UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)
      
☒
  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2024
  
       
   
or
  
       
☐
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
  

Commission File Number 001-14785
 
GSE Systems, Inc.
(Exact name of registrant as specified in its charter)

Delaware
  
52-1868008
(State of incorporation)
  
(I.R.S. Employer Identification Number)

6940 Columbia Gateway Dr., Suite 470, Columbia MD
  
21046
(Address of principal executive offices)
  
(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit such files). Yes ☒   No ☐

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

Large accelerated filer  ☐
Accelerated filer  ☐
Non-accelerated filer ☒
Smaller reporting company ☒
       
Emerging growth company ☐
      

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

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

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common Stock, $0.01 Par Value
  
GVP
  
The NASDAQ Capital Market

There were 3,471,677 shares of common stock, with a par value of $0.01 per share outstanding as of August 9, 2024.

Table of Contents to the Second Quarter 2024 Form 10-Q
   
Page
PART I.
3
Item 1.
 3
 
3
 
4
 
5
 
6
  8
  9
  9
  10
  11
  11
  11
  11
  12
  13
  18
  18
  19
  19
  20
Item 2.
 22
  General Business Overview
22
  Backlog
26
  Results of Operations
26
  Critical Accounting Policies and Estimates
30
  Liquidity and Capital Resources
30
  Non-GAAP Measures
30
Item 3.
 31
Item 4.
 32
PART II.
 32
Item 1.
 32
Item 1A.
 32
Item 2.
32
Item 3
 32
Item 4
33
Item 5.
33
Item 6.
34
  Signatures
 36

2
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
June 30, 2024
    
December 31, 2023
  
   
(unaudited)
        
   
(in thousands, except
per share and
per share data)
  
ASSETS
  
Current assets:
            
Cash and cash equivalents
  
$
1,254
    
$
2,250
  
Restricted cash, current
    379       378  
Contract receivables, net of allowance for credit loss
    
9,391
      
10,166
  
Prepaid expenses and other current assets
    
553
      
879
  
Total current assets
    
11,577
      
13,673
  
                 
Equipment, software and leasehold improvements, net
    
650
      
754
  
Software development costs, net
    
761
      
750
  
Goodwill
    
4,908
      
4,908
  
Intangible assets, net
    
997
      
1,179
  
Restricted cash - long term     1,086       1,083  
Operating lease right-of-use assets, net
    
297
      
413
  
Other assets
    
45
      
45
  
Total assets
  
$
20,321
    
$
22,805
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Current portion of long-term note
  
$
1,200
    
$
810
  
Accounts payable
    
2,388
      
3,300
  
Accrued expenses
    
1,768
      
1,053
  
Accrued legal settlements
     529       1,010  
Accrued compensation
    
2,146
      
1,086
  
Billings in excess of revenue earned
    
4,974
      
5,119
  
Accrued warranty
    
166
      
176
  
Income taxes payable
    
1,776
      
1,701
  
Derivative liabilities
     1,861       1,132  
Other current liabilities
    
358
      
956
  
Total current liabilities
    
17,166
      
16,343
  
                 
Long-term note, less current portion
    
-
      
637
  
Operating lease liabilities, noncurrent
    
301
      
357
  
Other noncurrent liabilities
    
80
      
126
  
Total liabilities
    
17,547
      
17,463
  
                 
Commitments and contingencies (Note 12)
    
     
 
                 
Stockholders’ equity:
                
Preferred stock $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding
    
-
      
-
  
Common stock $0.01 par value; 60,000,000 shares authorized, 3,466,522 and 3,194,030 shares issued, 3,306,631 and 3,034,139 shares outstanding, respectively
    
34
      
32
  
Additional paid-in capital
    
87,253
      
86,983
  
Accumulated deficit
    
(81,554
)
    
(78,708
)
Accumulated other comprehensive income
    
40
      
34
  
Treasury stock at cost, 159,891 shares
    
(2,999
)
    
(2,999
)
Total stockholders’ equity
    
2,774
      
5,342
  
Total liabilities and stockholders’ equity
  
$
20,321
    
$
22,805
  

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

3
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
   
For the Three
Months Ended
    
For the Six
Months Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
    (in thousands, except per share data)
  
Revenue
  
$
11,725
    
$
12,387
    
$
23,008
    
$
23,260
  
Cost of revenue
    
8,051
      
9,172
      
16,118
      
17,650
  
Gross profit
    
3,674
      
3,215
      
6,890
      
5,610
  
Operating expenses:
                                
Selling, general and administrative
    
3,070
      
3,653
      
7,430
      
8,441
  
Research and development
    
118
      
154
      
347
      
335
  
   Restructuring charges
     64       -       64       -  
Depreciation
    
50
      
53
      
108
      
101
  
Amortization of intangible assets
    
83
      
131
      
182
      
292
  
Total operating expenses
    
3,385
      
3,991
      
8,131
      
9,169
  
Operating income (loss)
    
289
      
(776
)
    
(1,241
)
    
(3,559
)
                                 
Interest expense, net
    
(258
)
    
(767
)
    
(717
)
    
(1,053
)
Change in fair value of derivative instruments, net
    
(736
)
    
171
      
(753
)
    
240
  
Other (loss) income, net
    
(47
)
    
(98
)
    
7
      
(88
)
Loss before income taxes
    
(752
)
    
(1,470
)
    
(2,704
)
    
(4,460
)
Expense (benefit) from income taxes    
102
      
28
      
142
      
(11
)
Net loss
  
$
(854
)
  
$
(1,498
)
  
$
(2,846
)
  
$
(4,449
)
                                 
Net loss per common share - basic and diluted
  
$
(0.26
)
  
$
(0.62
)
  
$
(0.89
)
  
$
(1.89
)
                                 
Weighted average shares outstanding used to compute net loss per share - basic and diluted
    
3,258,124
      
2,418,827
      
3,203,465
      
2,356,413
  

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

4
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)

   
For the Three
 Months Ended
    
For the Six
Months Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
    (in thousands)
  
Net loss
  
$
(854
)
  
$
(1,498
)
  
$
(2,846
)
  
$
(4,449
)
Cumulative translation adjustment
    
(21
)
    
70
      
6
      
60
  
Comprehensive loss
  
$
(875
)
  
$
(1,428
)
  
$
(2,840
)
  
$
(4,389
)

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

5
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)


  
Common Stock
    
               
Treasury Stock
        
Six Months Ended
  
Shares
    
Amount
    
Additional
Paid-in
Capital
    
Accumulated
Deficit
    
Accumulated Other
Comprehensive Loss
    
Shares
    
Amount
    
Total
  
                                                 
Balance, January 1, 2024
    
3,194
    
$
32
    
$
86,983
    
$
(78,708
)
  
$
34
      
(160
)
  
$
(2,999
)
  
$
5,342
  
                                                                 
Stock-based compensation expense
    
-
      
-
      
29
      
-
      
-
      
-
      
-
      
29
  
Common stock issued for RSUs vested
    
88
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Shares withheld to pay taxes
    
-
      
-
      
(69
)
    
-
      
-
      
-
      
-
      
(69
)
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
6
      
-
      
-
      
6
  
Repayment of convertible note in shares
     185       2       310       -       -       -       -       312  
Net loss
    
-
      
-
      
-
      
(2,846
)
    
-
      
-
      
-
      
(2,846
)
Balance, June 30, 2024
    
3,467
     $
34
     $
87,253
     $
(81,554
)
   $
40
      
(160
)
   $
(2,999
)
   $
2,774
  
                                                                 
Balance, January 1, 2023
    
2,405
    
$
24
    
$
83,127
    
$
(69,927
)
  
$
6
   
(160
)
  
$
(2,999
)
  
$
10,231
  
Adoption of ASC 326 Current Expected Credit Losses (CECL)
    -       -       -       (57 )     -       -       -       (57 )
Balance, January 1, 2023     2,405       24       83,127       (69,984 )     6       (160 )     (2,999 )     10,174  
                                                                 
Stock-based compensation expense
    
-
      
-
      
537
      
-
      
-
      
-
      
-
      
537
  
Common stock issued for RSUs vested
    
38
      
-
      
(2
)
    
-
      
-
      
-
      
-
      
(2
)
Shares withheld to pay taxes
    
-
      
-
      
(57
)
    
-
      
-
      
-
      
-
      
(57
)
Foreign currency translation adjustment
    
-
    

-
    

-
    

-
    

60
      
-
    

-
    

60
  
Repayment of convertible note in shares
     197       2       1,274       -       -       -       -       1,276  
Net loss
    
-
      
-
      
-
      
(4,449
)
    
-
      
-
      
-
      
(4,449
)
Balance, June 30, 2023
    
2,640
     $
26
     $
84,879
     $
(74,433
)
   $
66
      
(160
)
   $
(2,999
)
   $
7,539
  

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

6
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)


  
Common Stock
    
               
Treasury Stock
        
Three Months
  
Shares
    
Amount
    
Additional
Paid-in
Capital
    
Accumulated
Deficit
    
Accumulated Other
Comprehensive Loss
    
Shares
    
Amount
    
Total
  
                                                 
Balance, March 31, 2024
    
3,400
    
$
34
    
$
87,440
    
$
(80,700
)
  
$
61
      
(160
)
  
$
(2,999
)
  
$
3,836
  
                                                                 
Stock-based compensation expense
    
-
      
-
      
(263
)
    
-
      
-
      
-
      
-
      
(263
)
Common stock issued for RSUs vested
    
43
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Shares withheld to pay taxes
    
-
      
-
      
(4
)
    
-
      
-
      
-
      
-
      
(4
)
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
(21
)
    
-
      
-
      
(21
)
Repayment of convertible note in shares
     24       -       80       -       -       -       -       80  
Net loss
    
-
      
-
      
-
      
(854
)
    
-
      
-
      
-
      
(854
)
Balance, June 30, 2024
    
3,467
    
$
34
    
$
87,253
    
$
(81,554
)
  
$
40
      
(160
)
  
$
(2,999
)
  
$
2,774
  

    Common Stock
                         Treasury Stock
         
    Shares
    Amount      
Additional
Paid-in
Capital
      
Accumulated
Deficit
      
Accumulated
Other
Comprehensive
Loss
     Shares
    Amount
    Total
 
                                                                 
Balance, March 31, 2023
    
2,516
    
$
25
    
$
84,076
    
$
(72,935
)
  
$
(4
)
    
(160
)
  
$
(2,999
)
  
$
8,163
  
                                                                 
Stock-based compensation expense
    
-
      
-
      
263
      
-
      
-
      
-
      
-
      
263
  
Common stock issued for RSUs vested
    
26
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Shares withheld to pay taxes
    
-
      
-
      
1
      
-
      
-
      
-
      
-
      
1
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
70
      
-
      
-
      
70
  
Repayment of convertible note in shares
     98       1       539       -       -       -       -       540  
Net loss
    
-
      
-
      
-
      
(1,498
)
    
-
      
-
      
-
      
(1,498
)
Balance, June 30, 2023
    
2,640
    
$
26
    
$
84,879
    
$
(74,433
)
  
$
66
      
(160
)
  
$
(2,999
)
  
$
7,539
  

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

7
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
  
    (in thousands)
 
Cash flows from operating activities:
      
Net loss
  
$
(2,846
)
  
$
(4,449
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation
    
108
      
101
  
Amortization of intangible assets
    
182
      
292
  
Amortization of capitalized software development costs
    
197
      
167
  
Amortization of deferred financing costs
    
19
      
15
  
Amortization of debt discount
     702       556  
Loss on debt settled in shares
    72       145  
Stock-based compensation expense
    
20
      
531
  
Credit loss expense
    
65
      
30
  
Change in fair value of derivative instruments, net
    
753
      
(240
)
Deferred income taxes
     (1 )     6  
Foreign currency transaction loss
    -       135  
Changes in assets and liabilities:
                
Contract receivables
    
704
      
(254
)
Prepaid expenses and other assets
    
398
      
1,472
  
Accounts payable, accrued compensation and accrued expenses
    
899
      
1,724
  
Billings in excess of revenue earned
    
(140
)
    
(992
)
Accrued warranty
    
(62
)
    
(72
)
Other liabilities
    
(916
)
    
10
  
Net cash provided by (used in) operating activities
    
154
      
(823
)
 
                
Cash flows from investing activities:
                
Capital expenditures
    
(3
)
    
(13
)
Capitalized software development costs
    
(208
)
    
(239
)
Net cash used in investing activities
    
(211
)
    
(252
)

               
Cash flows from financing activities:
                
Repayment of insurance premium financing
    
(441
)
    
(486
)
Proceeds from issuance of long-term debt and warrants
    -       1,800
Payments of debt issuance and original discount on issuance of long-term debt and warrants
    -       (386 )
Principal repayment of convertible note
     (397 )     (768 )
Tax paid for shares withheld
    
(69
)
    
(77
)
Net cash (used in) provided by financing activities
    
(907
)
    
83
  
 
                
Effect of exchange rate changes on cash
    
(28
)
    
(29
)
Net decrease in cash, cash equivalents and restricted cash
    
(992
)
    
(1,021
)
Cash, cash equivalents and restricted cash at beginning of the period
    
3,711
      
4,376
  
Cash, cash equivalents and restricted cash at the end of the period
  
$
2,719
    
$
3,355
  
 
                
Cash and cash equivalents
   $ 1,254     $ 1,775  
Restricted cash, current
     379       500  
Restricted cash included in other long-term assets
     1,086       1,080  
Total cash, cash equivalents and restricted cash
   $ 2,719     $ 3,355  
 
                
Supplemental cash flow disclosures:
                
Non-cash financing activities
                
Repayment of convertible note in shares
   $ 312     $ 1,276  
Establishment of new right-of-use assets
     -       1,294  
Establishment of new operating lease liability
     -       (333 )
Discount on issuance of convertible note
     -       300  

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

8
GSE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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 note 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 as of December 31, 2023 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, 2023, filed with the U.S. Securities and Exchange Commission on April 2, 2024.

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, valuation of stock-based compensation awards, the recoverability of deferred tax assets, and valuation of warrants and derivative liabilities related to our convertible notes. Actual results of these and other items not listed could differ from these estimates and those differences could be material.

Reverse Stock Split

On October 30, 2023, the Company effected a ten-for-one reverse stock split of the Company’s common stock whereby each ten shares of the Company’s authorized and outstanding common stock were replaced with one share of common stock. The par value of the common stock was not adjusted. All common share and per share amounts for all periods presented in the consolidated financial statements and the notes to the consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split.

Liquidity and Going Concern

The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with U.S. GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and satisfy its liabilities and commitments in the normal course of business. Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, are only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management determined that the implemented plans to mitigate relevant conditions may not alleviate management’s concerns that raise substantial doubt about the Company’s ability to continue as a going concern within the twelve months ended August 15, 2025 (See Note 13 - Subsequent Events).

9
The Company has incurred operating losses and has not demonstrated an ability to generate cash in excess of its operating expenses for a sustained period of time. The Company has not achieved its forecast for several periods and there is no assurance that it will achieve its forecast. During the year ended December 31, 2023 and the six months ended June 30, 2024, the Company generated a loss from operations of $6.8 million and $1.2 million, respectively. The 2023 loss from operations included non-cash impairment charges of goodwill from our Workforce Solutions segment totaling $1.4 million. As of June 30, 2024, the Company had domestic unrestricted cash and cash equivalents of $0.5 million which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued.

These factors create substantial doubt about the Company's ability to continue as a going concern. In making this assessment we performed a comprehensive analysis of our current circumstances and to alleviate these conditions, management is monitoring the Company’s performance and evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, restructuring of operations to grow revenues and decrease expenses, obtaining equity financing, issuing debt, entering other financing arrangements, and or considering changes to the organization structure. The analysis used to determine the Company’s ability to continue as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next twelve months ending August 15, 2025.


2. RECENT ACCOUNTING PRONOUNCEMENTS



In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of this accounting standard will have on its financial disclosures.


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.

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3. LOSS PER SHARE

For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive.

Table 3: Potentially Dilutive Securities            

 
For the Three Months Ended
   
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
Total shares considered for dilution
    
1,103,556
      
1,176,980
      
1,022,357
      
1,226,378
  
 

4. CONTRACT RECEIVABLES, NET

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.

Table 4: Details of Contract Receivables, Net            

 
June 30, 2024
   
December 31, 2023
 
    (in thousands)  
Billed receivables
  
$
3,980
    
$
5,720
  
Unbilled receivables
    
5,727
      
4,729
  
Allowance for credit loss
    
(316
)
    
(283
)
Contract receivables, net
  
$
9,391
    
$
10,166
  

As of June 30, 2024, one customer has a balance that represents 17% of our contract receivable balance. During the month of July 2024, we invoiced $4.1 million of the unbilled receivables as of June 30, 2024.

Our foreign currency denominated contract receivables, billings in excess of revenue earned and subcontractor accruals that are related to the outstanding foreign exchange contracts are remeasured at the end of each reporting period into our functional currency, using the current exchange rate at the end of the period. The gain or loss resulting from such remeasurement is included in other (loss) income, net in the consolidated statements of operations.  During the three months ended June 30, 2024 and 2023, we recognized a loss on remeasurement of these foreign exchange contracts of $36 thousand and $55 thousand, respectively. During the six months ended June 30, 2024 and 2023, we recognized a gain on remeasurement of these foreign exchange contracts of $48 thousand and $17 thousand, respectively.

During the three months ended June 30, 2024 and 2023, we recorded credit loss expense (recovery) of $9 thousand and ($2) thousand, respectively.  During the six months ended June 30, 2024 and 2023, we recorded credit loss expense of $65 thousand, and $30 thousand respectively.

5. GOODWILL

The goodwill balance was $4.9 million as of June 30, 2024 and December 31, 2023.  The entire balance is allocated to the Engineering segment. Goodwill is subject to annual impairment tests and impairment will be assessed if triggering events are present in the interim periods before the annual tests. No impairment charges were recorded for the three months and six months ended June 30, 2024 and 2023.

6. FAIR VALUE MEASUREMENTS

The following liabilities are recorded at fair value on a recurring basis:

•
Embedded derivatives - Our convertible debt issued in February 2022, amended in June 2023 and our convertible debt issued in June 2023 (see Note 8 - Debt) includes certain embedded redemption features that are required to be bifurcated as embedded derivatives and measured at fair value on a recurring basis. We estimate the fair value using a Monte Carlo simulation based on estimates of our future stock price and assumptions about the possible redemption scenarios.

11
•
Warrants - The Company used the Monte Carlo simulation model to determine the fair value of the Warrants, which required the input of subjective assumptions. (See Note 8 - Debt)

•
Cash-Settled PRSUs - The Company used the Monte Carlo simulation model to determine the fair value of the cash-settled PRSUs, which required the input of subjective assumptions. All cash-settled PRSUs have been released or forfeited as of June 30, 2024.

As of June 30, 2024 and December 31, 2023, 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.

Table 6.1 - Fair Value Measurements - Current Period
  
 
  
As of June 30, 2024
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
 
  
(in thousands)
  
Derivative liability
  
$
-
    
$
-
    
$
362
    
$
362
  
Warrant liability
    
-
      
-
      
1,499
      
1,499
  
Total liabilities
  
$
-
    
$
-
    
$
1,861
    
$
1,861
  

Table 6.2 - Fair Value Measurements - Prior Period
  
 
  
As of December 31, 2023
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
 
  
(in thousands)
  
Derivative liability
  
$
-
    
$
-
    
$
588
    
$
588
  
Warrant liability
    
-
      
-
      
520
      
520
  
Cash settled performance-vesting restricted stock units
    
-
      
-
      
24
      
24
  
Total liabilities
  
$
-
    
$
-
    
$
1,132
    
$
1,132
  

Table 6.3 - Changes in Level 3 Fair Value Measurements for the Six Months Ended June 30, 2024
  
 
  
Embedded
Derivatives
    
Warrant
    
Cash Settled
PRSUs
    
Level 3 Total
  
 
  
(in thousands)
  
Balance at December 31, 2023
  
$
588
    
$
520
    
$
24
    
$
1,132
  
Change in fair value of derivative instruments, net included on statement of operations
    
(226
)
    
979
      
-
   
753
  
Stock compensation net of payments and forfeitures
    
-
      
-
      
(24
)
    
(24
)
Balance at June 30, 2024
  
$
362
    
$
1,499
    
$
-
    
$
1,861
  

Table 6.4 - Significant Unobservable Inputs Utilized for Level 3 as of June 30, 2024
  
 
  
The “2022
Warrants”
    
2023
Convertible Note
    
The “2023
Warrants”
  
Exercise Price
   $
19.40
    
$
5.00
     $
5.00
  
Common Stock Price
  

4.60
      
4.60
      
4.60
  
Risk Free Rate
    
4.4
%
    
4.4
%
    
4.4
%
Volatility
    
100.0
%
    
100.0
%
    
100.0
%
Term (in years)
  
2.7 yrs.
    
