(Mark One)
|
|||
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended
|
||
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
|
|
(Exact name of registrant as specified in its charter)
|
|
|
|
(State of incorporation)
|
(I.R.S. Employer Identification Number)
|
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code: (
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Smaller reporting company
|
Emerging growth company
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
|
|
Page
|
PART I.
|
FINANCIAL INFORMATION
|
3
|
Item 1.
|
Financial Statements (unaudited)
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
8
|
|
|
9
|
|
Item 2.
|
23
|
|
Item 3.
|
37
|
|
Item 4.
|
38
|
|
PART II.
|
38
|
|
Item 1.
|
38
|
|
Item 1A.
|
39
|
|
Item 2.
|
40
|
|
Item 3
|
40 |
|
Item 4
|
40 |
|
Item 5.
|
40 |
|
Item 6.
|
41
|
September 30, 2021
|
December 31, 2020
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Contract receivables, net
|
|
|
||||||
Prepaid expenses and other current assets
|
|
|
||||||
Total current assets
|
|
|
||||||
Equipment, software and leasehold improvements, net
|
|
|
||||||
Software development costs, net
|
|
|
||||||
Goodwill
|
|
|
||||||
Intangible assets, net
|
|
|
||||||
Operating lease right-of-use assets, net
|
|
|
||||||
Other assets
|
|
|
||||||
Total assets
|
$
|
|
$
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Line of credit
|
$
|
|
$
|
|
||||
PPP Loan, current portion
|
|
|
||||||
Accounts payable
|
|
|
||||||
Accrued expenses
|
|
|
||||||
Accrued compensation
|
|
|
||||||
Billings in excess of revenue earned
|
|
|
||||||
Accrued warranty
|
|
|
||||||
Income taxes payable
|
|
|
||||||
Other current liabilities
|
|
|
||||||
Total current liabilities
|
|
|
||||||
PPP Loan, noncurrent portion
|
|
|
||||||
Operating lease liabilities noncurrent
|
|
|
||||||
Other noncurrent liabilities
|
|
|
||||||
Total liabilities
|
|
|
||||||
Commitments and contingencies (Note 16)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock $
|
|
|
||||||
Common stock $
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
Treasury stock at cost,
|
(
|
)
|
(
|
)
|
||||
Total stockholders’ equity
|
|
|
||||||
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
|||||||||||||
Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Cost of revenue
|
|
|
|
|
||||||||||||
Gross profit
|
|
|
|
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative
|
|
|
|
|
||||||||||||
Research and development
|
|
|
|
|
||||||||||||
Restructuring charges
|
(
|
)
|
|
|
|
|||||||||||
Loss on impairment
|
|
|
|
|
||||||||||||
Depreciation
|
|
|
|
|
||||||||||||
Amortization of intangible assets
|
|
|
|
|
||||||||||||
Total operating expenses
|
|
|
|
|
||||||||||||
Operating loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Interest expense, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Gain on derivative instruments, net
|
|
|
|
|
||||||||||||
Other income, net
|
|
(
|
)
|
|
(
|
)
|
||||||||||
Income (loss) before income taxes
|
|
(
|
)
|
|
(
|
)
|
||||||||||
Provision for income taxes
|
|
|
|
|
||||||||||||
Net income (loss)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||
Net income (loss) per common share - basic and diluted
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||
Weighted average shares outstanding used to compute net
income (loss) per share - basic
|
|
|
|
|
||||||||||||
Weighted average shares outstanding used to compute net
income (loss) per share - diluted
|
|
|
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
|||||||||||||
Net income (loss)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||
Cumulative translation adjustment
|
(
|
)
|
|
|
|
|||||||||||
Comprehensive income (loss)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
Common Stock
|
Treasury Stock
|
|||||||||||||||||||||||||||||||
Three Months Ended
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated Other
Comprehensive Loss
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||
Balance, July 1, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Balance, September 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Balance, July 1, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
|
|||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, September 30, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Common Stock
|
Treasury Stock
|
|||||||||||||||||||||||||||||||
Nine Months Ended
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated Other
Comprehensive Loss
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||
Balance, January 1, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
|
|||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Balance, September 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Balance, January 1, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
|
|||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, September 30, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Nine Months ended
|
||||||||
September 30, 2021
|
September 30, 2020
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$
|
|
$
|
(
|
)
|
|||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
|
||||||||
Loss on impairment
|
|
|
||||||
Depreciation
|
|
|
||||||
Amortization of intangible assets
|
|
|
||||||
Amortization of capitalized software development costs
|
|
|
||||||
Amortization of deferred financing costs
|
|
|
||||||
Gain on PPP loan forgiveness
|
( |
) | ||||||
Stock-based compensation expense
|
|
|
||||||
Bad debt (recovery) expense
|
(
|
)
|
|
|||||
Gain on derivative instruments, net
|
|
(
|
)
|
|||||
Deferred income taxes
|
|
|
||||||
Gain on sale of equipment
|
( |
) | ||||||
Changes in assets and liabilities:
|
||||||||
Contract receivables, net
|
(
|
)
|
|
|||||
Prepaid expenses and other assets
|
(
|
)
|
|
|||||
Accounts payable, accrued compensation and accrued expenses
|
|
(
|
)
|
|||||
Billings in excess of revenue earned
|
(
|
)
|
(
|
)
|
||||
Accrued warranty
|
(
|
)
|
(
|
)
|
||||
Other liabilities
|
|
(
|
)
|
|||||
Net cash (used in) provided by operating activities
|
(
|
)
|
|
|||||
Cash flows from investing activities:
|
||||||||
Capital expenditures
|
(
|
)
|
(
|
)
|
||||
Proceeds from sale of equipment |
||||||||
Capitalized software development costs
|
(
|
)
|
(
|
)
|
||||
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Proceeds from line of credit
|
|
|
||||||
Repayment of line of credit
|
(
|
)
|
(
|
)
|
||||
Repayment of insurance premium
|
(
|
)
|
|
|||||
Repayment of long-term debt
|
|
(
|
)
|
|||||
Proceeds from Paycheck Protection Program Loan |
||||||||
Interest rate swap
|
( |
) | ||||||
Shares withheld to pay taxes
|
(
|
)
|
(
|
)
|
||||
Deferred financing costs |
( |
) | ||||||
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
||||
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
Cash, cash equivalents at beginning of the period
|
|
|
||||||
Cash and cash equivalents at the end of the period
|
$
|
|
$
|
|
(in thousands, except for share data)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income (loss) attributed to common stockholders
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||
Denominator:
|
||||||||||||||||
Weighted-average shares outstanding for basic earnings per share
|
|
|
|
|
||||||||||||
Effect of dilutive securities:
|
||||||||||||||||
Employee RSUs
|
|
|
|
|
||||||||||||
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share
|
|
|
|
|
||||||||||||
Shares related to dilutive securities excluded because inclusion would be anti-dilutive
|
|
|
|
|
(in thousands)
|
September 30, 2021
|
December 31, 2020
|
||||||
Billed receivables
|
$
|
|
$
|
|
||||
Unbilled receivables
|
|
|
||||||
Allowance for doubtful accounts
|
(
|
)
|
(
|
)
|
||||
Total contract receivables, net
|
$
|
|
$
|
|
(in thousands)
|
As of September 30, 2021
|
|||||||||||
Gross Carrying Amount
|
Accumulated Amortization
|
Net
|
||||||||||
Amortized intangible assets:
|
||||||||||||
Customer relationships
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
Trade names
|
|
(
|
)
|
|
||||||||
Developed technology
|
|
(
|
)
|
|
||||||||
Non-contractual customer relationships
|
|
(
|
)
|
|
||||||||
Noncompete agreement
|
|
(
|
)
|
|
||||||||
Alliance agreement
|
|
(
|
)
|
|
||||||||
Others
|
|
(
|
)
|
|
||||||||
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
(in thousands)
|
As of December 31, 2020
|
|||||||||||||||
Gross Carrying
Amount
|
Accumulated
Amortization
|
Impact of
Impairment
|
Net
|
|||||||||||||
Amortized intangible assets:
|
||||||||||||||||
Customer relationships
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||
Trade names
|
|
(
|
)
|
(
|
)
|
|
||||||||||
Developed technology
|
|
(
|
)
|
|
|
|||||||||||
Non-contractual customer relationships
|
|
(
|
)
|
|
|
|||||||||||
Noncompete agreement
|
|
(
|
)
|
(
|
)
|
|
||||||||||
Alliance agreement
|
|
(
|
)
|
|
|
|||||||||||
Others
|
|
(
|
)
|
|
|
|||||||||||
Total
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
(in thousands)
|
||||
Years ended December 31:
