GSE Systems
Annual Report 2020

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GSE SYSTEMS INC FORM 10-K (Annual Report) Filed 04/13/21 for the Period Ending 12/31/20 Address Telephone CIK 6940 COLUMBIA GATEWAY DRIVE, SUITE 470 COLUMBIA, MD, 21046-3308 4109707874 0000944480 Symbol GVP SIC Code Industry Sector Fiscal Year 7372 - Services-Prepackaged Software IT Services & Consulting Technology 12/31 http://www.edgar-online.com © Copyright 2022, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of each class Trading Symbol(s) Name of each exchange on which registeredCommon Stock, $.001 Par Value GVP The NASDAQ Capital MarketSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements 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 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company”in Rule 12b-2 of the Exchange Act. (Check one):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 anynew 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 ☒The aggregate market value of Common Stock held by non-affiliates of the Registrant was $20,709,883 on June 30, 2020, the last business day of theRegistrant’s most recently completed second fiscal quarter, based on the closing price of such stock on that date of $1.01. The number of shares outstanding of the registrant’s Common Stock as of March 31, 2021 was 20,634,372 shares.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the SecuritiesExchange Act of 1934, as amended, are incorporated by reference into Part III. TABLE OF CONTENTSPART I PageItem 1.Business4Item 1A.Risk Factors17Item 1B.Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings27Item 4.Mine Safety Disclosures27 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities28Item 6.Selected Financial Data28Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations29Item 7A.Quantitative and Qualitative Disclosures About Market Risk42Item 8.Financial Statements and Supplementary Data42Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure86Item 9A.Controls and Procedures86Item 9B.Other Information87 PART III Item 10.Directors, Executive Officers and Corporate Governance*87Item 11.Executive Compensation*87Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*88Item 13.Certain Relationships and Related Transactions, and Director Independence*89Item 14.Principal Accountant Fees and Services*89 PART IV Item 15.Exhibits and Financial Statement Schedules89Item 16.Form 10-K Summary90 SIGNATURES94 Exhibits Index90*to be incorporated by reference from the Proxy Statement for the registrant’s 2021 Annual Meeting of Shareholders.2 Table of ContentsCAUTIONARY 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 Actof 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are based on management’s assumptions, expectationsand projections about us, and the industry within which we operate, and that have been made pursuant to the Private Securities Litigation Reform Act of 1995reflecting our expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Wherever possible, wordssuch as “anticipate”, “believe”, “continue”, “estimate”, “intend”, “may”, “plan”, “potential”, “predict”, “expect”, “should”, “will” and similar expressions, orthe negative of these terms or other comparable terminology, have been used to identify these forward-looking statements. These forward-looking statementsmay also use different phrases. These statements regarding our expectations reflect our current beliefs and are based on information currently available to us.Accordingly, these statements by their nature are subject to risks and uncertainties, including those listed under Item 1A Risk Factors, which could cause ouractual 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 ourforward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-lookingstatements we make. Except as otherwise required by federal securities law, we are not obligated to update or revise these forward looking statements to reflectnew events or circumstances. We caution you that a variety of factors, including but not limited to the factors described below and in Item 1A Risk Factors,could cause our business conditions and results to differ materially from what is contained in forward-looking statements: -changes in the rate of economic growth in the United States and other major international economies;-changes in investment by the nuclear and fossil electric utility industry, the chemical and petrochemical industries, or the U.S. military;-changes in the financial condition of our customers;-changes in the regulatory environment;-changes in political climate;-changes in project design or schedules;-contract cancellations;-changes in our estimates of costs to complete projects;-changes in trade, monetary and fiscal policies worldwide;-currency fluctuations;-war and/or terrorist attacks on facilities either owned by our customers or our company, or where equipment or services are or may be provided;-initiation, prosecution, or outcomes of future litigation;-protection and validity of our trademarks and other intellectual property rights;-increasing competition by foreign and domestic companies;-compliance with our debt covenants;-recoverability of claims against our customers and others;-changes in estimates used in our critical accounting policies; and-impact of the Novel Coronavirus (COVID-19), or other future pandemics, on the global economy and on our customers, suppliers, employees andbusiness. The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report on Form 10-K. Other factorsand assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to berealized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accuratelyand are generally beyond our control. You should consider the areas of risk described above and in Item 1A Risk Factors 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 areadvised, however, to consult any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q and current reports on Form 8-K filedwith the SEC. 3 Table of ContentsCompany Information Available on the Internet Our Internet address is www.gses.com. We make available free of charge through our Internet site our annual reports on Form 10-K; quarterly reports on Form10-Q; current reports on Form 8-K; proxy statements, and any amendment to those reports filed or furnished pursuant to the Exchange Act as soon asreasonably practicable after such material is electronically filed with, or furnished to, the SEC. PART I ITEM 1.BUSINESS. GSE Systems, Inc. (GSE Systems, GSE, the Company, we, us or our), a Nasdaq-listed company trading under the symbol GVP, is a leading provider ofengineering services and technology, expert staffing, and simulation software to clients in the power and process industries. We provide customers withsimulation, engineering technology, engineering and plant services that help clients reduce risks associated with operating their plants, increase revenuethrough improved plant and employee performance, and lower costs through improved operational efficiency. In addition, we provide professional services thatsystematically help clients fill key vacancies in the organization on a short-term basis, including but not limited to, the following: procedure writing, planning,scheduling; engineering; Senior Reactor Operator [SRO] training; various technical support and training personnel focused on regulatory compliance andcertification in the nuclear power industry. Our services help our customers provide clean energy to all in a reliable and safe manner. There is growing recognition of the importance of low and zerocarbon energy as the United States in particular, and the world in general, races to decarbonize power grids. GSE is uniquely positioned as one of the largestindependent nuclear services companies in the United States to support decarbonization of the power industry. In fact, the more wind and solar that comes ontothe grid, the greater zero carbon base-load becomes to ensure grid stability, reliability and safety. Decarbonization is a leading means of deliveringenvironmental equity – ensuring that anyone regardless of background and economic status can benefit from a safe and healthy environment, free of pollutionrelated to carbon intensive power generation. GSE operations also include interactive software for tutorials and simulation for the refining, chemical, andpetrochemical industries. We execute projects globally with approximately 332 employees, as of December 31, 2020. We operate from offices in the U.S. and China and with ouremployees deployed at client sites. While most of our revenue comes from the nuclear power market, we also serve agencies in the United States Departmentof Energy, United States Navy and adjacent defense opportunities, and the oil and gas, refining, chemical, and petrochemical markets. GSE Systems was formed on March 30, 1994, to consolidate the simulation and related businesses of General Physics International Engineering & Simulation,S3 Technologies, and EuroSim. The Company completed its Initial Public Offering in 1995. On November 14, 2014, we acquired Hyperspring, LLC (Hyperspring). Hyperspring is a nuclear industry expert staffing firm that employs highly skilled, high-value professionals primarily filling training and consulting positions on a contract basis for nuclear power plant operators. Hyperspring professionals providetraining, operations and maintenance support including: generic fundamentals exams (GFES), accreditation training visit (ATV) preparation, senior reactoroperator (SRO) certification, procedure development, work management, tagging/labeling, outage execution, planning/scheduling, corrective action, self-assessments and equipment reliability. Customers have included Entergy, TVA, PSEG Nuclear and First Energy, among others. On September 20, 2017, we acquired Absolute Consulting, Inc. (Absolute). Absolute is a provider of technical consulting and staffing solutions to the globalnuclear power industry with expertise in procedure writing, engineering, technical support, scheduling, planning, project management, training, projectcontrols, and corrective actions. Customers have included Entergy, Duke Energy, Vistra Energy and Southern Nuclear Operating Company, among others. On May 11, 2018, we acquired True North Consulting, LLC (True North). True North is a provider of engineering solutions to nuclear and non-nuclear powerplants with an emphasis on regulatory-driven ASME code programs. Customers have included Exelon, Entergy, Southern Nuclear Operating Company, andEPRI, among others. 4 Table of ContentsOn February 15, 2019, we acquired DP Engineering Ltd, Co, (DP Engineering). DP Engineering is a specialized provider of high-value engineering servicesand solutions to the nuclear power industry. Founded in 1995 in Fort Worth, Texas, DP Engineering generates over 90% of its revenue from the nuclear powerindustry with core expertise in: mechanical design; civil/structural design; electrical, instrumentation and controls design; digital controls/cyber security; andfire protection. DP Engineering primarily works under master service agreements as the Engineer of Choice (EOC). Customers have included Entergy, Fluor,Talen Energy Services, and Vistra Energy, among others. Renewed Focus for 2021 Early in 2020 as the COVID-19 unfolded, the end markets that GSE serves, namely the power industries, delayed the essential services it could anddramatically cut back on non-essential services. Although this impacted GSE, as an essential services provider to an essential industrial base, GSE benefitedfrom maintaining a baseline of business to continue and align itself to the realities of the pandemic. As GSE enters 2021, the effects of the pandemic are stillimpacting the end markets we serve, but those effects may be mitigated for a number of factors, including the following: the pandemic largely has had atargeted effect on the population; there now are number of vaccines in the market being distributed and, despite logistical challenges, making solid progress forthose in most need; the economy of the United States has not had as much disruption as was initially feared which has benefited our end markets; and mostimportantly the end markets of GSE seem poised to spend to catch up on essential services that had been delayed as a result of the pandemic. As GSE ended2020 and began 2021, we have had a number of significant contract wins that have been publicly announced, which we hope is a harbinger of a more solid2021 business environment.As we look ahead to 2021 and beyond, with a new administration in the United States, there is renewed focus on decarbonizing the power sector, which isrecognized as a key means in achieving environmental equity. The new administration is in the process of rejoining the Paris climate accord, has spoken insupport of zero carbon power sources such as nuclear, and has spoken of increased public spending in support of the industry and related industries.Management feels that GSE is well positioned as one of the largest independent businesses focused on services supporting decarbonization to benefit fromthese significant developments in the economy and governing policy. In light of these emerging policies, there has been significant increase in the public awareness of the essential requirement that nuclear be a big part of the gridto achieve zero carbon goals. In an article early in 2020, Yale360.com highlighted the potential of new generation Small Module Reactors (“SMR’s”) in drivingthe achievement of a zero-carbon grid. Nuclear, especially SMR’s, are recognized for their potential to replace carbon intensive power generation whilemaintaining a smaller footprint than existing coal plants. In February 2021, the Montana State Senate approved a feasibility study to evaluate replacing coalfired power generation with SMR’s at the Colstrip power plant. This is an exciting development for decarbonization. The benefits of SMR’s are also noted as akey element to restore ecological systems while simultaneously maintaining zero carbon power generation. Idaho GOP Rep. Mike Simpson has proposed asweeping $33.5 billion plan to save the Pacific Northwest’s iconic salmon that includes breaching four of the most controversial dams in the country. Thepower generation of the dams would be replaced by building SMR’s as part of this plan. The massive infrastructure bill under consideration by the USgovernment, has all eyes on investments to decarbonize the power sector.Branding GSE Systems, Inc. remains the legal name of the parent company, publicly traded on Nasdaq under the ticker symbol “GVP”; GSE operations and marketinguses the more distinct trademark “GSE Solutions” as a way to communicate the fact that GSE’s specialized business units help customers reduce risk andoptimize performance through unique solutions, a centralized project approach, expert resource management, and a culture of continuous improvement to drivedecarbonization of the power industry. Operating Segments We operate through two reportable business segments: Performance Improvement Solutions and Nuclear Industry Training and Consulting. Each segmentfocuses on delivering solutions to customers within our target markets. Marketing and communications, accounting, finance, legal, human resources, corporatedevelopment, information systems and other administrative services are organized at the corporate level. Business development and sales resources aregenerally 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: 5 Table of ContentsPerformance Improvement Solutions (approximately 57.0% of revenue) Our Performance Improvement Solutions segment primarily encompasses our power plant high-fidelity simulation solutions, technical engineering services forASME programs, power plant thermal performance optimization, and interactive computer based tutorials/simulation focused on the process industry. ThePerformance Solutions segment includes various simulation products, engineering services, and operation training systems delivered across the industries weserve: primarily nuclear and fossil fuel power generation and the process industries. Our simulation solutions include the following: (1) simulation software andservices, including operator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for thefossil power industry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems tonewly hired employees and for ongoing workforce development and training. GSE and its predecessors have been providing these services since 1976. Our engineering solutions include the following: (1) in-service testing for engineering programs focused on ASME OM code including Appendix J, balance ofplant 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 powerplant design modifications. Our GSE True North Consulting and GSE DP Engineering businesses typically work as either the engineer of choice or specialtyengineer of choice for our clients under master services agreements and are included in our Performance Improvement Solutions segment due to their serviceofferings. GSE has been providing these engineering solutions and services since 1995. Nuclear Industry Training and Consulting (approximately 43.0% of revenue) Nuclear Industry Training and Consulting provides highly specialized and skilled nuclear operations instructors, procedure writers, technical engineers, andother consultants to the nuclear power industry. These employees work at our clients’ facilities under client direction. Examples of these highly skilledpositions are senior reactor operations instructors, procedure writers, project managers, work management specialists, planners and training materialdevelopers. This business is managed through Hyperspring and Absolute subsidiaries. The business model, management focus, margins and other factorsclearly separate the business line from the rest of the Company’s product and service portfolio. GSE has been providing these services since 1997. Financial information is provided in Note 20 of the accompanying consolidated financial statements regarding our business segments and geographicoperations and revenue. Business Strategy, Industry Trends, Products and Services Business Strategy Serve existing customers and adjacencies with compelling solutions, with a focus on decarbonization:Our objective has been to create a leading business focused on decarbonizing the power industries by providing a diverse set of highly unique and essentialservices and technologies. GSE is now one of the leading, publicly traded engineering and technology companies serving the zero-carbon energy sector ofnuclear power and adjacent nuclear markets in DOE, US Navy and related defense sectors. As a result of this effort and established leadership position in keysectors, GSE is positioned to expand into essential clean energy opportunities that may arise such as wind, solar, hydrogen production, and others. In 2021, wewill focus 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 ourcustomers in a manner of excellence; create new and compelling solutions in-house as a result of advancing our technology offerings in sponsorship withindustry early adopters focused on critical business need; develop new services as a result of combining the expertise of the Company; expand into compellingadjacent markets such as clean energy as they may arise with renewed sales focus.6 Table of ContentsCross sell and upsell into existing markets: GSE has spent the past several years conducting a rollup of essential services providers to the industry. To ensure efficient and streamlined operations for thebusiness, the Company has brought all of the engineering services together into one organization with one leader; and the NITC teams together as one teamunder one leader. The business units operating uniformly within their respective structure. As such, the opportunity to cross-sell the capabilities across theentire customer base is greatly enhanced. This further differentiates GSE as a unique provider to industry vs. providers of specific niche services. The unifiedgo-to-market efforts, such as cross-selling capability should lead to greater share of available spending within the customer base, which in turn should lead tosignificant upselling opportunity. As a result of a rejuvenated marketing effort, the Company is equipped to take this new approach to market. In particular,with the US government rejoining the Paris Climate Agreement and driving to decarbonize the energy grid by 2035, and create a carbon neutral economy by2050, decarbonization of the energy sector will require significant investment