes and the effective tax rates:

	Three months ended March 31,
($ in thousands)	2018		2017
Provision for income taxes	$	259	$	73
Effective tax rate		(20.9%)		(37.8%)

The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. Tax expense in 2018 is comprised mainly of federal income tax expense, foreign income tax expense, and state taxes. Tax expense in 2017 is comprised mainly of foreign income tax expense, Alternative Minimum Tax, state taxes, and deferred tax expense relating to the tax amortization of goodwill.

Our effective tax rate was (20.9%) for the three months ended March 31, 2018. The difference in our effective tax rate and the U.S. statutory federal income tax rate of 21% was primarily due to our China subsidiary which had a taxable income for the three months ended March 31, 2018 and the accruals related to uncertain tax positions for certain foreign tax contingencies.

Because of its net operating loss carryforwards, the Company is subject to U.S. federal and state income tax examinations from the year 1997 and forward. The Company is subject to foreign tax examinations by tax authorities for years 2011 forward for Sweden, 2014 forward for China, and 2015 forward for both India and the UK.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense.

The Company recognizes deferred tax assets to the extent that it is believed that these assets are more likely than not to be realized. The Company has evaluated all positive and negative evidence and determined that it will continue to assess a full valuation allowance on its Swedish and U.K. net deferred assets as of March 31, 2018. The Company has determined that it is more likely than not that it will realize the benefits of its deferred taxes in the U.S, China, and India.

The Company recognizes the tax on GILTI as a period cost in the period the tax is incurred. Under this policy, we have not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.

The Company has made an entity classification (CTB) election to treat GSE UK as a disregarded entity effective January 1, 2018. Therefore, as of January 1, 2018, GSE UK is treated as a branch of the US for tax purposes. Accordingly, GSE UK's 2018 first quarter activity has been included in the US Company's income tax provision.

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Segment Information

3 Months Ended

Mar. 31, 2018

Segment Information [Abstract]

Segment Information

18. Segment Information

The Company has two reportable business segments.  The Performance Improvement Solutions 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. The Company provides these services across all market segments. Contract terms are typically less than two years.

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

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 taxes:

(in thousands)	Three months ended
	March 31,
	2018		2017
Revenue:
Performance Improvement Solutions	$	9,901	$	9,670
Nuclear Industry Training and Consulting		12,994		6,672
	$	22,895	$	16,342
Operating income:
Performance Improvement Solutions	$	(790)	$	(110)
Nuclear Industry Training and Consulting		(338)		307
Change in fair value of contingent consideration, net		-		(254)
Operating loss		(1,128)		(57)
Interest income, net		22		27
Loss on derivative instruments, net		(156)		(160)
Other income (expense), net		25		(3)
Loss before income taxes	$	(1,237)	$	(193)

Effective January 2018, and due to the acquisition of Absolute, the Performance Improvement Solutions allocated corporate overhead to the Nuclear Industry Training and Consulting segment. For the three months ended March 31, 2018 and 2017, a total of $1.2 million and $0.6 million of corporate overhead, respectively, was allocated to Nuclear Industry Training and Consulting segment. Prior period amounts were reclassified to reflect the change.

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Subsequent Events

3 Months Ended

Mar. 31, 2018

Subsequent Events [Abstract]

Subsequent Events [Text Block]

19. Subsequent Events

On May 14, 2018, we announced that the Company acquired True North Consulting, LLC (True North) on May 11, 2018, a leading provider of specialty engineering solutions to the nuclear power industry. Founded in 1999 in Montrose, Colorado, True North generated revenue of approximately $11 million for the year ended December 31, 2017, of which over 85% came from the nuclear power industry. True North employs roughly 60 full-time and part-time professionals with expertise in areas such as in-service testing for engineering programs focused on ASME OM code including Appendix J, balance of plant programs, thermal performance, in-service inspection for specialty engineering including ASME Section XI and software solutions.

The Company acquired True North for approximately $9.8 million in cash, consisting of approximately $8.3 million paid at close and approximately $1.5 million held in escrow for indemnity and leadership retention purposes. The transaction closed on May 11, 2018. Due to the timing and complexity of the acquisition, the Company had not completed the purchase accounting for the acquisition on the report issuance date.

On May 11, 2018, the Company entered into an amended and restated credit agreement with Citizen's Bank, consisting of a five-year $5 million revolving line of credit and a five-year $25 million delayed draw term loan facility to fund acquisitions approved by the Lender. We drew down approximately $10.3 million to fund the acquisition of True North. Interest is based on a LIBOR spread of 200 to 275 basis points, depending on pre-defined leverage thresholds defined in the agreement.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the Company, GSE, we, us, or our) and are unaudited. 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 (U.S. 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, 2017, filed with the Securities and Exchange Commission on March 16, 2018.