1.0 yrs.
    
4.0 yrs.
  

7. STOCK-BASED COMPENSATION


During the three and six months ended June 30, 2024, we recognized a recovery of expense of $(0.3) million and a net expense of $20 thousand related to time-based restricted stock units (“RSU”) and performance-vesting restricted stock units (“PRSU”) awards, respectively.  The recovery in the second quarter 2024 is the result of $0.3 million of forfeitures of RSUs and PRSUs as a result of the departure of our CEO.  During the three and six months ended June 30, 2023, we recognized $0.3 million and $0.5 million of stock-based compensation expense related to RSU and PRSU awards, respectively.


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During the six month ended June 30, 2024, we granted approximately 56,259 time-based RSUs with an aggregate fair value of approximately $0.1 million. We granted no time-based RSUs during the three months ended June 30, 2024.  During the three and six months ended June 30, 2023, we granted approximately 40,827 and 56,827 RSU with an aggregate fair value of approximately $0.2 million and $0.2 million, respectively.


During the three months ended June 30, 2024 and 2023, we vested approximately 45,307 and 26,886 RSUs, respectively. During the six months ended June 30, 2024 and 2023, we vested approximately 68,440 and 43,448 RSUs, respectively. Typically RSUs vest quarterly in equal amounts over the course of one to three years.


During the three and six months ended June 30, 2024, no PRSU’s were granted.  During the three and six months ended June 30, 2023, we granted approximately 597,665 PRSU’s. These grants are subject to multiple vesting criteria including reaching a 20-day VWAP of $15.00 prior to the expiration of the awards, and a time-vesting restriction, which will vest in equal parts over the next 18 quarters.



During the six months ended June 30, 2023, we vested 10,000 PRSUs, of which, 2,500 PRSUs were cash-settled, respectively.  During the six months ended June 30, 2024, we vested 5,000 PRSUs, of which 1,250 were cash-settled. The market vesting criteria for the Q1 2022 PRSU grant was achieved in April 2022 for the 80,000 PRSUs which will fully vest over the next 10 quarters.

We did not grant any stock options for the three and six months ended June 30, 2024 and 2023.

8. DEBT

Convertible Note

On February 23, 2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global, pursuant to which we issued to Lind Global the 2022 Convertible Note and a common stock purchase warrant to acquire 128,373 shares of our Common Stock (the “2022 Warrant”). The 2022 Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We received proceeds of approximately $4.8 million net of the OID and expenses.

On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which we issued to Lind Global that certain Senior Convertible Promissory Note, dated February 23, 2022 (the “2023 Convertible Note” and, together with the 2022 Convertible Note, the “Convertible Notes”) and a common stock purchase warrant to acquire 426,427 shares of our Common Stock (the “2023 Warrant”). The 2023 Convertible Note does not bear interest but was issued at a $0.3 million discount (“OID”). We received proceeds of approximately $1.4 million net of the OID and expenses.

Table 8.1: Details of Convertible Notes  

 
2022
Convertible
Note
    
2023
Convertible
Note
    
Total
Convertible
Notes
  
    (in thousands)
 
Convertible Note issued
   $ 5,750     $ 1,800     $ 7,550  
Debt discount
     (750 )     (300 )     (1,050 )
Issuance cost:
                        
Commitment fee
     (175 )     (52 )     (227 )
Balance of investor’s counsel fees
     (43 )     (34 )     (77 )
Net proceeds of Convertible Note
   $ 4,782     $ 1,414     $ 6,196  

                       
Additional OID costs not in original funds flow     (121 )     (15 )     (136 )
Fair value of Warrant Liabilities on issuance     (724 )     (1,119 )     (1,843 )
Fair value of Conversion Feature on issuance     (306 )     (286 )     (592 )
Allocated OID costs to Warrants     25       30       55  
Additional OID costs not in original funds flow
     (660 )     660       -  
Interest expense accrued on Convertible Note as of June 30, 2024     3,265       666       3,931  
Principal and interest payments through June 30, 2024     (6,261 )     (150 )     (6,411 )
                         
Balance of Convertible Note as of June 30, 2024   $ -     $ 1,200     $ 1,200  
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The Convertible Notes provide for variable monthly principal repayments beginning 180 days from issuance (with respect to the 2022 Convertible Note) and 12 months from issuance (with respect to the 2023 Convertible Note). As of June 30, 2024, the 2022 Convertible Note has been fully paid off. Remaining monthly principal payments for the 2023 Convertible Note are $150,000 and can be made in the form of cash, shares, or a combination of both at the discretion of GSE.

Table 8.2: Details of Debt Balances
  
 
  
June 30,
2024
    
December 31,
2023
  
 
  
(in thousands)
  
2022 Convertible Note
  
$
-
    
$
799
  
2023 Convertible Note
    
1,650
      
1,800
  
Funded Debt
    
1,650
      
2,599
  
Less: Unamortized debt-issuance costs and discounts
    
(450
)
    
(1,152
)
Total debt
    
1,200
      
1,447
  
Less: Current portion of long-term debt
    
(1,200
)
    
(810
)
Long-term debt
  
$
-
    
$
637
  

Table 8.3: Details of Future Minimum Principal Payments Due
  
   
Amount
  
   
(in thousands)
  
July 1, 2024 through December 31, 2024
  
$
900
  
January 1, 2025 through June 30, 2025
    
750
  
   
$
1,650
  

Prior to the June 2023 amendments, described below, the 2022 Convertible Note was convertible into our Common Stock at any time after the earlier of six months from issuance of the Convertible Note or the date of an effective registration statement filed with the SEC covering the underlying shares. The conversion price of the 2022 Convertible Note was equal to $19.40 per share, subject to customary adjustments. The 2022 Convertible Note matured in February 2024, although we were permitted to prepay the 2022 Convertible Note, provided that Lind Global had the option to convert up to one third of the outstanding principal of the 2022 Convertible Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as described below).

The 2022 Convertible Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets. The 2022 Convertible Note is not subject to any financial covenants and events of default under the 2022 Convertible Note are limited to events related to payment, market capitalization, certain events pertaining to conversion and the underlying shares of Common Stock and other customary events including, but not limited to, bankruptcy or insolvency. Upon the occurrence of an event of default, the 2022 Convertible Note will become immediately due and payable at an amount equal to 120% of the outstanding principal, subject to any cure periods described in the 2022 Convertible Note, and the lender may demand that all or a portion of the outstanding principal amount be converted into shares of common stock at the lower of the then current conversion price and 80% of the average of the three lowest daily volume-weighted average price (“VWAPs”) during the twenty days prior to delivery of the conversion notice. If there is a change of control of the Company, Lind Global has the right to require us to prepay the outstanding principal amount of the 2022 Convertible Note.
On June 23, 2023, the Company and Lind Global agreed to amend and restate the 2022 Convertible Note. The 2022 Convertible Note, as now amended, is now secured, interest free convertible promissory note in the principal amount of $2,747,228, such amount being the outstanding balance of the 2022 Convertible Note as of June 23, 2023. Just prior to the amendment, there was an event of default (EOD) related to the total market capitalization provision in the original 2022 Convertible Note. The EOD that occurred was waived, and we incurred a 20% charge included in the amended and restated 2022 Convertible Note, which the Company has treated as additional interest. The 2022 Convertible Note was fully paid as of June 30, 2024.

On October 6, 2023, the Company and Lind Global entered into that certain First Amendment to the 2022 Convertible Note (“A&R Note Amendment”), amending the 2022 Convertible Note to extend the beginning period of required compliance with certain default provisions until January 31, 2024. The A&R Note Amendment amended Section 2.1 pertaining to events of default by deleting and replacing Section 2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization was below $7 million for ten (10) consecutive days. As amended, the A&R Note provided that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days. Prior to the Amendment, the “Conversion Price” in Section 3.1(b) of the A&R Note “was $19.40 and shall be subject to adjustment as provided herein.” The A&R Note Amendment amended the definition of “Conversion Price” “the lower of (i) $19.40 and (ii) eighty-five percent (85%) of the average of the three (3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice of conversion.” There was no accounting impact related to this amendment as conversion options are already bifurcated as an embedded derivative and recorded at fair value at each reporting period.

The 2022 Warrant entitles Lind Global to purchase up to 128,373 shares of our Common Stock until February 23, 2027, at an exercise price of $19.40 per share, subject to customary adjustments described therein. The Warrant is recorded at fair value upon issuance of $0.7 million and is classified as a current liability to be remeasured at each reporting period (see Note 7). The discount created by allocating proceeds to the Warrant results in a debt discount to be amortized as additional interest expense over the term of the Convertible Note.

On June 23, 2023, in connection with the 2022 amended and restated Convertible Note transaction, the Company evaluated the amendment and concluded it qualified as a troubled debt restructuring. The restructuring did not result in a gain or loss but revised the effective interest rate used to amortize the note going forward.


On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which the Company issued to Lind Global the 2023 Convertible Note at the same time that the Company and Lind Global amended and restated the 2022 Convertible Note. The closing occurred on June 23, 2023, and consisted of the issuance of a secured, two-year interest free convertible promissory note with a funding amount of $1,500,000 and a principal amount of $1,800,000 (as defined above, the “2023 Convertible Note”) and the issuance of common stock purchase warrant to acquire 426,427 shares of the Company’s common stock (the “2023 Warrant” and, together with the 2022 Warrant, the “Warrants”). The proceeds from the transactions contemplated by the 2023 Purchase Agreement were for general working capital purposes and other corporate purposes.

On October 6, 2023, the Company and Lind Global entered into that certain First Amendment to Senior Convertible Promissory Note, amending the Company’s 2023 Convertible Note (the “Note Amendment”) to extend the beginning period of required compliance with certain default provisions until January 31, 2024. The Note Amendment amended Section 2.1 of the 2023 Convertible Note pertaining to events of default by deleting and replacing Section 2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization (as defined in the Note) was below $7 million for ten (10) consecutive days. As amended, the Note provides that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days.
Commencing one year after the issuance of the 2023 Convertible Note, the Company shall pay the outstanding principal amount of the 2023 Convertible Note in twelve (12) consecutive monthly payments of $150,000 each. At the option of the Company, the monthly payment can be made in cash, shares of the common stock of the Company (the “Repayment Shares”) at a price based on 90% of the average five (5) consecutive daily VWAPs during the twenty (20) days prior to the payment date, or a combination of cash and Repayment Shares, subject to the terms of the 2023 Convertible Note.  The Repayment Shares must either be eligible for immediate resale under Rule 144 or be registered. The number of Repayment Shares is limited such that, when added to the number of shares of common stock issued and issuable pursuant to the transactions contemplated by the 2023 Purchase Agreement, it may not exceed 493,727 shares of common stock unless the Company obtains stockholder approval to issue additional Repayment Shares. The holder of the 2023 Convertible Note may elect with respect to no more than two (2) of the above described monthly payments to increase the amount of such monthly payment up to $300,000 each in Repayment Shares upon notice to the Company. Any such increased payment shall be deducted from the amount of the last monthly payment owed under the 2023 Convertible Note.  The Company can prepay Lind Global all the outstanding principal amount of the 2023 Convertible Note, provided that Lind Global shall have the option to convert up to one third (1/3) of the outstanding principal amount of the 2023 Convertible Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as described below).

Upon the occurrence of an event of default as described in the 2023 Convertible Note, the 2023 Convertible Note will become immediately due and payable at the default premium described in the 2023 Convertible Note, subject to any cure periods described in the 2023 Convertible Note. Events of default include, but are not limited to, a payment default on any other indebtedness in excess of $250,000; the shares no longer publicly being traded or cease to be listed on a trading market; if after six months, the shares are not available for immediate resale under Rule 144; and the Company’s market capitalization is below $7,000,000 for ten (10) consecutive days. Upon an event of default, subject to any applicable cure period, the holder of the 2023 Convertible Note can, among other things, accelerate payment of the 2023 Convertible Note and demand full payment and demand that all or a portion of the outstanding principal amount be converted into shares of common stock at the at the lower of the then current conversion price and 85% of the average of the three (3) lowest daily VWAPs during the twenty (20) days prior to delivery of the conversion notice.  If there is a change of control of the Company, Lind Global has the right to require the Company to prepay 105% of the outstanding principal amount of the 2023 Convertible Note. A change of control includes a change in the composition of a majority of the Board of Directors of the Company, at a single shareholder meeting, a change, without prior written consent of Lind Global where a majority of the individuals that were directors as of June 20, 2023 cease to be directors of the Company (provided that any individual who is nominated by the board of directors (or a duly authorized committee thereof) as of June 20, 2023 and is elected or appointed as a director of the Company shall be deemed a member of the board of directors of the Company for all such purposes), a shareholder acquiring beneficial ownership of more than 50% of the common stock of the Company, or the sale or other disposition of the Company of all or substantially all of its assets (see Note 13 – Subsequent Events).  The 2023 Convertible Note is convertible into common stock of the Company at any time after the earlier of six (6) months from issuance or the date the registration statement is effective, provided that no such conversion may be made that would result in beneficial ownership by Lind Global and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The conversion price of the 2023 Convertible Note is equal to $5.00, subject to customary adjustments.


The 2023 Warrant entitles Lind Global to purchase up to 426,427 shares of common stock of the Company until the earlier of (a) June 23, 2028 and (b) a merger, sale event or other reclassification of the Company’s common stock, at an exercise price of $5.00 per share, subject to customary adjustments described therein. Additionally, in the event of a sale of all or substantially all of the assets of the Company or a merger, tender offer or certain other change of control events involving the Company, the Company shall, at the holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the transaction, purchase the 2023 Warrant from the holder by paying to the holder an amount of cash equal to (i) if the price per share of Common Stock payable in such transaction is in excess of $10.00, the Adjusted Black Scholes Value, or (ii) if the price per share of Common Stock payable in such transaction is equal to or less than $10.00, the Black Scholes Value, of the remaining unexercised portion of the 2023 Warrant on the date of the consummation of such transaction. “Adjusted Black Scholes Value” means the lesser of (i) the Black Scholes Value and (ii) the price per share of Common Stock payable in the transaction minus the exercise price multiplied by the then amount of unexercised 2023 Warrant shares. “Black Scholes Value” means the value the 2023 Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable transaction and the final day of the exercise period, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non- cash consideration, if any, being offered in such transaction and (ii) the greater of (x) the last volume weighted average price immediately prior to the public announcement of such transaction and (y) the last volume weighted average price immediately prior to the consummation of such transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable transaction and the final day of the exercise period. The 2023 Warrant is in addition to the 2022 Warrant.

16
The Company evaluated the 2022 Convertible Note and concluded that certain embedded redemption features are required to be accounted for as a derivative liability. Embedded redemption features were recorded at fair value upon issuance of $0.3 million and are classified as current liabilities to be remeasured at each reporting period (see Note 6). The discount created by allocating proceeds to the derivative liability results in a debt discount to be amortized as additional interest expense over the term of the Convertible Notes. The Warrants are accounted for as a derivative liability based on certain features included within the Convertible Note which caused the Company to not be able to assert that it would have sufficient shares in all cases to be able to settle the Warrants. As such, the proceeds (approximately $4.8 million, net of original issue discounts and other payments to lender) were allocated first to the fair value of the Warrants with the residual allocated to the Convertible Notes host instrument. The proceeds allocated to the Convertible Notes were further allocated first to the bifurcated derivative liability based on its fair value with the residual being allocated to the Convertible Notes host instrument.

Upon issuance of the 2023 Convertible Note, the Company re-evaluated the 2022 Convertible Note, in accordance with ASC 815-40-25-10 and its sequencing policy, and concluded that the embedded conversion option was required to be bifurcated and accounted for as a derivative liability as a result of the Company not being able to assert that it would have sufficient shares in all cases to be able to settle the conversion of the 2022 Convertible Note.  The embedded conversion option will be combined with the bifurcated redemption features as a single derivative and is classified as a current liability to be remeasured at each reporting period.  The discount resulting from bifurcating the embedded conversion option will be amortized as additional interest expense over the term of the 2022 Convertible Note.

The direct and incremental costs incurred are allocated to the Convertible Note and the Warrant based on a systematic and rational approach. The costs allocated to the Warrants have been expensed as incurred while those allocated to the Convertible Note have been capitalized and will be amortized as interest expense over the life of the Convertible Notes based on the effective interest rate. The Company will record ongoing changes to the fair value of the derivative liabilities as other non-operating income (expense).

The Convertible Notes are evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per share purposes. The Warrants are considered a participating security and were not included in the calculation of basic earnings per share for the six months ended June 30, 2024 and the year ended December 31, 2023 as Company reflected net loss for the respective periods. The Warrant will be included in the calculation of diluted earnings per share in periods of net income.

The issuance costs with respect to the Convertible Notes, which are recorded as a debt discount, are deferred and amortized using the effective interest method as additional interest expense over the terms of the Convertible Note at an effective interest rate of 68.6%. The Company incurred total interest expense related to the Convertible Notes of $0.7 million for the six months ended June 30, 2024, compared to $1.1 million including $0.5 million default charge for the six months ended June 30, 2023. 


On February 12, 2024, the Company and Lind Global entered into an agreement to amend certain provisions of the Convertible Notes (as amended) to extend the beginning period of required compliance with certain default provisions until June 1, 2024. The agreement amended Section 2.1 pertaining to events of default, to extend the period in which an event of default would occur, as defined above, to any time after June 1, 2024, previously any time after January 31, 2024 as provided in the October 6th amendment defined above. But for the amendment, the Company would have incurred an event of default after the tenth (10th) trading day following January 31, 2024 if the market capitalization of the Company was less than seven million dollars ($7,000,000). The amendments amended the definition of “Conversion Price” in the 2023 Convertible Note to “the lower of (i) $5.00 and (ii) eighty-five percent (85%) of the average of the three (3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice of conversion.” No other concession was given with this amendment and legal fees were expenses as incurred.
Letters of Credit

We maintain certain letters of credit with Citizens Bank, N.A. (“Citizens”). As of June 30, 2024, we had four letters of credit totaling $1.1 million outstanding to certain customers which were secured with restricted cash.

9. 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 Engineering and Workforce Solutions segments. We recognize revenue from SDB and software contracts mainly through our Engineering segment. We recognize training and consulting service contracts through both segments.
Table 9.1: Revenue by Segment and Type
  

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  

            (in thousands)  
Engineering                        
System Design and Build
  
$
2,011
    
$
2,139
    
$
4,138
    
$
3,609
  
Over time
    2,011       2,139       4,138       3,609  
                                 
Software and Support
    
1,180
      
1,100
      
2,046
      
2,289
  
Point in time
    
159
      
55
      
164
      
368
  
Over time
    
1,021
      
1,045
      
1,882
      
1,921
  
                                 
Training and Consulting Services
    
6,140
      
5,805
      
11,876
      
10,088
  
Point in time
    
19
      
101
      
101
      
297
  
Over time
    
6,121
      
5,704
      
11,775
      
9,791
  
                                 
Workforce Solutions                                
Training and Consulting Services
    
2,394
      
3,343
      
4,948
      
7,274
  
Point in time
    
118
      
90
      
211
      
209
  
Over time
    
2,276
      
3,253
      
4,737
      
7,065
  
                                 
Total revenue
  
$
11,725
    
$
12,387
    
$
23,008
    
$
23,260
  

Table 9.2: Revenue Recognized that was Previously Included in Contract Liabilities
  

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
              (in thousands)  
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
  
$
1,709
    
$
1,255
    
$
2,688
    
$
3,105
  

10. INCOME TAXES

Table 10: Effective Tax Rate

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
Effective tax rate
    
(13.6
)%
    
(1.9
)%
    
(5.2
)%
    
0.2
%



Our effective income tax rate differs from the U.S. statutory federal income tax rate of 21% primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, changes in the valuation allowance in our U.S. entity, the permanent disallowance of interest expense related to disqualified debt, and discrete item adjustments for U.S. and foreign taxes.

18

11. SEGMENT INFORMATION

We have two reportable business segments. The Engineering 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 American Society of Mechanical Engineers (“ASME”) code and ASME Section XI. The Company provides these services across all market segments through our Performance, True North Consulting, and D&A Analysis subsidiaries. Example training applications include turnkey and custom training services. Contract terms are typically less than two years.

Workforce Solutions segment provides specialized employment personnel 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.