for decades to come. As a key provider of essential services to the power sector,with a focus on decarbonization, GSE is poised to benefit from and exploit this investment. Organic growth through new and compelling technology: While the company was managing through the pandemic, in parallel the leadership was working to investigate compelling opportunities by which newofferings that uniquely result from the combination of capabilities across GSE could create significant value for the industry and advance the efforts ofdecarbonizing the power sector. As a result, the Company has identified a robust pipeline of new and compelling technology solutions to develop and take tomarket. Net new solutions would create new revenue streams with the potential of on-going annuities through license revenue, software maintenance andservices revenue. As the Company has demonstrated in the past few years, small wins over time accrue into meaningful revenue on an on-going basis. This is akey 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 thehigh-end expertise of our experienced staff in helping plants operate better and more efficiently. Our software technology together with our deep staff expertisesupports multiple industries including the nuclear industry, as a part of the larger decarbonization drive. GSE’s software technology includes decision-supporttools for engineering simulation supporting design and plant commissioning, operational performance tools, and training platform.One area of significant recent enhancement is in improving the thermal performance of power plants. We have introduced the next generation platform in TSMEnterprise, providing the technology solution to centralize and continuously monitor plant thermal performance. The solution benefits our customers byautomating standardized reporting in modern dashboards available to engineers and decision makers across the fleet, leverage automation to facilitatetroubleshooting 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 Data Validation and Reconciliation (DVR) (implemented by GSE’s True North division) that enhances the qualityof data for analysis and decision making, providing a solution to better detect and identify faulty measurements/sensors and thus reduce maintenance costs byfocusing on critical components.In the area of engineering simulations, we deliver nuclear core and Balance-of-Plant modeling and visualization systems to the industry. To address the nuclearindustry’s need for more accurate simulation of both normal and accident scenarios, we provide our DesignEP® and RELAP5-HD® solutions. Our entireJADETM 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® andOpenSimTM platforms enables customers to be more efficient in the daily operation of their simulators. We have brought SimExec® and OpenSimTM togetherinto a next generation unified environment that adds new capabilities as requested by clients and driven by market need.We intend to continue to make pragmatic and measured investments in R&D that first and foremost are driven by the market and complement our growthstrategy. 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 targetmarkets, ensuring that we add greater value that is easier to use, at lower total cost of ownership than any alternative available to customers. GSE has pioneereda number of industry standards and intends to continue to be one of the most innovative companies in our industry. During the years ended December 31, 2020and 2019, we have made R&D investments totaling $1.0 million and $1.1 million, respectively. 7 Table of Contents- Strengthen and develop our talent while delivering high-quality solutions. Over the past several years GSE has assembled a unique and highly experiencedgroup of talent through organic growth and strategic acquisition. Our Engineering team comprised of design, simulation, regulatory compliance, andperformance optimization capabilities are unique to the industry and capable of addressing the entire power generation life cycle.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 increaseclient 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 thecritical areas listed above, we will also integrate and apply our composite employee talent to the fullest extent possible combining employee personal andprofessional 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.We have developed a strong reputation for quality services based upon our industry-recognized depth of experience, ability to attract and retain qualityprofessionals, and exceptional expertise across multiple service sectors. As we continue to integrate and leverage our individual company componentsassembled over the past several years, our capabilities and reputation will further strengthen. Industry Trends - Industry need to build and sustain a highly skilled workforce We believe a critical ongoing challenge facing the industries we serve is access to, and continued development of, a highly trained and efficient workforce. Thischallenge manifests primarily in two ways: the increasing pace at which industry knowledge and experience are lost as a significant percentage of the existingexperienced workforce reaches retirement age; and the fact that as new power plants come on-line, there is an increased demand for more workers to staff andoperate those plants. In the United States, the energy industry is expected to lose a large percentage of its workforce within the next few years as baby boomers retire on thetraditional schedule. For example, Power Engineering reported that the power sector needs more than 100,000 skilled workers within the next few years toreplace retiring baby boomers. Electric, Light, and Power reported that 72% of energy employers currently struggle to find quality candidates and fill openpositions. The National Electrical Contractors Association reported that 7,000 electricians join the field each year, while 10,000 retire. Finally, the NuclearEnergy Institute estimated that 39% of the nuclear workforce were eligible to retire in the next few years. As the nuclear industry continues to operate andmodernizes its fleet and strains to maintain the high standards of training for the existing workforce, existing plant simulator systems, which provide a criticalenvironment for training services, are often operating 24 hours a day. As workers retire and the need to backfill as well as expand the workforce for new units,certain operators are exploring the opportunity to de-bottleneck their existing simulator capabilities through the creation of dual reference simulators. Otherworkforce shortages and/or short-term spikes in demand for specialist skills that we offer similarly are positive developments for our business. Further, as newnuclear technologies are researched and developed, such as new reactors and new fuels, the R&D industry needs to identify the right talent to advance thoseendeavors. Our business is uniquely positioned to identify and provide solutions that offer the best personnel for both short and long-term assignments. Globally, as more people increase their standard of living, there is an expectation that their demand for power will increase, which in turn will require the on-going construction of power plants to meet this surging demand. The drive to lower carbon emissions from power generation while ensuring a stable baseloadto accommodate intermittent energy sources such as wind and solar power brings focus on the essential nature of nuclear power. Developing a skilled laborforce to operate these plants and keeping their skills current and their certifications in compliance with regulatory requirements is a key challenge facing theglobal power industry. - Status of decarbonization nuclear power in 2020/2021 According to World Energy Outlook report, 2019 had the second highest energy generation year for nuclear in history. By 2030, nuclear is planned to increasein generation capacity from roughly 400 GW to roughly 450 GW. Most new plants will be built in developing economies such as China and India, andadvanced economies will invest to extend the lifetimes and increase the output of remaining nuclear reactors to bridge the gap to a new generation of reactorsunder development. 8 Table of ContentsDecarbonizing the power sector is a key focus for advanced and developing nations. As a critical part of zero carbon clean energy, nuclear energy ensuresaccess to abundant, clean, reliable and affordable energy to all who can connect to the grid, no matter a person’s background or status. To combat climatechange and the pollution of the atmosphere, nuclear is a key element to decarbonizing the power sector across the world. As more variable sources of powercome on to the grid, such as wind and solar, ensuring a stable grid requires baseload, and nuclear is the essential source of economically scalable carbon freebaseload. As such, nuclear, wind and solar are tied together in the massive effort to decarbonize economies the world over. Nuclear provides 10% of the world’s power, and 20% of power for the United States. President Biden is on record indicating a desire to decarbonize the USpower sector by 2035 and achieve a carbon neutral grid by 2050. To support this effort, the Department of Energy has made significant investment in thedevelopment of next generation zero carbon energy production through the development of advanced reactors and/or small modular reactors from Terra Power,X-Energy, NuScale and others.These reactors are quickly becoming realty, with a January 2021 announcement of an agreement to facilitate the development of a project proposal for aNuScale designed plant to be built at the Unites States Department of Energy [DOE] Idaho National Laboratory grounds. Engineering, procurement andconstruction firm Fluor will provide its services for Utah Associated Municipal Power Systems’ [UAMPS] Carbon-Free Power Project. The project includesplans for nuclear energy featuring NuScale’s small modular reactor design. NuScale has been a long-time customer of GSE, using our simulation technologyand engineering services to enhance the reactor design, operations and accelerate NRC licensing efforts. In addition to the NuScale plans, HOLTEC, anotherfirm with SMR technology, is studying the feasibility of building an SMR facility in New Jersey at the Oyster Creek site of a decommissioned traditionalnuclear power plant. The SMR momentum is noted in the mainstream press. The Wall Street journal notes the significant plans for SMR’s being developed in the United States andelsewhere at an accelerated clip. In addition to the plants currently planned, as mentioned earlier in this document, proponents of SMR’s, see them as acomplementary role in the smart grid of the future—replacing coal- and gas-fired plants and operating alongside wind and solar. All of this is part of a broader effort for decarbonization that GSE, through the aforementioned strategies, plans to exploit for organic growth.Products and Services - Performance Improvement Solutions Our engineering team, comprised of design, simulation, regulatory compliance, and performance optimization capabilities are unique to the industry andcapable of addressing the entire power generation life cycle. As we move forward in alignment with client and industry goals targeting clean energy productionand overall decarbonization we are positioned to be at the forefront in three critical areas:•optimization of existing generation assets•design support and deployment of advanced reactor designs•integration with renewable power sourcesOptimizing Existing Generation AssetsAs the existing fleet of nuclear reactors age and competitive pressures increase, we find ever increasing significance in being able to provide value to theircontinued operation. Maximizing power production through a variety of methods such as digital verification and reconciliation, a statistical based analysisused to lower uncertainty, and thus increase recognized power output is instrumental in helping these facilities face current competitive pressures. Otherapproaches involving safe reduction of testing and inspection requirements or performance periodicities are also at the forefront of our cost saving techniqueswith defined services and products providing a clear and positive return on investment. In all cases these efforts are aligned with keeping this important sourceof carbon free base power economically and technically viable.9 Table of ContentsAdvanced Reactor Designs & Deployment Designers of first-of-a-kind plants or existing plants need a highly accurate dynamic simulation platform to model a wide variety of design assumptions andconcepts from control strategies to plant behavior to human factors. Because new builds and upgrades to existing plants result in deployment of newtechnology, often involving the integration of disparate technologies for the first time, a high-fidelity simulator enables designers to model the interactionbetween systems in advance of construction. With our combination of simulation technology and expert engineering, GSE was chosen to build first-of-a-kindsimulators for the AP1000, PBMR, and small modular reactors such as those being built by NuScale. Going forward we also envision many of theoptimization techniques and strategies currently emphasized for the existing reactor fleet incorporated with new-build prototypes as they begin to add value andassume a larger component of our clean, carbon free, power requirements.Renewable Integration A significant component of overall decarbonization regarding power generation will ultimately fall to renewable sources such as wind, solar, and hydrogeneration. These technologies are individually well on their way towards assuming a significant share of the overall generation make-up and are expected tosignificantly increase. One of the particular needs is the ability to safely and efficiently integrate these renewable sources with our existing and planned nucleargeneration. We are on the cutting edge, working closely with academia and industry support organizations to design, model, and evaluate creative approachesto support this integration. Base load production, renewable availability, and other pertinent factors are at the core of the solutions we are exploring.Engineering Solutions for Decarbonization With overall decarbonization as our primary focus, we will blend our current and future efforts in those areas described above to best support that goalpositioning our Engineering team as recognized leaders in the pursuit of Clean Energy. An overview highlighting many areas of our current and plannedinvolvement as well as the associated benefits is summarized below:With nuclear power being such a high percentage of carbon free power generation, the continued safe and efficient operation of these plants is critical tomeeting decarbonization goals. We help the industry achieve these goals through better training and provide engineering services to optimize performancewhile maintaining regulatory compliance. Our focus is on products and services to improve the efficiency and lower operating costs for existing powergeneration assets as well as help the next generation of carbon free power plants achieve design approval and plant startup as quickly as possible.Training plant operators and engineers is critical to safe operations and continued viability of the industry. Using state-of-the-art modeling tools combined withour leading nuclear power modeling expertise, GSE provides simulation solutions that achieve unparalleled fidelity and accuracy. We have also adapted thesesolutions to provide highly accurate training across a variety of delivery platforms. These include universal or generic simulators which are excellent inteaching fundamental concepts, systems, and plant behaviors. They are also used by academia for research on improved plant operations, human factors designand the development of automated procedures and decision support systems for the next generation of reactors. Our part task simulators and virtual controlpanels are cost effective solutions enabling customers broader freedom in where they deliver simulation training and opening the door for plant engineers andmaintenance staff to access high fidelity training without interrupting the operator training program. Our full scope simulators use the most sophisticatedmodeling technology. For these reasons, GSE has delivered more nuclear power plant simulators than any other company in the world.Even prior to the COVID pandemic, GSE had delivered training products though the cloud. This delivery method reduces our customers infrastructure andownership costs and provides anytime, anywhere access to rich learning content. Innovative Critical Thinking Exercises enable autonomous simulation trainingto take place, reducing the burden on instructors and increasing training touch time for students and employees. All of which enabling the training organizationto be more flexible and efficient.10 Table of ContentsGSE’s simulation solutions not only address industry training needs, but are used for Simulation Assisted Engineering, the process of using simulation tovirtually test and commission plant designs prior to construction. Because new builds and upgrades to existing plants result in deployment of new technology,GSE’s high-fidelity simulator enables designers to model the interaction between systems in advance of construction. With our combination of simulationtechnology and expert engineering, GSE was chosen to build first-of-a-kind simulators for the AP1000, PBMR, and small modular reactors such as those beingbuilt by NuScale. This technique reduces design costs, accelerates design approvals, de-risks projects, and provides clients with a tool to sell their new plantdesigns to both customers and regulators. In essence, enabling our customers to get to market faster.Beyond training, GSE technology is used to improve the efficiency of existing power generation assets. Our Thermal System Monitoring System provide liveinsights into plant operations, by monitoring performance of key plant equipment, analyzes degradation and advises actions to be taken. When combined withData Validation and Reconciliation techniques, GSE can help reduce operating and maintenance cost. DVR enhances the quality of data for analysis anddecision making, providing a solution to better detect and identify faulty measurements/sensors and thus reduce maintenance costs by focusing on criticalcomponents.Our EP-Plus software suite provides one common platform for all Engineering Programs, helping client engineers keep track of Engineering Programinspection and monitoring requirements aimed at safe plant operations. This reduces the engineering workload of our customers, saving costs and enabling staffto focus on the most critical activities.All of these technologies leverage the vast experience and industry expertise of GSE’s engineering organization. Our Engineering team helps our clientsthroughout the entire plant lifecycle. GSE is the engineer of choice in areas such as:•Design engineering for plant mechanical, electrical, I&C, civil and structural, fire protection and cyber systems•Engineering Programs addressing ASME codes, balance of plant programs other regulatory programs and economic driven programs such as plantthermal performance•Simulation engineering for nuclear, thermal and process plant training and virtual commissioningWe see organic growth through closer integration of these engineering activities and technologies to provide solutions to improve the performance of ourcustomers’ people and plants. - Workforce Solutions: Nuclear Industry Training and Consulting As our customers’ experienced employees retire, access to industry experts to operate and train existing and new employees how to operate nuclear plants isessential to ensure safe, ongoing plant operation. In addition, operating and training needs change over time and sometimes our clients require fixed priced,discrete projects or specialized courses in contrast to straight staff augmentation. The industry needs operating personnel, including procedure writers,engineers, operators and instructors who can step in and use, as well as, update the client’s operating methods, procedures, training material and more. Findingtechnical professionals and instructors, who know the subject, can perform the work or teach it to others and can adapt to the client’s culture is critical. GSEprovides qualified professionals, instructors and turnkey projects/courses that work within the client’s system and complement the