The Company has two reportable segments as follows:

● Performance Improvement Solutions (approximately 43% of revenue)

Our Performance Improvement Solutions segment primarily encompasses our technical engineering and power plant high-fidelity simulation solutions and interactive computer based tutorials/simulation focused on the process industry. This segment includes various simulation products, engineering services, and operation training systems delivered across the industries we serve: primarily nuclear and fossil fuel power generation, as well as the process industries. Our simulation solutions include the following: (1) simulation software and services, including operator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for the fossil power industry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems to newly hired employees and for ongoing workforce development and training. GSE and its predecessors have been providing these services since 1976.

● Nuclear Industry Training and Consulting (approximately 57% of revenue)

Nuclear Industry Training and Consulting provides highly specialized and skilled nuclear operations instructors, procedure writers, technical engineers, and other consultants to the nuclear power industry. These employees work at our clients' facilities under client direction. Examples of these highly skilled positions are senior reactor operations instructors, procedure writers, project managers, work management specialists, planners and training material developers. This business is managed through the Hyperspring and Absolute subsidiaries. The business model, management focus, margins and other factors clearly separate this business line from the rest of the Company's product and service portfolio. GSE and its predecessors have been providing these services since 1997.

Financial information about the two business segments is provided in Note 18 of the accompanying condensed consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. The Company's most significant estimates relate to revenue recognition on contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock based compensation awards, and the recoverability of deferred tax assets. Actual results could differ from these estimates and those differences could be material.

Revenue Recognition

Revenue recognition

The Company derives its revenue through three broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3) Training and Consulting services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware, software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the training simulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under the SDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward complete satisfaction of the performance obligation. PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.

In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to 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.

The SDB contracts generally provide a one to two-year base warranty on the systems. The base warranty will not be accounted for as a separate performance obligation under the contract because it does not provide the customer with a service in addition to the assurance that the completed project complies with agreed-upon specifications. Warranties extended beyond our typical two-year period will be evaluated on a case by case basis to determine if it provides more than just assurance that the product operates as intended, which requires carve-out as a separate performance obligation.

Revenue from the sale of standalone software licenses, which do not require significant modification or customization is recognized upon its delivery to the customer. Delivery is considered to have occurred when the customer receives a copy of the software and is able to use and benefit from the software.

A software license sale contract with multiple deliverables typically includes the following elements: license, installation and training services and PCS. The total transaction price of a software license sale contract is typically fixed, and is allocated to the identified performance obligations based on their relative standalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license revenue is recognized when the software license is delivered to the customer; installation and training revenue is recognized when the installation and training is completed without regard to a detailed evaluation of the point in time criteria due to the short-term nature of the installation and training services (one to two days on average); and PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation.

The contracts within the training and consulting services revenue stream are primarily time and materials (T&M) based. Under a typical T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed per type of work, as well as approved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance with Accounting Standards Codification (ASC) 606-10-55-18, we elected to apply the "right to invoice" practical expedient, under which we recognize revenue in the amount to which we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary worker multiplied by the bill rate for the type of work, as well as approved expenses incurred.

For contracts with multiple performance obligations, we allocate the contract price to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers.

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Recent Accounting Pronouncements (Tables)

3 Months Ended

Mar. 31, 2018

New Accounting Pronouncement and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 is as follows (in thousands):

	Balance at January 1, 2018
	As Reported		Adoption of ASC 606		As Adjusted
Contract receivables, net	$	13,997	$	(10)	$	13,987
Deferred tax assets		7,167		(241)		6,926
Billings in excess of revenue earned		14,543		(906)		13,637
Accumulated deficit		(42,870)		655		(42,215)

The impact of adoption on our consolidated statement of operations and balance sheet was as follows (in thousands):

Income Statement

	For the three months ended March 31, 2018
	As Reported		Balance without adoption of ASC 606		Effect of Change
Revenue	$	22,895	$	22,852	$	43
Gross profit		4,898		4,855		43
Provision for income taxes		259		231		(28)
Net loss		(1,496)		(1,511)		15

Balance Sheet

	March 31, 2018
	As Reported		Balance without adoption of ASC 606		Effect of Change
Contract receivables, net	$	18,757	$	18,874	$	(117)
Deferred tax assets		6,336		6,605		(269)
Billings in excess of revenue earned		12,592		13,648		(1,056)
Accumulated deficit		(43,711)		(44,381)		670