Table 11: Results of Operations by Business Segment
   
For the Three Months Ended
    
For the Six Months Ended
  

 
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
          (in thousands)
        
Revenue
                        
Engineering
  
$
9,331
    
$
9,044
    
$
18,060
    
$
15,986
  
Workforce Solutions
    
2,394
      
3,343
      
4,948
      
7,274
  
Total revenue
    
11,725
      
12,387
      
23,008
      
23,260
  
                                 
Gross profit
                               
Engineering
     3,282       2,742
       6,187
       4,622
  
Workforce Solutions
    392       473       703       988  
Total gross profit
    3,674       3,215       6,890       5,610  
                                 
Operating income (loss)
                                
   Engineering
    
311
      
(617
)
    
(1,087
)
    
(3,041
)
   Workforce Solutions
    
(22
)
    
(159
)
    
(154
)
    
(518
)
                                 
Operating income (loss)
    
289
      
(776
)
    
(1,241
)
    
(3,559
)
                                 
Interest expense, net
    
(258
)
    
(767
)
    
(717
)
    
(1,053
)
Change in fair value of derivative instruments, net    
(736
)
    
171
      
(753
)
    
240
  
Other (loss) income, net
    
(47
)
    
(98
)
    
7
      
(88
)
Loss before income taxes
  
$
(752
)
  
$
(1,470
)
  
$
(2,704
)
  
$
(4,460
)


12. COMMITMENTS AND CONTINGENCIES

Three former employees of Absolute Consulting, Inc. and Hyperspring, LLC, filed putative class action lawsuits against the Company, alleging that the Company failed to pay overtime wages as required by the Fair Labor Standards Act and state law. The three cases Natalie Adams v. Absolute Consulting, Inc., Case No. 6:20-cv-01099, Matthew Waldecker v. Hyperspring, LLC, Case No. 2:20-cv-1948, Don Pharr v. Absolute Consulting, Inc., Case No. 23-cv-01558-JRR were filed on December 2, 2020, December 15, 2020, and June 8, 2023, respectively.

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On August 22, 2023, Plaintiffs in Adams, Waldecker and Pharr and GSE Systems, Inc., Hyperspring and Absolute participated in private mediation. The mediation was successful and an agreement in principle was reached before the conclusion of the mediation to resolve and dismiss all three pending matters in exchange for a settlement payment.

The parties’ settlement agreement was executed on October 30, 2023, and resulted in the dismissal of all three cases. In addition to customary terms, GSE Systems, Hyperspring and Absolute are obligated to make a series of payments in 2024, eventually totaling $750 thousand inclusive of attorneys’ fees and costs. As this amount was included in accrued legal settlements as of December 31, 2023, and included as a part of selling, general and administrative costs for the year ended December 31, 2023.

On December 4, 2020, Hyperspring, LLC filed a Verified Complaint and Motion for Temporary Restraining Order (“TRO”) against a former Hyperspring employee in the Chancery Court of Loudon County, Tennessee, related to her retention of confidential and proprietary information belonging to Hyperspring following the termination of her employment. On January 25, 2021, the employee filed a counterclaim against Hyperspring, seeking payment for alleged unpaid commissions and expenses. On December 19, 2023, the former employee filed a complaint in the United States Eastern District of Tennessee against GSE Systems, Inc and its subsidiaries. On or about February 29, 2024, a settlement agreement was executed by the parties, which resulted in the dismissal of both cases with Hyperspring incurring an obligation to pay approximately $260 thousand inclusive of attorneys’ fees. As the amount was probable and estimable, it was included in accrued legal settlements as of December 31, 2023, and included as a part of selling, general and administrative costs for the year ended December 31, 2023.

There is a remaining accrued legal settlement amount of $529 thousand at June 30, 2024 associated with these legal matters.

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.
13. SUBSEQUENT EVENTS

On August 8, 2024, GSE Systems, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Nuclear Engineering Holdings LLC, a Delaware limited liability company (“Parent”), and Gamma Nuclear Merger Sub LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company with the Company continuing as a wholly owned subsidiary of Parent (the “Merger”). The Company’s board of directors (the “Board”), by unanimous vote, determined that it is advisable and in the best interests of the Company and its stockholders for the Company to enter into the Merger Agreement and recommended that the Company’s stockholders adopt the Merger Agreement and approve the Merger (see Form 8-K filed by the Company on August 8, 2024). Consummation of the Merger is subject to the satisfaction or waiver of customary closing conditions, including adoption of the Merger Agreement by the Company’s stockholders and the absence of any statute, rule, regulation, order, or other legal or regulatory restraint preventing, prohibiting or enjoining the consummation of the Merger. Merger transactions may be subject to shareholder claims and merger objection lawsuits. We are not aware of any claims or a party to any legal proceedings related to this transaction as of August 14, 2024.

Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of the Company’s common stock, par value $0.01 per share (the “Company Common Stock”) (other than shares owned by the Company, Parent or Merger Sub or any direct or indirect wholly owned subsidiary of Parent or Merger Sub or by stockholders of the Company who have neither voted in favor of the Merger nor consented to the Merger in writing and who have properly and validly exercised their statutory rights of appraisal in respect of such shares of Company Common Stock in accordance with Section 262 of the General Corporation Law of the State of Delaware) will be cancelled and extinguished and automatically converted into the right to receive cash in an amount equal to $4.10 per share.

On August 7, 2024, the Company and Parent entered into that certain Senior Secured Promissory Note in the principal amount of $1,398,447.50 (the “Parent Note”). Pursuant to the terms of the Parent Note, interest accrues at a rate per annum equal to 12.50%. Interest payments under the Parent Note are due and payable on the last business day of each calendar month and on the Maturity Date (as defined below). Interest shall be paid, at the option of the Company, (x) in kind by capitalizing such interest and adding the unpaid amount thereof on each such payment date or (y) in cash. Upon an event of default, interest shall accrue at 14.50%. The Company shall pay the outstanding principal amount on the earlier to occur of (x) August 6, 2025 and (y) the occurrence of a Change of Control (the “Maturity Date”). The Company used the proceeds of the Parent Note to pay in full all outstanding indebtedness owed to Lind Global as further described in Note 8 - Debt. The Parent Note also included amounts owed to Parent’s counsel with respect to the Parent Note.

On August 7, 2024, the Company repaid in full, in cash and through the delivery of 114,976 shares of Company Common Stock, all outstanding indebtedness owed to Lind Global, which satisfied the 2023 Purchase Agreement, dated June 23, 2023, as amended, which was in the original principal amount of $1,800,000 (the “Lind Note”), and all ancillary agreements in connection therewith. In connection with the Company’s prepayment of the Lind Note, and pursuant to its terms, Lind Global elected to convert $314,000 of the outstanding principal amount of the Lind Note into Company Common Stock. In addition, at the time of conversion and based upon that certain Second Amendment to the Lind Note, dated February 12, 2024, Lind Global asserted that it was entitled to $360,000 in addition to the remaining principal balance due on the Lind Note of $1,500,000. The Company disputed this amount and, following negotiations among the parties, the Company agreed to pay $180,000 in full satisfaction of the claim.

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Cautionary Statement Regarding Forward-Looking Statements

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

21
Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in Item 1A - Risk Factors in our most recent annual report on Form 10-K in connection with any forward-looking statements that may be made by us. You should not place undue reliance on any forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise.

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

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

We are a leading provider of professional and technical engineering, staffing services and simulation software to clients in the power and process industries. Our primary market is the nuclear power industry, predominantly in the United States, but also serving the global nuclear sector with projects in the United Kingdom, Slovakia, Korea, Japan and elsewhere. We provide customers with simulation, engineering technology, engineering and plant services that help clients reduce risks associated with operating their plants, increase revenue through improved plant and employee performance, and lower costs through improved operational efficiency. In addition, we provide professional services that help clients fill key vacancies in the organization on a short-term basis, including but not limited to, the following: procedure writing, planning and scheduling; engineering; senior reactor operator (“SRO”) training and certification; technical support and training personnel focused on regulatory compliance and certification in the nuclear power industry.

General Business Environment

We operate through two reportable business segments: Engineering and Workforce Solutions. Each segment focuses on delivering solutions to customers within our target markets. Marketing and communications, accounting, finance, legal, human resources, corporate development, information systems and other administrative services are organized at the corporate or parent level. Business development and sales resources are generally aligned with each segment to support existing customer accounts and new customer development. The business units collaborate to facilitate cross-selling and the development of new solutions. The following is a description of our business segments:

Engineering (approximately 78% of revenue for the six months ended June 30, 2024)

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

Our Engineering segment also provides the following: (1) in-service testing for engineering programs focused on ASME OM code including Appendix J, balance of plant programs, and thermal performance; (2) in-service inspection for specialty engineering including ASME Section XI; (3) software solutions; and (4) mechanical design, civil/structural design, electrical, instrumentation and controls design, digital controls/cyber security, and fire protection for nuclear power plant design modifications.  Our subsidiaries, Programs & Performance and Design & Analysis, typically work as either the EOC or specialty EOC for our clients under master services agreements and are included in our Engineering segment due to their service offerings. We have been providing these engineering solutions and services since 1995.

22
Workforce Solutions (approximately 22% of revenue for the six months ended June 30, 2024)

The Workforce Solutions segment supports entire project lifecycles by providing highly specialized, technical talent and specialty services throughout the energy, engineering, and adjacent industries including construction, government, infrastructure, environmental, and manufacturing.  This includes a wide range of solutions including training services, professional services, procedure writing services, and flexible staffing and talent acquisition services through our Training Services and Technical Staffing businesses.

Working together, Workforce Solutions gives our customers increased agility by providing the ability to identify the right talent, hire quickly for short or long-term needs, and/or even take on entire project scopes with fixed price or hourly billing options.  We also partner with and support our Engineering Services division, offering our customers yet another option for outsourcing managed tasks.  Additionally, by utilizing our services, our customers gain additional benefits such as reductions in response time, overhead costs, overtime pay, risk, training, time to fill, onboarding, and more.  We do these things, all while providing timely, flexible, and effective solutions.

Financial information is provided in Note 11 of the accompanying consolidated financial statements regarding our business segments.

Business Strategy

Serve existing customers and adjacencies with compelling solutions with a focus on decarbonization:

Our objective is to create a leading business focused on decarbonizing the power industries by providing a diverse set of highly unique and essential services and technologies, primarily in the nuclear power industry. We are now one of the few, publicly traded engineering and technology companies serving the zero-carbon energy sector of nuclear power and adjacent nuclear markets in Department of Energy, U.S. Navy and related sectors. As a result of this effort and established leadership in key sectors, we are positioned to expand into essential clean energy opportunities that may arise such as wind, solar, hydrogen production, and others. This positioning has allowed us to grow into adjacencies as the arise such as working on engineering projects for a uranium enrichment entity in the United States. The engineering services and technology that we provide to industry are focused on essential capabilities to help plants extend their operating lifetimes, capture the value of the power they produce on to the grid, produce more power from existing assets, and most importantly operate safely in an optimal manner. In 2023, we were keenly focused on organic growth in the sectors we serve by: cross selling and upselling in our existing markets as we focus on delivering significant value to our customers; creating new and compelling solutions in-house as a result of advancements in our technology offerings in partnership with industry early adopters focused on critical business needs; developing new services through combination of our expertise; expanding into compelling adjacent markets such as clean energy as they may arise with renewed sales focus. The focus on organic growth reflects our need to grow in a self-funded manner to achieve cash flow break even and, ultimately, recover to our pre-pandemic revenue levels. We have continued this focus in 2024.

Cross sell and upsell into existing markets:

For the past several years, we have devoted considerable time and effort to diversify both of the Company segment’s solutions capabilities for the nuclear power sector, via a rollup of essential services providers to the industry. To ensure efficient and streamlined operations for the business, we have brought in new engineering experts who are deeply credentialed in the nuclear power industry. We have also retooled our Workforce Solutions sales and recruiting efforts to ensure we are covering the industry broadly. The business units operate uniformly within their respective structure. This structure greatly enhances the opportunity to cross-sell our capabilities across our entire customer base, fostering an important focus of our sales efforts. This further differentiates us as a comprehensive provider to industry versus providers of specific, niche services. Our expectation is that unified go-to-market efforts, such as cross-selling capabilities, will lead to a greater share of available spending within the customer base, which in turn will lead to significant upselling opportunity.

23
Just as the broader economy was impacted by the onset of the pandemic, so too have our end markets been affected. We believe that the industries that we serve are quick to respond to a crisis and disruption, but slow to emerge and recover to pre-crisis operations. While understandable, we believe that these characteristics are especially true for our primary market: the nuclear power industry. We have previously observed similar cycles during prior market and industry disruptions including the 2008 global economic crisis and the Fukushima disaster in 2011. Now, more recently, we believe that the industries that we serve responded quickly to the global pandemic and resulting economic disruption but, as with past events, our end markets are only now catching up to widespread delays in necessary engineering, design and related projects. Our Company is well positioned to take advantage of the recovery as it occurs.

As a result of a rejuvenated cross-sell and upsell effort, we are equipped to take this new approach to the market. In particular, with the passage of the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, for the first time there are specific economic incentives from the U.S. Government for nuclear power development and the production of more nuclear baseload power to the grid. We are eager for these incentives to flow to industry spurring the capital investment required to extend the lifetime of the plants and production of more power. With economic incentives in place, the industry can now plan to make such investments. The challenge we are seeing is that the industry is still slow to advance investments that will result in an uptick in business for companies like GSE that serve the sector. Although we believe it is only a matter of time until this rollout progresses, the current pace presents a challenge in the interim and the Company has taken steps to align to the realities of the current state of industry spend. As a key provider of essential services to the nuclear power sector, we are poised to benefit from industry investment as it rolls out to the vendor ecosystem. We further retooled our Workforce Solutions business in 2023 to align to the realities of industry spend and continue to bring in key engineering talent to align and grow our engineering business teams as that business has shown nascent signs of growth. We have also spent significant effort putting in place Master Services Agreements (“MSAs”) with key utility operators. Having this commercial infrastructure in place is a significant step forward to facilitate ease of consumption of our solutions once a decision to do so is made by clients/prospects. This effort will continue during 2024 with the added focus of converting workorders and PO’s from the MSAs we win.

Organic growth through new and compelling technology:

While managing through the pandemic, in parallel, our leadership was investigating compelling opportunities by which we could utilize our capabilities to create significant value for the industry and advance the efforts of decarbonizing the power sector. As a result, we have identified a robust pipeline of new and compelling technology solutions to develop and take to market. Net new solutions, such as Data Validation and Reconciliation (“DVR”), Measurement Uncertainty Recapture (“MUR”) and Thermal System Monitoring (“TSM”), have created new revenue streams with the potential of on-going licensing revenue, software maintenance and services revenue. Additional information on our DVR, MUR and TSM developments is included below. GSE has announced a handful of new wins for these new solutions, which were created through our unique combination of our industry/engineering know-how and software development capabilities. As we have demonstrated in the past few years, small wins over time accrue into meaningful revenue on an on-going basis. This is a key element of our organic growth thesis: focusing on creating and bringing to market compelling technology solutions.

Focus on compelling adjacencies in clean energy, defense, and national labs:

Research and development (R&D).

We invest in R&D to deliver unique solutions that add value to our end-user markets. Our software tools leverage the high-end expertise of our experienced staff in helping plants operate better and more efficiently. Our software technology together with our deep staff expertise supports multiple industries including the nuclear industry, as a part of the larger initiative toward decarbonization. Our software technology includes decision-support tools for engineering simulation supporting design and plant commissioning, operational performance tools, and training platforms.

24
We continue to make significant enhancements in product offerings for improving the thermal performance of power plants. We introduced the next generation platform in TSM, providing a technology platform to centralize and continuously monitor plant thermal performance. The solution benefits our customers by automating standardized reporting in modern dashboards available to engineers and decision makers across the fleet, leveraging automation to facilitate troubleshooting plant performance issues, reducing time and error with direct access to source data, and applying industry guidelines for problem resolution. This platform also supports integration with DVR (implemented by Programs & Performance) that enhances the quality of data for plant performance insights, analysis and decision making, providing a solution to better detect and identify faulty measurements/sensors and thus reduce maintenance costs by focusing on critical components. Other recent platform improvements have included enhancements to user experience, integration with Asset Management Systems (to streamline work processes and increase efficiencies) and enhancements in digitizing troubleshooting knowledge for custom scenarios/plants.

In the area of engineering simulations, GSE Systems & Simulation group delivers nuclear core and balance-of-plant modeling and visualization systems to the industry. To address the nuclear industry’s need for more accurate simulation of both normal and accident scenarios, we provide our DesignEP® and RELAP5-HD® solutions. Our entire JADETM suite of simulation software, including industry leading JTOPMERET® and JElectricTM software, provides the most accurate simulation of balance-of-plant and electrical systems available to the nuclear and fossil plant simulation market. The significant enhancements we have made to our SimExec® and OpenSimTM platforms enable customers to be more efficient in the daily operation of their simulators. We have brought SimExec® and OpenSimTM together into a next generation unified environment that adds new capabilities as requested by clients and driven by market need.

Additionally, enhancements to training content and delivery continue through the EnVision On-Demand platform, allowing our customers to access training content from anywhere in synchronous and asynchronous modes, thus increasing their efficiency and reducing infrastructure costs. We intend to continue to make pragmatic and measured investments in R&D that first and foremost are driven by the market and complement our growth strategy. Such investments in R&D may result in on-going enhancement of existing solutions as well as the creation of new solutions to serve our target markets, ensuring that we add greater value that is easier to use, at lower total cost of ownership than any alternative available to customers. Recent enhancements to our EnVision On-Demand SaaS platform include usability improvements for administrators, instructors and trainees as well as enhanced access security for cloud learning and simulation portal. We have pioneered a number of industry standards and intend to continue to be one of the most innovative companies in our industry. We had R&D expenditures totaling $277 thousand and $316 thousand, of which, $159 thousand and $162 thousand were capitalized during the three months ended June 30, 2024 and 2023, respectively.  We had R&D expenditures totaling $555 thousand and $574 thousand, of which, $208 thousand and $239 thousand were capitalized during the six months ended June 30, 2024 and 2023, respectively.

Strengthen and develop our talent while delivering high-quality solutions.
Over the past several years, we have assembled a unique and highly experienced group of talent through organic growth and strategic acquisition. Our Engineering team is comprised of design, simulation, regulatory compliance, and performance optimization professionals who are unique to the industry and capable of addressing the entire power generation life cycle. Our Workforce Solutions team includes numerous industry experts, including hands on experience within the energy and engineering sectors.  The experience and knowledge among the staff ensure understanding of customer needs and a better ability to offer the best solutions.  Working together, our Engineering and Workforce Solutions teams are able to offer our customers a full set of services that would otherwise require numerous companies to obtain the same capabilities.

Our experienced employees and management team are our most valuable resources. The continued integration of our team in parallel with attracting, training, and retaining top talent is critical to our success. To achieve our goals, we intend to remain focused on providing our employees with opportunities to increase client contact within their areas of expertise and to expand and deepen our service offerings. As we refine our product and service areas to best align with the critical areas listed above, we will also integrate and apply our composite employee talent to the fullest extent possible combining employee personal and professional growth opportunities with fulfillment of cutting-edge industry needs. Performance-based incentives including opportunities for stock ownership, bonuses and competitive benefits as benchmarked to our industry and locations will also be utilized to ensure continuity of our approach.

25
The Company is not immune to the intense pressure and business risks associated with attracting and retaining talented professionals in this current environment. We have developed a strong reputation for quality services based upon our industry-recognized depth of experience, ability to attract and retain quality professionals, and exceptional expertise across multiple service sectors. As we continue to integrate and leverage our individual company components assembled over the past several years, our capabilities and reputation will further strengthen. Attracting and retaining excellent professionals is a key effort for the Company.

Employees

As of June 30, 2024, we had approximately 252 employees, which includes approximately 197 employees in our Engineering segment and approximately 55 employees in our Workforce Solutions segment.

Backlog

As of June 30, 2024, we had approximately $34.7 million of total gross revenue backlog, which included $30.4 million of Engineering backlog and $4.3 million of Workforce Solutions backlog. As of December 31, 2023, our backlog was $40.9 million with $31.4 million attributed to our Engineering segment and $9.5 million to Workforce Solutions. With respect to our backlog, it includes only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts. Our backlog includes future expected revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client. We calculate backlog without regard to possible project reductions or expansions or potential cancellations unless and until such changes may occur.