|
||||
2021 remainder
|
$
|
|
||
2022
|
|
|||
2023
|
|
|||
2024
|
|
|||
2025
|
|
|||
Thereafter
|
|
|||
Total
|
$
|
|
(in thousands)
|
||||||||
September 30, 2021
|
December 31, 2020
|
|||||||
Computer and equipment
|
$
|
|
$
|
|
||||
Software
|
|
|
||||||
Leasehold improvements
|
|
|
||||||
Furniture and fixtures
|
|
|
||||||
|
|
|||||||
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
Equipment, software and leasehold improvements, net
|
$
|
|
$
|
|
(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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Total assets
|
|
|
|
|
(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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
||||
Balance at January 1, 2021
|
$
|
|
||
Current period recovery
|
(
|
)
|
||
Current period claims
|
(
|
)
|
||
Currency adjustment
|
|
|||
Balance at September 30, 2021
|
$
|
|
(in thousands)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
|||||||||||||
Performance Improvement Solutions segment
|
||||||||||||||||
System Design and Build
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Over time
|
|
|
|
|
||||||||||||
Software and Support
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Training and Consulting Services
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Workforce Solutions |
||||||||||||||||
Training and Consulting Services
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
|||||||||||||
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
|||||||||||||
Income (loss) before income taxes
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||
Provision for income taxes
|
|
|
|
|
||||||||||||
Effective tax rate
|
|
%
|
(
|
)%
|
|
%
|
(
|
)%
|
As of
|
||||||||||
Operating Leases
|
Classification
|
September 30, 2021
|
December 31, 2020
|
|||||||
Leased Assets
|
||||||||||
Operating lease - right of use assets
|
|
$
|
|
$
|
|
|||||
Lease Liabilities
|
||||||||||
Operating lease liabilities - Current
|
|
|
|
|||||||
Operating lease liabilities
|
|
|
|
|||||||
$
|
|
$
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||||
Lease Cost
|
Classification
|
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
|||||||||||||
Operating lease cost (1)
|
Selling, general and administrative expenses
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
Short-term leases costs (2)
|
Selling, general and administrative expenses
|
|
|
|
|
|||||||||||||
Sublease income (3)
|
Selling, general and administrative expenses
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
Net lease cost
|
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
Gross Future
Minimum Lease
Payments
|
|||
2021 remainder
|
$
|
|
||
2022
|
|
|||
2023
|
|
|||
2024
|
|
|||
2025
|
|
|||
Thereafter | ||||
Total lease payments
|
$
|
|
||
Less: Interest
|
|
|||
Present value of lease payments
|
$
|
|
Lease Term and Discount Rate
|
September 30, 2021
|
December 31, 2020
|
||||||
Weighted-average remaining lease term (years)
|
||||||||
Operating leases
|
|
|
||||||
Weighted-average discount rate
|
||||||||
Operating leases
|
|
%
|
|
%
|
(in thousands)
|
Nine months ended
|
|||||||
Cash paid for amounts included in
measurement of liabilities
|
September 30, 2021
|
September 30, 2020
|
||||||
Operating cash flows used in operating leases
|
$
|
|
$
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||
(in thousands)
|
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
||||||||||||
Revenue:
|
||||||||||||||||
Performance
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Workforce Solutions
|
|
|
|
|
||||||||||||
Total revenue
|
|
|
|
|
||||||||||||
Operating loss
|
||||||||||||||||
Performance
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Workforce Solutions
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Litigation
|
|
|
|
|
||||||||||||
Loss on impairment
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
Operating loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Interest expense, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Gain on derivative instruments, net
|
|
|
|
|
||||||||||||
Other income, net
|
|
(
|
)
|
|
(
|
)
|
||||||||||
Income (loss) before income taxes
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
optimization of existing generation assets
|
•
|
design support and deployment of advanced reactor designs
|
•
|
integration with renewable power sources
|
•
|
Design engineering for plant mechanical, electrical, I&C, civil and structural, fire protection and cyber systems
|
•
|
Engineering Programs addressing ASME codes, balance of plant programs other regulatory programs and economic driven programs such as plant thermal performance
|
•
|
Simulation engineering for nuclear, thermal and process plant training and virtual commissioning
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
(in thousands)
|
September 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
||||||||||||||||||||||||||||
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
$ |
%
|
||||||||||||||||||||||
Revenue
|
$
|
14,686
|
100.0
|
%
|
$
|
12,922
|
100.0
|
%
|
$
|
41,312
|
100.0
|
%
|
$
|
44,967
|
100.0
|
%
|
||||||||||||||||
Cost of revenue
|
11,503
|
78.3
|
%
|
9,603
|
74.3
|
%
|
32,512
|
78.7
|
%
|
33,971
|
75.5
|
%
|
||||||||||||||||||||
Gross profit
|
3,183
|
21.7
|
%
|
3,319
|
25.7
|
%
|
8,800
|
21.3
|
%
|
10,996
|
24.5
|
%
|
||||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||||||||||
Selling, general and administrative
|
3,265
|
22.2
|
%
|
2,878
|
22.3
|
%
|
10,521
|
25.5
|
%
|
12,548
|
27.9
|
%
|
||||||||||||||||||||
Research and development
|
149
|
1.0
|
%
|
137
|
1.1
|
%
|
460
|
1.1
|
%
|
526
|
1.2
|
%
|
||||||||||||||||||||
Restructuring charges
|
(10
|
)
|
(0.1
|
)%
|
185
|
1.4
|
%
|
798
|
1.9
|
%
|
195
|
0.4
|
%
|
|||||||||||||||||||
Loss on impairment
|
3
|
0.0
|
%
|
-
|
0.0
|
%
|
3
|
0.0
|
%
|
4,302
|
9.6
|
%
|
||||||||||||||||||||
Depreciation
|
69
|
0.5
|
%
|
76
|
0.6
|
%
|
216
|
0.5
|
%
|
254
|
0.6
|
%
|
||||||||||||||||||||
Amortization of intangible assets
|
286
|
1.9
|
%
|
414
|
3.2
|
%
|
929
|
2.2
|
%
|
1,528
|
3.4
|
%
|
||||||||||||||||||||
Total operating expenses
|
3,762
|
25.6
|
%
|
3,690
|
28.6
|
%
|
12,927
|
31.3
|
%
|
19,353
|
43.0
|
%
|
||||||||||||||||||||
Operating loss
|
(579
|
)
|
(3.9
|
)%
|
(371
|
)
|
(2.9
|
)%
|
(4,127
|
)
|
(10.1
|
)%
|
(8,357
|
)
|
(18.7
|
)%
|
||||||||||||||||
Interest expense, net
|
(32
|
)
|
(0.2
|
)%
|
(128
|
)
|
(1.0
|
)%
|
(135
|
)
|
(0.3
|
)%
|
(556
|
)
|
(1.2
|
)%
|
||||||||||||||||
Gain on derivative instruments, net
|
-
|
0.0
|
%
|
31
|
0.2
|
%
|
-
|
0.0
|
%
|
35
|
0.1
|
%
|
||||||||||||||||||||
Other income, net
|
12,215
|
83.2
|
%
|
(77
|
)
|
(0.6
|
)%
|
16,853
|
40.8
|
%
|
(24
|
)
|
(0.1
|
)%
|
||||||||||||||||||
Income (loss) before income taxes
|
11,604
|
79.0
|
%
|
(545
|
)
|
(4.2
|
)%
|
12,591
|
30.5
|
%
|
(8,902
|
)
|
(19.8
|
)%
|
||||||||||||||||||
Provision for income taxes
|
166
|
1.1
|
%
|
116
|
0.9
|
%
|
127
|
0.3
|
%
|
166
|
0.4
|
%
|
||||||||||||||||||||
Net income (loss)
|
$
|
11,438
|
77.9
|
%
|
$
|
(661
|
)
|
(5.1
|
)%
|
$
|
12,464
|
30.2
|
%
|
$
|
(9,068
|
)
|
(20.2
|
)%
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
(in thousands)
|
September
30, 2021
|
September
30, 2020
|
Change
|
September
30, 2021
|
September
30, 2020
|
Change
|
||||||||||||||||||||||||||
Revenue:
|
$ |
|
%
|
$ |
|
%
|
||||||||||||||||||||||||||
Performance
|
$
|
7,375
|
$
|
7,257
|
118
|
2
|
%
|
$
|
21,318
|
$
|
25,240
|
(3,922
|
)
|
(16
|
)%
|
|||||||||||||||||
Workforce Solutions
|
7,311
|
5,665
|
1,646
|
29
|
%
|
19,994
|
19,727
|
267
|
1
|
%
|
||||||||||||||||||||||
Total revenue
|
$
|
14,686
|
$
|
12,922
|
1,764
|
14
|
%
|
$
|
41,312
|
$
|
44,967
|
(3,655
|
)
|
(8
|
)%
|
(in thousands)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||||||||||||||||
September 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
|||||||||||||||||||||||||||||
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
|||||||||||||||||||||
Gross profit:
|
||||||||||||||||||||||||||||||||
Performance Improvement Solutions
|
$
|
2,252
|
30.5
|
%
|
$
|
2,482
|
34.2
|
%
|
$
|
6,204
|
29.1
|
%
|
$
|
8,240
|
32.6
|
%
|
||||||||||||||||
Workforce Solutions
|
931
|
12.7
|
%
|
837
|
14.8
|
%
|
2,596
|
13.0
|
%
|
2,756
|
14.0
|
%
|
||||||||||||||||||||
Total gross profit
|
$
|
3,183
|
21.7
|
%
|
$
|
3,319
|
25.7
|
%
|
$
|
8,800
|
21.3
|
%
|
$
|
10,996
|
24.5
|
%
|
Three months ended
|
Nine Months ended
|
|||||||||||||||
(in thousands)
|
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September 30,
2020
|
||||||||||||
Corporate charges
|
$
|
2,364
|
$
|
2,565
|
$
|
7,754
|
$
|
9,036
|
||||||||
Business development
|
714
|
1,013
|
2,230
|
2,759
|
||||||||||||
Facility operation & maintenance (O&M)
|
186
|
241
|
654
|
732
|
||||||||||||
Provision for loss on legal settlement
|
-
|
(952
|
)
|
-
|
(91
|
)
|
||||||||||
Bad debt (recovery) expense
|
-
|
10
|
(133
|
)
|
103
|
|||||||||||
Other
|
1
|
1
|
16
|
9
|
||||||||||||
Total
|
$
|
3,265
|
$
|
2,878
|
$
|
10,521
|
$
|
12,548