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Basic and Diluted Earnings (Loss) Per Common Share (Tables)

3 Months Ended

Mar. 31, 2018

Basic and Diluted Earnings (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
	March 31,
	2018		2017
Numerator:
Net loss	$	(1,496)	$	(266)
Denominator:
Weighted-average shares outstanding for basic loss per share		19,514,385		19,094,382
Effect of dilutive securities:
Stock options and restricted stock units		-		-
Adjusted weighted-average shares outstanding and assumed conversions for diluted loss per share		19,514,385		19,094,382
Shares related to dilutive securities excluded because inclusion would be anti-dilutive		763,200		564,833

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Acquisitions (Tables)

3 Months Ended

Mar. 31, 2018

Acquisition - Absolute [Abstract]

Schedule of Business Acquisitions, by Acquisition

The following table summarizes the consideration paid to acquire Absolute and the fair value of the assets acquired and liabilities assumed at the date of the transaction.

(in thousands)
Total purchase price	$	9,521
Purchase price allocation:
Cash	$	455
Contract receivables		5,121
Prepaid expenses and other current assets		68
Property, and equipment, net		184
Intangible assets		2,569
Accounts payable, accrued expenses, and other liabilities		(78)
Accrued compensation		(1,617)
Total identifiable net assets		6,702
Goodwill		2,819
Net assets acquired	$	9,521

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block]

The Company identified $2.6 million of other intangible assets, including customer relationships and trademarks/names, with amortization periods of three to 10 years. The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:

Intangible Assets	Weighted average amortization period	Fair Value
	(in years)	(in thousands)
Customer relationships	10	$	1,856
Trademarks/Names	3		713
Total		$	2,569

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Restructuring Activities (Tables)

3 Months Ended

Mar. 31, 2018

Restructuring Activities [Abstract]

Restructuring and Related Costs [Table Text Block]

The following tables summarize the restructuring costs and restructuring liabilities:

(in thousands)

	March 31, 2018
	Total Expected Costs		Costs Incurred to Date		Expected Costs Remaining
Employee termination benefits	$	736	$	729	$	7
Lease termination costs		555		519		36
Assets write-offs/impairment		222		222		-
Other restructuring costs		272		180		92
Total Restructuring costs	$	1,785	$	1,650	$	135

The restructuring costs related to our Performance Improvement Solutions segment and are included in the consolidated statement of operations within the "Restructuring charges" line caption.

Schedule of Restructuring Reserve by Type of Cost [Table Text Block]

	Employee termination benefits		Lease termination costs		Other Restructuring costs		Total
Balance as of January 1, 2018	$	465	$	-	$	33	$	498
Accruals		264		519		134		917
Payments		(406)		-		(5)		(411)
Currency translation and other adjustments		1		119		-		120
Balance as of March 31, 2018	$	324	$	638	$	162	$	1,124

The accrued employee termination benefits were included in "accrued compensation" line, and the accrued lease termination costs and other restructuring costs were included in "accrued expenses" in the consolidated balance sheets.

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Contract Receivables (Tables)

3 Months Ended

Mar. 31, 2018

Contract Receivables [Abstract]

Components of Contract Receivables

The components of contract receivables are as follows:

(in thousands)	March 31,		December 31,
	2018		2017
Billed receivables	$	10,823	$	8,154
Unbilled receivables		8,071		5,980
Allowance for doubtful accounts		(137)		(137)
Total contract receivables, net	$	18,757	$	13,997

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Prepaid Expenses and Other Current Assets (Tables)

3 Months Ended

Mar. 31, 2018

Prepaid Expenses and Other Current Assets [Abstract]

Schedule of Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

(in thousands)	March 31,		December 31,
	2018		2017
Inventory	$	733	$	755
Income taxes receivable		363		418
Prepaid expenses		628		549
Other current assets		956		1,073
Total prepaid expenses and other current assets	$	2,680	$	2,795

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

Fair Value of Financial Instruments [Abstract]

Assets and Liabilities Measured at Fair Value

The following table presents assets and liabilities measured at fair value at March 31, 2018:

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds	$	2,780	$	-	$	-	$	2,780
Foreign exchange contracts		-		83		-		83
Total assets	$	2,780	$	83	$	-	$	2,863
Liability awards		-		(272)		-		(272)
Total liabilities	$	-	$	(272)	$	-	$	(272)

Money market funds at both March 31, 2018 and December 31, 2017 are included in cash and cash equivalents in the respective consolidated balance sheets.