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

Results of Operations

Table MD&A 1: Results of Operations
  
   
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
    $    

%
     $    

%
     $    

%
     $    

%
  
   
(dollars in thousands)
  
Revenue
  
$
11,725
      
100.0
%
  
$
12,387
      
100.0
%
  
$
23,008
      
100.0
%
  
$
23,260
      
100.0
%
Cost of revenue
    
8,051
      
68.7
%
    
9,172
      
74.0
%
    
16,118
      
70.1
%
    
17,650
      
75.9
%
Gross profit
    
3,674
      
31.3
%
    
3,215
      
26.0
%
    
6,890
      
29.9
%
    
5,610
      
24.1
%
                                                                 
Operating expenses:
                                                                
Selling, general and administrative
    
3,070
      
26.2
%
    
3,653
      
29.5
%
    
7,430
      
32.3
%
    
8,441
      
36.3
%
Research and development
    
118
      
1.0
%
    
154
      
1.2
%
    
347
      
1.5
%
    
335
      
1.4
%
Restructuring charges
    
64
      
0.5
%
    
-
      
0.0
%
    
64
      
0.3
%
    
-
      
0.0
%
Depreciation
    
50
      
0.4
%
    
53
      
0.4
%
    
108
      
0.5
%
    
101
      
0.4
%
Amortization of intangible assets
    
83
      
0.7
%
    
131
      
1.1
%
    
182
      
0.8
%
    
292
      
1.3
%
Total operating expenses
    
3,385
      
28.9
%
    
3,991
      
32.2
%
    
8,131
      
35.3
%
    
9,169
      
39.4
%
Operating income (loss)
    
289
      
2.5
%
    
(776
)
    
(6.3
)%
    
(1,241
)
    
(5.5
)%
    
(3,559
)
    
(15.4
)%
Interest expense, net
    
(258
)
    
(2.2
)%
    
(767
)
    
(6.2
)%
    
(717
)
    
(3.1
)%
    
(1,053
)
    
(4.5
)%
Change in fair value of derivative instruments, net
    
(736
)
    
(6.3
)%
    
171
      
1.4
%
    
(753
)
    
(3.3
)%
    
240
      
1.0
%
Other (loss) income, net
    
(47
)
    
(0.4
)%
    
(98
)
    
(0.8
)%
    
7
      
0.0
%
    
(88
)
    
(0.4
)%
Loss before income taxes
    
(752
)
    
(6.4
)%
    
(1,470
)
    
(11.9
)%
    
(2,704
)
    
(11.8
)%
    
(4,460
)
    
(19.2
)%
Expense (benefit) from income taxes
    
102
      
0.9
%
    
28
      
0.2
%
    
142
      
0.6
%
    
(11
)
    
0.0
%
Net loss
  
$
(854
)
    
(7.3
)%
  
$
(1,498
)
    
(12.1
)%
  
$
(2,846
)
    
(12.4
)%
  
$
(4,449
)
    
(19.1
)%

26
Revenue

Consolidated revenue for the three months ended June 30, 2024 totaled $11.7 million, which was 5% less than the $12.4 million of revenue for the three months ended June 30, 2023. Revenue for the six months ended June 30, 2024 totaled $23.0 million, which was 1% less than the $23.3 million of revenue for the six months ended June 30, 2023.

Table MD&A 2: Revenue by Segment
  
   
For the Three Months Ended
    
For the Six Months Ended
  
               
Change
                
Change
  
   
June 30, 2024
    
June 30, 2023
     $    

%
    
June 30, 2024
    
June 30, 2023
     $    

%
  
   
(dollars in thousands)
  
Revenue:
                                                    
Engineering
  
$
9,331
    
$
9,044
      
287
      
3
%
  
$
18,060
    
$
15,986
      
2,074
      
13
%
Workforce Solutions
    
2,394
      
3,343
      
(949
)
    
(28
)%
    
4,948
      
7,274
      
(2,326
)
    
(32
)%
Total revenue
  
$
11,725
    
$
12,387
      
(662
)
    
(5
)%
  
$
23,008
    
$
23,260
      
(252
)
    
(1
)%

Engineering revenue for the three months ended June 30, 2024 totaled $9.3 million, which was a 3% increase from the $9.0 million of revenue for the three months ended June 30, 2023. The increase in revenue was primarily attributable to our Design & Analysis business due to additional training & consulting work for new customers.  Total Engineering orders of $7.5 million and $4.9 million were recorded for the three months ended June 30, 2024 and 2023, respectively. The increase in orders is primarily due to a significant contract for software and simulation in the design of our customers Small Modular Reactor technology.

Engineering revenue for the six months ended June 30, 2024 totaled $18.1 million, which was a 13% increase from the $16.0 million of revenue for the six months ended June 30, 2023. The increase of revenue was primarily attributable to continued training and consulting work for a long-standing customer.  Total Engineering orders of $19.6 million were recorded for both the six months ended June 30, 2024 and 2023, respectively.

For the three months ended June 30, 2024, Workforce Solutions revenue decreased by 28% to $2.4 million compared to revenue of $3.3 million for the three months ended June 30, 2023. The decrease in revenue was due to a reduction in staffing needs from our major customers. Total new orders of $1.3 million were recorded for both the three months ended June 30, 2024 and 2023, respectively.

For the six months ended June 30, 2024, Workforce Solutions revenue decreased by 32% to $4.9 million compared to revenue of $7.3 million for the six months ended June 30, 2023. The decrease in revenue was primarily due to a reduction in demand for staffing from our major customers. Total new orders of $3.9 million and $5.7 million were recorded for the six months ended June 30, 2024 and 2023, respectively.

Gross Profit

Gross profit was $3.7 million and 31.3% of revenue and $3.2 million and 26.0% of revenue for the three months ended June 30, 2024 and 2023, respectively. Gross profit was $6.9 million and 29.9% of revenue and $5.6 million and 24.1% of revenue for the six months ended June 30, 2024 and 2023, respectively.

Table MD&A 3: Gross Profit by Segment
  
   
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
    $    

%
     $    

%
     $    

%
     $    

%
  
   
(dollars in thousands)
  
Gross profit:
                                                        
Engineering
  
$
3,282
      
35.2
%
  
$
2,742
      
30.3
%
  
$
6,187
      
34.3
%
  
$
4,622
      
28.9
%
Workforce Solutions
    
392
      
16.4
%
    
473
      
14.1
%
    
703
      
14.2
%
    
988
      
13.6
%
Total gross profit
  
$
3,674
      
31.3
%
  
$
3,215
      
26.0
%
  
$
6,890
      
29.9
%
  
$
5,610
      
24.1
%

27
The Engineering segment’s gross profit increased by $0.5 million during the three months ended June 30, 2024 over the three months ended June 30, 2023. The Engineering segment’s gross profit increased by $1.6 million during the six months ended June 30, 2024 over the six months ended June 30, 2023. The increase is driven by segment revenue growth and increased project efficiency.

The Workforce Solutions segment’s gross profit decreased by $0.1 million during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The Workforce Solutions segment’s gross profit decreased by $0.3 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease in the three months and six months ended June 30, 2024 was primarily due to the reduction in demand from existing customers for additional workforce professionals.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses totaled $3.1 million and $3.7 million for the three months ended June 30, 2024 and 2023, respectively. SG&A expenses totaled $7.4 million and $8.4 million for the six months ended June 30, 2024 and 2023, respectively.

Table MD&A 4: SG&A Details
  
   
For the Three Months
Ended
    
For the Six Months
Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
   
(in thousands)
  
Corporate charges
  
$
2,396
    
$
2,446
    
$
5,892
    
$
5,932
  
Business development
    
605
      
1,062
      
1,371
      
2,178
  
Facility operation & maintenance (O&M)
    
55
      
146
      
94
      
287
  
Credit loss expense
    
9
      
(2
 )
   
65
      
30
  
Other
    
5
      
1
      
8
      
14
  
Total
  
$
3,070
    
$
3,653
    
$
7,430
    
$
8,441
  

Corporate charges

During the three months ended June 30, 2024, corporate charges decreased by $50 thousand over the same period of the prior year. During the six months ended June 30, 2024 corporate charges decreased by $40 thousand over the same period of the prior year.

Business development

Business development expenses decreased $0.5 million during the three months ended June 30, 2024 over the same period of the prior year. Business development expenses decreased by $0.8 million during the six months ended June 30, 2024 over the same period of the prior fiscal year. The decrease was primarily due to a reduction in headcount in the Company's Workforce Solutions Segment.

Facility operation & maintenance (“O&M”)

Facility O&M expenses decreased $91 thousand for three months ended June 30, 2024, compared to the same period in 2023. Facility O&M expenses decreased $193 thousand for six months ended June 30, 2024, compared to the same period in 2023. The decrease in facility O&M during the six months ended June 30, 2024 was primarily due to the reduced lease space under the new Fort Worth lease executed in Q2 2023.

28
Credit loss expense

We recorded a $9 thousand credit loss during the three months ended June 30, 2024, compared to a $30 thousand during the three months ended June 30, 2023. We recorded $65 thousand and $30 thousand of credit loss expense during the six months ended June 30, 2024 and 2023, respectively.

Research and development

Research and development costs consist primarily of software engineering personnel and other related costs. Research and development costs, net of capitalized software, totaled $118 thousand and $154 thousand for the three months ended June 30, 2024 and 2023, respectively.  Research and development costs totaled $347 thousand and $335 thousand for the six months ended June 30, 2024 and 2023, respectively. The changes in the three and six months ended June 30, 2024, compared to 2023 were primarily flat.  We continue to enhance our software systems and fine-tune them, so customers get maximum benefit from deploying our technology.

Depreciation

We recorded depreciation expense of $50 thousand and $53 thousand for the three months ended June 30, 2024 and 2023, respectively. Depreciation expense was $108 thousand and $101 thousand for the six months ended June 30, 2024 and 2023, respectively. The overall reduction in both the three months and six months ending June 30, 2024 compared to similar periods in 2023 is the result of some assets becoming fully depreciated and not replaced with new depreciating assets.

Amortization of intangible assets

Amortization expense related to definite-lived intangible assets totaled $83 thousand and $131 thousand for the three months ended June 30, 2024 and 2023, respectively, and $182 thousand and $292 thousand for the six months ended June 30, 2024 and 2023, respectively. The decrease in amortization expense was primarily due to Workforce Solutions' definite-lived intangible assets being fully impaired at June 30, 2023. Further the amortization of Customer Contracts and Relationships decreased, as they are amortized at a declining rate over the 15-year useful life.

Interest expense, net

Interest expense totaled $0.3 million and $0.8 million for the three months ended June 30, 2024 and 2023, respectively. Interest expense totaled $0.7 million and $1.1 million the six months ended June 30, 2024 and 2023, respectively. The decrease for the three and six month periods was primarily due to an additional $0.5 million interest charge related to the amendment of the 2022 Lind financing arrangement during Q2 2023.

Other (loss) income, net

For the three months ended June 30, 2024 and 2023, we recognized other (loss) income, net of $(47) thousand and $(98) million, respectively. For the six months ended June 30, 2024 and 2023, we recognized other (loss) income of $7 thousand and $(88) million, respectively.

Income tax expense (benefit)

Our effective tax rate for the three and six months ended June 30, 2024, was (13.6)% and (5.2)%, respectively, compared to (1.9)% and 0.2% for the three and six months ended June 30, 2023. Our effective income tax rates differ from the U.S. statutory federal income tax rate of 21% primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, changes in the valuation allowance in our U.S. entity, the permanent disallowance of interest expense related to disqualified debt, and discrete item adjustments for U.S. and foreign taxes.

29
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements, Management makes several estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses. 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, valuation of stock-based compensation awards and the recoverability of deferred tax assets. These critical accounting policies and estimates are discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our most recent Annual Report on Form 10-K, filed with the SEC on April 2, 2024. In addition, in the quarter ended March 31, 2023, we established mark-to-market liabilities related to certain common stock purchase warrants and certain embedded features included in our convertible debt. The fair values of these are estimated upon issuance and at each reporting period thereafter. For all accounting policies described in this document, management cautions that future events rarely develop exactly as forecasted and even our best estimates may require adjustment as facts and circumstances change.

Liquidity and Capital Resources

As of June 30, 2024, our cash, cash equivalents and restricted cash totaled $2.7 million, compared to $3.7 million as of December 31, 2023.

As of June 30, 2024, we have current restricted cash and long-term restricted cash of $0.4 million and $1.1 million, respectively. We have restricted cash of $1.1 million to secure four letters of credit with various customers and $0.4 million to secure our corporate credit card program.

For the six months ended June 30, 2024, net cash provided by operating activities totaled $0.2 million, compared to $0.8 million net cash used in operating activities for the six months ended June 30, 2023. The change is primarily driven by the changes in the Company's operating losses, the timing of receipts of customer payments, the timing of payments to vendors and employee and the settlement payments related to legal settlements, adjusted for certain non-cash items that do not impact cash flow from operating activities.

Net cash used in investing activities totaled $0.2 million and $0.3 for the six months ended June 30, 2024 and 2023, respectively.

For the six months ended June 30, 2024, net cash used in financing activities was $0.9 million, compared to net cash provided by financing activities of $0.1 million for the six months ended June 30, 2023. The $1.0 million change is due to the June 2023 amendment to the 2022 Convertible Note (see Note 8).

Non-GAAP Financial Measures

Adjusted EBITDA

References to “EBITDA” mean net loss, before considering interest expense, expense (benefit) from income taxes, depreciation and amortization. References to Adjusted EBITDA excludes irregular or non-recurring items and are not directly related to the Company’s core operating performance. EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP. Management believes EBITDA and Adjusted EBITDA, in addition to operating profit, net income and other U.S. GAAP measures, are useful to investors to evaluate the Company’s results because it excludes certain items that may, or could, have a disproportionate positive or negative impact on our results for any particular period. Investors should recognize that EBITDA and Adjusted EBITDA might not be comparable to similarly titled measures of other companies. This measure should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with U.S. GAAP.

Table MD&A 5: Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
  
   
For The Three Months Ended
    
For The Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
   
(in thousands)
  
Net loss
  
$
(854
)
  
$
(1,498
)
  
$
(2,846
)
  
$
(4,449
)
Interest expense, net
    
258
      
767
      
717
      
1,053
  
Expense (benefit) from income taxes
    
102
      
28
      
142
      
(11
)
Depreciation and amortization
    
228
      
267
      
487
      
560
  
EBITDA
    
(266
)
    
(436
)
    
(1,500
)
    
(2,847
)
Stock-based compensation expense
    
(274
)
    
246
      
20
      
531
  
Change in fair value of derivative instruments, net
    
736
      
(171
)
    
753
      
(240
)
Restructuring charges
    
64
      
-
      
64
      
-
  
Advisory fees
    
300
      
-
      
776
      
-
  
Adjusted EBITDA
  
$
560
    
$
(361
)
  
$
113
    
$
(2,556
)

30
Adjusted Net Loss and Adjusted Loss per Share Reconciliation

References to Adjusted Net Loss excludes certain items that are not directly related to the Company’s core operating performance and non-cash items that may, or could, have a disproportionate positive or negative impact on our results for any particular period. Adjusted Net Loss and Adjusted Loss per Share (adjusted EPS) are not measures of financial performance under U.S. GAAP. Management believes Adjusted Net Loss and Adjusted Loss per Share, in addition to other U.S. GAAP measures, are useful to investors to evaluate the Company’s results because the excluded items may, or could, have a disproportionate positive or negative impact on our results for any particular period. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with U.S. GAAP.

Table MD&A 6: Reconciliation of Net Loss to Adjusted Net Loss and Adjusted Net Loss Per Share
  
   
For The Three Months
Ended
    
For The Six Months
Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
   
(in thousands)
  
Net loss
  
$
(854
)
  
$
(1,498
)
  
$
(2,846
)
  
$
(4,449
)
Stock-based compensation expense
    
(274
)
    
246
      
20
      
531
  
Change in fair value of derivative instruments, net
    
736
      
(171
)
    
753
      
(240
)
Restructuring charges
    
64
      
-
      
64
      
-
  
Advisory fees
    
300
      
-
      
776
      
-
  
Amortization of intangible assets related to acquisitions
    
83
      
131
      
182
      
292
  
Adjusted net income (loss)
  
$
55
    
$
(1,292
)
  
$
(1,051
)
  
$
(3,866
)
                                 
Net loss per common share - diluted
  
$
(0.26
)
  
$
(0.62
)
  
$
(0.89
)
  
$
(1.89
)
Add back: Effect of stock-based compensation
    
(0.08
)
    
0.11
      
0.01
      
0.24
  
Add back: Effect of change in fair value of derivative instruments, net
    
0.22
      
(0.07
)
    
0.23
      
(0.11
)
Add back: Effect of restructuring charges
    
0.02
      
-
      
0.02
      
-
  
Add back: Effect of advisory fees
    
0.09
      
-
      
0.24
      
-
  
Add back: Effect of amortization of intangible assets related to acquisitions
    
0.03
      
0.05
      
0.06
      
0.12
  
Adjusted net loss per common share – diluted
  
$
0.02
    
$
(0.53
)
  
$
(0.33
)
  
$
(1.64
)
                                 
Weighted average shares outstanding used to compute adjusted net loss per share - diluted(1)
    
3,258,124
      
2,418,827
      
3,148,806
      
2,293,389
  

(1) During the three and six months ended June 30, 2024, we reported a U.S. GAAP net loss and an adjusted net loss. Accordingly, there were no dilutive shares from RSUs, warrants, or other dilutive instruments that are included in the adjusted net loss per share calculation, as all shares were considered anti-dilutive when calculating the net loss per share. During the three and six months ended June 30, 2023, we reported a U.S. GAAP net income and an adjusted net loss. Accordingly, there were no dilutive shares from RSUs, warrants, or other dilutive instruments that are included in the adjusted net loss per share calculation, as all shares were considered anti-dilutive when calculating the net loss per share.

Item 3.
Quantitative and Qualitative Disclosure about Market Risk

Not required of a smaller reporting company.

31
Item 4.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

Limitation of Effectiveness of Controls

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

PART II – OTHER INFORMATION

Item 1.
Legal Proceedings

Refer to our disclosures included in "Note 15. Commitments and Contingencies" included in Part 1, Item 1 of this Quarterly Report of Form 10-Q.

Item 1A.
Risk Factors

We have disclosed under "Item 1A - Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, the risk factors which may materially affect our business, financial conditions or results of operations.  There have been no material changes from the risk factors previously disclosed.

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

(a) None.

(b) None.

(c) None.

Item 3.
Defaults Upon Senior Securities

(a) None.

(b) None.

32
Item 4.
Mine Safety Disclosures

Not applicable.

Item 5.
Other Information

Director and Officer Trading Arrangements

During the six months ended June 30, 2024, no director or officer of the Company (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the six months ended June 30, 2024.

33
Item 6.
Exhibits

Exhibit No.
  
Description of Exhibit
 
Employment Agreement, dated January 1, 2019, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.1 of Form 8-K filed with the Securities and Exchange Commission on April 30, 2024.
       
 
Amendment to Employment Agreement, dated November 24, 2020, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.2 of Form 8-K filed with the Securities and Exchange Commission on April 30, 2024.
       
10.3  
Letter Agreement, dated April 30, 2024, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.3 of Form 8-K filed with the Securities and Exchange Commission on April 30, 2024.
     
 
Separation Agreement, dated April 30, 2024, including Amendment to Restricted Share Unit Agreements (attached as Exhibit A), by and between GSE Systems, Inc. and Kyle J. Loudermilk. Incorporated herein by reference to Exhibit 10.4 of Form 8-K filed with the Securities and Exchange Commission on April 30, 2024.
       
10.5  
Employment Agreement, dated July 22, 2024, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.1 of Form 8-K filed with the Securities and Exchange Commission on July 26, 2024.
     
 
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, filed herewith.
       
31.2 €
  
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
       
32.1 £
  
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
       
101.INS €
  
XBRL Instance Document.
       
101.SCH €
  
XBRL Taxonomy Extension Schema.
       
101.CAL €
  
XBRL Taxonomy Extension Calculation Linkbase.
       
101.DEF €
  
XBRL Taxonomy Extension Definition Linkbase.
       
101.LAB €
  
XBRL Taxonomy Extension Label Linkbase.
       
101.PRE €
  
XBRL Taxonomy Extension Presentation Linkbase.

£- Furnished herewith.
€- Filed herewith.

34
SIGNATURES

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

GSE SYSTEMS, INC.
    