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
2021
|
September 30,
2020
|
September 30,
2021
|
September
30, 2020
|
|||||||||||||
Net income (loss)
|
$
|
11,438
|
$
|
(661
|
)
|
$
|
12,464
|
$
|
(9,068
|
)
|
||||||
Interest expense, net
|
32
|
128
|
135
|
556
|
||||||||||||
Provision for income taxes
|
166
|
116
|
127
|
166
|
||||||||||||
Depreciation and amortization
|
432
|
579
|
1,426
|
2,030
|
||||||||||||
EBITDA
|
12,068
|
162
|
14,152
|
(6,316
|
)
|
|||||||||||
Provision for legal settlement
|
-
|
(952
|
)
|
-
|
(91
|
)
|
||||||||||
Loss on impairment
|
3
|
-
|
3
|
4,302
|
||||||||||||
Employee retention credit
|
(2,087
|
)
|
-
|
(7,162
|
)
|
-
|
||||||||||
PPP Loan and accumulated interest forgiveness
|
(10,127
|
)
|
-
|
(10,127
|
)
|
-
|
||||||||||
Restructuring charges
|
(10
|
)
|
185
|
798
|
195
|
|||||||||||
Stock-based compensation expense
|
283
|
33
|
784
|
357
|
||||||||||||
Change in fair value of derivative instruments
|
-
|
(31
|
)
|
-
|
(35
|
)
|
||||||||||
Acquisition-related expense
|
-
|
3
|
-
|
191
|
||||||||||||
VAT write-off
|
-
|
-
|
450
|
-
|
||||||||||||
Adjusted EBITDA
|
$
|
130
|
$
|
(600
|
)
|
$
|
(1,102
|
)
|
$
|
(1,397
|
)
|
(in thousands)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
September
30, 2021
|
September
30, 2020
|
September
30, 2021
|
September
30, 2020
|
|||||||||||||
Net income (loss)
|
$
|
11,438
|
$
|
(661
|
)
|
$
|
12,464
|
$
|
(9,068
|
)
|
||||||
Provision for legal settlement
|
-
|
(952
|
)
|
-
|
(91
|
)
|
||||||||||
Loss on impairment
|
3
|
-
|
3
|
4,302
|
||||||||||||
Employee retention credit
|
(2,087
|
)
|
-
|
(7,162
|
)
|
-
|
||||||||||
PPP Loan and accumulated interest forgiveness
|
(10,127
|
)
|
-
|
(10,127
|
)
|
-
|
||||||||||
Restructuring charges
|
(10
|
)
|
185
|
798
|
195
|
|||||||||||
Stock-based compensation expense
|
283
|
33
|
784
|
357
|
||||||||||||
Change in fair value of derivative instruments
|
-
|
(31
|
)
|
-
|
(35
|
)
|
||||||||||
Acquisition-related expense
|
-
|
3
|
-
|
191
|
||||||||||||
VAT write-off
|
-
|
-
|
450
|
-
|
||||||||||||
Amortization of intangible assets related to acquisitions
|
286
|
414
|
929
|
1,528
|
||||||||||||
Adjusted net loss
|
$
|
(214
|
)
|
$
|
(1,009
|
)
|
$
|
(1,861
|
)
|
$
|
(2,621
|
)
|
||||
Adjusted net loss per common share – diluted
|
$
|
(0.01
|
)
|
$
|
(0.05
|
)
|
$
|
(0.09
|
)
|
$
|
(0.13
|
)
|
||||
Weighted average shares outstanding used to compute adjusted net loss per share - diluted(1)
|
20,863,479
|
20,563,452
|
20,714,068
|
20,438,571
|
Item 3. |
Quantitative and Qualitative Disclosure about Market Risk
|
Item 4. |
Controls and Procedures
|
Item 1. |
Legal Proceedings
|
Item 1a. |
Risk Factors
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
Item 3. |
Defaults Upon Senior Securities
|
Item 4. |
Mine Safety Disclosures
|
Item 5. |
Other Information
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, filed herewith.
|
||
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
||
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
||
Eighth Amendment
|
||
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
|
Date: November 15, 2021
|
|
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)
|
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: November 15, 2021
|
/s/ Kyle J. Loudermilk
|
Kyle J. Loudermilk
|
|
Chief Executive Officer
(Principal Executive Officer)
|
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: November 15, 2021
|
/s/ Emmett A. Pepe
|
Emmett A. Pepe
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
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: November 15, 2021
|
/s/ Kyle J. Loudermilk
|
/s/ Emmett A. Pepe
|
||
Kyle J. Loudermilk
|
Emmett A. Pepe
|
|||
Chief Executive Officer
|
Chief Financial Officer
|
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 2,000,000 | 2,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 60,000,000 | 60,000,000 |
Common stock, shares issued (in shares) | 22,499,136 | 22,192,569 |
Common stock, shares outstanding (in shares) | 20,900,225 | 20,593,658 |
Treasury stock at cost (in shares) | 1,598,911 | 1,598,911 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [Abstract] | ||||
Net income (loss) | $ 11,438 | $ (661) | $ 12,464 | $ (9,068) |
Cumulative translation adjustment | (23) | 84 | 1,109 | 104 |
Comprehensive income (loss) | $ 11,415 | $ (577) | $ 13,573 | $ (8,964) |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies |
Note 1 -
Summary of Significant Accounting Policies
Basis of Presentation
GSE Systems, Inc. is a leading provider of professional and technical
engineering, staffing services and simulation software to clients in the power and process industries. References in this report to “GSE” or “we” or “our” or “the Company” are to GSE Systems, Inc. and our subsidiaries, collectively.
The consolidated interim financial statements included herein have been
prepared by GSE and are unaudited. In the opinion of our management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the
periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2020 was derived from our
audited financial statements, but it does not include all disclosures required by U.S. GAAP.
The results of operations for interim periods are not necessarily an
indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2020, filed with the U.S. Securities and Exchange Commission on April 13, 2021.
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of
revenues and expenses during the reporting period. Our most significant estimates relate to revenue recognition on contracts with customers, product warranties, valuation of goodwill and intangible assets acquired including the determination
of fair value in impairment tests, valuation of long-lived assets to be disposed of, valuation of stock-based compensation awards, and the recoverability of deferred tax assets. Actual results of these and other items not listed could differ
from these estimates and those differences could be material.
COVID-19
GSE employees began working remotely during the first quarter of 2020 due to the COVID-19 pandemic and will continue to do so when
practical and as mandated by local, state and federal directives and regulations. Employees almost entirely work from home within our Performance Improvement Solutions (“Performance”) segment, except when required to be at the client site
for essential project work. Our Performance contracts, which are considered an essential service, are permitted to and mostly continue without pause; however, we have experienced certain delays in new business. For our staff augmentation
business, we have seen certain contracts for our Workforce Solutions customers paused or delayed as clients reduce their own on-premise workforces to the minimum operating levels in response to the pandemic; as a result, our Workforce
Solutions segment has experienced a decline in its billable employee base since the start of the pandemic. Although we cannot fully estimate the length or gravity of the impact of the COVID-19 pandemic to our business at this time, we have
experienced delays in commencing new projects and thus our ability to recognize revenue has been delayed for some contracts. Reductions in orders and other negative changes to orders experienced at the beginning of the pandemic have started
to reverse in 2021, but not at the level expected as ongoing COVID concerns continue to hinder the pace of recovery. We continue to closely monitor our operating expenses as a result of contract delays and have made adjustments to keep our
gross profit at a sustainable level.
Going Concern
In 2020,
we had several projects (primarily in our Workforce Solutions business segment) delayed and new orders postponed because of the COVID-19 pandemic. We amended our credit facility with Citizens Bank, N.A. (“the Bank”) in 2020 based upon expected covenant violations and have been required to curtail term
debt in exchange for revised financial covenants. Scheduled term loan repayments and agreed upon curtailment required us to use $18.5 million in available cash to pay-off our term debt in 2020. We signed a Ninth Amendment and Reaffirmation Agreement (the “Ninth Amendment”) with the
Bank on March 29, 2021 to waive the fixed charge coverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and to adjust the thresholds for future covenants to ease the risk of non-compliance experienced in
previous quarters. We have experienced delays in commencing new projects and thus our ability to earn revenue has been delayed for these projects. Reductions in orders and other negative changes to orders experienced at the beginning
of the pandemic have started to reverse in 2021, but not at the level expected as ongoing
COVID concerns continue to hinder the pace of recovery. This deterioration in the recovery plan has resulted in breaching the Minimum Liquidity ratio subsequent to June 30, 2021 and we project breaching the Leverage and Fixed Charges ratio covenant (See Note 10).