The following table presents assets and liabilities measured at fair value at December 31, 2017:

(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds	$	3,240	$	-	$	-	$	3,240
Foreign exchange contracts		-		201		-		201
Total assets	$	3,240	$	201	$	-	$	3,441
Liability awards		-		(242)		-		(242)
Contingent consideration		-		-		(1,701)		(1,701)
Total liabilities	$	-	$	(242)	$	(1,701)	$	(1,943)

Rollforward of Fair Value of Contingent Consideration as Level 3

The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the three months ended March 31, 2018:

(in thousands)
Balance, January 1, 2018	$	1,701
Payments made on contingent liabilities		(1,701)
Change in fair value		-
Balance, March 31, 2018	$	-

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2018

Derivative Instruments [Abstract]

Estimated Fair Value of the Contracts in the Consolidated Balance Sheets

The Company has not designated the foreign exchange contracts as hedges and recorded the estimated net fair values of the contracts on the consolidated balance sheets as follows:

	March 31,		December 31,
(in thousands)	2018		2017
Asset derivatives
Prepaid expenses and other current assets	$	83	$	201
Net fair value	$	83	$	201

Net (Loss) Gain on Derivative Instruments

For the three months ended March 31, 2018 and 2017, the Company recognized a net loss on its derivative instruments as outlined below:

	Three months ended March 31,
(in thousands)	2018		2017
Foreign exchange contracts - change in fair value	$	(118)	$	(86)
Remeasurement of related contract receivables,  and billings in excess of revenue earned		(38)		(74)
Loss on derivative instruments, net	$	(156)	$	(160)

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Product Warranty (Tables)

3 Months Ended

Mar. 31, 2018

Product Warranty [Abstract]

Activities in the Product Warranty Accounts

The Company accrues for estimated warranty costs at the time the related revenue is recognized based on historical experience and projected claims. The Company's SDB contracts generally provide a one to two-year base warranty on the systems. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $1.2 million, while the remaining $0.7 million is classified as long-term within other liabilities. The activity in the accrued warranty accounts is as follows:

(in thousands)
Balance, January 1, 2018	$	1,953
Current period provision		28
Current period claims		(103)
Currency adjustment		5
Balance at March 31, 2018	$	1,883

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Revenue (Tables)

3 Months Ended

Mar. 31, 2018

Revenue [Abstract]

Disaggregation of Revenue [Table Text Block]

The following table represents a disaggregation of revenue by type of goods or services for the three months ended March 31, 2018 and 2017, along with the reportable segment for each category:

(in thousands)	Three Months Ended March 31,
	2018		2017(1)
Performance Improvement Solutions
System Design and Build	$	7,495	$	7,319
Software		869		456
Training and Consulting Services		1,537		1,895
Nuclear Industry Training and Consulting
Training and Consulting Services		12,994		6,672
Total revenue	$	22,895	$	16,342

⁽¹⁾ Prior period amounts have not been adjusted under the modified retrospective transition method for the adoption of ASC 606.

Contract with Customer, Asset and Liability [Table Text Block]

SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule as established in our contracts. The transaction price for software contracts is generally fixed. Fees for software are normally due in advance of or shortly after delivery of the software. Fees for PCS are normally paid in advance of the service period. For Training and Consulting Services, the customers are generally billed on a regular basis, such as weekly, biweekly or monthly, for services provided. Contract liability, which we classify as billing in excess of revenue earned, relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as performance obligations are satisfied.

The following table reflects the balance of contract liabilities and the revenue recognized in the reporting period that was included in the contract liabilities from contracts with customers:

(in thousands)

	March 31, 2018		December 31, 2017
Billings in excess of revenue earned (BIE)	$	12,592	$	14,543
Revenue recognized in the period from amounts included in BIE at the beginning of the period	$	5,115		N/A

For an SDB contract, we generally have two main performance obligations: the training simulator build and PCS. The training simulator build generally includes hardware, software, and labor. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method. In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to 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.

For the three months ended March 31, 2018, the Company did not recognize significant revenue related to performance obligations satisfied in previous periods.