         
   
/s/ Ravi Khanna
  
August 14, 2024
 
By:
Ravi Khanna
    
   
President and Chief Executive Officer
    
   
(Principal Executive Officer)
    
         
   
/s/ Emmett A. Pepe
  
August 14, 2024
 
By:
Emmett A. Pepe
    
   
Chief Financial Officer
    
   
(Principal Financial and Accounting Officer)
    


36
Exhibit 31.1

Certification of the Chief Executive Officer

I, Ravi Khanna, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of GSE Systems, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

Date:  August 14, 2024
/s/ Ravi Khanna
 
Ravi Khanna
 
President and Chief Executive Officer
(Principal Executive Officer)


Exhibit 31.2

Certification of the Chief Financial Officer

I, Emmett A. Pepe, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of GSE Systems, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

Date: August 14, 2024
/s/ Emmett A. Pepe
 
Emmett A. Pepe
 
Chief Financial Officer
(Principal Financial and Accounting Officer)


Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of GSE Systems, Inc. (the “Company”) for the quarter ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ravi Khanna, President and Chief Executive Officer of the Company, and I, Emmett A. Pepe, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date:  August 14, 2024
/s/ Ravi Khanna
  
/s/ Emmett A. Pepe
  
 
Ravi Khanna
  
Emmett A. Pepe
  
 
President and Chief Executive Officer
  
Chief Financial Officer
  


v3.24.2.u1
Document and Entity Information - shares
 6 Months Ended
Jun. 30, 2024
Aug. 09, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2024  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q2  
Document Transition Report false  
Entity File Number 001-14785  
Entity Registrant Name GSE Systems, Inc.  
Entity Central Index Key 0000944480  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 52-1868008  
Entity Address, Address Line One 6940 Columbia Gateway Dr.  
Entity Address, Address Line Two Suite 470  
Entity Address, City or Town Columbia  
Entity Address, State or Province MD  
Entity Address, Postal Zip Code 21046  
City Area Code 410  
Local Phone Number 970-7800  
Title of 12(b) Security Common Stock, $0.01 Par Value  
Trading Symbol GVP  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   3,471,677
v3.24.2.u1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2024
Dec. 31, 2023
Current assets:    
Cash and cash equivalents $ 1,254 $ 2,250
Restricted cash, current 379 378
Contract receivables, net of allowance for credit loss 9,391 10,166
Prepaid expenses and other current assets 553 879
Total current assets 11,577 13,673
Equipment, software and leasehold improvements, net 650 754
Software development costs, net 761 750
Goodwill 4,908 4,908
Intangible assets, net 997 1,179
Restricted cash - long term 1,086 1,083
Operating lease right-of-use assets, net 297 413
Other assets 45 45
Total assets 20,321 22,805
Current liabilities:    
Current portion of long-term note 1,200 810
Accounts payable 2,388 3,300
Accrued expenses 1,768 1,053
Accrued legal settlements 529 1,010
Accrued compensation 2,146 1,086
Billings in excess of revenue earned 4,974 5,119
Accrued warranty 166 176
Income taxes payable 1,776 1,701
Derivative liabilities 1,861 1,132
Other current liabilities 358 956
Total current liabilities 17,166 16,343
Long-term note, less current portion 0 637
Operating lease liabilities, noncurrent 301 357
Other noncurrent liabilities 80 126
Total liabilities 17,547 17,463
Commitments and contingencies (Note 12)
Stockholders' equity:    
Preferred stock $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding 0 0
Common stock $0.01 par value; 60,000,000 shares authorized, 3,466,522 and 3,194,030 shares issued, 3,306,631 and 3,034,139 shares outstanding, respectively 34 32
Additional paid-in capital 87,253 86,983
Accumulated deficit (81,554) (78,708)
Accumulated other comprehensive income 40 34
Treasury stock at cost, 159,891 shares (2,999) (2,999)
Total stockholders' equity 2,774 5,342
Total liabilities and stockholders' equity $ 20,321 $ 22,805
v3.24.2.u1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jun. 30, 2024
Dec. 31, 2023
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) 3,466,522 3,194,030
Common stock, shares outstanding (in shares) 3,306,631 3,034,139
Treasury stock at cost (in shares) 159,891 159,891
v3.24.2.u1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]        
Revenue $ 11,725 $ 12,387 $ 23,008 $ 23,260
Cost of revenue 8,051 9,172 16,118 17,650
Gross profit 3,674 3,215 6,890 5,610
Operating expenses:        
Selling, general and administrative 3,070 3,653 7,430 8,441
Research and development 118 154 347 335
Restructuring charges 64 0 64 0
Depreciation 50 53 108 101
Amortization of intangible assets 83 131 182 292
Total operating expenses 3,385 3,991 8,131 9,169
Operating income (loss) 289 (776) (1,241) (3,559)
Interest expense, net (258) (767) (717) (1,053)
Change in fair value of derivative instruments, net (736) 171 (753) 240
Other (loss) income, net (47) (98) 7 (88)
Loss before income taxes (752) (1,470) (2,704) (4,460)
Expense (benefit) from income taxes 102 28 142 (11)
Net loss $ (854) $ (1,498) $ (2,846) $ (4,449)
Net loss per common share - basic (in dollars per share) $ (0.26) $ (0.62) $ (0.89) $ (1.89)
Net loss per common share - diluted (in dollars per share) $ (0.26) $ (0.62) $ (0.89) $ (1.89)
Weighted average shares outstanding used to compute net loss per share - basic (in shares) 3,258,124 2,418,827 3,203,465 2,356,413
Weighted average shares outstanding used to compute net loss per share - diluted (in shares) 3,258,124 2,418,827 3,203,465 2,356,413
v3.24.2.u1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS [Abstract]        
Net loss $ (854) $ (1,498) $ (2,846) $ (4,449)
Cumulative translation adjustment (21) 70 6 60
Comprehensive loss $ (875) $ (1,428) $ (2,840) $ (4,389)
v3.24.2.u1
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Common Stock [Member]
Common Stock [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Additional Paid-in Capital [Member]
Additional Paid-in Capital [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Additional Paid-in Capital [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Accumulated Deficit [Member]
Accumulated Deficit [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Accumulated Deficit [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Loss [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Accumulated Other Comprehensive Loss [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Treasury Stock [Member]
Treasury Stock [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Treasury Stock [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Balance at Dec. 31, 2022 $ 24 $ 0 $ 24 $ 83,127 $ 0 $ 83,127 $ (69,927) $ (57) $ (69,984) $ 6 $ 0 $ 6 $ (2,999) $ 0 $ (2,999) $ 10,231 $ (57) $ 10,174
Balance (in shares) at Dec. 31, 2022 2,405,000 0 2,405,000                              
Balance (in shares) at Dec. 31, 2022                         (160,000) 0 (160,000)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Stock-based compensation expense $ 0     537     0     0     $ 0     537    
Common stock issued for RSUs vested $ 0     (2)     0     0     0     (2)    
Common stock issued for RSUs vested (in shares) 38,000                                  
Shares withheld to pay taxes $ 0     (57)     0     0     0     (57)    
Foreign currency translation adjustment 0     0     0     60     0     60    
Repayment of convertible note in shares $ 2     1,274     0     0     0     1,276    
Repayment of convertible note in shares (in shares) 197,000                                  
Net loss $ 0     0     (4,449)     0     0     (4,449)    
Balance at Jun. 30, 2023 $ 26     84,879     (74,433)     66     $ (2,999)     7,539    
Balance (in shares) at Jun. 30, 2023 2,640,000                                  
Balance (in shares) at Jun. 30, 2023                         (160,000)          
Balance at Mar. 31, 2023 $ 25     84,076     (72,935)     (4)     $ (2,999)     8,163    
Balance (in shares) at Mar. 31, 2023 2,516,000                                  
Balance (in shares) at Mar. 31, 2023                         (160,000)          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Accounting Standards Update [Extensible Enumeration]               ASC 326 [Member] ASC 326 [Member]                  
Stock-based compensation expense $ 0     263     0     0     $ 0     263    
Common stock issued for RSUs vested $ 0     0     0     0     0     0    
Common stock issued for RSUs vested (in shares) 26,000                                  
Shares withheld to pay taxes $ 0     1     0     0     0     1    
Foreign currency translation adjustment 0     0     0     70     0     70    
Repayment of convertible note in shares $ 1     539     0     0     0     540    
Repayment of convertible note in shares (in shares) 98,000                                  
Net loss $ 0     0     (1,498)     0     0     (1,498)    
Balance at Jun. 30, 2023 $ 26     84,879     (74,433)     66     $ (2,999)     7,539    
Balance (in shares) at Jun. 30, 2023 2,640,000                                  
Balance (in shares) at Jun. 30, 2023                         (160,000)          
Balance at Dec. 31, 2023 $ 32     86,983     (78,708)     34     $ (2,999)     $ 5,342    
Balance (in shares) at Dec. 31, 2023 3,194,000                             3,194,030    
Balance (in shares) at Dec. 31, 2023                         (160,000)     (159,891)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Stock-based compensation expense $ 0     29     0     0     $ 0     $ 29    
Common stock issued for RSUs vested $ 0     0     0     0     0     0    
Common stock issued for RSUs vested (in shares) 88,000                                  
Shares withheld to pay taxes $ 0     (69)     0     0     0     (69)    
Foreign currency translation adjustment 0     0     0     6     0     6    
Repayment of convertible note in shares $ 2     310     0     0     0     312    
Repayment of convertible note in shares (in shares) 185,000                                  
Net loss $ 0     0     (2,846)     0     0     (2,846)    
Balance at Jun. 30, 2024 $ 34     87,253     (81,554)     40     $ (2,999)     $ 2,774    
Balance (in shares) at Jun. 30, 2024 3,467,000                             3,466,522    
Balance (in shares) at Jun. 30, 2024                         (160,000)     (159,891)    
Balance at Mar. 31, 2024 $ 34     87,440     (80,700)     61     $ (2,999)     $ 3,836    
Balance (in shares) at Mar. 31, 2024 3,400,000                                  
Balance (in shares) at Mar. 31, 2024                         (160,000)          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                    
Stock-based compensation expense $ 0     (263)     0     0     $ 0     (263)    
Common stock issued for RSUs vested $ 0     0     0     0     0     0    
Common stock issued for RSUs vested (in shares) 43,000                                  
Shares withheld to pay taxes $ 0     (4)     0     0     0     (4)    
Foreign currency translation adjustment 0     0     0     (21)     0     (21)    
Repayment of convertible note in shares $ 0     80     0     0     0     80    
Repayment of convertible note in shares (in shares) 24,000                                  
Net loss $ 0     0     (854)     0     0     (854)    
Balance at Jun. 30, 2024 $ 34     $ 87,253     $ (81,554)     $ 40     $ (2,999)     $ 2,774    
Balance (in shares) at Jun. 30, 2024 3,467,000                             3,466,522    
Balance (in shares) at Jun. 30, 2024                         (160,000)     (159,891)    
v3.24.2.u1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Cash flows from operating activities:    
Net loss $ (2,846) $ (4,449)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation 108 101
Amortization of intangible assets 182 292
Amortization of capitalized software development costs 197 167
Amortization of deferred financing costs 19 15
Amortization of debt discount 702 556
Loss on debt settled in shares 72 145
Stock-based compensation expense 20 531
Credit loss expense 65 30
Change in fair value of derivative instruments, net 753 (240)
Deferred income taxes (1) 6
Foreign currency transaction loss 0 135
Changes in assets and liabilities:    
Contract receivables 704 (254)
Prepaid expenses and other assets 398 1,472
Accounts payable, accrued compensation and accrued expenses 899 1,724
Billings in excess of revenue earned (140) (992)
Accrued warranty (62) (72)
Other liabilities (916) 10
Net cash provided by (used in) operating activities 154 (823)
Cash flows from investing activities:    
Capital expenditures (3) (13)
Capitalized software development costs (208) (239)
Net cash used in investing activities (211) (252)
Cash flows from financing activities:    
Repayment of insurance premium financing (441) (486)
Proceeds from issuance of long-term debt and warrants 0 1,800
Payments of debt issuance and original discount on issuance of long-term debt and warrants 0 (386)
Principal repayment of convertible note (397) (768)
Tax paid for shares withheld (69) (77)
Net cash (used in) provided by financing activities (907) 83
Effect of exchange rate changes on cash (28) (29)
Net decrease in cash, cash equivalents and restricted cash (992) (1,021)
Cash, cash equivalents and restricted cash at beginning of the period 3,711 4,376
Cash, cash equivalents and restricted cash at the end of the period 2,719 3,355
Cash and cash equivalents 1,254 1,775
Restricted cash, current 379 500
Restricted cash included in other long-term assets 1,086 1,080
Total cash, cash equivalents and restricted cash 2,719 3,355
Non-cash financing activities    
Repayment of convertible note in shares 312 1,276
Establishment of new right-of-use assets 0 1,294
Establishment of new operating lease liability 0 (333)
Discount on issuance of convertible note $ 0 $ 300
v3.24.2.u1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 6 Months Ended
Jun. 30, 2024
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 note 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 as of December 31, 2023 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, 2023, filed with the U.S. Securities and Exchange Commission on April 2, 2024.
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, valuation of stock-based compensation awards, the recoverability of deferred tax assets, and valuation of warrants and derivative liabilities related to our convertible notes. Actual results of these and other items not listed could differ from these estimates and those differences could be material.

Reverse Stock Split

On October 30, 2023, the Company effected a ten-for-one reverse stock split of the Company’s common stock whereby each ten shares of the Company’s authorized and outstanding common stock were replaced with one share of common stock. The par value of the common stock was not adjusted. All common share and per share amounts for all periods presented in the consolidated financial statements and the notes to the consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split.

Liquidity and Going Concern

The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with U.S. GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and satisfy its liabilities and commitments in the normal course of business. Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, are only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management determined that the implemented plans to mitigate relevant conditions may not alleviate management’s concerns that raise substantial doubt about the Company’s ability to continue as a going concern within the twelve months ended August 15, 2025 (See Note 13 - Subsequent Events).

The Company has incurred operating losses and has not demonstrated an ability to generate cash in excess of its operating expenses for a sustained period of time. The Company has not achieved its forecast for several periods and there is no assurance that it will achieve its forecast. During the year ended December 31, 2023 and the six months ended June 30, 2024, the Company generated a loss from operations of $6.8 million and $1.2 million, respectively. The 2023 loss from operations included non-cash impairment charges of goodwill from our Workforce Solutions segment totaling $1.4 million. As of June 30, 2024, the Company had domestic unrestricted cash and cash equivalents of $0.5 million which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued.

These factors create substantial doubt about the Company's ability to continue as a going concern. In making this assessment we performed a comprehensive analysis of our current circumstances and to alleviate these conditions, management is monitoring the Company’s performance and evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, restructuring of operations to grow revenues and decrease expenses, obtaining equity financing, issuing debt, entering other financing arrangements, and or considering changes to the organization structure. The analysis used to determine the Company’s ability to continue as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next twelve months ending August 15, 2025.
v3.24.2.u1
RECENT ACCOUNTING PRONOUNCEMENTS
 6 Months Ended
Jun. 30, 2024
RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]  
RECENT ACCOUNTING PRONOUNCEMENTS

2. RECENT ACCOUNTING PRONOUNCEMENTS



In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of this accounting standard will have on its financial disclosures.


Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
v3.24.2.u1
LOSS PER SHARE
 6 Months Ended
Jun. 30, 2024
LOSS PER SHARE [Abstract]  
LOSS PER SHARE
3. LOSS PER SHARE

For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive.

Table 3: Potentially Dilutive Securities            

 
For the Three Months Ended
   
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
Total shares considered for dilution
    
1,103,556
      
1,176,980
      
1,022,357
      
1,226,378
  
v3.24.2.u1
CONTRACT RECEIVABLES, NET
 6 Months Ended
Jun. 30, 2024
CONTRACT RECEIVABLES, NET [Abstract]  
CONTRACT RECEIVABLES, NET
4. CONTRACT RECEIVABLES, NET

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.
Table 4: Details of Contract Receivables, Net            

 
June 30, 2024
   
December 31, 2023
 
    (in thousands)  
Billed receivables
  
$
3,980
    
$
5,720
  
Unbilled receivables
    
5,727
      
4,729
  
Allowance for credit loss
    
(316
)
    
(283
)
Contract receivables, net
  
$
9,391
    
$
10,166
  

As of June 30, 2024, one customer has a balance that represents 17% of our contract receivable balance. During the month of July 2024, we invoiced $4.1 million of the unbilled receivables as of June 30, 2024.

Our foreign currency denominated contract receivables, billings in excess of revenue earned and subcontractor accruals that are related to the outstanding foreign exchange contracts are remeasured at the end of each reporting period into our functional currency, using the current exchange rate at the end of the period. The gain or loss resulting from such remeasurement is included in other (loss) income, net in the consolidated statements of operations.  During the three months ended June 30, 2024 and 2023, we recognized a loss on remeasurement of these foreign exchange contracts of $36 thousand and $55 thousand, respectively. During the six months ended June 30, 2024 and 2023, we recognized a gain on remeasurement of these foreign exchange contracts of $48 thousand and $17 thousand, respectively.
During the three months ended June 30, 2024 and 2023, we recorded credit loss expense (recovery) of $9 thousand and ($2) thousand, respectively.  During the six months ended June 30, 2024 and 2023, we recorded credit loss expense of $65 thousand, and $30 thousand respectively.
v3.24.2.u1
GOODWILL
 6 Months Ended
Jun. 30, 2024
GOODWILL [Abstract]  
GOODWILL
5. GOODWILL

The goodwill balance was $4.9 million as of June 30, 2024 and December 31, 2023.  The entire balance is allocated to the Engineering segment. Goodwill is subject to annual impairment tests and impairment will be assessed if triggering events are present in the interim periods before the annual tests. No impairment charges were recorded for the three months and six months ended June 30, 2024 and 2023.
v3.24.2.u1
FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 30, 2024
FAIR VALUE MEASUREMENTS [Abstract]  
FAIR VALUE MEASUREMENTS
6. FAIR VALUE MEASUREMENTS

The following liabilities are recorded at fair value on a recurring basis:

•
Embedded derivatives - Our convertible debt issued in February 2022, amended in June 2023 and our convertible debt issued in June 2023 (see Note 8 - Debt) includes certain embedded redemption features that are required to be bifurcated as embedded derivatives and measured at fair value on a recurring basis. We estimate the fair value using a Monte Carlo simulation based on estimates of our future stock price and assumptions about the possible redemption scenarios.

•
Warrants - The Company used the Monte Carlo simulation model to determine the fair value of the Warrants, which required the input of subjective assumptions. (See Note 8 - Debt)

•
Cash-Settled PRSUs - The Company used the Monte Carlo simulation model to determine the fair value of the cash-settled PRSUs, which required the input of subjective assumptions. All cash-settled PRSUs have been released or forfeited as of June 30, 2024.

As of June 30, 2024 and December 31, 2023, 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.

Table 6.1 - Fair Value Measurements - Current Period
  
 
  
As of June 30, 2024
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
 
  
(in thousands)
  
Derivative liability
  
$
-
    
$
-
    
$
362
    
$
362
  
Warrant liability
    
-
      
-
      
1,499
      
1,499
  
Total liabilities
  
$
-
    
$
-
    
$
1,861
    
$
1,861
  

Table 6.2 - Fair Value Measurements - Prior Period
  
 
  
As of December 31, 2023
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
 
  
(in thousands)
  
Derivative liability
  
$
-
    
$
-
    
$
588
    
$
588
  
Warrant liability
    
-
      
-
      
520
      
520
  
Cash settled performance-vesting restricted stock units
    
-
      
-
      
24
      
24
  
Total liabilities
  
$
-
    
$
-
    
$
1,132
    
$
1,132
  

Table 6.3 - Changes in Level 3 Fair Value Measurements for the Six Months Ended June 30, 2024
  
 
  
Embedded
Derivatives
    
Warrant
    
Cash Settled
PRSUs
    
Level 3 Total
  
 
  
(in thousands)
  
Balance at December 31, 2023
  
$
588
    
$
520
    
$
24
    
$
1,132
  
Change in fair value of derivative instruments, net included on statement of operations
    
(226
)
    
979
      
-
   
753
  
Stock compensation net of payments and forfeitures
    
-
      
-
      
(24
)
    
(24
)
Balance at June 30, 2024
  
$
362
    
$
1,499
    
$
-
    
$
1,861
  

Table 6.4 - Significant Unobservable Inputs Utilized for Level 3 as of June 30, 2024
  
 
  
The “2022
Warrants”
    
2023
Convertible Note
    
The “2023
Warrants”
  
Exercise Price
   $
19.40
    
$
5.00
     $
5.00
  
Common Stock Price
  

4.60
      
4.60
      
4.60
  
Risk Free Rate
    
4.4
%
    
4.4
%
    
4.4
%
Volatility
    
100.0
%
    
100.0
%
    
100.0
%
Term (in years)
  
2.7 yrs.
    
1.0 yrs.
    
4.0 yrs.
  
v3.24.2.u1
STOCK-BASED COMPENSATION
 6 Months Ended
Jun. 30, 2024
STOCK-BASED COMPENSATION [Abstract]  
STOCK-BASED COMPENSATION
7. STOCK-BASED COMPENSATION

During the three and six months ended June 30, 2024, we recognized a recovery of expense of $(0.3) million and a net expense of $20 thousand related to time-based restricted stock units (“RSU”) and performance-vesting restricted stock units (“PRSU”) awards, respectively.  The recovery in the second quarter 2024 is the result of $0.3 million of forfeitures of RSUs and PRSUs as a result of the departure of our CEO.  During the three and six months ended June 30, 2023, we recognized $0.3 million and $0.5 million of stock-based compensation expense related to RSU and PRSU awards, respectively.