operating or trainingmethods they already have in place. Examples of our training program courses include senior reactor operator certification, generic fundamentals training, andsimulation supervisor training. GSE also provides expert support through workforce solutions, consulting, or turnkey projects for procedure writing, technicalengineers, project managers, training material upgrade and development, outage execution, planning and scheduling, corrective actions programs, andequipment reliability. Our workforce solutions include traditional staffing services, such as temporary and direct hire, as well as customized approaches inwhich we work with our customers to evaluate their specific needs and put together a strategic plan specifically to meet their unique needs. Workforce solutionsis not only a complement to our other service offerings; it often leads the way as the preferred method for many of our clients to execute entire projects and/orsupplement their own staff during project peak periods or with specialized skill sets that are often hard to find. Our staffing experts give our customers theability to ramp up quickly, eliminate risks, and provide more flexible options as situations often demand.11 Table of ContentsIn addition to the core training and staffing business lines in the nuclear sector, we have significant organic growth opportunity with our workforce solutionsand consulting services by expanding our service offerings to meet the evolving needs of the energy industry as well as other opportunities that supportdecarbonization and major infrastructure projects. Due to the experience within our team, we are already well positioned to offer expanded workforcesolutions through our existing relationships and industry knowledge. This growth is occurring both with existing and new customers. We are placing a greateremphasis on cross-selling the services offered by our NITC organization with our Engineering and Performance group. NITC is expanding our footprint withcompanies dedicated to the support of decarbonization, and we have already been awarded contracts to support engineering, manufacturing, and constructionprojects with companies focused on clean energy solutions. Further the U.S. government has already announced intentions to increase spending in key areassuch as communication, clean energy, manufacturing, transportation, and environmental projects. We anticipated these developments and have made key hiresto better position GSE to support those opportunities. As the pandemic has shown, we must also be able to adapt quickly to evolving staffing needs. This hascertainly been demonstrated with companies adjusting and allowing more employees to work from home. Our workforce solutions offer our customers moreflexibility to support ever changing needs. This flexibility combined with our ability to support all of these areas position GSE both for current and futurestaffing needs.We recognize the necessity to listen to the needs of our customers and provide the right solution. Whether the answer is one of our traditional service offeringsor putting together a customized approach, we have the capabilities to help our customers get the job done. We  bring together the collection of skills we haveamassed over more than 40 years beginning with its traditional roots in custom high-fidelity simulation and training solutions for the power industries,extended through the acquisition of specialized engineering capabilities, enhanced by the entry and intermediate level training solutions of EnVision, backed bythe extensive nuclear industry training and consulting services of Absolute and Hyperspring, and now strengthened by our ability to successfully adapt,diversify, and offer a solutions based approach with our workforce solutions.Customer and LocationsFor almost 50 years, we have been developing next-generation, custom training simulation technologies. Since we built the first commercial full-scope nuclearpower plant simulator in 1971, we have completed more than 1,100 installations across the power and process industries in 50 countries.In 2020, approximately 17.0% of our revenue was generated from end-users outside the United States and we have a concentration of revenue from oneindividual customers, which accounted for 14.1% of our consolidated revenue, respectively. A small representative list of our customer base includes: ABBInc., American Electric Power, Bechtel Hanford National Laboratory, Duke Energy, EDF Energy (United Kingdom), Emerson Process Management, EntergyNuclear Operations Inc, Exelon, PSEG Nuclear, Inc., Siemens AG (Germany), Southern Nuclear Operating Company, Inc., State Nuclear Power AutomationSystem Engineering Company (China), Savannah River Nuclear Solutions, LLC, Slovenkse Elektrarne, A.S. (Slovakia), Tennessee Valley Authority, andWestinghouse Electric Co.Hydrocarbon and chemical process customers include numerous large oil refineries and chemical plants such as BP (worldwide), Statoil ASA (Norway),Chevron,, Shell Oil Company (worldwide), Total (Belgium), and Valero (USA). Marketing and Sales We market our products and services through a network of direct sales staff, agents and representatives, and strategic alliance partners. Market-orientedbusiness and customer account teams define and implement specific campaigns to pursue opportunities. We continue to have a proactive public relations program, issuing non-financial press releases to announce product development and significant deliveries, aswell as our presence at numerous industry trade shows and technical conferences. We are active on numerous social media platforms and strive to build astrong presence across all media that our clients use to find information about the Company. Our goal is to provide useful information at each stage of theclient’s journey with the Company. The Company’s ability to support its multi-facility, international, and multinational clients is facilitated by its network of offices and strategic partners in theU.S. and overseas. In addition to its office located in China, the Company’s ability to conduct international business is enhanced by its multilingual andmulticultural workforce. GSE has strategic relationships with system integrators and agents representing its interests in Bulgaria, Japan, Malaysia, Singapore,South Korea, Taiwan, Ukraine and various locations in the Gulf Coast Countries of the Middle East. 12 Table of ContentsCompetition In the nuclear simulation market, we compete directly with firms primarily from Canada, France and the U.S., such as L-3 MAPPS Inc., a subsidiary of Harris(Canada), CORYS T.E.S.S (France) and Western Services Corporation. In the fossil simulation market, the Company competes with smaller companies in theU.S. and overseas. In the process industry our main competition comes from large digital control system/automation companies such as Honeywell andSchneider. In our engineering market, we compete with firms primarily from North America such as Enercon Services, Kinectrics, Sargent & Lundy, andAECOM. The Nuclear Industry Training and Consulting business services include technical professional and training-related and services as well as staff augmentationsolutions. The competition for these services includes but is not limited to the following: GP Strategies, The Westwind Group, Professional TrainingTechnologies, and Western Technical Services. The competition for staff augmentation includes: System One, Aerotek, and Peak Technical. Competition withstaff augmentation is further impacted by wide scale industry consolidation as a result of the growing movement toward use of Managed Staffing Providers(MSPs). As some competitors, such as Allied Technical, have been forced to close their doors, others have lost market share with the MSP model as it hasshown a clearer picture of which companies can best deliver. NITC has continuously found success with the MSP models and avoided the missteps that haveimpacted other competitors. Competitive Advantages Although there is competition in various industry niches, few companies in our space compare to our engineering, simulation and performance optimizationexpertise, especially for the nuclear power industry. Few of our competitors serve the broader performance improvement market and few work across the fullspectrum of energy markets addressing clean energy sources and decarbonization initiatives, specifically, existing nuclear generation, advanced reactorapplications, and ongoing integration with renewable power sources. Our unique combination of talent and expertise, built through organic and acquisition-based growth has positioned us perfectly to align with the clean energy initiatives of our clients and the industry at large.Full Spectrum Support. Over the past several years GSE has assembled a unique and highly experienced group of talent through organic growth and strategicacquisition. Our Engineering team comprised of design, simulation, regulatory compliance, and performance optimization capabilities are unique to theindustry and capable of addressing the entire power generation life cycle. A major and ongoing attribute associated with this unique grouping of expertise is ourmulti-tiered approach aimed at leveraging the aggregate strengths and abilities of our resource components towards maximizing client and shareholder value.This centers on the following key areas:•Retain and strengthen our “Base” revenue through optimization of current capabilities and established client relationships.•Integrate our product and service areas to provide more comprehensive or enhanced solutions when internal or external value can be identified.•Explore, evaluate, and develop new collaborative service areas, products, and solutions closely aligned with internal core strengths, client goals, andoverall industry clean power initiatives.Base Revenue and Strategic Integration. We will continue to build upon what has historically worked well for our Engineering Service Areas maintaining ourclient connections through efforts that provide a clear and immediate return such as optimized power generation and efforts that reduce or extend testing andinspection requirements. In parallel we are aggressively evaluating ways to integrate and package our design, simulation, and plant performance componentsto further enhance client benefit. In many cases this is structured with our historical base scope of supply proposed as the stand-alone foundation with optionalscopes included to deliver a more integrated comprehensive solution if desired.New Product / Service Areas. A dedicated, strategically focused exercise centered on evaluation of core capabilities, potential adjacencies, client needs, andindustry direction has resulted in several new product or service initiatives within our Engineering group. Further development, expansion, and application ofexisting product lines and associated services have moved to the forefront of this effort with the added benefit of minimizing engineering and informationtechnology level of effort while maintaining very high client benefit. Additional competitive advantage are also present through client contracts which helpfund the R&D components of the initiatives. 13 Table of ContentsProprietary Software Tools. We developed a library of proprietary software tools including auto-code generators and first principles-based system models thatsubstantially improve and expedite the design, production and integration, testing and modification of software and systems. These tools are used toautomatically generate the computer code and systems models required for specific functions commonly used in simulation applications, thereby enabling theCompany or its customers to develop repeatable high-fidelity, real-time software quickly, accurately and at lower costs. The Company also has an expertiseintegrating third-party engineering codes into the Company’s simulation environment, thereby offering some of the most sophisticated technical solutions in themarket. The Company has a substantial library of Process-Specific Simulation models and eLearning Modules aimed at the oil and gas, refining and specialtychemicals markets. Lastly, our Thermal System Monitoring (TSM) platform is being used as a plant performance reporting tool and as the graphical userinterface for our digital validation and reconciliation (DVR) service initiatives which provide high value client return through power recovery and otheroptimization strategies. This platform also serves as the foundation for our new product service initiatives with numerous optional modules and applicationsunder consideration. Performance Expertise. We are a leading innovator and developer of engineering directed solutions for the power generation industry. Our design, simulation,and plant performance resources are fully engaged with industry developments and client requirements routinely providing answers to our clients most pressingneeds. Design modifications addressing base generation usage for nuclear facilities, optimization of power production through innovative statistical analysis,and real-time simulation software producing high-fidelity, real-time plant simulation are representative examples. As of December 31, 2020, the Companyemployed a highly educated and experienced multinational workforce of approximately 332 employees, including approximately 141 engineers and scientistsin fields such as nuclear, chemical, mechanical and electrical engineering, applied mathematics and computer sciences, and approximately 118 instructors andplant operations staff specialists. Unique Combination of Talent. Few in our market space brings together the sophistication of simulation technology with the engineering expertise, trainingexpertise and plant performance expertise to provide the holistic people and plant performance improvement solutions as well as we do. Reputation for Customer Satisfaction. As part of its ISO-9001:2015 Quality Program Certification, GSE measures customer satisfaction across numerousfactors such as On-Time Delivery, Problem Solving, and Customer Communication. In each category measured we routinely exceed customer expectations. Training Curricula. The Company has developed hundreds of detailed courses and simulator exercise material and specific industrial applications including oiland gas refining, gas-oil production, nuclear and combined cycle gas turbine power plant and desalination. Our Nuclear Industry Training and Consulting business is mostly focused on training and operations support. Our trainers and consultants provide their servicesat customer facilities which allows us to interface with our customers directly in the course of doing business versus only periodically calling on customers.Our proximity gives us a significant competitive advantage in that we can immediately offer and implement solutions rather than contending with lengthy bidprocesses. Intellectual Property. The Company depends upon its intellectual property rights in its proprietary technologies and in its distinctive trade and service marks. GSE maintains aportfolio of: trademarks and servicemarks (both registered and unregistered) on its logos, product and service names, and other elements of trade dress;copyrights (both registered and unregistered) on written materials including software code, manuals, and other creative works; trade secret protections on itsproprietary technologies and methodologies; and licenses from third parties to use and commercially exploit other protected intellectual property. While suchtrademarks, copyrights, trade secrets, and inbound licenses as a group are of material importance to the Company, we do not consider any one trademark,copyright, trade secret, or license to be of such importance that the loss or expiration thereof would materially affect the Company. GSE distributes its softwareproducts under software license agreements that grant customers nonexclusive and nontransferable licenses for the use of the products. Usage of GSE’slicensed on-premise software is restricted to designated computers at specified sites, unless the customer obtains a site-wide license for its use of the software.GSE software products delivered as a service (SaaS) over the Internet also contain customer verifications and usage limitations. The Company employs notonly software and hardware security measures to prevent unauthorized use of its software, but also detailed contractual terms and limitations within its licenseand service agreements to prohibit unauthorized usage or reproduction. GSE offers its customers both perpetual software licenses with unlimited duration (aslong as the customer complies with the license terms) and term-limited software licenses and usage agreements. 14 Table of ContentsThe Company does not own any patents. The Company believes that all of the Company’s trademarks are valid and will have an unlimited duration as long asthey are adequately protected and sufficiently used. GSE has numerous registered U.S. trademarks, including: GSE Systems®, JTOPMERET®, RELAP5-HD®, TOTALVISION®, VPanel® and SimExec®. GSE believes that its international trademark protection is adequate to its business needs. The Companyalso claims trademark rights to DesignEP™, Java Application and Development Environment (JADE)™, OpenSim™, PSA-HD™, RACS™, SimSuite Pro™,SmartTutor™, THOR™, and Xtreme I/S™. Despite these protections, the Company cannot be sure that it has protected or will be able to protect its intellectualproperty adequately, that the unauthorized disclosure or use of its intellectual property will be prevented, that others have not or will not develop similartechnology independently, or, to the extent it owns any patents in the future, that others have not or will not be able to design around those patents.Furthermore, the laws of certain countries in which the Company’s products are sold do not protect its products and intellectual property rights to the sameextent as the laws of the United States. Government Regulations Our operations are directly and indirectly affected by political developments and both domestic and foreign governmental regulations. We cannot determine theextent to which changing political priorities, new legislation, new regulations or changes in existing laws or regulations may affect our future operations,positively or negatively. Industries Served The following chart illustrates the approximate percentage of the Company’s 2020 and 2019 consolidated revenue by industries served: Years ended December 31, 2020 2019 Nuclear power 89% 90%Fossil fuel power 7% 7%Process 4% 2%Other – 1%Total 100% 100% Backlog As of December 31, 2020, we had approximately $40.4 million of total gross revenue in backlog compared to $52.7 million as of December 31, 2019. Most ofour contract terms are for less than 24 months. Our backlog includes only those amounts that have been funded and authorized and does not reflect the fullamounts we may receive over the term of such contracts. Our backlog includes future expected revenue at contract rates, excluding contract renewals orextensions that are at the discretion of the client. We calculate backlog without regard to possible project reductions or expansions or potential cancellationsunless and until we have reason to believe that 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 subcontractorsand other parties. Because backlog is not a defined accounting term, our computation of backlog may not necessarily be comparable to that of our industrypeers. Human Capital As of December 31, 2020, we had approximately 332 employees, which include 197 in our Performance Improvement segment and 135 in our NuclearIndustry Training and Consulting segment. The 332 employees are comprised of 292 fulltime employees and 44 part time employees, 133 of these employeesfall under our Workforce Solutions which is our staff augmentation division and most of the remainder fall under Engineering Performance. Excluding ourNuclear Industry Training and Consulting business, which consists primarily of specialized instructors, our employee attrition rate for 2020 among all staff wasapproximately 8.9%.To date, we have been able to locate and engage highly qualified employees as needed and we expect our growth efforts to be addressedthrough attracting top talent.Our people are what make us the Company we are today. Not only does it depend on employing highly skilled professionals but also people who can worktogether, effectively and collaboratively, as a team, whether departmental, cross functional, or cross company. Our