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2018

Income Taxes [Abstract]

Schedule of Income Taxes

The following table presents the provision for income taxes and the effective tax rates:

	Three months ended March 31,
($ in thousands)	2018		2017
Provision for income taxes	$	259	$	73
Effective tax rate		(20.9%)		(37.8%)

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2018

Segment Information [Abstract]

Reconciliation of Revenue and Operating Results to Consolidated Income (Loss) Before Income Tax Expense

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 taxes:

(in thousands)	Three months ended
	March 31,
	2018		2017
Revenue:
Performance Improvement Solutions	$	9,901	$	9,670
Nuclear Industry Training and Consulting		12,994		6,672
	$	22,895	$	16,342
Operating income:
Performance Improvement Solutions	$	(790)	$	(110)
Nuclear Industry Training and Consulting		(338)		307
Change in fair value of contingent consideration, net		-		(254)
Operating loss		(1,128)		(57)
Interest income, net		22		27
Loss on derivative instruments, net		(156)		(160)
Other income (expense), net		25		(3)
Loss before income taxes	$	(1,237)	$	(193)

Effective January 2018, and due to the acquisition of Absolute, the Performance Improvement Solutions allocated corporate overhead to the Nuclear Industry Training and Consulting segment. For the three months ended March 31, 2018 and 2017, a total of $1.2 million and $0.6 million of corporate overhead, respectively, was allocated to Nuclear Industry Training and Consulting segment. Prior period amounts were reclassified to reflect the change.

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Summary of Significant Accounting Policies (Details)	3 Months Ended
	Mar. 31, 2018 Segment
Summary of Significant Accounting Policies [Abstract]
Number of reportable segment	2
Term of warranty - min	1 year
Term of Warranty - max	2 years
Revenue [Member] | Performance Improvement Solutions [Member]
Revenue by major customers [Abstract]
Percentage of revenue contributed by major customers	43.00%
Revenue [Member] | Nuclear Industry Training and Consulting [Member]
Revenue by major customers [Abstract]
Percentage of revenue contributed by major customers	57.00%

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Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017	Dec. 31, 2016
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Contract receivables, net	$ 18,757		$ 13,997
Deferred tax assets	6,336		7,167	$ 7,167
Billings in excess of revenue earned	12,592		14,543
Accumulated Deficit	(43,711)		(42,870)
Contracts Revenue	22,895	$ 16,342
Gross Profit	4,898	4,122
(Benefit) provision for income taxes	259	73
Net Income (Loss) Attributable to Parent	(1,496)	(266)
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Gain (Loss) Included in Earnings	0	$ 254
Restatement Adjustment [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Contract receivables, net			13,987
Deferred tax assets			6,926
Billings in excess of revenue earned			13,637
Accumulated Deficit			(42,215)
Difference between Revenue Guidance in Effect before and after Topic 606 [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Contract receivables, net	(117)		(10)
Deferred tax assets	(269)		(241)
Billings in excess of revenue earned	(1,056)		(906)
Accumulated Deficit	670		$ 655
Contracts Revenue	43
Gross Profit	43
(Benefit) provision for income taxes	(28)
Net Income (Loss) Attributable to Parent	15
Calculated under Revenue Guidance in Effect before Topic 606 [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Contract receivables, net	18,874
Deferred tax assets	6,605
Billings in excess of revenue earned	13,648
Accumulated Deficit	(44,381)
Contracts Revenue	22,852
Gross Profit	4,855
(Benefit) provision for income taxes	231
Net Income (Loss) Attributable to Parent	$ (1,511)

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Basic and Diluted Earnings (Loss) Per Common Share (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Numerator [Abstract]
Net loss	$ (1,496)	$ (266)
Denominator [Abstract]
Weighted-average shares outstanding for basic earnings per share (in shares)	19,514,385	19,094,382
Effect of dilutive securities [Abstract]
Stock options and restricted stock units (in shares)	0	0
Adjusted weighted-average shares outstanding and assumed conversions for diluted income (loss) per share (in shares)	19,514,385	19,094,382
Shares related to dilutive securities excluded because inclusion would be anti-dilutive (in shares)	763,200	564,833

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Acquisitions (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Sep. 20, 2017	Mar. 31, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Cash consideration before working capital adj		$ 8,750
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Goodwill			$ 8,431	$ 8,431
Acquired Finite-Lived Intangible Assets [Line Items]
Finite-lived Intangible Assets Acquired		2,569
Customer Relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Finite-lived Intangible Assets Acquired		$ 1,856
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		10 years
Trademarks and Trade Names [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Finite-lived Intangible Assets Acquired		$ 713
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		3 years
Absolute Consulting, Inc. [Member]
Business Acquisition [Line Items]
Percentage of ownership interest acquired		100.00%
Business Acquisition, Name of Acquired Entity	Absolute Consulting, Inc.
Business Acquisition, Effective Date of Acquisition		Sep. 20, 2017
Cash purchase price		$ 9,521
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Cash		455
Contract receivables		5,121
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Assets, Prepaid Expense and Other Assets		68
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Equipment		184
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		2,569
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Accounts Payable		(78)
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other		(1,617)
Identifiable Net assets acquired		6,702
Goodwill		2,819
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net, Total		9,521
Business Combination, Acquired Receivables [Abstract]
Business Combination, Acquired Receivable, Fair Value		5,121
Business Combination, Acquired Receivables, Gross Contractual Amount		5,121
Business Combination, Acquired Receivables, Estimated Uncollectible		0
Business Acquisition, Goodwill, Expected Tax Deductible Amount		2,819
Cash consideration in escrow		$ 1,000