During the six month ended June 30, 2024, we granted approximately 56,259 time-based RSUs with an aggregate fair value of approximately $0.1 million. We granted no time-based RSUs during the three months ended June 30, 2024.  During the three and six months ended June 30, 2023, we granted approximately 40,827 and 56,827 RSU with an aggregate fair value of approximately $0.2 million and $0.2 million, respectively.


During the three months ended June 30, 2024 and 2023, we vested approximately 45,307 and 26,886 RSUs, respectively. During the six months ended June 30, 2024 and 2023, we vested approximately 68,440 and 43,448 RSUs, respectively. Typically RSUs vest quarterly in equal amounts over the course of one to three years.


During the three and six months ended June 30, 2024, no PRSU’s were granted.  During the three and six months ended June 30, 2023, we granted approximately 597,665 PRSU’s. These grants are subject to multiple vesting criteria including reaching a 20-day VWAP of $15.00 prior to the expiration of the awards, and a time-vesting restriction, which will vest in equal parts over the next 18 quarters.

During the six months ended June 30, 2023, we vested 10,000 PRSUs, of which, 2,500 PRSUs were cash-settled, respectively.  During the six months ended June 30, 2024, we vested 5,000 PRSUs, of which 1,250 were cash-settled. The market vesting criteria for the Q1 2022 PRSU grant was achieved in April 2022 for the 80,000 PRSUs which will fully vest over the next 10 quarters.

We did not grant any stock options for the three and six months ended June 30, 2024 and 2023.
v3.24.2.u1
DEBT
 6 Months Ended
Jun. 30, 2024
DEBT [Abstract]  
Debt
8. DEBT

Convertible Note

On February 23, 2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global, pursuant to which we issued to Lind Global the 2022 Convertible Note and a common stock purchase warrant to acquire 128,373 shares of our Common Stock (the “2022 Warrant”). The 2022 Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We received proceeds of approximately $4.8 million net of the OID and expenses.

On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which we issued to Lind Global that certain Senior Convertible Promissory Note, dated February 23, 2022 (the “2023 Convertible Note” and, together with the 2022 Convertible Note, the “Convertible Notes”) and a common stock purchase warrant to acquire 426,427 shares of our Common Stock (the “2023 Warrant”). The 2023 Convertible Note does not bear interest but was issued at a $0.3 million discount (“OID”). We received proceeds of approximately $1.4 million net of the OID and expenses.

Table 8.1: Details of Convertible Notes  

 
2022
Convertible
Note
    
2023
Convertible
Note
    
Total
Convertible
Notes
  
    (in thousands)
 
Convertible Note issued
   $ 5,750     $ 1,800     $ 7,550  
Debt discount
     (750 )     (300 )     (1,050 )
Issuance cost:
                        
Commitment fee
     (175 )     (52 )     (227 )
Balance of investor’s counsel fees
     (43 )     (34 )     (77 )
Net proceeds of Convertible Note
   $ 4,782     $ 1,414     $ 6,196  

                       
Additional OID costs not in original funds flow     (121 )     (15 )     (136 )
Fair value of Warrant Liabilities on issuance     (724 )     (1,119 )     (1,843 )
Fair value of Conversion Feature on issuance     (306 )     (286 )     (592 )
Allocated OID costs to Warrants     25       30       55  
Additional OID costs not in original funds flow
     (660 )     660       -  
Interest expense accrued on Convertible Note as of June 30, 2024     3,265       666       3,931  
Principal and interest payments through June 30, 2024     (6,261 )     (150 )     (6,411 )
                         
Balance of Convertible Note as of June 30, 2024   $ -     $ 1,200     $ 1,200  

The Convertible Notes provide for variable monthly principal repayments beginning 180 days from issuance (with respect to the 2022 Convertible Note) and 12 months from issuance (with respect to the 2023 Convertible Note). As of June 30, 2024, the 2022 Convertible Note has been fully paid off. Remaining monthly principal payments for the 2023 Convertible Note are $150,000 and can be made in the form of cash, shares, or a combination of both at the discretion of GSE.

Table 8.2: Details of Debt Balances
  
 
  
June 30,
2024
    
December 31,
2023
  
 
  
(in thousands)
  
2022 Convertible Note
  
$
-
    
$
799
  
2023 Convertible Note
    
1,650
      
1,800
  
Funded Debt
    
1,650
      
2,599
  
Less: Unamortized debt-issuance costs and discounts
    
(450
)
    
(1,152
)
Total debt
    
1,200
      
1,447
  
Less: Current portion of long-term debt
    
(1,200
)
    
(810
)
Long-term debt
  
$
-
    
$
637
  

Table 8.3: Details of Future Minimum Principal Payments Due
  
   
Amount
  
   
(in thousands)
  
July 1, 2024 through December 31, 2024
  
$
900
  
January 1, 2025 through June 30, 2025
    
750
  
   
$
1,650
  

Prior to the June 2023 amendments, described below, the 2022 Convertible Note was convertible into our Common Stock at any time after the earlier of six months from issuance of the Convertible Note or the date of an effective registration statement filed with the SEC covering the underlying shares. The conversion price of the 2022 Convertible Note was equal to $19.40 per share, subject to customary adjustments. The 2022 Convertible Note matured in February 2024, although we were permitted to prepay the 2022 Convertible Note, provided that Lind Global had the option to convert up to one third of the outstanding principal of the 2022 Convertible Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as described below).

The 2022 Convertible Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets. The 2022 Convertible Note is not subject to any financial covenants and events of default under the 2022 Convertible Note are limited to events related to payment, market capitalization, certain events pertaining to conversion and the underlying shares of Common Stock and other customary events including, but not limited to, bankruptcy or insolvency. Upon the occurrence of an event of default, the 2022 Convertible Note will become immediately due and payable at an amount equal to 120% of the outstanding principal, subject to any cure periods described in the 2022 Convertible Note, and the lender may demand that all or a portion of the outstanding principal amount be converted into shares of common stock at the lower of the then current conversion price and 80% of the average of the three lowest daily volume-weighted average price (“VWAPs”) during the twenty days prior to delivery of the conversion notice. If there is a change of control of the Company, Lind Global has the right to require us to prepay the outstanding principal amount of the 2022 Convertible Note.

On June 23, 2023, the Company and Lind Global agreed to amend and restate the 2022 Convertible Note. The 2022 Convertible Note, as now amended, is now secured, interest free convertible promissory note in the principal amount of $2,747,228, such amount being the outstanding balance of the 2022 Convertible Note as of June 23, 2023. Just prior to the amendment, there was an event of default (EOD) related to the total market capitalization provision in the original 2022 Convertible Note. The EOD that occurred was waived, and we incurred a 20% charge included in the amended and restated 2022 Convertible Note, which the Company has treated as additional interest. The 2022 Convertible Note was fully paid as of June 30, 2024.

On October 6, 2023, the Company and Lind Global entered into that certain First Amendment to the 2022 Convertible Note (“A&R Note Amendment”), amending the 2022 Convertible Note to extend the beginning period of required compliance with certain default provisions until January 31, 2024. The A&R Note Amendment amended Section 2.1 pertaining to events of default by deleting and replacing Section 2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization was below $7 million for ten (10) consecutive days. As amended, the A&R Note provided that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days. Prior to the Amendment, the “Conversion Price” in Section 3.1(b) of the A&R Note “was $19.40 and shall be subject to adjustment as provided herein.” The A&R Note Amendment amended the definition of “Conversion Price” “the lower of (i) $19.40 and (ii) eighty-five percent (85%) of the average of the three (3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice of conversion.” There was no accounting impact related to this amendment as conversion options are already bifurcated as an embedded derivative and recorded at fair value at each reporting period.

The 2022 Warrant entitles Lind Global to purchase up to 128,373 shares of our Common Stock until February 23, 2027, at an exercise price of $19.40 per share, subject to customary adjustments described therein. The Warrant is recorded at fair value upon issuance of $0.7 million and is classified as a current liability to be remeasured at each reporting period (see Note 7). The discount created by allocating proceeds to the Warrant results in a debt discount to be amortized as additional interest expense over the term of the Convertible Note.

On June 23, 2023, in connection with the 2022 amended and restated Convertible Note transaction, the Company evaluated the amendment and concluded it qualified as a troubled debt restructuring. The restructuring did not result in a gain or loss but revised the effective interest rate used to amortize the note going forward.


On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which the Company issued to Lind Global the 2023 Convertible Note at the same time that the Company and Lind Global amended and restated the 2022 Convertible Note. The closing occurred on June 23, 2023, and consisted of the issuance of a secured, two-year interest free convertible promissory note with a funding amount of $1,500,000 and a principal amount of $1,800,000 (as defined above, the “2023 Convertible Note”) and the issuance of common stock purchase warrant to acquire 426,427 shares of the Company’s common stock (the “2023 Warrant” and, together with the 2022 Warrant, the “Warrants”). The proceeds from the transactions contemplated by the 2023 Purchase Agreement were for general working capital purposes and other corporate purposes.

On October 6, 2023, the Company and Lind Global entered into that certain First Amendment to Senior Convertible Promissory Note, amending the Company’s 2023 Convertible Note (the “Note Amendment”) to extend the beginning period of required compliance with certain default provisions until January 31, 2024. The Note Amendment amended Section 2.1 of the 2023 Convertible Note pertaining to events of default by deleting and replacing Section 2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization (as defined in the Note) was below $7 million for ten (10) consecutive days. As amended, the Note provides that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days.

Commencing one year after the issuance of the 2023 Convertible Note, the Company shall pay the outstanding principal amount of the 2023 Convertible Note in twelve (12) consecutive monthly payments of $150,000 each. At the option of the Company, the monthly payment can be made in cash, shares of the common stock of the Company (the “Repayment Shares”) at a price based on 90% of the average five (5) consecutive daily VWAPs during the twenty (20) days prior to the payment date, or a combination of cash and Repayment Shares, subject to the terms of the 2023 Convertible Note.  The Repayment Shares must either be eligible for immediate resale under Rule 144 or be registered. The number of Repayment Shares is limited such that, when added to the number of shares of common stock issued and issuable pursuant to the transactions contemplated by the 2023 Purchase Agreement, it may not exceed 493,727 shares of common stock unless the Company obtains stockholder approval to issue additional Repayment Shares. The holder of the 2023 Convertible Note may elect with respect to no more than two (2) of the above described monthly payments to increase the amount of such monthly payment up to $300,000 each in Repayment Shares upon notice to the Company. Any such increased payment shall be deducted from the amount of the last monthly payment owed under the 2023 Convertible Note.  The Company can prepay Lind Global all the outstanding principal amount of the 2023 Convertible Note, provided that Lind Global shall have the option to convert up to one third (1/3) of the outstanding principal amount of the 2023 Convertible Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as described below).

Upon the occurrence of an event of default as described in the 2023 Convertible Note, the 2023 Convertible Note will become immediately due and payable at the default premium described in the 2023 Convertible Note, subject to any cure periods described in the 2023 Convertible Note. Events of default include, but are not limited to, a payment default on any other indebtedness in excess of $250,000; the shares no longer publicly being traded or cease to be listed on a trading market; if after six months, the shares are not available for immediate resale under Rule 144; and the Company’s market capitalization is below $7,000,000 for ten (10) consecutive days. Upon an event of default, subject to any applicable cure period, the holder of the 2023 Convertible Note can, among other things, accelerate payment of the 2023 Convertible Note and demand full payment and demand that all or a portion of the outstanding principal amount be converted into shares of common stock at the at the lower of the then current conversion price and 85% of the average of the three (3) lowest daily VWAPs during the twenty (20) days prior to delivery of the conversion notice.  If there is a change of control of the Company, Lind Global has the right to require the Company to prepay 105% of the outstanding principal amount of the 2023 Convertible Note. A change of control includes a change in the composition of a majority of the Board of Directors of the Company, at a single shareholder meeting, a change, without prior written consent of Lind Global where a majority of the individuals that were directors as of June 20, 2023 cease to be directors of the Company (provided that any individual who is nominated by the board of directors (or a duly authorized committee thereof) as of June 20, 2023 and is elected or appointed as a director of the Company shall be deemed a member of the board of directors of the Company for all such purposes), a shareholder acquiring beneficial ownership of more than 50% of the common stock of the Company, or the sale or other disposition of the Company of all or substantially all of its assets (see Note 13 – Subsequent Events).  The 2023 Convertible Note is convertible into common stock of the Company at any time after the earlier of six (6) months from issuance or the date the registration statement is effective, provided that no such conversion may be made that would result in beneficial ownership by Lind Global and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The conversion price of the 2023 Convertible Note is equal to $5.00, subject to customary adjustments.


The 2023 Warrant entitles Lind Global to purchase up to 426,427 shares of common stock of the Company until the earlier of (a) June 23, 2028 and (b) a merger, sale event or other reclassification of the Company’s common stock, at an exercise price of $5.00 per share, subject to customary adjustments described therein. Additionally, in the event of a sale of all or substantially all of the assets of the Company or a merger, tender offer or certain other change of control events involving the Company, the Company shall, at the holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the transaction, purchase the 2023 Warrant from the holder by paying to the holder an amount of cash equal to (i) if the price per share of Common Stock payable in such transaction is in excess of $10.00, the Adjusted Black Scholes Value, or (ii) if the price per share of Common Stock payable in such transaction is equal to or less than $10.00, the Black Scholes Value, of the remaining unexercised portion of the 2023 Warrant on the date of the consummation of such transaction. “Adjusted Black Scholes Value” means the lesser of (i) the Black Scholes Value and (ii) the price per share of Common Stock payable in the transaction minus the exercise price multiplied by the then amount of unexercised 2023 Warrant shares. “Black Scholes Value” means the value the 2023 Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable transaction and the final day of the exercise period, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non- cash consideration, if any, being offered in such transaction and (ii) the greater of (x) the last volume weighted average price immediately prior to the public announcement of such transaction and (y) the last volume weighted average price immediately prior to the consummation of such transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable transaction and the final day of the exercise period. The 2023 Warrant is in addition to the 2022 Warrant.

The Company evaluated the 2022 Convertible Note and concluded that certain embedded redemption features are required to be accounted for as a derivative liability. Embedded redemption features were recorded at fair value upon issuance of $0.3 million and are classified as current liabilities to be remeasured at each reporting period (see Note 6). The discount created by allocating proceeds to the derivative liability results in a debt discount to be amortized as additional interest expense over the term of the Convertible Notes. The Warrants are accounted for as a derivative liability based on certain features included within the Convertible Note which caused the Company to not be able to assert that it would have sufficient shares in all cases to be able to settle the Warrants. As such, the proceeds (approximately $4.8 million, net of original issue discounts and other payments to lender) were allocated first to the fair value of the Warrants with the residual allocated to the Convertible Notes host instrument. The proceeds allocated to the Convertible Notes were further allocated first to the bifurcated derivative liability based on its fair value with the residual being allocated to the Convertible Notes host instrument.

Upon issuance of the 2023 Convertible Note, the Company re-evaluated the 2022 Convertible Note, in accordance with ASC 815-40-25-10 and its sequencing policy, and concluded that the embedded conversion option was required to be bifurcated and accounted for as a derivative liability as a result of the Company not being able to assert that it would have sufficient shares in all cases to be able to settle the conversion of the 2022 Convertible Note.  The embedded conversion option will be combined with the bifurcated redemption features as a single derivative and is classified as a current liability to be remeasured at each reporting period.  The discount resulting from bifurcating the embedded conversion option will be amortized as additional interest expense over the term of the 2022 Convertible Note.

The direct and incremental costs incurred are allocated to the Convertible Note and the Warrant based on a systematic and rational approach. The costs allocated to the Warrants have been expensed as incurred while those allocated to the Convertible Note have been capitalized and will be amortized as interest expense over the life of the Convertible Notes based on the effective interest rate. The Company will record ongoing changes to the fair value of the derivative liabilities as other non-operating income (expense).

The Convertible Notes are evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per share purposes. The Warrants are considered a participating security and were not included in the calculation of basic earnings per share for the six months ended June 30, 2024 and the year ended December 31, 2023 as Company reflected net loss for the respective periods. The Warrant will be included in the calculation of diluted earnings per share in periods of net income.

The issuance costs with respect to the Convertible Notes, which are recorded as a debt discount, are deferred and amortized using the effective interest method as additional interest expense over the terms of the Convertible Note at an effective interest rate of 68.6%. The Company incurred total interest expense related to the Convertible Notes of $0.7 million for the six months ended June 30, 2024, compared to $1.1 million including $0.5 million default charge for the six months ended June 30, 2023. 


On February 12, 2024, the Company and Lind Global entered into an agreement to amend certain provisions of the Convertible Notes (as amended) to extend the beginning period of required compliance with certain default provisions until June 1, 2024. The agreement amended Section 2.1 pertaining to events of default, to extend the period in which an event of default would occur, as defined above, to any time after June 1, 2024, previously any time after January 31, 2024 as provided in the October 6th amendment defined above. But for the amendment, the Company would have incurred an event of default after the tenth (10th) trading day following January 31, 2024 if the market capitalization of the Company was less than seven million dollars ($7,000,000). The amendments amended the definition of “Conversion Price” in the 2023 Convertible Note to “the lower of (i) $5.00 and (ii) eighty-five percent (85%) of the average of the three (3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice of conversion.” No other concession was given with this amendment and legal fees were expenses as incurred.

Letters of Credit

We maintain certain letters of credit with Citizens Bank, N.A. (“Citizens”). As of June 30, 2024, we had four letters of credit totaling $1.1 million outstanding to certain customers which were secured with restricted cash.
v3.24.2.u1
REVENUE
 6 Months Ended
Jun. 30, 2024
REVENUE [Abstract]  
REVENUE
9. 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 Engineering and Workforce Solutions segments. We recognize revenue from SDB and software contracts mainly through our Engineering segment. We recognize training and consulting service contracts through both segments.
Table 9.1: Revenue by Segment and Type
  

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  

            (in thousands)  
Engineering                        
System Design and Build
  
$
2,011
    
$
2,139
    
$
4,138
    
$
3,609
  
Over time
    2,011       2,139       4,138       3,609  
                                 
Software and Support
    
1,180
      
1,100
      
2,046
      
2,289
  
Point in time
    
159
      
55
      
164
      
368
  
Over time
    
1,021
      
1,045
      
1,882
      
1,921
  
                                 
Training and Consulting Services
    
6,140
      
5,805
      
11,876
      
10,088
  
Point in time
    
19
      
101
      
101
      
297
  
Over time
    
6,121
      
5,704
      
11,775
      
9,791
  
                                 
Workforce Solutions                                
Training and Consulting Services
    
2,394
      
3,343
      
4,948
      
7,274
  
Point in time
    
118
      
90
      
211
      
209
  
Over time
    
2,276
      
3,253
      
4,737
      
7,065
  
                                 
Total revenue
  
$
11,725
    
$
12,387
    
$
23,008
    
$
23,260
  

Table 9.2: Revenue Recognized that was Previously Included in Contract Liabilities
  

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
              (in thousands)  
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
  
$
1,709
    
$
1,255
    
$
2,688
    
$
3,105
  
v3.24.2.u1
INCOME TAXES
 6 Months Ended
Jun. 30, 2024
INCOME TAXES [Abstract]  
INCOME TAXES
10. INCOME TAXES

Table 10: Effective Tax Rate

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
Effective tax rate
    
(13.6
)%
    
(1.9
)%
    
(5.2
)%
    
0.2
%



Our effective income tax rate differs from the U.S. statutory federal income tax rate of 21% primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, changes in the valuation allowance in our U.S. entity, the permanent disallowance of interest expense related to disqualified debt, and discrete item adjustments for U.S. and foreign taxes.
v3.24.2.u1
SEGMENT INFORMATION
 6 Months Ended
Jun. 30, 2024
SEGMENT INFORMATION [Abstract]  
SEGMENT INFORMATION
11. SEGMENT INFORMATION

We have two reportable business segments. The Engineering 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 American Society of Mechanical Engineers (“ASME”) code and ASME Section XI. The Company provides these services across all market segments through our Performance, True North Consulting, and D&A Analysis subsidiaries. Example training applications include turnkey and custom training services. Contract terms are typically less than two years.

Workforce Solutions segment provides specialized employment personnel 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.