employees come from diverse backgroundsas well as a diverse geography, and we look to attract people by offering a positive and welcoming work environment, strong management and leadershipteams, along with a competitive compensation and benefit package.15 Table of ContentsTalent Management GSE is committed to recruiting, hiring, retaining, and developing the most talented and skilled professionals & graduates available in the job market. Ourapproach to Talent Management includes a rigorous selection process followed by coaching, training, and knowledge transfer. We differentiate our programfrom typical performance management programs by focusing on the manager’s role. HR provides support but the day-to-day interactions that ensure theemployee’s success come from the manager. They coach and develop employees through their active and regular interactions. This is a critical part of bothcurrent performance as well as knowledge transfer from our more experienced staff that may be nearing the end of their career, to our less experienced.Training takes place internally and across our companies to take advantage of our SMEs in our industry. As a result of this we can integrate different talentpools to be interchangeable across projects. In addition, we offer a tuition reimbursement that allows employees to further their education or attend externalprofessional development programs.In 2021, we will be putting career paths in place and compensation structures that will increase our retention rates as well as offering leadership developmentfor our upcoming, emerging leaders that will lead us into the future.Compensation & BenefitsGSE offers market competitive compensation and benefit programs for our employees in order to attract and retain superior talent. In addition to competitivebase wages, additional programs include a Long-Term Incentive Stock Option Plan, a Company matched 401(k) Plan, healthcare and insurance benefits, healthsavings and flexible spending accounts, paid time off, family leave, and employee assistance programs are provided.Diversity & Inclusion A diverse and inclusive workforce adds value to our company and helps us succeed. We believe diversity is important because it provides varied insight andvaried perspectives which results in innovative thinking, better decision making and faster problem solving. Having a diverse workforce also brings differentskill sets and experiences that are shared throughout the Company. Our culture which is collaborative in nature, provides for inclusion of all employees in allaspects of our work. Health, Safety, & COVID-19 The health and safety of our employees is of paramount importance to us. Our OSHA records show that we have had zero injuries/illnesses in the past fouryears, and we attribute that to our employees working carefully so they don’t get injured. We provide everyone a safety manual and the employees that work atpower plants are also provided with the necessary safety training on site.In response to COVID-19, we have implemented some protocols to keep our employees safe. All employees are provided remote work with office visitsrestricted to essential work only and includes use of masks, social distancing, and proper hand washing and cleaning protocols. Travel has also been limited toessential work only. While some employees are doing essential work at client sites, all our clients have provided their COVID safety protocols, and they arestrictly adhered to.During COVID-19, our employees have faced the challenges of maintaining their mental health as well as providing an environment for their children toparticipate in virtual learning. In response to this, we have provided multiple mental health resources for our employees and their families includingsubscriptions to Headspace as well as a wellness program that incentivizes and motivates people to eat healthy, get some form of exercise, and destress. Wealso offer an EAP and full access to mental health providers through our health partner, Cigna. And in order for our employees to be able to assist in the virtuallearning environment with their children, we have offered flexible work schedules to accommodate their needs.16 Table of ContentsCOVID-19GSE employees began working remotely during the first quarter of 2020 due to the COVID-19 pandemic and will continue to do so when practical and asmandated by local, state and federal directives and regulations. Employees almost entirely work from home within our Performance Improvement Solutions(“Performance”) segment, except when required to be at the client site for essential project work. Our Performance contracts, which are considered an essentialservice, are permitted to and mostly continue without pause; however, we have experienced certain delays in new business. For our staff augmentationbusiness, we have seen certain contracts for our Nuclear Industry Training and Consulting (“NITC”) customers paused or delayed as clients shrink their ownon-premise workforces to the minimum operating levels in response to the pandemic; as a result, our NITC segment has experienced a decline in its billableemployee base since the start of the pandemic. Although we cannot fully estimate the length or gravity of the impact of the COVID-19 pandemic to ourbusiness at this time, we have experienced delays in commencing new projects and thus our ability to recognize revenue has been delayed for some contracts.We have also experienced order reductions or other negative changes to orders due to the pandemic. We routinely monitor our operating expenses as a result ofcontract delays and have made adjustments to keep our gross profit at a sustainable level.ITEM 1A.RISK FACTORS. The following are some of the factors that we believe could cause our actual results to differ materially from historical results and from the resultscontemplated by the forward-looking statements contained in this report and other public statements we have made. Additional risks and uncertainties notpresently known to us, or that we currently see as immaterial, may also harm our business. Most of these risks are generally beyond our control. If any of therisks or uncertainties described below, or any such other or additional risks and uncertainties actually occurs, our business, results of operations and financialcondition could be materially and adversely affected. The following information should be read in conjunction with Item 7 - Management’s Discussion andAnalysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes under Item 8 - Financial Statements andSupplementary Data. A novel strain of coronavirus, the COVID-19 virus, may adversely affect our business operations and financial condition. In December 2019, an outbreak of the COVID-19 virus was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared theCOVID-19 virus a global pandemic and on March 13, 2020, President Donald J. Trump declared the virus a national emergency in the United States. Thishighly contagious disease has spread to most of the countries in the world and throughout the United States, creating a serious impact on customers, workforcesand suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn. It has caused a disruption of thenormal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine orremote work or meeting requirements for employees, either by government order or on a voluntary basis. The pandemic may adversely affect our customers’operations, our employees and our employee productivity. It may also impact the ability of our subcontractors, partners, and suppliers to operate and fulfilltheir contractual obligations, and result in an increase in costs, delays or disruptions in performance. These supply chain effects, and the direct effect of thevirus and the disruption on our employees and operations, may negatively impact both our ability to meet customer demand and our revenue and profitmargins. Our employees, in many cases, are working remotely and using various technologies to perform their functions. We might experience delays orchanges in customer demand, particularly if customer funding priorities change. Further, in reaction to the spread of COVID-19 in the United States, manybusinesses have instituted social distancing policies, including the closure of offices and worksites and deferring planned business activity. Our PerformanceSolutions business segment, as they are classified essential, for the most part continue without pause. With regard to our Nuclear Industry Training andConsulting business segment, because of the embedded presence of our on-site workforce, if COVID-19 or a similar outbreak of infectious disease were toprevent our workers from being deployed to the applicable customer site, it may disrupt our Nuclear Industry Training and Consulting service offerings,interrupt performance on our Nuclear Industry Training and Consulting contracts with clients and negatively impact our business, financial condition andresults of operations. Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit our abilityto access capital. Both the health and economic aspects of the COVID-19 virus are highly fluid and the future course of each is uncertain. For these reasons andother reasons that may come to light if the coronavirus pandemic and associated protective or preventative measures expand, we may experience a materialadverse effect on our business operations, revenues and financial condition; however, its ultimate impact is highly uncertain and subject to change. 17 Table of ContentsIf we cannot comply with the financial or other restrictive covenants in our credit agreement, or obtain waivers or other relief from our lender, wemay cause an event of default to occur, which could result in loss of our sources of liquidity and acceleration of our debt. In order to fund acquisition related costs we entered into a debt agreement for which a line of credit remains outstanding. We may not be able to refinance orrestructure any of our debt, sell assets or raise equity, in each case on commercially reasonable terms or at all, which could cause us to default on ourobligations and impair our liquidity. Our inability to generate sufficient cash flow to satisfy repayment obligations or to refinance or restructure theseobligations on commercially reasonable terms could have a material adverse effect on our business, financial condition, results of operations and cash flows.Our credit agreement also contains financial and other restrictive covenants. Our ability to comply with the covenants in our credit agreement will depend uponour future performance and various other factors, some of which are beyond our control. We may not be able to maintain compliance with all of thesecovenants. In that event, we would need to seek an amendment to our credit agreement, a waiver from our lender, utilize cash to pay down outstanding debtand/or refinance or restructure our debt. There can be no assurance that we could obtain future amendments or waivers of our credit agreement, or refinance orrestructure our debt, in each case on commercially reasonably terms or at all. Our failure to maintain compliance with the covenants under our credit agreementcould result in an event of default, subject to applicable notice and cure provisions. Upon the occurrence of an event of default under our credit agreement, ourlender could elect to declare all amounts outstanding thereunder to be immediately due and payable, terminate all commitments to extend further credit andcease making further loans. If we were unable to repay all outstanding amounts in full, our lender could exercise various remedies including institutingforeclosure proceedings against our assets pledged to them as collateral to secure that debt. If we do not receive full or partial forgiveness of the PPP loan from the United States Small Business Administration (SBA), we will be required toremit the amount not forgiven by the SBA to our lender in accordance with the terms of the PPP loan starting on the date established by the SBA,which could result in loss of sources of liquidity and acceleration of debt. We received a payroll protection program loan (PPP Loan) under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in the amount of tenmillion dollars ($10,000,000). Pursuant to the regulations promulgated by the SBA, we were required to submit an application to our lender requestingforgiveness for the PPP Loan and substantiating that we were entitled to the PPP Loan and used the proceeds of the PPP Loan as permitted under the CARESAct. Our application for forgiveness has been submitted to the SBA. The SBA has 90 days from submission of the forgiveness application to review the requestand communicate its determination to our lender. If the SBA determines that we were ineligible for the PPP Loan, we will be required to immediately repay thePPP Loan to our lender. If the SBA determines that we did not spend the proceeds of the PPP Loan as required by the CARES Act in order to obtain forgivenessof the PPP Loan (in whole or in part), we will be required to repay the PPP Loan over two (2) years. The failure to obtain forgiveness from the SBA withrespect to our PPP Loan (in whole or in part) could result in the loss of liquidity and acceleration of debt, which ultimately could result in our being unable tomeet our debts as they become due. Our lender has reviewed our application for forgiveness and associated documentation, forwarding it to the SBA with theirdetermination that the loan is fully forgivable on February 26, 2021. However, we are ultimately subject to the SBA’s process and conclusion for forgiveness.To the extent the loan amount is not forgiven under the PPP, we are obligated to make equal monthly payments of principal and interest, beginning afterdetermination of forgiveness by the SBA.Our business is largely dependent on sales to the nuclear power industry. Any significant disruption in this industry would have a material adverseeffect upon our revenue and profitability. In 2020 and 2019, 89.0% and 90% of our revenue, respectively, was from customers in the nuclear power industry customers. We expect to derive a significantportion of our revenue from customers in the nuclear power industry for the foreseeable future. Market demand for, and our ability to supply nuclear powerplant simulators and related products and services is dependent on the continued operation of nuclear power plants globally and, to a lesser extent, on theconstruction of new nuclear power plants. A wide range of factors affect the continued operation and construction of nuclear power plants, including thepolitical, regulatory and legal environment in which they operate, the availability and cost of alternative means of power generation, the occurrence of futurenuclear incidents, such as the one which occurred at the Fukushima Daiichi nuclear plant in 2011, and general economic conditions. Significant regulatorychanges in the U.S. or abroad could materially affect demand for our products, the profitability of our service deliveries to nuclear power industry customers,and the overall efficacy of our current business model. 18 Table of ContentsOur sales to foreign customers expose us to risks associated with operating internationally. Sales of products and services to end users outside the United States accounted for approximately 17.0% of the Company’s consolidated revenue in 2020 and16.0% of consolidated revenue in 2019. Consequently, our businesses are subject to a variety of risks that are specific to international operations, including thefollowing: •export laws and regulations that could erode our profit margins or restrict the export of some or all of our products;•compliance with the U.S. Foreign Corrupt Practices Act and similar non-U.S. regulations such as the UK Bribery Act;•the burden and cost of compliance with foreign laws, treaties and technical standards generally, as well as responding to changes in thoserequirements;•contract award and funding delays;•potential restrictions on transfers of funds;•potential difficulties in accounts receivable collection;•currency fluctuations, including costs and potentially limited availability of viable hedging options;•import and export duties and value added or other taxes;•transportation and communication delays and interruptions;•differences in insurance availability and coverage in some jurisdictions;•difficulties involving strategic alliances and managing foreign sales agents or representatives;•uncertainties arising from foreign local business practices and cultural considerations; and•potential military conflicts and political risks.•potential disruption of our international business due to the worldwide COVID-19 virus outbreak. In December 2019, an outbreak of the COVID-19 virus was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared theCOVID-19 virus a global pandemic. This highly contagious disease has spread to most of the countries in the world and throughout the United States, creatinga serious impact on customers, workforces and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economicdownturn. It has caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/orthe imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. The pandemicmay adversely affect our international customers’ operations, our employees and our employee productivity. It may also impact the ability of oursubcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in costs, delays or disruptions inperformance. These supply chain effects, and the direct effect of the virus and the disruption on our employees and operations, may negatively impact both ourability to meet customer demand and our revenue and profit margins. While we have and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of our foreign business, we cannot ensurethat such measures will be adequate. During the years ended December 31, 2020 and 2019, we did not have revenues greater than 10% from any individualforeign country. Exports and sales to certain foreign countries, including the People’s Republic of China, are subject to regulatory, political, and other risks. The export and sale of our services and technology to certain foreign countries including China, are subject to U.S. export control regulations. Export controlpolicy pertaining to China and other countries may be enforced through laws and regulations administered by the Department of Commerce and theDepartment of Energy, and jurisdiction with regard to the export and sale of our services and technology may be overlapping and unclear. Specificgovernmental authorizations may be required before we can export our services or technology to countries such as China, or collaborate with foreign entities orforeign individuals located in countries such as China. These restrictions include our own wholly-owned Chinese subsidiary and its employees. If export orother authorizations are required and not granted, or are significantly delayed, our international business plans pertaining to China and other countries could bematerially affected. Further, our exports and sales to China and other countries with respect to which the United States may have shifting or negativediplomatic and trade relations, including sales made by or through our wholly-owned Chinese subsidiary, expose us to particular risks associated with thepolitical and regulatory relationship between the U.S. and China and between the U.S. and such other countries. 