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Restructuring Activities (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) Position	Mar. 31, 2017 USD ($)
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Expected Number of Positions Eliminated | Position	40
Restructuring and Related Cost, Expected Cost [Abstract]
Restructuring and Related Cost, Cost Incurred to Date	$ 1,650
Restructuring and Related Cost, Expected Cost Remaining	135
Restructuring and Related Cost, Expected Cost, Total	1,785
Restructuring Reserve [Roll Forward]
Restructuring Reserve, Beginning Balance	498
Restructuring charges	917	$ 45
Payments for Restructuring	(411)
Restructuring Reserve, Foreign Currency Translation Gain (Loss)	120
Restructuring Reserve, Ending Balance	1,124
Employee Severance [Member]
Restructuring and Related Cost, Expected Cost [Abstract]
Restructuring and Related Cost, Cost Incurred to Date	729
Restructuring and Related Cost, Expected Cost Remaining	7
Restructuring and Related Cost, Expected Cost, Total	736
Restructuring Reserve [Roll Forward]
Restructuring Reserve, Beginning Balance	465
Restructuring charges	264
Payments for Restructuring	(406)
Restructuring Reserve, Foreign Currency Translation Gain (Loss)	1
Restructuring Reserve, Ending Balance	324
Contract Termination [Member]
Restructuring and Related Cost, Expected Cost [Abstract]
Restructuring and Related Cost, Cost Incurred to Date	519
Restructuring and Related Cost, Expected Cost Remaining	36
Restructuring and Related Cost, Expected Cost, Total	555
Restructuring Reserve [Roll Forward]
Restructuring Reserve, Beginning Balance	0
Restructuring charges	519
Payments for Restructuring	0
Restructuring Reserve, Foreign Currency Translation Gain (Loss)	119
Restructuring Reserve, Ending Balance	638
Other Restructuring [Member]
Restructuring and Related Cost, Expected Cost [Abstract]
Restructuring and Related Cost, Cost Incurred to Date	180
Restructuring and Related Cost, Expected Cost Remaining	92
Restructuring and Related Cost, Expected Cost, Total	272
Restructuring Reserve [Roll Forward]
Restructuring Reserve, Beginning Balance	33
Restructuring charges	134
Payments for Restructuring	(5)
Restructuring Reserve, Foreign Currency Translation Gain (Loss)	0
Restructuring Reserve, Ending Balance	162
Assets Write-off [Member]
Restructuring and Related Cost, Expected Cost [Abstract]
Restructuring and Related Cost, Cost Incurred to Date	222
Restructuring and Related Cost, Expected Cost Remaining	0
Restructuring and Related Cost, Expected Cost, Total	$ 222

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Contingent Consideration (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Contingent Consideration [Abstract]
Contingent consideration accrued, current	$ 0		$ 1,701
Payments on contingent consideration	$ (1,701)	$ (597)

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Contract Receivables (Details) $ in Thousands	1 Months Ended	3 Months Ended	12 Months Ended
	Oct. 31, 2017 USD ($)	Mar. 31, 2018 USD ($) Customer	Dec. 31, 2016	Dec. 31, 2017 USD ($) Customer
Contract Receivables [Abstract]
Maximum term of contract receivables		12 months
Components of contract receivables [Abstract]
Billed receivables		$ 10,823		$ 8,154
Unbilled receivables		8,071		5,980
Allowance for doubtful accounts		(137)		(137)
Total contract receivables, net		$ 18,757		$ 13,997
Unbilled contract receivables billed during Oct 2017	$ 2,800
Contract Receivable [Member]
Concentration Risk [Line Items]
Number of customers accounting for contract receivables | Customer		1		1
Percentage of contract receivables accounted by major customers		25.80%	26.70%
Reorganizations [Abstract]
Percentage of accounts receivable, unbilled receivables, and billings in excess reserved		25.80%	26.70%