Our working capital position on September 30, 2021 was $6.7 million. On August 5, 2021, the Company received approval from Small Business Administration (“SBA”) that the PPP loan including all accrued interest thereon was forgiven.
The COVID-19 macroeconomic environment is considered fluid and although recovery is anticipated to steadily occur over the next 12 months, issues that could result from the other
COVID variants could cause a further decline in revenue or stress our ability to meet covenant requirements. Jurisdictions where our businesses operate across the country are pushing toward re-opening places of business and
government support, through the American Rescue Plan Act of 2021, will continue to support the broader economy. We have recorded $5.0
million of employee retention credits (“ERCs”) to
be refunded from the IRS and recorded an additional $2.2 million of ERCs from unremitted payroll taxes made available under
the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). However, the timing of these elements taking place are not predictable and may not serve to mitigate our
situation or improve the Company’s health. Following the Ninth Amendment, our new covenant compliance remains dependent on meeting future projections, which are subject to the variability and unknown speed and extent of post-COVID-19
recovery. On November 12, 2021, due to the violation of Q3 2021 leverage ratio, we signed the Tenth Amendment and Reaffirmation Agreement with an
effective date of November 12, 2021 to adjust the thresholds for future covenants to ease the risk of non-compliance (See Note 17).
The Company’s management continues to explore raising capital through its access to the public markets or entering into alternative financing arrangements. Furthermore, while recovery
has been slower to materialize than expected the Company has experienced an improvement in orders as well as a higher rate of opportunities across business segments. Future negative trends in operating results could be mitigated through
various cost cutting measures including adjustments to headcount or compensation, vendor augmentation or delay of investment initiatives in the Company’s corporate office.
These actions, which are further supported by positively trending
macroeconomic conditions, and the potential of recovery of business and orders may ease the risk of further bank covenant violations. However, when considering the unpredictability of the above, there continues to be substantial doubt the
Company will continue as a going concern.
|
Recent Accounting Pronouncements |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Recent Accounting Pronouncements [Abstract] | |
Recent Accounting Pronouncements |
Note 2 - Recent Accounting Pronouncements
Accounting pronouncements recently adopted
In January 2020, the FASB issued ASU 2020-01, Investments – Equity
Securities, Investments – Equity Method and Joint Ventures, and Derivatives and Hedging, which provides clarity for companies that hold equity securities at cost to first update the fair value of an investment, immediately prior to applying
the Equity Method of Accounting; or clarity for companies that enter into forward contracts to purchase additional shares of an equity security that would then require the investee to account for the investment via the Equity Method. This ASU
is applicable for public companies starting with fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2020-01 on January 1, 2021. This standard did not have a significant impact
to our consolidated financial statements since the Company does not currently hold any investments at cost.
In September 2020, the FASB issued ASU 2020-10, Codification Improvements,
which is part of an ongoing attempt to improve the consistency of the codification. Previously the option to disclose information in the footnotes to the financial statements was in one of two sections: Disclosure Section (Section 50) or
Other Presentation Matters (Section 45). ASU 2020-10 conforms the disclosure requirements into Section 50 and provides additional information on specific guidance that was previously unclear or not included in the codification. This ASU is
applicable for public companies starting with fiscal years beginning after December 15, 2020, with early adoption available for interim and annual financial statements not already filed and using the retrospective approach. however, the FASB
does not believe that this should change any of the current reporting or disclosure requirements. The Company adopted ASU 2020-10 on January 1, 2021. The adoption of this standard did not have a material impact to our consolidated financial
statements.
Accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but not
limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to determine
whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor
in concluding whether a credit loss exists. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On October 16, 2019, the FASB voted to defer the
deadlines for private companies and certain small public companies, including smaller reporting companies, to implement the new accounting standards on credit losses. The new effective date is January 1, 2023. As a smaller reporting company,
we have elected to defer adoption in line with new deadlines and are currently evaluating the effects, if any, that the adoption of this guidance will have on our consolidated financial position, results of operations and cash flows.
Management has evaluated other recently issued accounting pronouncements and
does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
|
Basic and Diluted Loss per Share |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Loss per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Loss per Share |
Note 3 - Basic and Diluted Loss per Share
Basic earnings per share is based on the weighted average number of outstanding common shares for the period. Diluted earnings per share adjusts the
weighted average shares outstanding for the potential dilution that could occur if outstanding vested stock options were exercised. Basic and diluted earnings per share are based on the weighted average number of outstanding shares for the period.
The number of common shares and common share equivalents used in the determination of basic and diluted loss per common share were as follows:
|
Coronavirus Aid, Relief and Economic Security Act |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Coronavirus Aid, Relief and Economic Security Act [Abstract] | |
Coronavirus Aid, Relief and Economic Security Act |
Note 4 - Coronavirus Aid, Relief and Economic Security
Act
Paycheck Protection Program Loan (PPP Loan)
On March 27, 2020, the United States enacted the CARES Act. to extend liquidity to small businesses and assist in retaining employees during the COVID-19
pandemic. On April 23, 2020, GSE was approved for and on the next day received a $10 million loan pursuant to a Paycheck
Protection Program Note (the “PPP Loan”) from Citizens Bank, N.A. Pursuant to the CARES Act, the PPP Loan was guaranteed by the U.S. Small Business Administration (“SBA”) and eligible for forgiveness under certain circumstances. Repayment
of the PPP Loan was scheduled to begin on August 9, 2021. We applied for forgiveness in Q1 of 2021, and, on August 5, 2021, the Company was notified that the PPP loan was forgiven. We recognized other income of $10.1 million related to this forgiveness in the three and nine months ended September 30, 2021.
Employee Retention Credits (ERC)
Employee retention tax credits, made
available under the CARES Act, allow eligible employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees, initially from March 27, 2020 until June
30, 2021, and now extended through September 30, 2021. For the third quarter of 2021, we have applied for a refund of $1.0 million from the IRS with the timely filing of Form 941 and
have recognized a benefit of $1.4 million from unremitted payroll taxes as allowable. For the nine months ended September 30, 2021 the Company has applied for a total of $5.0 million from the IRS with the timely filing of Form 941 and 941-X and recognized a benefit of $2.2 million from unremitted payroll taxes
as allowable. We recorded other income of $2.1 million and $7.2 million related to the employee retention tax credits earned in
the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, the Company received employee retention tax credit refunds totaling $0.7 million with remaining
outstanding refunds receivable of $4.3 million.
|
Contract Receivables |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables |
Note 5 - Contract Receivables
Contract receivables represent our unconditional rights to consideration due
from our domestic and international customers. We expect to collect all contract receivables within the next twelve months.
The components of contract receivables were as follows:
Management reviews collectability of receivables periodically and records an
allowance for doubtful accounts to reduce the Company’s receivables to their net realizable value when management determines it is probable that we will not be able to collect all amounts due from customers. The allowance for doubtful
accounts is based on historical trends of past due accounts, write-offs, specific identification and review of customer accounts.
During the nine months ended September 30, 2021 and 2020, we recorded bad
debt (recovery) expense of $(133) thousand and $103 thousand, respectively.
During the month of October 2021, we invoiced $2.6 million of the unbilled receivable as of September 30, 2021.
As of
September 30, 2021, we had one customer that accounted for 10% of our consolidated contract receivables. As of December 31, 2020, we had no customer that accounted for over 10% of our consolidated contract receivables.
|
Goodwill and Intangible Assets |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets |
Note 6 - Goodwill and Intangible Assets
During the three months ended March 31, 2020, we recognized an impairment charge of $4.3 million of certain intangible assets as a result of the valuation analysis performed. The need for the valuation analysis was triggered by the macroeconomic impact of the COVID-19 pandemic on our
operations. This analysis did not indicate impairment of goodwill.
Our Step 1 goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptions regarding estimates of
growth rates used to forecast revenue, operating margin and terminal value as well as determining the appropriate risk-adjusted discount rates and other factors that impact fair value determinations.
The Company monitors operating results and events and circumstances that may indicate potential impairment of intangible assets. The Company performs an annual
intangible assets impairment analysis at the year end, which includes the use of undiscounted cash flow and discounted cash flow models that requires management to make assumptions regarding estimates of growth rates used to forecast
revenue, operating margin and terminal value as well as determining the appropriate risk adjusted discount rates and other factors that impact fair value determinations. The current assessment has no indication of impairment.
Management concluded that there were no triggering events that occurred during the three and nine months ended September 30, 2021.
The following table shows the gross carrying amount and accumulated
amortization of definite-lived intangible assets:
Amortization expense related to definite-lived intangible assets totaled $0.3 million and $0.4 million for
the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively. The following table shows the estimated amortization expense of the definite-lived
intangible assets for the next five years and thereafter:
|
Equipment, Software and Leasehold Improvements |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements |
Note 7 - Equipment, Software and Leasehold Improvements
Equipment, software and leasehold improvements, net consist of the following:
Depreciation expense was $216 thousand and $254 thousand for the nine months ended
September 30, 2021 and 2020, respectively. Capitalization of internal-use software cost of $50 thousand and $365 thousand were recorded in software for the three and nine months ended September 30, 2021.