19 Table of ContentsIn October 2018, the Department of Energy announced the tightening of certain export control restrictions with regard to the export of nuclear technology toChina, including certain presumptive denials with regard to the export of identified nuclear technologies to China. Although we do not believe that these policychanges cover our technologies or services, additional restrictions pertaining to U.S. regulation and policy pertaining to international trade with China couldadversely affect our business in China and the performance of our Chinese subsidiary. Finally, violation of export control regulations, including those pertaining to China, could subject us to fines and other penalties, such as losing the ability toexport for a period of years, which would limit our revenue growth opportunities and significantly hinder our attempts to expand our business internationally. Although we take steps to monitor and ensure our compliance with all applicable export laws and regulations, we are nevertheless exposed to political andregulatory risks that we may not be able to mitigate fully and that may have a material adverse effect upon our international business operations. Our operations within China subject us to risks and uncertainties relating to the laws and regulations of China. Our business and operations within China may be adversely affected by China’s continuously evolving internal policies, laws and regulations, including thoserelating to nuclear technology, trade, taxation, import and export tariffs or restrictions, currency controls, cybersecurity and data protection, indigenousinnovation and the promotion of a domestic nuclear industry, and intellectual property rights and enforcement and protection of those rights. Enforcement ofexisting laws or agreements in China may be inconsistent. In addition, changes in the political environment, governmental policies, international trade policiesand relations, or U.S. - China relations could result in revisions to laws or regulations or their interpretation and enforcement, exposure of our proprietaryintellectual property to risk of loss, increased taxation, trade sanctions, the imposition of import duties or tariffs, restrictions on imports or exports, currencyrevaluations, or retaliatory actions by the Chinese government in response to U.S. actions, any or all of which could have an adverse effect on our businessplans and operating results. Customer concentration in the U.S. nuclear power industry subjects us to risks and uncertainty, which we may not be able to mitigate throughdiversification. The U.S. nuclear industry has significant customer concentration with a limited number of entities owning all of the 99 nuclear reactors currently operating inthe United States. In 2020, we continued to experience high customer concentration with respect to each of our businesses. Indeed, one customer accounted for14.1% of our total consolidated revenue for the year-ended December 31, 2020. We monitor our customer concentration and seek to diversify our customerbase within this concentrated industry. In addition to pursuing diversification strategies and expanding relationships with targeted customers, we mitigate theassociated customer concentration risk by developing meaningful relationships with each nuclear power plant, which are often separately responsible forvendor selection and individual procurement decisions. While our acquisition activity has the potential to diversify our customer base through inorganic means, we have also found that some of the strongestcommercial opportunities are within our existing customer base, as our existing relationships are a resource for introductions, due diligence, and businessintelligence. Our acquisition of DP Engineering highlights these kinds of opportunities and challenges. Through the acquisition process, we benefited frominsights obtained from our subsidiaries who work side-by-side with DP Engineering within our existing footprint. At the same time, DP Engineering hassignificant customer concentration within our existing customer base. As a result, our strategy with DP Engineering includes a focus on new customeracquisition and diversification. 20 Table of ContentsOur revenue, results of operations, and cash flows may suffer upon the loss of a significant customer. For the years ended December 31, 2020 and 2019, four customers have provided more than 10% of Nuclear Industry Training and Consulting segment’srevenues: Years ended December 31, 2020 2019 Customer A 30% 46%Customer B 15% 7%Customer C 12% 7%Customer D 11% 11%Hyperspring and Absolute, which together comprise our Nuclear Industry Training and Consulting segment, may lose a significant customer if any existingcontract with such customer expires without extension, renewal, or negotiation or if it is terminated by the customer prior to expiration, to the extent such earlytermination is permitted by the contract. A number of Hyperspring’s and Absolute’s contracts typically are subject to expiration during each year, and eithercompany may lose any of these contracts if the Company is unable to extend, renew, or renegotiate the contracts. The loss of any significant customer wouldadversely affect our Nuclear Industry Training and Consulting segment’s revenue, results of operations, and cash flows. For the years ended December 31, 2020 and 2019, a customer has provided more than 10% of Performance Improvement Solutions segment’s revenues: Years ended December 31, 2020 2019 Customer E 11% 8%Customer A also provided 14.1% and 27.8% of our total consolidated revenue for the years ended December 31, 2020 and 2019, respectively. While theacquisition of DP Engineering increased our product and service offerings, we anticipate that it will further increase our customer concentration in ourPerformance Improvement Solutions segment. GSE Performance Solutions, Inc., GSE True North Consulting, LLC, and DP Engineering, which together comprise our Performance Improvement Solutionssegment, may lose a significant customer if any existing contract with such customer expires without extension, renewal, or negotiation or if it is terminated bythe customer prior to expiration, to the extent such early termination is permitted by the contract. A majority of the contracts entered into by our PerformanceImprovement Solutions businesses are able to be terminated by our customer on relatively short notice without cause or further compensation. The loss of anysignificant customer would adversely affect our Performance Improvement Solutions segment’s revenue, results of operations, and cash flows. Our expense levels are based upon our expectations as to future revenue, and we may be unable to adjust spending to compensate for a revenueshortfall. Accordingly, any revenue shortfall would likely have a disproportionate effect on our operating results. Our revenue was $57.6 million and $83.0 million for the years ended December 31, 2020 and 2019, respectively. We had operating loss of $9.5 million and$7.4 million for the years ended December 31, 2020 and 2019, respectively. Our operating results have fluctuated in the past and may fluctuate significantly inthe future as a result of a variety of factors, including purchasing patterns, timing of launch or release of new products and enhancements by us and ourcompetitors, and fluctuating global economic conditions. Because our expense levels are based in part on our expectations as to future revenue and includescertain fixed, pre-negotiated, and prepaid costs, we may be unable to adjust spending in a timely manner to compensate for any revenue shortfall. Because ofthis lag in response time, such revenue shortfalls likely would have a disproportionate adverse effect on our operating results. 21 Table of ContentsOur backlog is subject to unexpected adjustments and cancellations and may not be a reliable indicator of future revenues or earnings. Backlog represents products or services that our customers have committed by contract or purchase order to purchase from us and that we have not yetdelivered or recognized as revenue. Our backlog as of December 31, 2020 and 2019 was $40.4 million and $52.7 million, respectively. There can be noassurance that the revenues projected in our backlog will be realized or, if realized, will result in profits. Because of project cancellations or changes in projectscope and schedule, we cannot predict with certainty whether or when backlog services will be performed, or products delivered. In addition, even where aproject proceeds as scheduled, it is possible that contracted parties may default and fail to pay amounts owed to us. Our poor project performance couldincrease the cost associated with a project. Thus, delays, suspensions, cancellations, payment defaults, scope changes and poor project execution couldmaterially reduce or eliminate the revenues and profits that we actually realize from projects in backlog. Reductions in our backlog due to cancellation ormodification by a customer or for other reasons may adversely affect, potentially to a material extent, the revenues and earnings we actually receive fromcontracts and orders included in our backlog. Many, but not all, of the contracts in our backlog provide for cancellation fees in the event customers cancelprojects. These cancellation fees usually provide for reimbursement of our out-of-pocket costs and payments, for work performed prior to cancellationincluding varying percentages of the profits we would have realized had the contract been completed. We usually have no contractual right to payment for all ofthe lost revenue or lost profits in the event of cancellation of the contracts and orders reflected in our backlog, however. Projects may remain in our backlog forextended periods of time. If we experience significant project terminations, suspensions, or scope adjustments to contracts reflected in our backlog, ourfinancial condition, results of operations and cash flows may be adversely impacted. We are currently a party to multiple fixed price contracts and will continue to enter into similar contracts in the future. If we are not able to estimateaccurately or control costs on such projects, the profitability of such projects could be reduced. A significant portion of our revenue is attributable to contracts entered into on a fixed price basis, which enable us to benefit from cost savings, but expose us tothe risk of cost overruns. If our initial estimates are incorrect regarding our costs of performance under these contracts, or if unanticipated circumstances arise,we could experience cost overruns that could result in reduced profits or even net losses on these contracts. Our financial condition is dependent upon ourability to maximize our earnings from our contracts. Lower earnings or losses caused by cost overruns could have a negative impact on our financial results. Under our time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. Under cost-reimbursable contracts,which are subject to a contract ceiling amount, we are reimbursed for allowable costs and are paid a fee, which may be fixed, or performance based. In bothcases, however, if our costs exceed the contract ceiling or are not allowable under the provisions of the contract or applicable regulations, we may not be ableto obtain reimbursement for all such costs even under a time and materials or cost-reimbursable contract. Our inability to successfully estimate and manage costs on each of these contract types may materially and adversely affect our financial condition. Our simulation business is dependent on product innovation and research and development, which costs are incurred prior to realization of revenuefor new products and improvements. We believe that our success will depend in large part on our ability to maintain and enhance our current product line, develop new products, maintaintechnological competitiveness and meet an expanding range of customer needs. Our product development activities are aimed at the development andexpansion of our library of software modeling tools, the improvement of our display systems and workstation technologies, and the advancement andupgrading of our simulation technology. The life cycles for software modeling tools, graphical user interfaces, and simulation technology are variable andlargely determined by competitive pressures and the evolution of software and standards that may be controlled by third parties. Consequently, we will need tocontinue to make significant investments in research and development to enhance and expand our capabilities in these areas and to maintain our competitiveadvantage. We cannot control, and we may be unable to predict accurately, the development and evolution of these competitive pressures and external softwareand standards. We may be unable to monetize our investment in research and development in a timely manner, or at all. Unexpected or excessive delays inrealizing a return on these investments may have a material and adverse effect on our cash position, results of operations, and financial condition. We use derivative instruments in the normal course of our business which could result in financial losses and exposure to other risks that negativelyimpact our net income (loss) and business operational efficiency. We periodically enter into forward foreign exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates onforeign-denominated trade receivables. We could recognize financial losses as a result of volatility in the market values of these contracts or if a derivativeinstrument counterparty fails to perform. We attempt to minimize credit exposure by limiting counterparties to internationally recognized financial institutions,but even these counterparties are subject to default and contract risk and this risk is beyond our control. We also engage in interest rate hedging transactions inthe ordinary courses of our business to mitigate the risk that amounts borrowed under our credit facility at floating interest rates may be affected by adverse ratemovements. Depending on future business, market, and interest rate environments, however, these hedging transactions may not be effective to mitigate thefinancial impact of the risks for which they were put into place sufficiently to justify their expense. Additionally, we may need or wish to avail ourselves ofother forms of hedging or derivative instruments in the future depending on our business needs, and these other types of derivative instruments may be subjectto the same and other risks and may not be available to us on a cost-effective or risk-controlled basis, if at all. The unavailability of viable and cost effectiverisk management, hedging, or similar instruments now or in the future could adversely impact our business operational efficiency or results. 22 Table of ContentsWe issue performance, advance payment, and bid bonds in the normal course of our business which could result in financial losses that negativelyimpact our net income (loss). We may be required to issue performance, advance payment, and bid bonds to our customers and potential customers as a normal part of our business activities.Our customers may have the ability to draw upon these performance bonds in the event we fail to cure a material breach of the contract within a specifiedperiod after receiving notice from the customer regarding the nature of the breach. For the year ended December 31, 2020, we did not issue any advancepayment or performance bonds, but we may be required to do so in the future to secure contract awards. We rely upon our intellectual property rights for the success of our business, but the steps we have taken to protect our intellectual property may beinadequate. Although we believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements andreliable product maintenance are important to establishing and maintaining a technological leadership position, our business depends, in part, on the strength ofour intellectual property rights in our proprietary technology and information. We rely upon a combination of trade secret, copyright, and trademark law,contractual arrangements and technical means to protect our intellectual property rights. We enter into confidentiality agreements with our employees,consultants, joint venture and alliance partners, customers, and other third parties that are granted access to our proprietary information, and we limit access toand distribution of our proprietary information. There can be no assurance, however, that we have protected or will be able to protect our proprietarytechnology and information adequately, that the unauthorized disclosure or use of our proprietary information will be prevented, that others have not or will notdevelop similar technology or information independently, or, to the extent we own any patents in the future, that others have not or will not be able to designaround those future patents. Furthermore, the laws of certain countries in which our products are sold do not protect our products and intellectual propertyrights to the same extent as the laws of the United States. Our inability to protect our intellectual property rights from infringement, dilution, or loss could makeit more difficult for us to generate revenue from the offer, licensure, and sale of our products and services and could enable third parties to compete with usmore effectively. The industries in which we operate are highly competitive. This competition may prevent us from raising prices at the same pace at which our costsincrease. Our businesses operate in highly competitive environments with both domestic and foreign competitors, many of whom have substantially greater financial,marketing, and other resources than we do. The principal factors affecting competition in our industries include price, technological proficiency, ease of systemconfiguration and use, product reliability, applications expertise, engineering support, local presence, personal relationships, and the relative financial stabilityof the competitor. We believe competition in the simulation fields may further intensify in the future as a result of advances in technology, consolidations andstrategic alliances among competitors, increased costs required to develop new technology and the increasing importance of software content in systems andproducts. Because our business has a significant international component, changes in the value of the dollar could adversely affect our ability to competeinternationally and could reduce our profitability on international business opportunities that we do win. Any of these competitive factors, or any combinationof two or more factors, could make it more difficult for us to bid successfully on new projects, or to complete projects at profit margins that we considerreasonable. An inability or reduced ability to win new work would have a material adverse impact on our backlog and revenue, and an inability or reducedability to secure reasonable profit margins on projects awarded to us would have a material adverse impact on our profitability and overall results of operations. 23 Table of ContentsWe may encounter difficulties in effectively integrating acquired businesses. As part of our business strategy, we have acquired, and intend to acquire, companies with compatible or related products. These acquisitions will beaccompanied by the risks commonly encountered in acquisitions of companies, which include, among other things: •potential exposure to unknown liabilities of the acquired companies; •higher than anticipated acquisition costs and expenses; •depletion of cash and other company assets and resources in connection with the acquisition or integration; •difficulty and expense of integrating the operations and personnel of the companies, especially if the acquired operations are geographically distant orculturally different; •potential disruption of our ongoing business and diversion of management time and attention; •failure to maximize our financial and strategic position by the successful incorporation of acquired technology; •difficulties in adopting and maintaining uniform standards, controls, procedures, and policies; •loss of key employees and customers as a result of changes in management; and •possible dilution to our shareholders. We may not be successful in overcoming these risks or any other problems encountered in connection with any of our acquisitions, and if we are not successful,our financial results may be materially impacted. We may be forced to modify our strategic objectives or seek alternative sources of growth. We are dependent on our management team, and the loss of or the inability to attract and retain one or more key employees or groups could harm ourbusiness and prevent us from implementing our business plan in a timely manner. Our future success is substantially dependent on the continued services and continuing contributions of our executive officers and other key personnel. All ofour recently acquired businesses, including Hyperspring, Absolute, True North, and DP Engineering, are particularly dependent on key personnel and their keystrategic relationships. The loss of the services of any of our executive officers or other key personnel could harm our business. Our future success also dependson our ability to continue to attract, retain, and motivate highly skilled employees. If we are not able to attract and retain key skilled personnel, our businesscould be harmed and our revenue, profitability, and overall results of operations could be materially impacted. A failure to attract and retain technical personnel could reduce our revenue and our operational effectiveness. There is a continuing demand for qualified technical personnel in the industries within which we operate. We believe that our future growth and success willdepend upon our ability to attract, train and retain such personnel. Our design and development efforts, particularly within our Performance ImprovementSolutions business segment, depend on hiring and retaining qualified technical personnel. An inability to attract or maintain a sufficient number of technicalpersonnel could have a material adverse effect on our contract performance or on our ability to capitalize on market opportunities. The nuclear power industry, our largest customer group, is associated with a number of hazards which could create significant liabilities. Our business could expose us to third party claims with respect to product, environmental and other similar liabilities. Although we have sought protectionfrom these potential liabilities through a variety of legal and contractual provisions as well as through liability insurance, the effectiveness of such protectionshas not been fully tested. Certain of our products and services are used by the nuclear power industry primarily in operator training. Although our contracts forsuch products and services typically contain provisions designed to protect us from potential liabilities associated with such use, there can be no assurance thatwe would not be materially adversely affected by claims or actions which may potentially arise due to factors that may be outside of our direct control. Cyber security incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact ourreputation and results of operations. Global cyber security threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (IT) systems tosophisticated and targeted measures known as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigatethese threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems, and maintenance ofbackup and protective systems), cyber security incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction,corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of businessoperations. The potential consequences of a material cyber security incident include reputational damage, litigation with third parties, civil or regulatoryliability for loss of sensitive or protected information such as personal data, incident response costs, diminution in the value of our investment in research,development and engineering, loss of intellectual property, and increased cyber security protection and remediation costs, which in turn could adversely affectour competitiveness and results of operations. 