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Prepaid Expenses and Other Current Assets (Details) $ in Thousands	Mar. 31, 2018 USD ($) Project	Dec. 31, 2017 USD ($)
Prepaid Expenses and Other Current Assets [Abstract]
Inventory	$ 733	$ 755
Income tax receivable	363	418
Prepaid expenses	628	549
Other current assets	956	1,073
Total prepaid expenses and other current assets	$ 2,680	$ 2,795
Number of projects | Project	3

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Software Development Costs (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Software Development Costs [Abstract]
Economic life of product	3 years
Additions	$ 105	$ 29
Capitalized software amortization	$ 118	$ 117

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Goodwill and Intangible Assets (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) Segment	Dec. 31, 2017 USD ($)
Goodwill and Intangible Assets [Abstract]
Number of operating segments | Segment	2
Goodwill | $	$ 8,431	$ 8,431

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Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Assets and liabilities measured at fair value [Abstract]
Money market funds	$ 2,780		$ 3,240
Foreign exchange contracts - Assets	83		201
Total assets	2,863		3,441
Liability awards	(272)		(242)
Contingent consideration			(1,701)
Total liabilities	(272)		(1,943)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance, January 1, 2017	1,701
Payments made on contingent liabilities	(1,701)
Change in fair value	0	$ (254)
Balance, March 31, 2017	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets and liabilities measured at fair value [Abstract]
Money market funds	2,780		3,240
Foreign exchange contracts - Assets	0		0
Total assets	2,780		3,240
Contingent consideration			0
Total liabilities	0		0
Significant Other Observable Inputs (Level 2) [Member]
Assets and liabilities measured at fair value [Abstract]
Money market funds	0		0
Foreign exchange contracts - Assets	83		201
Total assets	83		201
Liability awards	(272)		(242)
Contingent consideration			0
Total liabilities	(272)		(242)
Significant Unobservable Inputs (Level 3) [Member]
Assets and liabilities measured at fair value [Abstract]
Money market funds	0		0
Foreign exchange contracts - Assets	0		0
Total assets	0		0
Contingent consideration			(1,701)
Total liabilities	$ 0		$ (1,701)

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Derivative Instruments, Foreign Exchange Contracts (Details) - Foreign Exchange Contract [Member] ¥ in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2018 JPY (¥)	Mar. 31, 2018 AUD ($)	Dec. 31, 2016 JPY (¥)	Dec. 31, 2016 EUR (€)	Dec. 31, 2016 AUD ($)
Derivative [Line Items]
Foreign exchange contract outstanding	¥ 162.5	$ 0.2	¥ 162.5	€ 24,000	$ 0.2
Expiration date of contract	Dec. 31, 2018

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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	Mar. 31, 2018	Dec. 31, 2017
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Asset derivatives	$ 83	$ 201
Liability derivatives	272	242
Net fair value	355	443
Prepaid Expenses and Other Current Assets [Member]
Estimated fair value of the contracts in the consolidated balance sheets [Abstract]
Asset derivatives	$ 83	$ 201

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Derivative Instruments, Gain (Loss) On Derivative Instruments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Derivative, Gain (Loss) on Derivative, Net [Abstract]
Foreign exchange contracts- change in fair value	$ (118)	$ (86)
Remeasurement of related contract receivables, billings in excess of revenue earned, and subcontractor accruals	(38)	(74)
(Loss) gain on derivative instruments, net	$ (156)	$ (160)

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Stock-Based Compensation (Details)	3 Months Ended
	Mar. 31, 2018 USD ($) Quarter shares	Mar. 31, 2017 USD ($) Quarter shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 595,000	$ 614,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Requisite service period	1 year
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Requisite service period	3 years
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 32,000	$ (18,000)
Granted time-based RSUs (in shares) | shares	210,092	223,802
Aggregate fair value for time-based RSUs	$ 682,799	$ 783,000
Number of quarters RSU's will vest quarterly | Quarter	8	8
Period in which RSU's will vest annually in equal amounts	3 years	3 years