Table 11: Results of Operations by Business Segment
   
For the Three Months Ended
    
For the Six Months Ended
  

 
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
          (in thousands)
        
Revenue
                        
Engineering
  
$
9,331
    
$
9,044
    
$
18,060
    
$
15,986
  
Workforce Solutions
    
2,394
      
3,343
      
4,948
      
7,274
  
Total revenue
    
11,725
      
12,387
      
23,008
      
23,260
  
                                 
Gross profit
                               
Engineering
     3,282       2,742
       6,187
       4,622
  
Workforce Solutions
    392       473       703       988  
Total gross profit
    3,674       3,215       6,890       5,610  
                                 
Operating income (loss)
                                
   Engineering
    
311
      
(617
)
    
(1,087
)
    
(3,041
)
   Workforce Solutions
    
(22
)
    
(159
)
    
(154
)
    
(518
)
                                 
Operating income (loss)
    
289
      
(776
)
    
(1,241
)
    
(3,559
)
                                 
Interest expense, net
    
(258
)
    
(767
)
    
(717
)
    
(1,053
)
Change in fair value of derivative instruments, net    
(736
)
    
171
      
(753
)
    
240
  
Other (loss) income, net
    
(47
)
    
(98
)
    
7
      
(88
)
Loss before income taxes
  
$
(752
)
  
$
(1,470
)
  
$
(2,704
)
  
$
(4,460
)
v3.24.2.u1
COMMITMENTS AND CONTINGENCIES
 6 Months Ended
Jun. 30, 2024
COMMITMENTS AND CONTINGENCIES [Abstract]  
COMMITMENTS AND CONTINGENCIES
12. COMMITMENTS AND CONTINGENCIES

Three former employees of Absolute Consulting, Inc. and Hyperspring, LLC, filed putative class action lawsuits against the Company, alleging that the Company failed to pay overtime wages as required by the Fair Labor Standards Act and state law. The three cases Natalie Adams v. Absolute Consulting, Inc., Case No. 6:20-cv-01099, Matthew Waldecker v. Hyperspring, LLC, Case No. 2:20-cv-1948, Don Pharr v. Absolute Consulting, Inc., Case No. 23-cv-01558-JRR were filed on December 2, 2020, December 15, 2020, and June 8, 2023, respectively.

On August 22, 2023, Plaintiffs in Adams, Waldecker and Pharr and GSE Systems, Inc., Hyperspring and Absolute participated in private mediation. The mediation was successful and an agreement in principle was reached before the conclusion of the mediation to resolve and dismiss all three pending matters in exchange for a settlement payment.

The parties’ settlement agreement was executed on October 30, 2023, and resulted in the dismissal of all three cases. In addition to customary terms, GSE Systems, Hyperspring and Absolute are obligated to make a series of payments in 2024, eventually totaling $750 thousand inclusive of attorneys’ fees and costs. As this amount was included in accrued legal settlements as of December 31, 2023, and included as a part of selling, general and administrative costs for the year ended December 31, 2023.

On December 4, 2020, Hyperspring, LLC filed a Verified Complaint and Motion for Temporary Restraining Order (“TRO”) against a former Hyperspring employee in the Chancery Court of Loudon County, Tennessee, related to her retention of confidential and proprietary information belonging to Hyperspring following the termination of her employment. On January 25, 2021, the employee filed a counterclaim against Hyperspring, seeking payment for alleged unpaid commissions and expenses. On December 19, 2023, the former employee filed a complaint in the United States Eastern District of Tennessee against GSE Systems, Inc and its subsidiaries. On or about February 29, 2024, a settlement agreement was executed by the parties, which resulted in the dismissal of both cases with Hyperspring incurring an obligation to pay approximately $260 thousand inclusive of attorneys’ fees. As the amount was probable and estimable, it was included in accrued legal settlements as of December 31, 2023, and included as a part of selling, general and administrative costs for the year ended December 31, 2023.

There is a remaining accrued legal settlement amount of $529 thousand at June 30, 2024 associated with these legal matters.

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.
v3.24.2.u1
SUBSEQUENT EVENTS
 6 Months Ended
Jun. 30, 2024
SUBSEQUENT EVENTS [Abstract]  
SUBSEQUENT EVENTS
13. SUBSEQUENT EVENTS

On August 8, 2024, GSE Systems, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Nuclear Engineering Holdings LLC, a Delaware limited liability company (“Parent”), and Gamma Nuclear Merger Sub LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company with the Company continuing as a wholly owned subsidiary of Parent (the “Merger”). The Company’s board of directors (the “Board”), by unanimous vote, determined that it is advisable and in the best interests of the Company and its stockholders for the Company to enter into the Merger Agreement and recommended that the Company’s stockholders adopt the Merger Agreement and approve the Merger (see Form 8-K filed by the Company on August 8, 2024). Consummation of the Merger is subject to the satisfaction or waiver of customary closing conditions, including adoption of the Merger Agreement by the Company’s stockholders and the absence of any statute, rule, regulation, order, or other legal or regulatory restraint preventing, prohibiting or enjoining the consummation of the Merger. Merger transactions may be subject to shareholder claims and merger objection lawsuits. We are not aware of any claims or a party to any legal proceedings related to this transaction as of August 14, 2024.

Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of the Company’s common stock, par value $0.01 per share (the “Company Common Stock”) (other than shares owned by the Company, Parent or Merger Sub or any direct or indirect wholly owned subsidiary of Parent or Merger Sub or by stockholders of the Company who have neither voted in favor of the Merger nor consented to the Merger in writing and who have properly and validly exercised their statutory rights of appraisal in respect of such shares of Company Common Stock in accordance with Section 262 of the General Corporation Law of the State of Delaware) will be cancelled and extinguished and automatically converted into the right to receive cash in an amount equal to $4.10 per share.

On August 7, 2024, the Company and Parent entered into that certain Senior Secured Promissory Note in the principal amount of $1,398,447.50 (the “Parent Note”). Pursuant to the terms of the Parent Note, interest accrues at a rate per annum equal to 12.50%. Interest payments under the Parent Note are due and payable on the last business day of each calendar month and on the Maturity Date (as defined below). Interest shall be paid, at the option of the Company, (x) in kind by capitalizing such interest and adding the unpaid amount thereof on each such payment date or (y) in cash. Upon an event of default, interest shall accrue at 14.50%. The Company shall pay the outstanding principal amount on the earlier to occur of (x) August 6, 2025 and (y) the occurrence of a Change of Control (the “Maturity Date”). The Company used the proceeds of the Parent Note to pay in full all outstanding indebtedness owed to Lind Global as further described in Note 8 - Debt. The Parent Note also included amounts owed to Parent’s counsel with respect to the Parent Note.

On August 7, 2024, the Company repaid in full, in cash and through the delivery of 114,976 shares of Company Common Stock, all outstanding indebtedness owed to Lind Global, which satisfied the 2023 Purchase Agreement, dated June 23, 2023, as amended, which was in the original principal amount of $1,800,000 (the “Lind Note”), and all ancillary agreements in connection therewith. In connection with the Company’s prepayment of the Lind Note, and pursuant to its terms, Lind Global elected to convert $314,000 of the outstanding principal amount of the Lind Note into Company Common Stock. In addition, at the time of conversion and based upon that certain Second Amendment to the Lind Note, dated February 12, 2024, Lind Global asserted that it was entitled to $360,000 in addition to the remaining principal balance due on the Lind Note of $1,500,000. The Company disputed this amount and, following negotiations among the parties, the Company agreed to pay $180,000 in full satisfaction of the claim.
v3.24.2.u1
INSIDER TRADING ARRANGEMENTS
 3 Months Ended
Jun. 30, 2024
Insider Trading Arrangements [Line Items]  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
v3.24.2.u1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 6 Months Ended
Jun. 30, 2024
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
Basis of Presentation
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 note 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 as of December 31, 2023 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, 2023, filed with the U.S. Securities and Exchange Commission on April 2, 2024.
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, valuation of stock-based compensation awards, the recoverability of deferred tax assets, and valuation of warrants and derivative liabilities related to our convertible notes. Actual results of these and other items not listed could differ from these estimates and those differences could be material.
Reverse Stock Split
Reverse Stock Split

On October 30, 2023, the Company effected a ten-for-one reverse stock split of the Company’s common stock whereby each ten shares of the Company’s authorized and outstanding common stock were replaced with one share of common stock. The par value of the common stock was not adjusted. All common share and per share amounts for all periods presented in the consolidated financial statements and the notes to the consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split.
Liquidity and Going Concern
Liquidity and Going Concern

The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with U.S. GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and satisfy its liabilities and commitments in the normal course of business. Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, are only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management determined that the implemented plans to mitigate relevant conditions may not alleviate management’s concerns that raise substantial doubt about the Company’s ability to continue as a going concern within the twelve months ended August 15, 2025 (See Note 13 - Subsequent Events).

The Company has incurred operating losses and has not demonstrated an ability to generate cash in excess of its operating expenses for a sustained period of time. The Company has not achieved its forecast for several periods and there is no assurance that it will achieve its forecast. During the year ended December 31, 2023 and the six months ended June 30, 2024, the Company generated a loss from operations of $6.8 million and $1.2 million, respectively. The 2023 loss from operations included non-cash impairment charges of goodwill from our Workforce Solutions segment totaling $1.4 million. As of June 30, 2024, the Company had domestic unrestricted cash and cash equivalents of $0.5 million which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued.

These factors create substantial doubt about the Company's ability to continue as a going concern. In making this assessment we performed a comprehensive analysis of our current circumstances and to alleviate these conditions, management is monitoring the Company’s performance and evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, restructuring of operations to grow revenues and decrease expenses, obtaining equity financing, issuing debt, entering other financing arrangements, and or considering changes to the organization structure. The analysis used to determine the Company’s ability to continue as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next twelve months ending August 15, 2025.
v3.24.2.u1
LOSS PER SHARE (Tables)
 6 Months Ended
Jun. 30, 2024
LOSS PER SHARE [Abstract]  
Loss Per Share, Basic and Diluted
For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive.

Table 3: Potentially Dilutive Securities            

 
For the Three Months Ended
   
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
Total shares considered for dilution
    
1,103,556
      
1,176,980
      
1,022,357
      
1,226,378
  
v3.24.2.u1
CONTRACT RECEIVABLES, NET (Tables)
 6 Months Ended
Jun. 30, 2024
CONTRACT RECEIVABLES, NET [Abstract]  
CONTRACT RECEIVABLES, NET
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.
Table 4: Details of Contract Receivables, Net            

 
June 30, 2024
   
December 31, 2023
 
    (in thousands)  
Billed receivables
  
$
3,980
    
$
5,720
  
Unbilled receivables
    
5,727
      
4,729
  
Allowance for credit loss
    
(316
)
    
(283
)
Contract receivables, net
  
$
9,391
    
$
10,166
  
v3.24.2.u1
FAIR VALUE MEASUREMENTS (Tables)
 6 Months Ended
Jun. 30, 2024
FAIR VALUE MEASUREMENTS [Abstract]  
Assets and Liabilities Measured at Fair Value
As of June 30, 2024 and December 31, 2023, 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.

Table 6.1 - Fair Value Measurements - Current Period
  
 
  
As of June 30, 2024
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
 
  
(in thousands)
  
Derivative liability
  
$
-
    
$
-
    
$
362
    
$
362
  
Warrant liability
    
-
      
-
      
1,499
      
1,499
  
Total liabilities
  
$
-
    
$
-
    
$
1,861
    
$
1,861
  

Table 6.2 - Fair Value Measurements - Prior Period
  
 
  
As of December 31, 2023
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
 
  
(in thousands)
  
Derivative liability
  
$
-
    
$
-
    
$
588
    
$
588
  
Warrant liability
    
-
      
-
      
520
      
520
  
Cash settled performance-vesting restricted stock units
    
-
      
-
      
24
      
24
  
Total liabilities
  
$
-
    
$
-
    
$
1,132
    
$
1,132
  
Changes in Fair Value of Level 3 Liabilities
Table 6.3 - Changes in Level 3 Fair Value Measurements for the Six Months Ended June 30, 2024
  
 
  
Embedded
Derivatives
    
Warrant
    
Cash Settled
PRSUs
    
Level 3 Total
  
 
  
(in thousands)
  
Balance at December 31, 2023
  
$
588
    
$
520
    
$
24
    
$
1,132
  
Change in fair value of derivative instruments, net included on statement of operations
    
(226
)
    
979
      
-
   
753
  
Stock compensation net of payments and forfeitures
    
-
      
-
      
(24
)
    
(24
)
Balance at June 30, 2024
  
$
362
    
$
1,499
    
$
-
    
$
1,861
  
Level 3 Fair Value Measurement Inputs
Table 6.4 - Significant Unobservable Inputs Utilized for Level 3 as of June 30, 2024
  
 
  
The “2022
Warrants”
    
2023
Convertible Note
    
The “2023
Warrants”
  
Exercise Price
   $
19.40
    
$
5.00
     $
5.00
  
Common Stock Price
  

4.60
      
4.60
      
4.60
  
Risk Free Rate
    
4.4
%
    
4.4
%
    
4.4
%
Volatility
    
100.0
%
    
100.0
%
    
100.0
%
Term (in years)
  
2.7 yrs.
    
1.0 yrs.
    
4.0 yrs.
  
v3.24.2.u1
DEBT (Tables)
 6 Months Ended
Jun. 30, 2024
DEBT [Abstract]  
Convertible Note
On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which we issued to Lind Global that certain Senior Convertible Promissory Note, dated February 23, 2022 (the “2023 Convertible Note” and, together with the 2022 Convertible Note, the “Convertible Notes”) and a common stock purchase warrant to acquire 426,427 shares of our Common Stock (the “2023 Warrant”). The 2023 Convertible Note does not bear interest but was issued at a $0.3 million discount (“OID”). We received proceeds of approximately $1.4 million net of the OID and expenses.

Table 8.1: Details of Convertible Notes  

 
2022
Convertible
Note
    
2023
Convertible
Note
    
Total
Convertible
Notes
  
    (in thousands)
 
Convertible Note issued
   $ 5,750     $ 1,800     $ 7,550  
Debt discount
     (750 )     (300 )     (1,050 )
Issuance cost:
                        
Commitment fee
     (175 )     (52 )     (227 )
Balance of investor’s counsel fees
     (43 )     (34 )     (77 )
Net proceeds of Convertible Note
   $ 4,782     $ 1,414     $ 6,196  

                       
Additional OID costs not in original funds flow     (121 )     (15 )     (136 )
Fair value of Warrant Liabilities on issuance     (724 )     (1,119 )     (1,843 )
Fair value of Conversion Feature on issuance     (306 )     (286 )     (592 )
Allocated OID costs to Warrants     25       30       55  
Additional OID costs not in original funds flow
     (660 )     660       -  
Interest expense accrued on Convertible Note as of June 30, 2024     3,265       666       3,931  
Principal and interest payments through June 30, 2024     (6,261 )     (150 )     (6,411 )
                         
Balance of Convertible Note as of June 30, 2024   $ -     $ 1,200     $ 1,200  
Debt Balances
Table 8.2: Details of Debt Balances
  
 
  
June 30,
2024
    
December 31,
2023
  
 
  
(in thousands)
  
2022 Convertible Note
  
$
-
    
$
799
  
2023 Convertible Note
    
1,650
      
1,800
  
Funded Debt
    
1,650
      
2,599
  
Less: Unamortized debt-issuance costs and discounts
    
(450
)
    
(1,152
)
Total debt
    
1,200
      
1,447
  
Less: Current portion of long-term debt
    
(1,200
)
    
(810
)
Long-term debt
  
$
-
    
$
637
  
Future Minimum Principal Payments Due
Table 8.3: Details of Future Minimum Principal Payments Due
  
   
Amount
  
   
(in thousands)
  
July 1, 2024 through December 31, 2024
  
$
900
  
January 1, 2025 through June 30, 2025
    
750
  
   
$
1,650
  
v3.24.2.u1
REVENUE (Tables)
 6 Months Ended
Jun. 30, 2024
REVENUE [Abstract]  
Revenue by Segment and Type
Table 9.1: Revenue by Segment and Type
  

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  

            (in thousands)  
Engineering                        
System Design and Build
  
$
2,011
    
$
2,139
    
$
4,138
    
$
3,609
  
Over time
    2,011       2,139       4,138       3,609  
                                 
Software and Support
    
1,180
      
1,100
      
2,046
      
2,289
  
Point in time
    
159
      
55
      
164
      
368
  
Over time
    
1,021
      
1,045
      
1,882
      
1,921
  
                                 
Training and Consulting Services
    
6,140
      
5,805
      
11,876
      
10,088
  
Point in time
    
19
      
101
      
101
      
297
  
Over time
    
6,121
      
5,704
      
11,775
      
9,791
  
                                 
Workforce Solutions                                
Training and Consulting Services
    
2,394
      
3,343
      
4,948
      
7,274
  
Point in time
    
118
      
90
      
211
      
209
  
Over time
    
2,276
      
3,253
      
4,737
      
7,065
  
                                 
Total revenue
  
$
11,725
    
$
12,387
    
$
23,008
    
$
23,260
  
Revenue Recognized Previously Included in Contract Liabilities
Table 9.2: Revenue Recognized that was Previously Included in Contract Liabilities
  

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
              (in thousands)  
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
  
$
1,709
    
$
1,255
    
$
2,688
    
$
3,105
  
v3.24.2.u1
INCOME TAXES (Tables)
 6 Months Ended
Jun. 30, 2024
INCOME TAXES [Abstract]  
Effective Tax Rates
Table 10: Effective Tax Rate

 
For the Three Months Ended
    
For the Six Months Ended
  
   
June 30,
2024
    
June 30,
2023
    
June 30,
2024
    
June 30,
2023
  
Effective tax rate
    
(13.6
)%
    
(1.9
)%
    
(5.2
)%
    
0.2
%
v3.24.2.u1
SEGMENT INFORMATION (Tables)
 6 Months Ended
Jun. 30, 2024
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.

Table 11: Results of Operations by Business Segment
   
For the Three Months Ended
    
For the Six Months Ended
  

 
June 30, 2024
    
June 30, 2023
    
June 30, 2024
    
June 30, 2023
  
          (in thousands)
        
Revenue
                        
Engineering
  
$
9,331
    
$
9,044
    
$
18,060
    
$
15,986
  
Workforce Solutions
    
2,394
      
3,343
      
4,948
      
7,274
  
Total revenue
    
11,725
      
12,387
      
23,008
      
23,260
  
                                 
Gross profit
                               
Engineering
     3,282       2,742
       6,187
       4,622
  
Workforce Solutions
    392       473       703       988  
Total gross profit
    3,674       3,215       6,890       5,610  
                                 
Operating income (loss)
                                
   Engineering
    
311
      
(617
)
    
(1,087
)
    
(3,041
)
   Workforce Solutions
    
(22
)
    
(159
)
    
(154
)
    
(518
)
                                 
Operating income (loss)
    
289
      
(776
)
    
(1,241
)
    
(3,559
)
                                 
Interest expense, net
    
(258
)
    
(767
)
    
(717
)
    
(1,053
)
Change in fair value of derivative instruments, net    
(736
)
    
171
      
(753
)
    
240
  
Other (loss) income, net
    
(47
)
    
(98
)
    
7
      
(88
)
Loss before income taxes
  
$
(752
)
  
$
(1,470
)
  
$
(2,704
)
  