24 Table of ContentsThird-party claims that we allegedly infringe the intellectual property rights of others may be costly to defend or settle and could damage ourbusiness. We cannot be certain that our software and services do not infringe issued patents, copyrights, trademarks or other intellectual property rights of third parties.We may be subject to legal proceedings and claims from time to time, including claims of alleged infringement of intellectual property rights of third parties byus or our licensees concerning their use of our software products and integration technologies and services. Third parties may bring claims of infringementdirectly against us, or because our software is integrated with our customers’ networks and business processes, as well as other software applications against us,our customers, and our business partners or software suppliers, if the cause of the alleged infringement cannot easily be determined. Claims of alleged infringement may have a material adverse effect on our business and may discourage potential customers from doing business with us onacceptable terms, if at all, even if the claims are ultimately adjudicated to have no merit, dismissed, or settled. Defending against claims of infringement may betime-consuming and may result in substantial costs and diversion of resources, including our management’s attention to our business. Furthermore, a partymaking an infringement claim could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other courtorder that could prevent us from selling our software or require that we re-engineer some or all of our products or modules. Claims of intellectual propertyinfringement also might require us to enter costly royalty or license agreements. We may be unable to obtain royalty or license agreements on terms acceptableto us or at all. Our business, operating results and financial condition could be harmed significantly if any of these events were to occur, and the price of ourcommon stock could be adversely affected. In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against claims thatour software infringes upon the intellectual property rights of others. Although we carry general liability insurance, our current insurance coverage may notapply to, and likely would not protect us entirely or at all from, liability that may be imposed under any of the types of claims described above. We are subject to a wide variety of laws and regulations, and these may change. Our businesses are subject to regulation by U.S. federal and state laws, and foreign laws, government regulations and policies, and other administrativerequirements. Changes to laws or regulations may require us to modify our business objectives if existing practices become more restricted, subject toescalating costs, or prohibited outright. Particular risks include possible curtailment of our intended business activities or strategies as a result of changed ornew regulatory risks arising from federal laws and regulations, such as laws and regulations regarding export of sensitive technologies or technical informationor changed interpretations of existing laws and regulations. Our business and the industries in which we operate are also at times being reviewed orinvestigated by regulators, which could lead to enforcement actions, fines and penalties, or the assertion of private litigation claims and damages. Anysignificant change to laws, regulations, enforcement policies, or liability regimes, or other actions by government bodies having jurisdiction over our business,may have material adverse effects on our business and profitability. We have only limited ability to foresee, plan for, or influence changes to theserequirements. Provisions in our corporate documents and Delaware law could delay or prevent a change in control of our company, even if that change may beconsidered beneficial by some stockholders. The existence of some provisions of our certificate of incorporation and bylaws and Delaware law could discourage, delay or prevent a change in control of ourcompany that a stockholder may consider favorable. These include provisions: •providing that our Board of Directors fixes the number of members of the board and fills all vacancies on the Board of Directors; •providing for the division of our Board of Directors into three classes with staggered terms; 25 Table of Contents•limiting who may call special meetings of stockholders; •prohibiting stockholder action by written consent, thereby requiring stockholder action to be taken at a meeting of the stockholders; •establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can beacted on by stockholders at stockholder meetings; •establishing supermajority vote requirements for certain amendments to our certificate of incorporation and bylaws; •limiting the right of stockholders to remove directors; and •authorizing the issuance of “blank check” preferred stock, which could be issued by our Board of Directors to increase the number of outstandingshares and thwart a takeover attempt. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions notapproved in advance by our Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for shares of ourcommon stock. We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with ourBoard of Directors and by providing our Board of Directors with more time to assess any acquisition proposal and are not intended to make our companyimmune from takeovers. These provisions apply even if the offer may be considered beneficial by some stockholders, however, and could delay or prevent anacquisition that our Board of Directors determines is not in the best interests of our company and our stockholders. A sustained decline in the price of our common stock or weaker than forecasted operating results could result in write-downs of goodwill and otherintangible assets and capitalized software development costs. In conjunction with business acquisitions, we record goodwill and other intangible assets and review their fair value for impairment annually as of December31, or on an interim basis if impairment indicators are present, such as a significant reduction in our market capitalization, significant declines in operatingperformance or disruptions to the business that could reduce our future cash flow. On November 14, 2014, we recorded $5.6 million of goodwill related to ouracquisition of Hyperspring. On September 20, 2017, we recorded $2.8 million of goodwill related to our acquisition of Absolute. On May 11, 2018, werecorded $4.7 million of goodwill related to our acquisition of True North, LLC. On February 15, 2019, we recorded $5.8 million of goodwill related theacquisition of DP Engineering. Following the February 23, 2019 event occurring at DP Engineering’s largest customer and subsequent receipt of the Notice ofSuspension on February 28, 2019. The Company determined that the notice of suspension was a triggering event necessitating an interim assessment of apotential impairment of definite-lived intangible assets and goodwill. The Company recognized an impairment charge of $5.6 million to write down goodwillon DP Engineering on at March 31, 2019. We used a discounted cash flow analysis to test for impairment and concluded that the carrying value of the definite-lived intangible assets of DP Engineering exceeded its fair value by $4.3 million, and we recorded an impairment for this amount as of the three months endedMarch 31, 2020. We can provide no assurance that we will not have an impairment charge in future periods as the result of changing conditions. See Note 6 toour consolidated financial statements for information regarding our goodwill.We capitalize certain computer software development costs and, accordingly, the capitalized costs are reported on our balance sheet. Capitalization ofcomputer software development costs begins upon the establishment of technological feasibility. Capitalization ceases and amortization of capitalized costsbegins when the software product is commercially available for general release to customers. Amortization of capitalized computer software development costsis included in cost of revenue and is determined using the straight-line method over the remaining estimated economic life of the product, typically three years. On an annual basis, and more frequently as conditions indicate, we assess the status of our development programs and the recoverability of the unamortizedsoftware development costs by estimating the net undiscounted cash flows expected to be generated by the sale of the product. If the undiscounted cash flowsare not sufficient to recover the unamortized software costs, we will write-down these costs to their estimated fair value based on the future undiscounted cashflows. The excess of any unamortized computer software costs over the related net realizable value is written down and charged to operations. Write-down of goodwill and capitalized software development costs in the current and future accounting periods may have an impact on the value of theCompany, results of operations, and price of our common stock. 26 Table of ContentsOur ability to use our net operating loss (NOL) carryforward and certain other tax attributes may be limited. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or tax liabilities may be limited. We may experience ownership changes inthe future as a result of shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offsetU.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.ITEM 1B.UNRESOLVED STAFF COMMENTS. None. ITEM 2.PROPERTIES. The Company is headquartered in Columbia. On November 28, 2017, the Company entered into an office lease agreement to sublease 5,039 rentable squarefeet of an office building located in Columbia, Maryland. The lease is for an initial six years and six months with two renewal periods of five years each. TheCompany relocated many of the back-office employees to the new office in the first quarter of 2018 from its Sykesville, Maryland office. The office inColumbia, Maryland, now serves as the Company’s executive office location. The Company leases a facility in Sykesville, Maryland (37,000 square feet). The lease for this facility expires on June 30, 2023. As of December 31, 2020, theCompany subleased approximately 7,472 square feet of the facility with a sublease term ending June 30, 2023. As of December 31, 2019, as part of theCompany’s ongoing international restructuring plan, management decided to cease-use, and abandoned (21,913 square feet) a portion of this right of use lease. In addition, the Company leases office space domestically in Huntsville, Alabama; Montrose, Colorado; Fort Worth, Texas, and internationally in Beijing,China. The Company leases these facilities for terms ending between 2019 and 2023. Additionally, as of December 31, 2019, management decided to cease-use, abandoned (9,936 square feet) a portion of the right of use lease in Fort Worth, Texas. See Note 6 and 18 to our consolidated financial statements forinformation regarding our restructuring activity and leases.ITEM 3.LEGAL PROCEEDINGS. The Company and its subsidiaries are from time to time involved in ordinary routine litigation incidental to the conduct of its business. The Company and itssubsidiaries are not a party to, and its property is not the subject of, any material pending legal proceedings that, in the opinion of management, are likely tohave a material adverse effect on the Company’s business, financial condition or results of operations.On March 29, 2019, a former employee of Absolute Consulting, Inc., filed a putative class action against Absolute and the Company, Joyce v. AbsoluteConsulting Inc., case number 1:19 cv 00868 RDB, in the United States District Court for the District of Maryland. The lawsuit alleges that plaintiff was notproperly compensated for overtime hours that he worked. In addition, he alleges that there is a class of employees who were not properly compensated forovertime hours worked. Following a mediation session on July 14, 2020, the parties entered into a Settlement Agreement and Release on August 17, 2020,providing that the case would be settled and dismissed in exchange for Absolute’s payment of a gross settlement amount not to exceed $1.5 million. The courtapproved the settlement and dismissed the case with prejudice on September 8, 2020. After the passing of an opt-in notice period expired, the final cost ofsettling this case, including plaintiff’s attorney fees was approximately $1.4 million. Approximately $713 thousand of the settlement amount was paid out priorto December 31, 2020, with $715 thousand of the remaining balance paid out in 2021. The Company is involved in litigation in the ordinary course of business. While it is too early to determine the outcome of such matters, management does notexpect the resolution of these matters to have a material impact on the Company’s financial position or results of operations. ITEM 4.MINE SAFETY DISCLOSURES. Not applicable. 27 Table of ContentsPART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OFEQUITY SECURITIES. The Company’s common stock is listed on the NASDAQ Capital Market, where it trades under the symbol “GVP”. The following table sets forth, for theperiods indicated, the high and low sale prices for the Company’s common stock reported by the Nasdaq Stock Exchange for each full quarterly period withinthe two most recent fiscal years: 2020 Quarter High Low First $1.84 $0.88 Second $1.18 $0.91 Third $1.08 $0.90 Fourth $1.46 $0.98 2019 Quarter High Low First $3.15 $2.40 Second $2.87 $2.17 Third $2.31 $1.67 Fourth $1.84 $1.08 On March 31, 2021, there were 20,634,372 shares of common stock outstanding. As of the latest record date, the Company had 723 holders of record. Thisnumber does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers andother fiduciaries.ITEM 6.SELECTED FINANCIAL DATA. This information is not required for smaller reporting companies. 28 Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GSE is a leading provider of professional and technical engineering, staffing services and simulation software to clients in the power and process industries. Weprovide customers with simulation, engineering and plant services that help clients reduce risks associated with operating their plants, increase revenue throughimproved plant and employee performance, and lower costs through improved operational efficiency. In addition, we provide professional services thatsystematically help clients fill key vacancies in the organization on a short-term basis, primarily in procedures, engineering, technical support and trainingfocused on regulatory compliance and certification in the nuclear power industry. Our operations also include interactive computer-based tutorials andsimulation software for the refining, chemical, and petrochemical industries.Early in 2020 as the pandemic unfolded, the end markets that GSE serves, namely the power industries, delayed the essential services it could and dramaticallycut back on non-essential services. Although this impacted GSE, as an essential services provider to an essential industrial base, GSE benefited frommaintaining a baseline of business to continue and align itself to the realities of the pandemic. As GSE enters 2021, the effects of the pandemic are stillimpacting the end markets we serve, but those effects may be mitigated for a number of factors, including the following: the pandemic largely has had atargeted effect on the population; there now are number of vaccines in the market being distributed and, despite logistical challenges, making solid progress forthose in most need; the economy of the United States has not had as much disruption as was initially feared which has benefited our end markets; and mostimportantly the end markets of GSE seem poised to spend to catch up on essential services that had been delayed as a result of the pandemic. As GSE ended2020 and began 2021, we have had a number of significant contract wins that have been publicly announced, which we hope is a harbinger of a more solid2021 business environment.On April 23, 2020, we received funds under the Paycheck Protection Program, a part of the Coronavirus Aid, Relief and Economic Security Act (the “CARESAct”). The loan is serviced by Citizens Bank (the “Bank”), and the application for these funds required us to, in good faith, certify that the current economicuncertainty made the loan necessary to support our ongoing operations. We used funds for payroll and related costs, rent and utilities. The receipt of thesefunds, and the forgiveness of the PPP Loan attendant to these funds, is dependent on our ability to adhere to the forgiveness criteria. The PPP Loan bearsinterest at a rate of 1% per annum and matures on April 23, 2022, with the first payment deferred until August 9, 2021. Under the terms of the PPP Loan,certain amounts may be forgiven if they are used in accordance with the CARES Act. As of the period end, we have maintained compliance with all of therequirements to obtain forgiveness of the full amount of the PPP Loan. We believe that our use of the proceeds and other conditions consistent with therequirements for forgiveness have been met but are unable to determine the amount that may be ultimately forgiven. 