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Fair Value of Financial Instruments |
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Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
Note 8 - Fair Value of Financial Instruments
ASC 820, Fair Value Measurement,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The levels of the fair value hierarchy established by ASC 820 are:
Level 1: inputs are quoted prices, unadjusted, in active markets for
identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2: inputs are other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. A Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: inputs are unobservable and reflect the reporting entity’s own
assumptions about the assumptions that market participants would use in pricing the asset or liability.
As of September 30, 2021 and December 31, 2020, we considered the recorded
value of certain of our financial assets and liabilities, which consist primarily of cash and cash equivalents, contract receivable and accounts payable, to approximate fair value based upon their short-term nature.
For the nine months ended September 30, 2021, we did not have any transfers
into or out of Level 3.
The following table presents assets measured at fair value at September 30,
2021:
The following table presents assets and liabilities measured at fair value
at December 31, 2020:
|
Stock-Based Compensation |
9 Months Ended |
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Sep. 30, 2021 | |
Stock-Based Compensation [Abstract] | |
Stock-Based Compensation |
Note 9 -
Stock-Based Compensation
We recognize compensation expense for
all equity-based compensation awards issued to employees and directors that are expected to vest. Stock compensation is calculated based upon the fair value of awards as of the grant date. During the three months ended September 30, 2021 and 2020, we recognized $0.3 million in stock-based compensation expense and $33 thousand of stock-based compensation expense related to equity awards, respectively. We recognized $0.8
million and $0.4 million of stock-based compensation expense related to equity awards for the nine months ended September 30, 2021 and 2020, respectively, under the fair value method. In addition to the equity-based compensation expense recognized, the Company recognized stock-based compensation related to the change in the fair value of
cash-settled restricted stock units (RSUs) $0
and $6 thousand for the nine months ended September 30, 2021 and 2020, respectively. There was no change in the fair value of cash settled RSUs for the three months ended September
30, 2021 and 2020.
During the three and nine months ended September 30, 2021, we granted approximately 20,000 and 824,661 time-based RSUs
with an aggregate fair value of approximately $30 thousand and $1.4 million, respectively. During the three and nine months ended September 30, 2020,
we granted approximately 130,000 and 170,000 time-based RSUs with an aggregate fair value of $0.1 million and $0.2 million, respectively. A portion of the time-based RSUs vest quarterly in equal amounts over
the course of eight quarters, and the remainder vest annually in equal amounts
over the course of to three years.
GSE’s 1995 long-term incentive program (“LTIP”) provides for the issuance of performance-vesting and time-vesting restricted stock units to certain executives and employees.
Vesting of the performance-vesting restricted stock units (“PRSU”) is contingent upon the employee’s continued employment and the Company’s achievement of certain performance goals during designated performance periods as established by
the Compensation Committee of the Company’s Board of Directors. We recognize compensation expense, net of estimated forfeitures, for PRSU’s on a straight-line basis over the performance period based on the probable outcome of achievement
of the financial targets. At the end of each reporting period, we estimate the number of PRSUs that are expected to vest, based on the probability and extent to which the performance goals will be met, and take into account these
estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the performance period, we make a cumulative adjustment to compensation expense based on the revised number of shares
expected to be earned.
During the three and nine months ended September 30, 2021, we did not grant any performance-based RSUs to employees.
During the three months ended September 30, 2020, we did not grant any performance-based RSUs to employees and during the nine months ended September 30, 2020, we granted approximately 512,000
performance-based RSUs to key employees with an aggregate fair-value of $0.6
million. These awards vest over three years based upon achieving certain financial metrics achieved during fiscal 2022 for revenue and Adjusted EBITDA. The Company did not grant any stock options for three and nine months ended September 30, 2021 and 2020.
|
Debt |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Debt [Abstract] | |
Debt |
Note 10 - Debt
On December 29, 2016, we entered a 3-year $5.0 million revolving line of credit facility
(“RLOC”) with the Citizens Bank, N.A. (the “Bank”) to fund general working capital needs and acquisitions. On May 11, 2018, we entered into the Amended and Restated Credit and Security Agreement (the “Credit Agreement” or the “Credit
Facility”) to (a) expand the RLOC to include a letter of credit sub-facility and not be subject to a borrowing base and (b) to add a $25
million term loan facility, available to finance permitted acquisitions over the following 18 months. The credit facility was
subject to certain financial covenants and reporting requirements and was scheduled to mature on May 11, 2023 and accrue interest
at the USD LIBOR, plus a margin that varies depending on our overall leverage ratio. The RLOC had required monthly payments of only interest, with principal due at maturity, while our term loan draws required monthly payments of principal and
interest based on an amortization schedule. Our obligations under the Credit Agreement are guaranteed by our wholly owned subsidiaries, now Hyperspring, Absolute, True North, DP Engineering and by any future material domestic subsidiaries
(collectively, the "Guarantors"). We subsequently amended and ratified the Credit Agreement a number of times.
More recently, during 2020, the COVID-19 pandemic impacted our operations and our projected ability to comply with certain financial covenants. As such, we
amended the credit facility at various dates in 2020 to revise our fixed charge ratio and leverage ratio requirements as well as our Adjusted EBITDA requirement. In exchange for relaxed covenants or waivers of covenants for certain
periods, we were required by the Bank to curtail our term debt. During 2020, we repaid approximately $18.5 million of term debt
and we were required to meet certain liquidity covenants, which are tested bi-weekly.
Due to a projected violation of the leverage ratio at the end of the first
quarter, we signed the Ninth Amendment and Reaffirmation Agreement with an effective date of March 29, 2021. Pursuant to the Ninth Amendment and Reaffirmation Agreement, the Bank waived the fixed charge coverage ratio and leverage ratio for
the quarters ending March 31 and June 30, 2021, and we agreed, for each quarter thereafter, that the fixed charge coverage ratio shall not be less than 1.10 to 1.00. In addition, we agreed to not exceed a maximum leverage ratio starting on September 30, 2021 as follows: (i) 3.25 to 1.00 for the period ending September 30, 2021; (ii) 3.00 to 1.00 for the period ending
on December 31, 2021, (iii) 2.75 to 1.00 for the period ending March 31, 2022; (iv) 2.50 to 1.00 for the period ending June 30, 2022 and (v) 2.00
to 1.00 for the periods ending September 30, 2022 and each December 31st, March 31st, June 30th and September 30th thereafter. We were also required to maintain a minimum of $2.5 million in aggregate USA liquidity. As part of the amendment, we agreed, at closing, (i) to make a $0.5 million pay down of RLOC; (ii) RLOC commitment to be reduced to $4.25
million; and (iii) $0.5 million of RLOC will only be available for issuance of Letters of Credit. We also agreed to pay $0.5 million to reduce RLOC to $3.75
million by June 30, 2021 and to $3.5 million by September 30, 2021. Commencing December 31, 2021 and on the last day of each
quarter, we will pay $75 thousand to reduce the RLOC. We incurred $25 thousand fees related to this amendment during the year ended December 31, 2020.
Following the Ninth Amendment and Reaffirmation Agreement, we experienced continued delays in commencing new projects and thus our ability to recognize revenue has been delayed for some
contracts. Reductions in orders and other negative changes to orders experienced at the beginning of the pandemic have started to reverse in 2021, but not at the level expected as ongoing COVID concerns continue to hinder the pace of
recovery. This deterioration in the recovery plan has resulted in our breaching the Minimum Liquidity ratio subsequent to both June 30, 2021 and September 30, 2021 as well as a projected breach of the Leverage and Fixed Charges ratio
covenants.
We have experienced delays in commencing new projects and thus our
ability to recognize revenue has been delayed for some contracts. Reductions in orders and other negative changes to orders experienced at the beginning of the pandemic have started to reverse in 2021, but not at the level expected as
ongoing COVID concerns continue to hinder the pace of recovery. This deterioration in the recovery plan has resulted in breaching the Minimum Liquidity ratio subsequent to both June 30, 2021 and at September 30, 2021 as well as
projected breaching of the Leverage and Fixed Charges ratio covenant. On November 12, 2021, due to these covenant violations, we signed the Tenth Amendment and Reaffirmation Agreement with an effective date of November 12, 2021 to
adjust the thresholds for future covenants to ease the risk of non-compliance (See Note 17).
Revolving Line of Credit (“RLOC”)
During the nine months ended September 30, 2021, we paid for $1.7 million and had a draw of $0.8
million on our RLOC. As of September 30, 2021, we had outstanding borrowings of $2.1 million under the RLOC and four letters of credit totaling $1.1
million outstanding to certain of our customers. The total borrowing capacity under RLOC was $3.5 million as of September 30, 2021.
After consideration of letters of credit and the $0.5 million reserved for issuance of new letters of credit, there was no amount available for borrowing under the RLOC.
We intend to continue using the RLOC for short-term working capital needs
when capacity is available and for the issuance of letters of credit in connection with business operations, provided we remain in compliance with our covenants. Letter of credit issuance fees range between 1.25% and 2.00% of the value of
the letter of credit, depending on our overall leverage ratio. We pay a fee for unused RLOC quarterly based on the average daily unused balance.
|
Product Warranty |
9 Months Ended | ||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||
Product Warranty [Abstract] | |||||||||||||||||||||||||||||||
Product Warranty |
Note 11 - Product Warranty
We accrue for estimated warranty costs at the time the related revenue is
recognized and based on historical experience and projected claims. Our System Design and Build contracts generally include a one year
base warranty on the systems. The portion of our warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $560 thousand, and the remaining $171 thousand is classified
as long-term within other liabilities.