$
(4,460
)
v3.24.2.u1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)
$ in Thousands
 3 Months Ended 6 Months Ended 12 Months Ended
Oct. 30, 2023
Jun. 30, 2024
USD ($)
Jun. 30, 2023
USD ($)
Jun. 30, 2024
USD ($)
Jun. 30, 2023
USD ($)
Dec. 31, 2023
USD ($)
Reverse Stock Split [Abstract]            
Reverse stock split 10          
Liquidity and Going Concern [Abstract]            
Operating loss   $ 289 $ (776) $ (1,241) $ (3,559) $ (6,800)
Long-lived assets and goodwill impairment           $ 1,400
Unrestricted cash and cash equivalents   $ 500   $ 500    
v3.24.2.u1
LOSS PER SHARE (Details) - shares
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
LOSS PER SHARE [Abstract]        
Total shares considered for dilution 1,103,556 1,176,980 1,022,357 1,226,378
v3.24.2.u1
CONTRACT RECEIVABLES, NET (Details)
$ in Thousands
 1 Months Ended 3 Months Ended 6 Months Ended
Jul. 31, 2024
USD ($)
Jun. 30, 2024
USD ($)
Jun. 30, 2023
USD ($)
Jun. 30, 2024
USD ($)
Customer
Jun. 30, 2023
USD ($)
Dec. 31, 2023
USD ($)
CONTRACT RECEIVABLES, NET [Abstract]            
Maximum term of contract receivables       12 months    
Components of contract receivables [Abstract]            
Billed receivables   $ 3,980   $ 3,980   $ 5,720
Unbilled receivables   5,727   5,727   4,729
Allowance for credit loss   (316)   (316)   (283)
Contract receivables, net   9,391   9,391   $ 10,166
Unbilled Contract Receivables [Abstract]            
Subsequent billing $ 4,100          
Gain (loss) on foreign exchange contracts   (36) $ (55) 48 $ 17  
Credit loss expense (recovery)   $ 9 $ (2) $ 65 $ 30  
Contract Receivables [Member] | Customer Concentration Risk [Member]            
Unbilled Contract Receivables [Abstract]            
Number of major customers | Customer       1    
Contract Receivables [Member] | Customer Concentration Risk [Member] | Customer One [Member]            
Unbilled Contract Receivables [Abstract]            
Percentage contributed by major customers       17.00%    
v3.24.2.u1
GOODWILL (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Dec. 31, 2023
GOODWILL [Abstract]          
Goodwill $ 4,908   $ 4,908   $ 4,908
Goodwill impairment charges $ 0 $ 0 $ 0 $ 0  
v3.24.2.u1
FAIR VALUE MEASUREMENTS (Details)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
USD ($)
$ / shares
Dec. 31, 2023
USD ($)
Jun. 23, 2023
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities $ 1,861 $ 1,132  
Changes in Fair Value of Level 3 Liabilities [Abstract]      
Fair Value, Liability, Recurring Basis, Unobservable Input Reconciliation, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration] Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net    
Fair Value Measurements [Abstract]      
Measurement input     1
Cash Settled PRSUs [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities   24  
Derivative Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities $ 362 588  
Warrant Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities $ 1,499 520  
Warrant Liability [Member] | The "2022 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Term (in years) 2 years 8 months 12 days    
Warrant Liability [Member] | 2023 Convertible Note [Member]      
Fair Value Measurements [Abstract]      
Term (in years) 1 year    
Warrant Liability [Member] | The "2023 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Term (in years) 4 years    
Warrant Liability [Member] | Exercise Price [Member] | The "2022 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input | $ / shares 19.4    
Warrant Liability [Member] | Exercise Price [Member] | 2023 Convertible Note [Member]      
Fair Value Measurements [Abstract]      
Measurement input | $ / shares 5    
Warrant Liability [Member] | Exercise Price [Member] | The "2023 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input | $ / shares 5    
Warrant Liability [Member] | Common Stock Price [Member] | The "2022 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input | $ / shares 4.6    
Warrant Liability [Member] | Common Stock Price [Member] | 2023 Convertible Note [Member]      
Fair Value Measurements [Abstract]      
Measurement input | $ / shares 4.6    
Warrant Liability [Member] | Common Stock Price [Member] | The "2023 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input | $ / shares 4.6    
Warrant Liability [Member] | Risk Free Rate [Member] | The "2022 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input 0.044    
Warrant Liability [Member] | Risk Free Rate [Member] | 2023 Convertible Note [Member]      
Fair Value Measurements [Abstract]      
Measurement input 0.044    
Warrant Liability [Member] | Risk Free Rate [Member] | The "2023 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input 0.044    
Warrant Liability [Member] | Volatility [Member] | The "2022 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input 1    
Warrant Liability [Member] | Volatility [Member] | 2023 Convertible Note [Member]      
Fair Value Measurements [Abstract]      
Measurement input 1    
Warrant Liability [Member] | Volatility [Member] | The "2023 Warrants" [Member]      
Fair Value Measurements [Abstract]      
Measurement input 1    
Level 1 [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities $ 0 0  
Level 1 [Member] | Cash Settled PRSUs [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities   0  
Level 1 [Member] | Derivative Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 0 0  
Level 1 [Member] | Warrant Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 0 0  
Level 2 [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 0 0  
Level 2 [Member] | Cash Settled PRSUs [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities   0  
Level 2 [Member] | Derivative Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 0 0  
Level 2 [Member] | Warrant Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 0 0  
Level 3 [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 1,861 1,132  
Changes in Fair Value of Level 3 Liabilities [Abstract]      
Balance, Beginning Period 1,132    
Change in fair value of derivative instruments, net included on statement of operations 753    
Stock compensation net of payments and forfeitures (24)    
Balance, Ending Period 1,861    
Level 3 [Member] | Embedded Derivatives [Member]      
Changes in Fair Value of Level 3 Liabilities [Abstract]      
Balance, Beginning Period 588    
Change in fair value of derivative instruments, net included on statement of operations (226)    
Stock compensation net of payments and forfeitures 0    
Balance, Ending Period 362    
Level 3 [Member] | Cash Settled PRSUs [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities   24  
Changes in Fair Value of Level 3 Liabilities [Abstract]      
Balance, Beginning Period 24    
Change in fair value of derivative instruments, net included on statement of operations 0    
Stock compensation net of payments and forfeitures (24)    
Balance, Ending Period 0    
Level 3 [Member] | Derivative Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 362 588  
Level 3 [Member] | Warrant Liability [Member]      
Assets and Liabilities Measured at Fair Value [Abstract]      
Total liabilities 1,499 $ 520  
Changes in Fair Value of Level 3 Liabilities [Abstract]      
Balance, Beginning Period 520    
Change in fair value of derivative instruments, net included on statement of operations 979    
Stock compensation net of payments and forfeitures 0    
Balance, Ending Period $ 1,499    
v3.24.2.u1
STOCK-BASED COMPENSATION (Details)
$ / shares in Units, $ in Thousands
 1 Months Ended 3 Months Ended 6 Months Ended
Apr. 30, 2022
shares
Jun. 30, 2024
USD ($)
$ / shares
shares
Jun. 30, 2023
USD ($)
shares
Jun. 30, 2024
USD ($)
qtr
d
$ / shares
shares
Jun. 30, 2023
USD ($)
shares
Share-based Compensation [Abstract]          
Stock options granted (in shares)   0 0 0 0
Time-Based RSUs [Member]          
Share-based Compensation [Abstract]          
RSUs granted (in shares)   0   56,259  
Aggregate fair value for time-based RSUs | $       $ 100  
Restricted Stock Units [Member]          
Share-based Compensation [Abstract]          
RSUs granted (in shares)     40,827   56,827
Aggregate fair value for time-based RSUs | $     $ 200   $ 200
RSUs vested (in shares)   45,307 26,886 68,440 43,448
Period to fully vest performance RSUs | qtr       10  
Restricted Stock Units [Member] | Minimum [Member]          
Share-based Compensation [Abstract]          
Period in which time-based RSU's will vest annually in equal amounts       1 year  
Restricted Stock Units [Member] | Maximum [Member]          
Share-based Compensation [Abstract]          
Period in which time-based RSU's will vest annually in equal amounts       3 years  
PRSUs [Member]          
Share-based Compensation [Abstract]          
RSUs granted (in shares) 80,000 0 597,665 0 597,665
RSUs vested (in shares)       5,000 10,000
Period to fully vest performance RSUs | qtr       18  
Number of trading days | d       20  
Exercise price (in dollars per share) | $ / shares   $ 15   $ 15  
Cash Settled PRSUs [Member]          
Share-based Compensation [Abstract]          
RSUs vested (in shares)       1,250 2,500
RSU and PRSU [Member]          
Share-based Compensation [Abstract]          
Stock-based compensation expense | $     $ 300 $ 20 $ 500
Recovery of Stock Based Compensation Expense | $   $ 300   $ 300  
Forfeiture of shares during period, value | $   $ 300      
v3.24.2.u1
DEBT, Convertible Note (Details)
 6 Months Ended
Jan. 24, 2024
USD ($)
$ / shares
Oct. 06, 2023
$ / shares
Jun. 23, 2023
USD ($)
$ / shares
shares
Feb. 23, 2022
USD ($)
$ / shares
shares
Jun. 30, 2024
USD ($)
d
Repayment
Jun. 30, 2023
USD ($)
Dec. 31, 2023
USD ($)
Convertible Debt [Abstract]              
Long-term debt         $ 0   $ 637,000
Long-Term Debt, Rolling Maturity [Abstract]              
Threshold period for warrants exercisable         30 days    
Expected volatility     1        
Term of volatility period         100 days    
Amortization of debt discount         $ 702,000 $ 556,000  
Maximum number of monthly repayments | Repayment         2    
Minimum market capitalization requirement amount         $ 7,000,000    
Number of consecutive trading days         10 days    
Percentage of outstanding principal required to be prepaid         105.00%    
Maximum beneficial ownership percentage         50.00%    
Maximum percentage of beneficial ownership of outstanding shares of common stock         4.99%    
Minimum [Member]              
Long-Term Debt, Rolling Maturity [Abstract]              
Common stock share price (in dollars per share) | $ / shares     $ 10        
Maximum [Member]              
Long-Term Debt, Rolling Maturity [Abstract]              
Common stock share price (in dollars per share) | $ / shares     $ 10        
Indebtedness to be maintained in event of default to avoid triggering of default terms         $ 250,000    
Convertible Note [Member]              
Convertible Debt [Abstract]              
Total debt         $ 1,650,000    
Period for repayment of convertible note from issuance         180 days    
Long-Term Debt, Rolling Maturity [Abstract]              
July 1, 2024 through December 31, 2024         $ 900,000    
January 1, 2025 through June 30, 2025         750,000    
Total debt         $ 1,650,000    
Effective interest rate         68.60%    
Amortization of debt discount         $ 700,000 1,100,000  
Default charge           $ 500,000  
2022 Convertible Note [Member]              
Convertible Debt [Abstract]              
Purchase of warrant to acquire shares of common stock (in shares) | shares       128,373      
Convertible Note issued         5,750,000    
Debt discount         (750,000)    
Balance of Convertible Notes         4,782,000    
Additional OID costs not in original funds flow         (121,000)    
Allocated OID costs to Warrants         25,000    
Additional OID costs not in original funds flow         (660,000)    
Interest expense accrued on Convertible Note         3,265,000    
Principal and interest payments         (6,261,000)    
Balance of Convertible Note         0    
Funded Debt         $ 0   799,000
Long-Term Debt, Rolling Maturity [Abstract]              
Period for conversion         6 months    
Conversion price (in dollars per share) | $ / shares       $ 19.4      
Debt Instrument, Debt Default, Percentage         20.00%    
Maturity date         Feb. 29, 2024    
Conversion ratio       0.33      
Percentage of outstanding principal amount to become due         120.00%    
Percentage of volume-weighted average price       80.00%      
Average of trading days | d         3    
Number of trading days | d         20    
Exercise price (in dollars per share) | $ / shares       $ 19.4      
Fair value       $ 700,000      
Net proceeds from issuance of convertible note       $ 4,800,000      
2022 Convertible Note [Member] | Embedded Redemption Features [Member]              
Convertible Debt [Abstract]              
Fair value of Conversion Features on issuance         $ (306,000)    
2022 Convertible Note [Member] | Warrant Liability [Member]              
Convertible Debt [Abstract]              
Fair value of Warrant Liabilities on issuance         (724,000)    
2022 Convertible Note [Member] | Commitment Fee [Member]              
Convertible Debt [Abstract]              
Issuance cost         (175,000)    
2022 Convertible Note [Member] | Investor's Counsel Fees [Member]              
Convertible Debt [Abstract]              
Issuance cost         $ (43,000)    
Amended Convertible Note 2022 [Member]              
Convertible Debt [Abstract]              
Balance of Convertible Notes     $ 2,747,228        
A&R Note Amendment [Member]              
Long-Term Debt, Rolling Maturity [Abstract]              
Conversion price (in dollars per share) | $ / shares   $ 19.4          
Percentage of volume-weighted average price   85.00%          
Average of trading days | d         3    
Number of trading days | d         20    
Minimum market capitalization requirement amount         $ 7,000,000    
Number of consecutive trading days         10 days    
Note Amendment [Member]              
Long-Term Debt, Rolling Maturity [Abstract]              
Conversion price (in dollars per share) | $ / shares $ 5            
Percentage of volume-weighted average price 85.00%            
Average of trading days | d         3    
Number of trading days | d         20    
Minimum market capitalization requirement amount $ 7,000,000       $ 7,000,000    
Number of consecutive trading days         10 days    
2023 Convertible Note [Member]              
Convertible Debt [Abstract]              
Purchase of warrant to acquire shares of common stock (in shares) | shares     426,427        
Convertible Note issued     $ 1,800,000   $ 1,800,000    
Debt discount         (300,000)    
Balance of Convertible Notes     1,500,000   1,414,000    
Additional OID costs not in original funds flow         (15,000)    
Allocated OID costs to Warrants         30,000    
Additional OID costs not in original funds flow         660,000    
Interest expense accrued on Convertible Note         666,000    
Principal and interest payments         (150,000)    
Balance of Convertible Note         1,200,000    
Funded Debt         $ 1,650,000   1,800,000
Number of monthly payments | Repayment         12    
Monthly principal repayments     $ 150,000   $ 150,000    
Long-Term Debt, Rolling Maturity [Abstract]              
Period for conversion         1 year    
Conversion price (in dollars per share) | $ / shares     $ 5        
Conversion ratio         0.33    
Percentage of volume-weighted average price     90.00%   85.00%    
Average of trading days | d         5    
Number of trading days | d         20    
Exercise price (in dollars per share) | $ / shares     $ 5        
Debt instrument term         2 years    
Number of repayment shares issued and issuable (in shares) | shares     493,727        
Threshold period for shares available for resale         6 months    
Lowest trading days | d         3    
2023 Convertible Note [Member] | Embedded Redemption Features [Member]              
Convertible Debt [Abstract]              
Fair value of Conversion Features on issuance         $ (286,000)    
2023 Convertible Note [Member] | Warrant Liability [Member]              
Convertible Debt [Abstract]              
Fair value of Warrant Liabilities on issuance         (1,119,000)    
2023 Convertible Note [Member] | Commitment Fee [Member]              
Convertible Debt [Abstract]              
Issuance cost         (52,000)    
2023 Convertible Note [Member] | Investor's Counsel Fees [Member]              
Convertible Debt [Abstract]              
Issuance cost         (34,000)    
2023 Convertible Note [Member] | Payment One [Member]              
Convertible Debt [Abstract]              
Monthly principal repayments     $ 300,000        
2023 Convertible Note [Member] | Payment Two [Member]              
Convertible Debt [Abstract]              
Monthly principal repayments     $ 300,000        
Total Convertible Notes [Member]              
Convertible Debt [Abstract]              
Convertible Note issued         7,550,000    
Debt discount         (1,050,000)    
Balance of Convertible Notes         6,196,000    
Additional OID costs not in original funds flow         (136,000)    
Allocated OID costs to Warrants         55,000    
Additional OID costs not in original funds flow         0    
Interest expense accrued on Convertible Note         3,931,000    
Principal and interest payments         (6,411,000)    
Balance of Convertible Note         1,200,000    
Funded Debt         1,650,000   2,599,000
Less: Unamortized debt-issuance costs and discounts         (450,000)   (1,152,000)
Total debt         1,200,000   1,447,000
Less: Current portion of long-term debt         (1,200,000)   (810,000)
Long-term debt         0   637,000
Long-Term Debt, Rolling Maturity [Abstract]              
Total debt         1,200,000   $ 1,447,000
Total Convertible Notes [Member] | Embedded Redemption Features [Member]              
Convertible Debt [Abstract]              
Fair value of Conversion Features on issuance         (592,000)    
Total Convertible Notes [Member] | Warrant Liability [Member]              
Convertible Debt [Abstract]              
Fair value of Warrant Liabilities on issuance         (1,843,000)    
Total Convertible Notes [Member] | Commitment Fee [Member]              
Convertible Debt [Abstract]              
Issuance cost         (227,000)    
Total Convertible Notes [Member] | Investor's Counsel Fees [Member]              
Convertible Debt [Abstract]              
Issuance cost         $ (77,000)    
v3.24.2.u1
DEBT, Letter of Credit (Details) - Letter of Credit [Member]
$ in Millions
Jun. 30, 2024
USD ($)
Letter
Line of Credit Facility [Abstract]  
Number of letters of credit | Letter 4
Outstanding letter of credit balance | $ $ 1.1
v3.24.2.u1
REVENUE (Details)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
USD ($)
Jun. 30, 2023
USD ($)
Jun. 30, 2024
USD ($)
Stream
Jun. 30, 2023
USD ($)
Revenue by Segment and Type [Abstract]        
Number of distinct revenue streams | Stream     3  
Revenue $ 11,725 $ 12,387 $ 23,008 $ 23,260
Contract with Customer, Asset and Liability [Abstract]        
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period 1,709 1,255 2,688 3,105
Engineering [Member] | System Design and Build [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 2,011 2,139 4,138 3,609
Engineering [Member] | System Design and Build [Member] | Over Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 2,011 2,139 4,138 3,609
Engineering [Member] | Software and Support [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 1,180 1,100 2,046 2,289
Engineering [Member] | Software and Support [Member] | Point in Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 159 55 164 368
Engineering [Member] | Software and Support [Member] | Over Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 1,021 1,045 1,882 1,921
Engineering [Member] | Training and Consulting Services [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 6,140 5,805 11,876 10,088
Engineering [Member] | Training and Consulting Services [Member] | Point in Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 19 101 101 297
Engineering [Member] | Training and Consulting Services [Member] | Over Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 6,121 5,704 11,775 9,791
Workforce Solutions [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 2,394 3,343 4,948 7,274
Workforce Solutions [Member] | Training and Consulting Services [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 2,394 3,343 4,948 7,274
Workforce Solutions [Member] | Training and Consulting Services [Member] | Point in Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue 118 90 211 209
Workforce Solutions [Member] | Training and Consulting Services [Member] | Over Time [Member]        
Revenue by Segment and Type [Abstract]        
Revenue $ 2,276 $ 3,253 $ 4,737 $ 7,065
v3.24.2.u1
INCOME TAXES (Details)
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
INCOME TAXES [Abstract]        
Effective tax rate (13.60%) (1.90%) (5.20%) 0.20%
Statutory federal income tax rate 21.00% 21.00% 21.00% 21.00%
v3.24.2.u1
SEGMENT INFORMATION (Details)
$ in Thousands
 3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2024
USD ($)
Jun. 30, 2023
USD ($)
Jun. 30, 2024
USD ($)
Segment
Jun. 30, 2023
USD ($)
Dec. 31, 2023
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 $ 11,725 $ 12,387 $ 23,008 $ 23,260  
Gross profit 3,674 3,215 6,890 5,610  
Operating income (loss) 289 (776) (1,241) (3,559) $ (6,800)
Interest expense, net (258) (767) (717) (1,053)  
Change in fair value of derivative instruments, net (736) 171 (753) 240  
Other (loss) income, net (47) (98) 7 (88)  
Loss before income taxes (752) (1,470) (2,704) (4,460)  
Engineering [Member]          
Segment Reporting Information, Profit (Loss) [Abstract]          
Revenue 9,331 9,044 18,060 15,986  
Gross profit 3,282 2,742 6,187 4,622  
Operating income (loss) 311 (617) (1,087) (3,041)  
Workforce Solutions [Member]          
Segment Reporting Information, Profit (Loss) [Abstract]          
Revenue 2,394 3,343 4,948 7,274  
Gross profit 392 473 703 988  
Operating income (loss) $ (22) $ (159) $ (154) $ (518)  
v3.24.2.u1
COMMITMENTS AND CONTINGENCIES (Details)
$ in Thousands
 6 Months Ended 12 Months Ended 30 Months Ended
Oct. 30, 2023
USD ($)
Case
Jun. 30, 2024
USD ($)
Dec. 31, 2023
USD ($)
Jun. 08, 2023
Case
Employee
Litigation Settlement [Abstract]        
Number of former employees in subsidiaries that filed lawsuits | Employee       3
Number of cases filed | Case       3
Number of cases dismissed | Case 3      
Damages awarded value | $ $ 750      
Selling, General and Administrative Expenses [Member]        
Litigation Settlement [Abstract]        
Accrued litigation expenses | $   $ 529 $ 260  
v3.24.2.u1
SUBSEQUENT EVENTS (Details) - USD ($)
 6 Months Ended
Aug. 07, 2024
Jun. 30, 2024
Jun. 30, 2023
Aug. 08, 2024
Dec. 31, 2023
Jun. 23, 2023
Merger Agreement [Abstract]            
Common stock, par value (in dollars per share)   $ 0.01     $ 0.01  
Outstanding principal amount available for conversion   $ 312,000 $ 1,276,000      
Convertible Promissory Note 2023 [Member]            
Merger Agreement [Abstract]            
Senior notes, principal amount   1,800,000       $ 1,800,000
Convertible debt   $ 1,414,000       $ 1,500,000
Subsequent Event [Member] | Merger Agreement [Member]            
Merger Agreement [Abstract]            
Common stock, par value (in dollars per share)       $ 0.01    
Merger consideration for each issued and outstanding shares of common stock (in dollars per share)       $ 4.1    
Subsequent Event [Member] | Senior Secured Promissory Note [Member]            
Merger Agreement [Abstract]            
Senior notes, principal amount $ 1,398,447.5          
Interest rate 12.50%          
Accrued interest rate upon an event of default 14.50%          
Subsequent Event [Member] | Convertible Promissory Note 2023 [Member]            
Merger Agreement [Abstract]            
Number of shares issued upon repayment of debt (in shares) 114,976          
Outstanding principal amount available for conversion $ 314,000          
Convertible debt, disputed claim amount 360,000          
Convertible debt $ 180,000          
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