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Long-Term Debt (Details) $ in Millions	3 Months Ended
	Mar. 31, 2018 USD ($) Letter	May 11, 2018 USD ($)	Dec. 31, 2017 USD ($)
Line of Credit Facility [Line Items]
Principal amount of the line of credit		$ 5.0
Citizen's Bank [Member]
Line of Credit Facility [Line Items]
Number of letters of credit | Letter	2
Citizen's Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of credit facility term	3 years
Principal amount of the line of credit	$ 5.0
Percentage of letter of credit fees per annum	1.25%
Percentage of borrowing base equal to eligible accounts receivable	80.00%
Outstanding letter of credit balance	$ 0.0
Number of letters of credit | Letter	2
Letters of credit, amount outstanding	$ 0.7
Line of credit facility, remaining borrowing capacity	$ 4.3
Citizen's Bank [Member] | Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	2.25%
BB&T Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Number of letters of credit | Letter	2
Letters of credit, amount outstanding	$ 0.6
Restricted cash and cash equivalents	$ 0.6		$ 1.0

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Product Warranty (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Product warranty provision [Abstract]
Warranty terms for SDB contracts - Min	1 year
Warranty terms for SDB contracts - Max	2 years
Accrued warranty, current	$ 1,186
Accrued warranty, noncurrent	697
Activities in product warranty account [Abstract]
Balance, January 1, 2017	1,953
Warranty provision	28
Warranty claims	(103)
Currency adjustment	5
Balance, March 31, 2017	$ 1,883

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Revenue (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	$ 22,895,000	$ 16,342,000
Revenue, Remaining Performance Obligation	$ 35,570,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Contract with Customer, Asset and Liability [Abstract]
Contract with Customer, Liability, Current	$ 12,592,000		$ 14,543,000
Contract with Customer, Liability, Revenue Recognized	5,115,000
Contract with Customer, Performance Obligation Satisfied in Previous Period	0
Performance Improvement Solutions [Member] | System Design and Build [Member]
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	7,495,000	7,319,000
Performance Improvement Solutions [Member] | Software [Member]
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	869,000	456,000
Performance Improvement Solutions [Member] | Training and Consulting Services [Member]
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	1,537,000	1,895,000
Nuclear Industry Training and Consulting [Member] | Training and Consulting Services [Member]
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	$ 12,994,000	$ 6,672,000

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Taxes [Abstract]
(Benefit) provision for income taxes	$ 259	$ 73
Effective tax rate	(20.90%)	(37.80%)
Minimum [Member]
Income Tax Examination [Line Items]
Probability of uncertain tax position to be recognized	50.00%
Percentage of tax position realized upon ultimate settlement	50.00%
Sweden [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Income tax examination, year under examination	2011
China [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Income tax examination, year under examination	2014
India [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Income tax examination, year under examination	2015
UK [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Income tax examination, year under examination	2015
Federal [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Income tax examination, year under examination	1997
State [Member] | Minimum [Member]
Income Tax Examination [Line Items]
Income tax examination, year under examination	1997

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Segment Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) Segment	Mar. 31, 2017 USD ($)
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]
Number of reportable business segments | Segment	2
Corporate charge allocated to Training segment	$ 1,174	$ 628
Segment Reporting Information, Profit (Loss) [Abstract]
Total revenue	22,895	16,342
Change in fair value of contingent consideration, net	0	(254)
Operating income (loss)	(1,128)	(57)
Interest income, net	22	27
Loss on derivative instruments, net	(156)	(160)
Other income (expense), net	25	(3)
Income (loss) before income taxes	(1,237)	(193)
Performance Improvement Solutions [Member]
Segment Reporting Information, Profit (Loss) [Abstract]
Total revenue	9,901	9,670
Operating income (loss)	(790)	(110)
Nuclear Industry Training and Consulting [Member]
Segment Reporting Information, Profit (Loss) [Abstract]
Total revenue	12,994	6,672
Operating income (loss)	$ (338)	$ 307
Maximum [Member]
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]
Contract term	2 years

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Subsequent Events (Details) $ in Millions		12 Months Ended
	May 11, 2018 USD ($) Employees	Dec. 31, 2017 USD ($)
Subsequent Event [Line Items]
Percentage of revenue from nuclear industry		85.00%
Business Combination, Consideration Transferred, Liabilities Incurred	$ 10.3
Line of Credit Facility, Expiration Period	5 years
Principal amount of the line of credit	$ 5.0
Long-term Debt, Gross	25.0
True North [Member]
Subsequent Event [Line Items]
Business Acquisition, Revenue Reported by Acquired Entity for Last Annual Period		$ 11.0
Cash purchase price	9.8
Cash consideration in escrow	1.5
Cash Payment to sellers on acquisition date	$ 8.3
Number of employees of the acquiree | Employees	60
Maximum [Member]
Subsequent Event [Line Items]
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate	27500.00%
Minimum [Member]
Subsequent Event [Line Items]
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate	20000.00%

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Label	Element	Value
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents	$ 22,887,000
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents	$ 20,071,000