The activity in the accrued warranty accounts during the current period is
as follows:
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Revenue |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Revenue [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue |
Note 12 - Revenue
We
account for revenue in accordance with ASC 606, Revenue from Contracts with Customers. We primarily generate revenue through three
distinct revenue streams: (1) System Design and Build (“SDB”), (2) Software and (3) Training and Consulting Services across our Performance and Workforce Solutions segments. We recognize revenue from SDB and software contracts mainly through our
Performance segment. We recognize training and consulting service contracts through both segments.
The following table represents a
disaggregation of revenue by type of goods or services for three and nine months ended September 30, 2021 and 2020, along with the reporting segment for each category:
The following table reflects revenue recognized in the reporting periods
presented that was included in contract liabilities from contracts with customers as of the beginning of the periods presented:
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Income Taxes |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
Note 13 - Income Taxes
The following table presents the provision for income taxes and
our effective tax rates:
Our income tax
expense for the interim periods presented is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. Total income tax benefit for the nine months ended September 30, 2021 was comprised
mainly of foreign and state tax expense. Total income tax expense for the nine months ended September 30, 2020 was comprised mainly of foreign and state tax expense.
Our effective income
tax rate was 1.4% and 1.0%
for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2021, the difference between our income tax expense at an effective tax rate of 1.4% and 1.0% respectively, and the U.S. statutory federal
income tax rate of 21% was primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, a
change in tax valuation allowance in our U.S. entity, and discrete item adjustments for U.S. and foreign taxes. For the three months ended September 30, 2020, the difference between our income tax expense at an effective tax rate of (21.3%) and the U.S. statutory federal income tax rate of 21% was primarily due to accruals related to uncertain tax position for certain U.S. and foreign tax contingencies, a change in tax valuation allowance in our U.S. and China subsidiaries and discrete item
adjustments for U.S. and foreign taxes. For the nine months ended September 30, 2020, the difference between our income tax expense at an effective tax rate of (1.9%) and the U.S. statutory federal income tax rate of 21% was primarily
due to permanent differences, accruals related to uncertain tax positions for certain U.S. and foreign tax contingencies, a change in tax valuation allowance in our U.S. and China subsidiaries, discrete item adjustments for the U.S. and foreign
taxes, and the impact of the loss for impairment.
Because of our net
operating loss carryforwards, we are subject to U.S. federal and state income tax examinations from the year 2000 and forward and
are subject to foreign tax examinations by tax authorities for years 2015 and forward.
An uncertain tax
position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured
at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties
related to income taxes are accounted for as income tax expense. The Company has an estimated $0.9 million of tax benefit that will be
realized in the fourth quarter of 2021 upon the expiration of the statute of limitations of the tax year in which the uncertain tax position was taken.
We recognize deferred
tax assets to the extent that it is believed that these assets are more likely than not to be realized. We have evaluated all positive and negative evidence and determined that we will continue to assess a full valuation allowance on our U.S.,
China, and Slovakia net deferred assets as of September 30, 2021. We have determined that it is not more likely than not that the Company will realize the benefits of its deferred taxes in the U.S. and foreign jurisdictions.
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Leases |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases |
Note 14 - Leases
We have lease agreements with lease and non-lease components, which are
accounted for as a single lease. We apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Lease contracts are evaluated at inception to determine whether they contain
a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in
thousands):
We executed a sublease agreement with a tenant to sublease 850 square feet from the Sykesville office space on September 13, 2021. This agreement is in addition to the two previous subleases for 3,650 square feet and 3,822 square
feet entered into on May 1, 2019 and April 1, 2017, respectively. The addition of the third sublease is for a portion of the space previously abandoned in December 2019. The sublease does not relieve us of our primary lease obligation. The lessor agreements are all
considered operating leases, maintaining the historical classification of the underlying lease. We do not recognize any underlying assets for the subleases as a lessor of operating leases. The net amount received from the sublease is recorded
within selling, general and administrative expenses.
The table below summarizes lease income and expense recorded in the
consolidated statements of operations incurred during the three and nine months ended September 30, 2021 and 2020, (in thousands):
(1) Includes
variable lease costs which are immaterial.
(2) Includes
leases maturing less than twelve months from the report date.
(3) Sublease portfolio consists of three tenants, which sublease parts
of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.
The Company is obligated under certain noncancelable operating leases for
office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of September 30, 2021 are as follows (in thousands):
We calculated the weighted-average remaining lease term, presented in years
below and the weighted-average discount rate for our operating leases. As noted in our lease accounting policy, we use the incremental borrowing rate as the lease discount rate.
The table below sets out the classification of lease payments in the
consolidated statement of cash flows.
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Segment Information |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
Note 15 - Segment Information
We have 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 engineering services include, but are not limited to, plant design verification and validation, thermal
performance evaluation and optimization programs, and engineering programs for plants for ASME code and ASME Section XI. The Company provides these services across all market segments through our Performance, True North consulting, and DP
Engineering subsidiaries. Example training
applications include turnkey and custom training services. Contract terms are typically less than .
Workforce Solutions 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 income before income taxes. Inter-segment revenue is
eliminated in consolidation and is not significant:
|
Commitments and Contingencies |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies |
Note 16 -
Commitments and Contingencies
Joyce v. Absolute Consulting, Inc.
On March 29, 2019, a former employee
of Absolute Consulting, Inc., filed a putative class action against Absolute and the Company, Joyce v. Absolute Consulting Inc., case number 1:19 cv 00868 RDB, in the United States District Court for the District of Maryland. The lawsuit
alleged that the plaintiff and certain other employees were not properly compensated for overtime hours worked. The Company was subsequently dismissed from the case, leaving Absolute as the sole defendant.
On August 17, 2020, Absolute entered
into a Settlement Agreement with the plaintiffs, with a maximum settlement amount of $1.5 million, which required Court approval.
On September 8, 2020, the Settlement Agreement between Absolute and the plaintiffs was ratified by the Court, and the case was dismissed, although the parties remain bound by the terms of the settlement agreement. Following Court approval,
Absolute made an initial payment toward the settlement amount, including legal fees, of $625 thousand. After the passing of an
opt-in notice period expired, the final cost of settling this case, including plaintiff’s attorney fees was approximately $1.4
million.
On September 29, 2020, the Company
received $1.0 million from a general escrow account, originally set up as part of the Company’s purchase of Absolute during fiscal
2017. The Company presented the loss on Joyce legal settlement and the benefit from the proceeds from the release of escrow from the Absolute transaction in selling, general and administrative expenses, in the amount of $0.5 million for the year ended December 31, 2020.
Per ASC 450
Accounting for Contingencies, the Company
reviews potential items and areas where a loss contingency could arise. In the opinion of management, we are not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or in the aggregate, would have a material effect on our consolidated
results of operations, financial position or cash flows, other than as noted above. We expense legal defense costs as incurred.
|
Subsequent Events |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Subsequent Events [Abstract] | |
Subsequent Events |
Note 17 - Subsequent Events
On November 12, 2021, due
to the violation of Q3 2021 leverage ratio, we signed the Tenth Amendment and Reaffirmation Agreement with an effective date of November 12, 2021, with our bank to waive the fixed charge coverage ratio and leverage ratio for the quarters ending
September 30 and December 31, 2021, and we agreed, (i) interest on the outstanding principal amount of the RLOC shall accrue at the interest rate in effect for the RLOC from time to time, but the interest due and payable on the RLOC on each Interest
Payment Date shall be determined by subtracting seventy-five (75) basis points from the Applicable Margin and (ii) the seventy-five (75) basis points of accrued interest on the RLOC not paid on any Interest Payment Date pursuant to clause (i) above shall be due and payable on the
Termination Date or the date of payment in full of the RLOC. RLOC Amount” means (i) $3,500,000 (ii) on each date a payment in the amount of
$250,000 is made pursuant to Subsection 2.1.5(d), the RLOC Amount immediately prior to such payment reduced by $250,000 and (iii) on March 31, 2022 and on each June 30, September 30, December 31 and March 31 thereafter, the RLOC Amount immediately prior to each such
date reduced by $37,500. In addition, we agreed, by December 31, 2021, we will pay the Bank $250,000 to be applied to the principal amount outstanding under the RLOC. Commencing on March 31, 2022 and on each June 30, September 30, December 31 and March 31 thereafter, we
will pay the Bank $75,000 to be applied to the principal amount outstanding under the RLOC. In addition, within the fifth (5th) Business
Day after we have received, subsequent to November 1, 2021, Employee Retention Credits in an aggregate amount not less than $500,000, we
will pay the Bank $250,000 to be applied to the principal amount outstanding under the RLOC. We are also required to maintain a minimum of
$2.25 million in aggregate USA liquidity. We incurred $15 thousand of amendment fee related to this amendment.
|
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Preparation |
Basis of Presentation
GSE Systems, Inc. is a leading provider of professional and technical
engineering, staffing services and simulation software to clients in the power and process industries. References in this report to “GSE” or “we” or “our” or “the Company” are to GSE Systems, Inc. and our subsidiaries, collectively.
The consolidated interim financial statements included herein have been
prepared by GSE and are unaudited. In the opinion of our management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the
periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2020 was derived from our
audited financial statements, but it does not include all disclosures required by U.S. GAAP.
The results of operations for interim periods are not necessarily an
indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2020, filed with the U.S. Securities and Exchange Commission on April 13, 2021.
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of
revenues and expenses during the reporting period. Our most significant estimates relate to revenue recognition on contracts with customers, product warranties, valuation of goodwill and intangible assets acquired including the determination
of fair value in impairment tests, valuation of long-lived assets to be disposed of, valuation of stock-based compensation awards, and the recoverability of deferred tax assets. Actual results of these and other items not listed could differ
from these estimates and those differences could be material.
|
Going Concern |
Going Concern
In 2020,
we had several projects (primarily in our Workforce Solutions business segment) delayed and new orders postponed because of the COVID-19 pandemic. We amended our credit facility with Citizens Bank, N.A. (“the Bank”) in 2020 based upon expected covenant violations and have been required to curtail term
debt in exchange for revised financial covenants. Scheduled term loan repayments and agreed upon curtailment required us to use $18.5 million in available cash to pay-off our term debt in 2020. We signed a Ninth Amendment and Reaffirmation Agreement (the “Ninth Amendment”) with the
Bank on March 29, 2021 to waive the fixed charge coverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and to adjust the thresholds for future covenants to ease the risk of non-compliance experienced in
previous quarters. We have experienced delays in commencing new projects and thus our ability to earn revenue has been delayed for these projects. Reductions in orders and other negative changes to orders experienced at the beginning
of the pandemic have started to reverse in 2021, but not at the level expected as ongoing
COVID concerns continue to hinder the pace of recovery. This deterioration in the recovery plan has resulted in breaching the Minimum Liquidity ratio subsequent to June 30, 2021 and we project breaching the Leverage and Fixed Charges ratio covenant (See Note 10).
Our working capital position on September 30, 2021 was $6.7 million. On August 5, 2021, the Company received approval from Small Business Administration (“SBA”) that the PPP loan including all accrued interest thereon was forgiven.
The COVID-19 macroeconomic environment is considered fluid and although recovery is anticipated to steadily occur over the next 12 months, issues that could result from the other
COVID variants could cause a further decline in revenue or stress our ability to meet covenant requirements. Jurisdictions where our businesses operate across the country are pushing toward re-opening places of business and
government support, through the American Rescue Plan Act of 2021, will continue to support the broader economy. We have recorded $5.0
million of employee retention credits (“ERCs”) to
be refunded from the IRS and recorded an additional $2.2 million of ERCs from unremitted payroll taxes made available under
the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). However, the timing of these elements taking place are not predictable and may not serve to mitigate our
situation or improve the Company’s health. Following the Ninth Amendment, our new covenant compliance remains dependent on meeting future projections, which are subject to the variability and unknown speed and extent of post-COVID-19
recovery. On November 12, 2021, due to the violation of Q3 2021 leverage ratio, we signed the Tenth Amendment and Reaffirmation Agreement with an
effective date of November 12, 2021 to adjust the thresholds for future covenants to ease the risk of non-compliance (See Note 17).
The Company’s management continues to explore raising capital through its access to the public markets or entering into alternative financing arrangements. Furthermore, while recovery
has been slower to materialize than expected the Company has experienced an improvement in orders as well as a higher rate of opportunities across business segments. Future negative trends in operating results could be mitigated through
various cost cutting measures including adjustments to headcount or compensation, vendor augmentation or delay of investment initiatives in the Company’s corporate office.
These actions, which are further supported by positively trending
macroeconomic conditions, and the potential of recovery of business and orders may ease the risk of further bank covenant violations. However, when considering the unpredictability of the above, there continues to be substantial doubt the
Company will continue as a going concern.
|
Recent Accounting Pronouncements (Policies) |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Recent Accounting Pronouncements [Abstract] | |
Recent Accounting Pronouncements Adopted and Not Yet Adopted |
Accounting pronouncements recently adopted
In January 2020, the FASB issued ASU 2020-01, Investments – Equity
Securities, Investments – Equity Method and Joint Ventures, and Derivatives and Hedging, which provides clarity for companies that hold equity securities at cost to first update the fair value of an investment, immediately prior to applying
the Equity Method of Accounting; or clarity for companies that enter into forward contracts to purchase additional shares of an equity security that would then require the investee to account for the investment via the Equity Method. This ASU
is applicable for public companies starting with fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2020-01 on January 1, 2021. This standard did not have a significant impact
to our consolidated financial statements since the Company does not currently hold any investments at cost.
In September 2020, the FASB issued ASU 2020-10, Codification Improvements,
which is part of an ongoing attempt to improve the consistency of the codification. Previously the option to disclose information in the footnotes to the financial statements was in one of two sections: Disclosure Section (Section 50) or
Other Presentation Matters (Section 45). ASU 2020-10 conforms the disclosure requirements into Section 50 and provides additional information on specific guidance that was previously unclear or not included in the codification. This ASU is
applicable for public companies starting with fiscal years beginning after December 15, 2020, with early adoption available for interim and annual financial statements not already filed and using the retrospective approach. however, the FASB
does not believe that this should change any of the current reporting or disclosure requirements. The Company adopted ASU 2020-10 on January 1, 2021. The adoption of this standard did not have a material impact to our consolidated financial
statements.
Accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but not
limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to determine
whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor
in concluding whether a credit loss exists. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On October 16, 2019, the FASB voted to defer the
deadlines for private companies and certain small public companies, including smaller reporting companies, to implement the new accounting standards on credit losses. The new effective date is January 1, 2023. As a smaller reporting company,
we have elected to defer adoption in line with new deadlines and are currently evaluating the effects, if any, that the adoption of this guidance will have on our consolidated financial position, results of operations and cash flows.
Management has evaluated other recently issued accounting pronouncements and
does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
|
Basic and Diluted Loss per Share (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Loss per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Share, Basic and Diluted |
The number of common shares and common share equivalents used in the determination of basic and diluted loss per common share were as follows:
|
Contract Receivables (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables |
The components of contract receivables were as follows:
|
Goodwill and Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Acquired Finite-Lived Intangible Assets by Major Class |
The following table shows the gross carrying amount and accumulated
amortization of definite-lived intangible assets:
|
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Finite-Lived Intangible Assets, Future Amortization Expense |
Amortization expense related to definite-lived intangible assets totaled $0.3 million and $0.4 million for
the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively. The following table shows the estimated amortization expense of the definite-lived
intangible assets for the next five years and thereafter:
|
Equipment, Software and Leasehold Improvements (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements |
Equipment, software and leasehold improvements, net consist of the following:
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Fair Value of Financial Instruments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Measured at Fair Value |
The following table presents assets measured at fair value at September 30,
2021:
The following table presents assets and liabilities measured at fair value
at December 31, 2020:
|
Product Warranty (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||
Product Warranty [Abstract] | |||||||||||||||||||||||||||||||
Activities in the Accrued Warranty Accounts |
The activity in the accrued warranty accounts during the current period is
as follows:
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Revenue (Tables) |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue |
The following table represents a
disaggregation of revenue by type of goods or services for three and nine months ended September 30, 2021 and 2020, along with the reporting segment for each category:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance of Contract Liabilities and Revenue Recognized in Reporting Period |
The following table reflects revenue recognized in the reporting periods
presented that was included in contract liabilities from contracts with customers as of the beginning of the periods presented:
|
Income Taxes (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision For Income Taxes |
The following table presents the provision for income taxes and
our effective tax rates:
|
Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Classification of Operating ROU Assets and Lease Liabilities on the Balance Sheet |
Lease contracts are evaluated at inception to determine whether they contain
a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in
thousands):
|
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Lease Income and Expenses |
The table below summarizes lease income and expense recorded in the
consolidated statements of operations incurred during the three and nine months ended September 30, 2021 and 2020, (in thousands):
(1) Includes
variable lease costs which are immaterial.
(2) Includes
leases maturing less than twelve months from the report date.
(3) Sublease portfolio consists of three tenants, which sublease parts
of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.
|
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Future Minimum Lease Payments |
The Company is obligated under certain noncancelable operating leases for
office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of September 30, 2021 are as follows (in thousands):
|
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Operating Lease Weighted Average Remaining Lease Term And Discount Rate |
We calculated the weighted-average remaining lease term, presented in years
below and the weighted-average discount rate for our operating leases. As noted in our lease accounting policy, we use the incremental borrowing rate as the lease discount rate.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Classification of Lease Payments in the Statement of Cash Flows |
The table below sets out the classification of lease payments in the
consolidated statement of cash flows.
|
Segment Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Segment Revenue to Consolidated Revenue and Operating Results to Consolidated Income Before Income Taxes |
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 income before income taxes. Inter-segment revenue is
eliminated in consolidation and is not significant:
|
Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
|
Going Concern [Abstract] | |||||
Loan repayment | $ 18,500 | ||||
Working capital position | $ 6,700 | $ 6,700 | |||
Tax benefit recognized | $ 166 | $ 116 | 127 | $ 166 | |
Paycheck Protection Program [Member] | |||||
Going Concern [Abstract] | |||||
Amount recorded from the employee retention credit | 5,000 | ||||
Tax benefit recognized | $ 2,200 |
Basic and Diluted Loss per Share (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Numerator [Abstract] | ||||
Net income (loss) attributed to common stockholders | $ 11,438 | $ (661) | $ 12,464 | $ (9,068) |
Denominator [Abstract] | ||||
Weighted-average shares outstanding for basic earnings per share (in shares) | 20,863,479 | 20,563,452 | 20,714,068 | 20,438,571 |
Effect of dilutive securities [Abstract] | ||||
Employee RSUs (in shares) | 0 | 0 | 0 | 0 |
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share (in shares) | 20,863,479 | 20,563,452 | 20,714,068 | 20,438,571 |
Shares related to dilutive securities excluded because inclusion would be anti-dilutive (in shares) | 14,229 | 66,261 | 77,871 | 12,172 |
Coronavirus Aid, Relief and Economic Security Act (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Employee Retention Credits [Abstract] | ||||
Tax benefit recognized | $ 166 | $ 116 | $ 127 | $ 166 |
Paycheck Protection Program [Member] | ||||
Debt Instruments [Abstract] | ||||
Other income | 10,100 | 10,100 | ||
Paycheck Protection Program Loan [Abstract] | ||||
Amount received from Paycheck Protection Program | 10,000 | 10,000 | ||
Employee Retention Credits [Abstract] | ||||
Tax benefit recognized | 2,200 | |||
Employee Retention Credits [Member] | ||||
Debt Instruments [Abstract] | ||||
Other income | 2,100 | 7,200 | ||
Employee Retention Credits [Abstract] | ||||
Refund of employee retention credit | 1,000 | 5,000 | ||
Tax benefit recognized | 1,400 | 2,200 | ||
Refund of employee retention credit received | 700 | |||
Refund of employee retention credit receivable | $ 4,300 | $ 4,300 |
Contract Receivables (Details) $ in Thousands |
1 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Oct. 31, 2021
USD ($)
|
Sep. 30, 2021
USD ($)
Customer
|
Sep. 30, 2020
USD ($)
|
Dec. 31, 2020
USD ($)
|
|
Components of contract receivables [Abstract] | ||||
Billed receivables | $ 4,521 | $ 5,694 | ||
Unbilled receivables | 8,221 | 5,160 | ||
Allowance for doubtful accounts | (213) | (360) | ||
Total contract receivables, net | 12,529 | $ 10,494 | ||
Bad debt (recovery) expense | (133) | $ 103 | ||
Unbilled Contract Receivables [Abstract] | ||||
Unbilled contract receivables invoiced | $ (831) | $ (1,195) | ||
Contract Receivable [Member] | ||||
Concentration Risk [Abstract] | ||||
Number of customers accounting for contract receivables | Customer | 1 | |||
Contract Receivable [Member] | Customer Concentration Risk [Member] | Customer [Member] | ||||
Concentration Risk [Abstract] | ||||
Percentage of contract receivables accounted by major customers | 10.00% | |||
Subsequent Event [Member] | ||||
Unbilled Contract Receivables [Abstract] | ||||
Unbilled contract receivables invoiced | $ 2,600 |
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Assets and Liabilities Measured at Fair Value [Abstract] | ||
Money market funds | $ 15 | $ 435 |
Total assets | 15 | 435 |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | ||
Assets and Liabilities Measured at Fair Value [Abstract] | ||
Money market funds | 15 | 435 |
Total assets | 15 | 435 |
Significant Other Observable Inputs (Level 2) [Member] | ||
Assets and Liabilities Measured at Fair Value [Abstract] | ||
Money market funds | 0 | 0 |
Total assets | 0 | 0 |
Significant Unobservable Inputs (Level 3) [Member] | ||
Assets and Liabilities Measured at Fair Value [Abstract] | ||
Money market funds | 0 | 0 |
Total assets | $ 0 | $ 0 |
Product Warranty (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2021
USD ($)
| |
Product warranty provision [Abstract] | |
Warranty terms for SDB contracts | 1 year |
Accrued warranty, current | $ 560 |
Accrued warranty, noncurrent | 171 |
Activities in product warranty account [Abstract] | |
Balance at beginning of period | 922 |
Current period recovery | (92) |
Current period claims | (100) |
Currency adjustment | 1 |
Balance at end of period | $ 731 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Income Taxes [Abstract] | ||||
Income (loss) before income taxes | $ 11,604 | $ (545) | $ 12,591 | $ (8,902) |
Provision for income taxes | $ 166 | $ 116 | $ 127 | $ 166 |
Effective tax rate | 1.40% | (21.30%) | 1.00% | (1.90%) |
Statutory federal income tax rate | 21.00% | 21.00% | ||
Income Tax Examination [Abstract] | ||||
Probability of uncertain tax position to be recognized | 50.00% | |||
Percentage of tax position realized upon ultimate settlement | 50.00% | |||
Estimated tax benefits | $ 900 | $ 900 | ||
Federal [Member] | ||||
Income Tax Examination [Abstract] | ||||
Income tax examination, year under examination | 2000 | |||
State [Member] | ||||
Income Tax Examination [Abstract] | ||||
Income tax examination, year under examination | 2000 | |||
Foreign [Member] | ||||
Income Tax Examination [Abstract] | ||||
Income tax examination, year under examination | 2015 |
Segment Information (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2020
USD ($)
|
Mar. 31, 2020
USD ($)
|
Sep. 30, 2021
USD ($)
Segment
|
Sep. 30, 2020
USD ($)
|
|
Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract] | |||||
Number of reportable business segments | Segment | 2 | ||||
Contract term | 2 years | ||||
Segment Reporting Information, Profit (Loss) [Abstract] | |||||
Revenue | $ 14,686 | $ 12,922 | $ 41,312 | $ 44,967 | |
Operating loss | (579) | (371) | (4,127) | (8,357) | |
Litigation | 0 | 952 | 0 | 91 | |
Loss on impairment | (3) | 0 | $ (4,300) | (3) | (4,302) |
Interest expense, net | (32) | (128) | (135) | (556) | |
Gain on derivative instruments, net | 0 | 31 | 0 | 35 | |
Other income, net | 12,215 | (77) | 16,853 | (24) | |
Income (loss) before income taxes | 11,604 | (545) | 12,591 | (8,902) | |
Performance [Member] | |||||
Segment Reporting Information, Profit (Loss) [Abstract] | |||||
Revenue | 7,375 | 7,257 | 21,318 | 25,240 | |
Operating loss | (466) | (74) | (3,000) | (2,041) | |
Workforce Solutions [Member] | |||||
Segment Reporting Information, Profit (Loss) [Abstract] | |||||
Revenue | 7,311 | 5,665 | 19,994 | 19,727 | |
Operating loss | $ (110) | $ (1,249) | $ (1,124) | $ (2,105) |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Sep. 08, 2020 |
Aug. 17, 2020 |
Dec. 31, 2020 |
Sep. 29, 2020 |
|
Loss Contingency, Estimate [Abstract] | ||||
Initial payment on settlement | $ 625 | |||
Settlement expense | $ 1,400 | |||
Escrow balance | $ 1,000 | |||
Provision for loss on legal settlement | $ 500 | |||
Maximum [Member] | ||||
Loss Contingency, Estimate [Abstract] | ||||
Estimated gross settlement | $ 1,500 |
Subsequent Events (Details) - USD ($) |
9 Months Ended | ||||||
---|---|---|---|---|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
Nov. 12, 2021 |
Nov. 01, 2021 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 29, 2016 |
|
Line of Credit Facility [Abstract] | |||||||
Repayment on line of credit | $ 1,739,000 | $ 694,000 | |||||
Revolving Credit Facility [Member] | |||||||
Line of Credit Facility [Abstract] | |||||||
Line of credit | 3,500,000 | $ 5,000,000.0 | |||||
Repayment on line of credit | $ 1,700,000 | ||||||
Tenth Amendment and Reaffirmation Agreement [Member] | Revolving Credit Facility [Member] | Plan [Member] | |||||||
Line of Credit Facility [Abstract] | |||||||
Decrease forgiveness of line of credit future payments | $ 37,500 | ||||||
Periodic payment | $ 75,000 | $ 250,000 | |||||
Tenth Amendment and Reaffirmation Agreement [Member] | Revolving Credit Facility [Member] | Subsequent Event [Member] | |||||||
Line of Credit Facility [Abstract] | |||||||
Basis points | 0.75% | ||||||
Line of credit | $ 3,500,000 | ||||||
Repayment on line of credit | 250,000 | ||||||
Decrease forgiveness of line of credit | $ 250,000 | ||||||
Periodic payment | $ 250,000 | ||||||
Liquidity | 2,250,000 | ||||||
Amendment fee amount | 15,000 | ||||||
Tenth Amendment and Reaffirmation Agreement [Member] | Revolving Credit Facility [Member] | Subsequent Event [Member] | Maximum [Member] | |||||||
Line of Credit Facility [Abstract] | |||||||
Employee retention credits aggregate amount | $ 500,000 |
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