29 Table of ContentsResults of Operations. The following table sets forth the results of operations for the periods presented expressed as a percentage of revenue. ($ in thousands) Years ended December 31, 2020 % 2019 % Revenue $57,620 100.0% $82,975 100.0%Cost of revenue 42,835 74.3% 62,677 75.5% Gross profit 14,785 25.7% 20,298 24.5%Operating expenses Selling, general and administrative 15,765 27.4% 16,169 19.5%Research and development 686 1.2% 710 0.9%Restructuring charges 1,297 2.3% 2,478 3.0%Loss on impairment 4,302 7.5% 5,597 6.7%Depreciation 330 0.6% 363 0.4%Amortization of definite-lived intangible assets 1,943 3.4% 2,400 2.9%Total operating expenses 24,323 42.2% 27,717 33.4% Operating loss (9,538) (16.6%) (7,419) (8.9%) Interest expense (623) (1.1%) (988) (1.2%)Loss on derivative instruments, net (17) 0.0% (13) 0.0%Other (expense) income, net (4) 0.0% 2,068 2.5% Loss before income taxes (10,182) (17.7%) (6,352) (7.7%)Provision for income taxes 355 0.6% 5,733 6.9% Net loss $(10,537) (18.3%) $(12,085) (14.6%)Comparison of the Years Ended December 31, 2020 to December 31, 2019. Revenue. Revenue for the year ended December 31, 2020, totaled $57.6 million, which was 30.6% less than the $83.0 million of revenue for the year endedDecember 31, 2019. (in thousands) Year ended December 31, 2020 2019 Change Revenue: $ % Performance Improvement Solutions $32,790 $45,776 (12,986) (28.4)%Nuclear Industry Training and Consulting 24,830 37,199 (12,369) (33.3)%Total revenue $57,620 $82,975 (25,355) (30.6)%Performance Improvement Solutions revenue decreased 28.4% from $45.8 million to $32.8 million for the years ended December 31, 2019 and 2020,respectively. The decrease of revenue was primarily due to several significant projects ending in the prior fiscal year and delays in commencing new contractsremotely due to the COVID-19 pandemic. We recorded total Performance Improvement Solutions orders of $26.2 million and $27.4 million for the years endedDecember 31, 2020 and 2019, respectively.For the year ended December 31, 2020, Nuclear Industry Training and Consulting revenue decreased 33.3% to $24.8 million compared to revenue of $37.2million for the year ended December 31, 2019. The decrease in revenue was primarily due to stoppage of existing projects and delays in commencing newcontracts due to the COVID-19 pandemic resulting a reduction in demand for staffing from our major customers. We recorded total new orders of $19.1 millionand $31.7 million for the years ended December 31, 2020 and 2019, respectively.30 Table of ContentsAt December 31, 2020, the Company’s backlog was $40.4 million, $30.3 million was attributed to the Performance Improvement Solutions segment and $10.1million was attributed to the Nuclear Industry Training and Consulting segment. At December 31, 2019, the Company’s backlog was $52.7 million with $37.2million attributed to the Performance Improvement Solutions segment and $15.5 million attributed to the Nuclear Industry Training and Consulting segment.The decrease in our backlog over fiscal year 2019 was primarily due to lower orders during fiscal year 2020.Gross profit. Gross profit was $14.8 million, or 25.7%, for the year ended December 31, 2020 compared to $20.3 million, or 24.5%, for the year endedDecember 31, 2019. ($ in thousands) Years ended December 31, 2020 % 2019 % Gross profit: Performance Improvement Solutions $11,395 34.8% $15,231 33.3%Nuclear Industry Training and Consulting 3,390 13.7% 5,067 13.6%Consolidated gross profit $14,785 25.7% $20,298 24.5%The Performance Improvement Solutions segment’s gross profit decreased by $3.8 million during fiscal year 2020 over fiscal year 2019. The decrease isprimarily related to lower revenue and several significant projects completed in the prior year that were not replaced with new orders, while overall profitabilityof remaining and new smaller projects increased the profit margin.The Nuclear Industry Training and Consulting segment’s gross profit decreased by $1.7 million during fiscal year 2020 over fiscal year 2019. The decrease ingross profit was primarily driven by a decrease in revenue in the NITC business partially offset by a reduction in direct costs.Selling, general and administrative expenses. Selling, general and administrative (SG&A) expenses totaled $15.8 million and $16.2 million for the years endedDecember 31, 2020 and 2019, respectively. Fluctuations in the components of SG&A spending were as follows: ($ in thousands) Years ended December 31, 2020 % 2019 % Selling, general and administrative expenses: Corporate charges $11,358 72.0% $12,217 75.6%Business development 3,364 21.3% 3,779 23.4%Facility operation & maintenance (O&M) 928 5.9% 1,334 8.3%Contingent consideration - 0.0% (1,200) (7.4)%Bad debt expense 103 0.7% 31 0.2%Other 12 0.1% 8 0.0%Total $15,765 100.0% $16,169 100.0% Corporate charges decreased $0.9 million in 2020 compared to 2019. The decrease was primarily due to a reduction in the use of external contractors foraccounting and finance support services of $0.2 million and the corporate development charges of $0.8 million during fiscal year 2019 for the acquisition of DPEngineering, with no similar charges during fiscal year 2020. Business development charges decreased $0.4 million in 2020 compared to 2019. The decrease was primarily due to lower commission costs and reducedheadcount in 2020. 31 Table of ContentsFacility O&M expenses decreased $0.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease duringfiscal year 2020 was mainly due to lease abandonments in fiscal year 2019 and lease terminations in fiscal year 2020. As a result of the triggering event with our subsidiary DP Engineering in fiscal year 2019, we determined the fair value of the contingent considerationrecorded in connection with the acquisition in February 2019 was zero. We recorded the reduction in the contingent consideration as an offset to selling,general and administrative expenses in the amount of$1.2 million. Bad debt expense. We recorded bad debt expense of $103 thousand and $31 thousand for the years ended December 31, 2020 and December 31, 2019,respectively. GSE’s bad debt allowance is based on historical trends of past due accounts, write-offs, and specific identification and review of customeraccounts. Research and development. Research and development costs consist primarily of software engineering personnel and other related costs. Research anddevelopment costs, net of capitalized software, totaled $0.7 million for both the years ended December 31, 2020 and 2019, respectively. Restructuring charges. Restructuring charges totaled $1.3 million and $2.5 million for the years ended December 31, 2020 and 2019, respectively. OnDecember 27, 2017, the Board of GSE Systems, Inc. approved an international restructuring plan to streamline and optimize the Company’s global operations.Under this international restructuring plan, we have incurred cumulative restructuring charges of $3.1 million. The Company expects no future charges relatingto the international restructuring plan, excluding any tax impacts and cumulative translation adjustments from the final disposal of foreign entities.Additionally, during the third quarter of 2019, the Company implemented a restructuring plan as a result of the work suspension of DP Engineering’s largestcustomer and subsequent notification on August 6, 2019 that the EOC contract was being terminated. This plan was put in place to align the workforce with theexpected level of business moving forward. Under this restructuring plan, we have incurred total restructuring of $2.6 million. In the twelve months endedDecember 31, 2019, we recorded a severance expense of $0.7 million, lease termination fee of $1.6 million and $0.1 million related to internationalrestructuring. In the twelve months ending December 31, 2020, we recorded $1.0 million to international restructuring, and $0.2 million of related employeetermination benefits. The increase in our 2020 restructuring plan charges resulted, in part from the continuation of rightsizing the Company due to the impact ofthe work suspension of DP Engineering’s largest customer in 2019.Depreciation. Depreciation expense totaled $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively. The decrease wasprimarily due to fully depreciated assets in 2020 and no additional acquisitions in the current fiscal year. Amortization of definite-lived intangible assets. Amortization expense related to definite-lived intangible assets totaled $1.9 million and $2.4 million for theyears ended December 31, 2020 and 2019, respectively. The decrease in amortization expense was primarily due to the reduction in the carrying value of DPEngineering’s intangible assets, due to the $4.3 million impairment in Q1 2020. Interest expense. Interest expense totaled $0.6 million and $1.0 million for the year ended December 31, 2020 and 2019. The decrease is due to a paydown ofthe outstanding credit revolver in 2020. Loss on derivative instruments, net. The Company periodically enters into forward foreign exchange contracts to manage market risks associated with thefluctuations in foreign currency exchange rates on foreign-denominated trade receivables. The Company had not designated the contracts as hedges andrecognized a loss on the change in the estimated fair value of the contracts of $17 thousand and $6 thousand for the year ended December 31, 2020, and 2019,respectively. We had no foreign exchange contracts outstanding as of December 31, 2020. The foreign currency denominated trade receivables, unbilled receivables, billings in excess of revenue earned and subcontractor accruals that are related to theoutstanding foreign exchange contracts are remeasured at the end of each period into the functional currency using the current exchange rate at the end of theperiod. The gain or loss resulting from such remeasurement is also included in gain (loss) on derivative instruments net in the consolidated statements ofoperations. For the years ended December 31, 2020 and 2019, the Company incurred gain of $15 thousand and $38 thousand, respectively, from theremeasurement of such assets and liabilities. 32 Table of ContentsOther income (expense), net. The Company recognized $4 thousand of other expense, net and $2.1 million of other income, net for the years ended December31, 2020 and 2019, respectively. The decrease is due to the DP Engineering settlement and release agreement on December 30, 2019 in the amount of $2.0million related to the loss of a major customer post acquisition. Provision for Income Taxes. The Company files tax returns in the United States federal jurisdiction and in several state and foreign jurisdictions. Because ofthe net operating loss carryforwards, the Company is subject to U.S. federal and state income tax examinations for tax years 2000, and forward, and is subjectto foreign tax examinations by tax authorities for the years 2015 and forward. Open tax years related to state and foreign jurisdictions remain subject toexamination but are not considered material to our financial position, results of operations or cash flows. The Company’s tax expense in 2020 was $0.4 million, representing an annual effective tax rate of (3.5)%, and consisted of $0.4 million of current taxprovision. The Company’s tax expense in 2019 was $5.7 million, representing an annual effective rate of (90.3)% and consisted of $0.4 million of current taxprovision and $5.3 million of deferred taxes. The difference between the effective rate and statutory rate in 2020 primarily resulted from a change in valuationallowance, permanent differences, accruals related to uncertain tax positions for certain foreign tax contingencies, foreign restructuring and the tax impact ofstock compensation forfeitures. The significant change of $5.4 million in deferred tax expense was primarily driven by the prior year recognition of $6.8 million of valuation allowance againstthe deferred tax assets related to the U.S. and foreign entities which was partially offset by the generation of a deferred tax asset related to the GAAP goodwilland intangible impairment in the U.S. entities.The difference between the effective rate and statutory rate primarily resulted from a change in valuation allowance, permanent differences, accruals related touncertain tax positions for certain foreign tax contingencies, foreign restructuring and the tax impact of stock compensation forfeitures. Please see Note 15 foradditional information.Coronavirus Aid, Relief and Economic Security Act On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Cares Act is an emergency economicstimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expectedto impact the Company’s financial statements include removal of certain limitations on utilization of net operating losses and increasing the ability to deductinterest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company has evaluated the CARES Act and hasdetermined that it does not have a material benefit on its business.Consolidated Appropriations ActOn December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law. The CAA included additional funding through tax credits aspart of its economic package for 2021. The Company evaluated these items in its tax computation as of December 31, 2020 and determined that the items donot have a material benefit on the Company’s consolidated financial statements as of December 31, 2020.Critical Accounting Policies and EstimatesIn preparing the Company’s consolidated financial statements, management makes several estimates and assumptions that affect the Company’s reportedamounts of assets, liabilities, revenues and expenses. Those accounting estimates that have the most significant impact on the Company’s operating results andplace the most significant demands on management’s judgment are discussed below. For all of these policies, management cautions that future events rarelydevelop exactly as forecast, and the best estimates may require adjustment. Revenue Recognition. The Company derives its revenue through three broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3)Training and Consulting services. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segmentand the training and consulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consultingsegment. 33 Table of ContentsThe SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware,software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the trainingsimulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under theSDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over theconstruction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to the Company,and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward completesatisfaction of the performance obligation. PCS revenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation. In applying the cost-to-cost input method, we use the actual costs incurred to date relative to the total estimated costs to measure the work progress toward thecompletion of the performance obligation and recognize revenue accordingly. Estimated contract costs are reviewed and revised periodically as the workprogresses, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified. Estimated losses are recognizedin the period such losses are identified. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, changeorder scope and pricing, software modification and customer acceptance issues. The reliability of these cost estimates is critical to the Company’s revenuerecognition as a significant change in the estimates can cause the Company’s revenue and related margins to change significantly from the amounts estimatedin the early stages of the project. The SDB contracts generally provide a one-year base warranty on the systems. The base warranty is not accounted for as a separate performance obligationunder the contract because it does not provide the customer with a service in addition to the assurance that the completed project complies with agreed-uponspecifications. Warranties extended beyond our typical one-year period, if any, are evaluated on a case by case basis to determine if it provides more than justassurance that the product operates as intended, which would require carve-out as a separate performance obligation. Revenue from the sale of perpetual standalone and term software licenses, which do not require significant modification or customization, is recognized uponits delivery to the customer. Revenue from the sale of cloud-based subscription-based software licenses is recognized ratably over the term of such licensesfollowing delivery to the customer. Delivery is considered to have occurred when the customer receives a copy of the software and is able to use and benefitfrom the software. A software license sale contract with multiple performance obligations typically includes the following elements: license, installation and training services andPCS. The total transaction price of a software license sale contract is typically fixed, and is allocated to the identified performance obligations based on theirrelative standalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license revenue is recognized when thesoftware license is delivered to the customer; installation and training revenue is recognized when the installation and training is completed without regard to adetailed evaluation of the point in time criteria due to the short-term nature of the installation and training services (one to two days on average); and PCSrevenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation. The contracts within the training and consulting services revenue stream are either time and materials (T&M) based or fixed-price based. Under a typical T&Mcontract, the Company is compensated based on the number of hours of approved time provided by workers and the bill rates which are fixed per type of work,as well as approved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance with AccountingStandards Codification (ASC) 606-10-55-18, we elected to apply the “right to invoice” practical expedient, under which we recognize revenue in the amount towhich we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each worker multiplied by the bill rate forthe type of work, as well as approved expenses incurred. Under a typical fixed-price contract, we recognize the revenue on a Percentage of Completion basis asit relates to GSE Construction Contracts with revenue recognized based on project delivery over time. Revenue from the sale of short-term contracts with adelivery period of one month or less is recognized in the month completed.34 Table of ContentsFor contracts with multiple performance obligations, we allocate the contract price to each performance obligation based on its relative standalone selling price.We generally determine standalone selling prices based on the prices charged to customers. Impairment of Intangible Assets, including Goodwill. The Company’s intangible assets impairment analysis includes the use of undiscounted cash flow anddiscounted cash flow models that require management to make assumptions regarding estimates of revenue growth rates and operating margins used tocalculate projected future cash flows, risk-adjusted discount rates and future economic that may impact each asset group. We review goodwill and intangibleassets for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of an asset may not berecoverable. We test goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S.GAAP (See Note 7). Accounting Standards Update (ASU) 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment (ASU 2011-08) permits anentity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as abasis for determining whether it is necessary to perform the two-step goodwill impairment test. An entity is not required to perform step one of the goodwillimpairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount (Step 0). If the Step 0 test indicates the fairvalue of a reporting unit is less than its carrying value, then additional impairment testing is required in accordance with the provisions of ASC 350, Intangibles— Goodwill and Other. Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting forgoodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation. Goodwillimpairment will now be the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of the goodwill.At December 31, 2020, we performed a quantitative step 1 analysis and have concluded that the estimated fair values of each of our reporting units as ofDecember 31, 2020, is more likely than not, greater than their respective carrying values. At December 31, 2019, we performed a quantitative step 1 analysisand have concluded that the estimated fair values of each of our reporting units as of December 31, 2019, exceeded their respective carrying values. Followingthe February 23, 2019 event occurring at a DP Engineering customer location and subsequent receipt of the Notice of Suspension on February 28, 2019, theCompany concluded that DP Engineering’s relationship with it’s largest customer has been adversely impacted. The DP Engineering customer contracts andrelationships were the major components of the definite-lived intangible assets recognized in connection with the acquisition. Accordingly, the Companydetermined that a triggering event had occurred requiring an interim assessment of whether a potential impairment of definite-lived intangible asset impairmenttest was necessary in accordance with the related impairment guidance. As a result, it was determined that a material impairment had occurred, requiring animpairment of $5.6 million of goodwill recorded in 2019. Our goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptions regarding estimates ofgrowth rates used to forecast revenue, operating margin and terminal value as well as determining the appropriate risk-adjusted discount rates and other factorsthat impact fair value determinations. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates andassumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusteddiscount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptionswe believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we makecertain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. The timing andfrequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. Wewill continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present. Capitalization of Computer Software Development Costs. In accordance with U.S. GAAP, the Company capitalizes computer software development costsincurred after technological feasibility has been established, but prior to the release of the software product for sale to customers. Once the product is availableto be sold, the Company amortizes the costs, on a straight-line method, over the estimated useful life of the product, which is typically three years. As ofDecember 31, 2020, the Company has net capitalized software development costs of $0.6 million. On an annual basis, and more frequently as conditionsindicate, the Company assesses the recovery of the unamortized software development costs by estimating the net undiscounted cash flows expected to begenerated by the sale of the product. If the undiscounted cash flows are not sufficient to recover the unamortized software costs, the Company will write-downthe investment to its estimated fair value based on future discounted cash flows. The excess of any unamortized computer software costs over the related netrealizable value is written down and charged to operations. Included in capitalized software development costs are certain expenses associated with thedevelopment software services. These are similarly capitalized, although not subjected to the same recoverability considerations. Significant changes in thesales projections could result in an impairment with respect to the capitalized software that is reported on the Company’s consolidated balance sheets. 35 Table of ContentsDeferred Income Tax Valuation Allowance. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and theirreported amounts in the consolidated financial statements. Management makes a regular assessment of the realizability of the Company’s deferred tax assets.In making this assessment, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences becomedeductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income of the Company in making thisassessment. A valuation allowance is recorded to reduce the total deferred income tax asset to its realizable value. At December 31, 2020, the Company’slargest deferred tax asset was $6.2 million of net operating losses, excluding the impact of uncertain tax positions. It primarily relates to a U.S. net operatingloss carryforward of $6.2 million; $4.6 million of the net operating loss carryforward expires in various amounts between 2023 and 2037; $1.6 million of thenet operating loss carryforward is an indefinite lived deferred tax asset. The Company does not believe that it is more likely than not that it will be able torealize its deferred tax assets for its U.S. and foreign deferred tax assets at December 31, 2020, therefore we have recorded a $9.2 million valuation allowancefor our net deferred tax assets.Liquidity and Capital Resources. As of December 31, 2020, GSE had cash and cash equivalents of $6.7 million compared to $11.7 million at December 31, 2019. For the years ended December 31, 2020 and 2019, net cash provided by operating activities totaled $1.1 million and $4.0 million, respectively. The year overyear decrease in cash provided by operating activities was largely driven by: •A $0.8 million increase in net inflows from changes in net working capital primarily due to a lower accounts receivable balance as of December31, 2020 compared to prior year. •A $0.6 million decrease in operating expenses (excluding non-cash operating expenses) mainly driven by higher administrative cost in 2019 dueto acquisitions. •A $5.5 million decrease in gross profit, primarily driven by lower revenue due to COVID-19. Net cash used in investing activities. For the year ended December 31, 2020, net cash used in investing activities was $0.3 million compared to net cash of$14.1 million used in investing activities in the prior year. The increase in cash outflow in 2019 was primarily due to the acquisition of DP Engineering, whichresulted in a cash outflow of $13.5 million. Net cash (used in) provided by financing activities. For the years ended December 31, 2020 and 2019, net cash (used in) provided by financing activitiestotaled $(6.1) million and $9.7 million, respectively. The increase in the cash used by financing activities is largely driven by the repayment of a long-term debtof $18.5 million, net of the proceeds from Paycheck Protection Program loan of $10.0 million and from line of credit of $3.0 million.Paycheck Protection Program Loan (“PPP Loan”) We entered into the PPP Loan agreement with the Bank, which was approved and funded on April 23, 2020, pursuant to the Paycheck Protection Programunder the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 23, 2022 and bears interest at a rate of 1.0%per annum. Monthly amortized principal and interest payments are due for any portion of the loan balance that is not forgiven and are automatically deferred orten months after the last day of our covered period through August 9, 2021.The PPP Loan contains events of default and other provisions customary for a loan of this type, including: (1) the use of PPP Loan amount shall be limited tocertain qualifying expenses, (2) 100% of the principal amount of the loan is guaranteed by the Small Business Administration (“SBA”) and (3) an amount up tothe full principal amount may qualify for loan forgiveness in accordance with the terms of CARES Act. We have accumulated forgivable expenses beyond ourloan amount and provided all prescribed support with our application for forgiveness with our Bank. Our Bank has reviewed our application for forgivenessand associated documentation, forwarding it to the SBA with their determination that the loan is fully forgivable on February 26, 2021. However, we areultimately subject to the SBA’s process and conclusion for forgiveness. To the extent the loan amount is not forgiven under the PPP, we are obligated to makeequal monthly payments of principal and interest, beginning after determination of forgiveness by the SBA. As of December 31, 2020, we have classified the $10.0 million of outstanding PPP Loan and accrued interest of $69 thousand as debt in our consolidatedbalance sheets. We classified $5.0 million as current and $5.0 million as noncurrent in our consolidated balance sheets. We recorded $69 thousand of interestexpense during the year ended December 31, 2020.36 Table of ContentsThe Company notes the short term liability value for its PPP Loan in the Q3 2020 financial statements was reported as $447 thousand and should have been$1,256 thousand, a $809 thousand change off-set by an equal amount in its long term liability value for the PPP Loan. The Company has made this correctionin the Q4 consolidated balance sheets and deems it to be immaterial. As of December 31, 2020, the Company was in full compliance with all requirements in order to apply for forgiveness under the PPP Loan.Credit FacilitiesOn December 29, 2016, we entered into a 3-year $5.0 million revolving line of credit facility (“RLOC”) with the Bank to fund general working capital needsand provide funding for acquisitions. The credit facility agreement was subject to certain financial covenants and reporting requirements. On May 11, 2018, we entered into the Amended and Restated Credit and Security Agreement (“the Credit Agreement”) with the Bank to include (a) a $5.0million revolving credit facility, not be subject to a borrowing base, with a letter of credit sub-facility, and (b) a $25.0 million delayed draw term loan facilityavailable to be drawn upon for up to 18 months to finance certain permitted acquisitions. The credit facilities had a term of five years and accrued interest atone-month USD LIBOR plus a margin that varies depending on our overall leverage ratio. Revolving loans are interest-only with principal due at maturity,while term loans require monthly payments of principal and interest based on an amortization schedule. Our obligations under the Credit Agreement areguaranteed by our wholly owned subsidiaries Hyperspring, Absolute, True North, DP Engineering and by any future material domestic subsidiaries(collectively, the Guarantors). On January 6, 2020, due to a projected violation of our covenants, we entered into the Sixth Amendment and Reaffirmation Agreement and effective onDecember 31, 2019 with our Bank to relax the fixed charge coverage ratio and leverage ratio and delay testing of both financial covenants. We agreed to anadditional covenant, requiring us to maintain a consolidated Adjusted EBITDA target of $4.3 million, tested quarterly as of December 31, 2019, March 31,2020 and June 30, 2020. Further, we agreed to maintain a minimum USA liquidity of at least $5.0 million in the aggregate, tested bi-weekly as of the fifteenthand the last day of each month, beginning on December 31, 2019 and until June 30, 2020. In addition to the revised covenants, we agreed to make acceleratedprincipal payments of $3.0 million on January 6, 2020; $1.0 million on March 31, 2020; and $1.0 million on June 30, 2020. We incurred $20 thousand of debtissuance costs related to this amendment. On April 17, 2020, effective March 31, 2020, we entered into the Seventh Amendment and Reaffirmation Agreement, which requires us to maintain a minimumfixed charge coverage ratio of 1.25 to 1.00, tested quarterly as of the last day of each quarter, beginning with the quarter ending June 30, 2021. In addition, weagreed to not exceed a maximum leverage ratio, tested quarterly as of the last day of each quarter and beginning with the quarter ending September 30, 2020 asfollows: (i) 3.00 to 1.00 for the period ending September 30, 2020; (ii) 2.50 to 1.00 for the period ending December 31, 2020; and (iii) 2.25 to 1.00 for theperiod ending March 31, 2021 and for the periods ending December 31, March 31, June 30 and September 30, thereafter. We additionally agreed to makeaccelerated principal payments of $0.75 million on April 17, 2020 and $0.5 million on June 30, 2020. We incurred $50 thousand of debt issuance costs relatedto this amendment.On August 28, 2020, we signed the Eighth Amendment and Reaffirmation Agreement, with an effective date of June 29, 2020, due to violating our minimumAdjusted EBITDA covenant during the three months ended June 30, 2020. As part of the amendment, we agreed to pay $10 million to the Bank during the yearended December 31, 2020, of which $0.7 million was paid to reduce our RLOC and $9.1 million to pay-off the term debt. We paid out $0.2 million for theunwinding of the interest rate swap agreement during the year. We incurred $10 thousand in additional debt issuance costs related to the amendment, which weexpensed along with a $70 thousand previously deferred debt issuance cost during the year ended December 31, 2020.37 Table of ContentsThe amendment removed our minimum Adjusted EBITDA covenant and changed our other debt covenants on an ongoing basis as follows: our maximum fixedcharge coverage ratio will be tested quarterly as of the last day of each quarter, beginning with the quarter ending December 31, 2021 and must be 1.00 to 1.00;our leverage ratio will be tested quarterly, starting on March 31, 2021 as follows: (i) 3.00 to 1.00 for the period ending March 31, 2021; (ii) 2.75 to 1.00 for theperiod ending June 30, 2021, (iii) 2.50 to 1.00 for the period ending September 30, 2021, and (iv) 2.00 to 1.00 for the period ending December 31, 2021 and forthe periods ending each December 31st, March 31st, June 30th and September 30th thereafter. We are also required to maintain a minimum of $3.5 million inaggregate USA liquidity, which was tested on September 15, 2020 and will be tested bi-weekly on an on-going basis. We are currently projecting to be inviolation of our Q1 2021 leverage ratio and are considering several options at our disposal to address the matter (See Note 1).On March 29, 2021, due to a projected violation of Q1 2021 leverage ratio, we signed the Ninth Amendment and Reaffirmation Agreement with an effectivedate of March 29, 2021 (See Note 25). The PPP Loan does not factor into the expenses or liabilities used in the calculation of our debt covenants, unless we determine that more than $1 million of theoriginal PPP Loan balance will not be forgiven. The Bank agreed to remove its collateral agreement with the Company’s subsidiaries as part of the repaymentof our outstanding term loans during the year ended December 31, 2020. As of December 31, 2020, we had outstanding borrowings of $3.0 million under the RLOC and three letters of credit totaling $933 thousand outstanding tocertain of our customers. After consideration of letters of credit, the amount available under the RLOC was approximately $1.1 million as of December 31,2020. At December 31, 2019, there were no outstanding borrowings under the RLOC and four letters of credit totaling $1.2 million. The amount available atDecember 31, 2019, after consideration of the letters of credit was approximately $3.8 million. We intend to continue using the RLOC for short-term working capital needs and the issuance of letters of credit in connection with business operations. Letterof credit issuance fees range between 1.25% and 2.00% of the value of the letter of credit, depending on our overall leverage ratio. We pay an unused RLOCfee quarterly based on the average daily unused balance.Going Concern Consideration In 2019, our operating results were negatively impacted by the loss of a major customer in our DP Engineering subsidiary. In 2020, we had several projectsdelayed and new orders postponed because of the COVID-19 pandemic. We have amended our credit facility with Citizens Bank in 2020 based upon expectedcovenant violations and have been required to curtail term debt in exchange for revised financial covenants. Scheduled term loan repayments and agreed uponcurtailment required us to use $18.5 million in available cash to pay-off our term debt in 2020. As such, our working capital position on December 31, 2020was a deficit of $2.7 million. This working capital deficit includes $5.0 million from current maturities on our PPP loan, which we expect will be forgiven andhave not received any indications to the contrary (See Note 4). If the PPP loan is not forgiven, in part or in whole, we will work with our bank to extendrepayment terms as permitted to mitigate the impact on our cashflows. However, if unforgiven and unamended, our PPP loan would be due April 23, 2022 inpart or in whole and may stress our free cash flow and the business to a degree that may cause our covenants to fail. The COVID-19 macroeconomic environment is considered fluid and although recovery is anticipated to steadily occur over the next 12 months, a furtherdecline will stress our ability to meet covenant requirements. Further continuance of delays in commencing work on outstanding orders or a continued loss oforders, further disruption of our business because of worker illness or mandated shutdowns may also exacerbate the situation. Jurisdictions where ourbusinesses operate across the country are pushing toward re-opening places of business and government support, through the American Rescue Plan Act of2021, will continue support the broad economy on that path. However, the timing of these elements taking place are not predictable and may not serve tomitigate our situation or improve our specific company’s health. We signed the Ninth Amendment and Reaffirmation Agreement (the “Nineth Amendment”), with our bank on March 29, 2021 to waive the fixed chargecoverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and to adjust the thresholds for future covenants to ease the risk of non-compliance experienced in previous quarters (See Note 25). However, our new covenant compliance is dependent on meeting future projections which aresubject to the variability and unknown speed and extent of post-COVID-19 recovery. 38 Table of ContentsThe company also maintains options to compensate for a further decline in operations to bolster cash positions by raising capital through its access to the publicmarkets or entering alternative finance arrangements afforded to it through established financial relationships. Impact to net income could be mitigated throughone or many of the various cost cutting measures at its disposal, directed at compensation, vendor augmentation or delay of investment initiatives in itscorporate office. These actions and options, which are further supported by positively trending macroeconomic conditions, and the potential to see recovering business andorders ease the risk to the bank covenants experienced in previous quarters. However, when considering the unpredictability of the above, there continues to besubstantial doubt the Company will continue as a going concern over the next twelve months.Foreign Exchange. A portion of the Company’s international sales revenue has been and may be received in a currency other than the currency in which the expenses relating tosuch revenue are paid. Accordingly, the Company periodically enters into forward foreign exchange contracts to manage the market risks associated with thefluctuations in foreign currency exchange rates. As of December 31, 2020, the Company did not hold a position in forward foreign exchange contracts. Off-balance Sheet Obligations. The Company has no off-balance sheet obligations as of December 31, 2020, except for its operating lease commitments and outstanding letters of credit andsurety bonds. Other Matters. Management believes inflation has not had a material impact on the Company’s operations. 39 Table of ContentsEBITDA and Adjusted EBITDA Reconciliation (in thousands) References to “EBITDA” mean net (loss) income, before taking into account interest expense (income), provision for income taxes, depreciation andamortization. References to Adjusted EBITDA exclude the impact of loss on impairment, change in fair value of contingent consideration, restructuringcharges, stock-based compensation expense, change in fair value of derivative instruments, acquisition-related expense, acquisition-related legal settlement.EBITDA and Adjusted EBITDA are not measures of financial performance under generally accepted accounting principles (GAAP). Management believesEBITDA and Adjusted EBITDA, in addition to operating profit, net income and other GAAP measures, are useful to investors to evaluate the Company’sresults because it excludes certain items that are not directly related to the Company’s core operating performance that may, or could, have a disproportionatepositive or negative impact on our results for any particular period. Investors should recognize that EBITDA and Adjusted EBITDA might not be comparable tosimilarly-titled measures of other companies. This measure should be considered in addition to, and not as a substitute for or superior to, any measure ofperformance prepared in accordance with GAAP. A reconciliation of non-GAAP EBITDA and Adjusted EBITDA to the most directly comparable GAAPmeasure in accordance with SEC Regulation G follows: Three Months EndedDecember 31, Twelve Months EndedDecember 31, 2020 2019 2020 2019 Net loss $(1,469) $(6,349) $(10,537) $(12,085)Interest expense 67 176 623 988 Provision for income taxes 189 6,607 355 5,733 Depreciation and amortization 582 732 2,612 3,129 EBITDA (631) 1,166 (6,947) (2,235)Litigation 568 - 477 - Loss on impairment - 133 4,302 5,597 Change in fair value of contingent consideration - - - (1,200)Restructuring charges 1,102 1,736 1,297 2,478 Stock-based compensation expense 21 270 378 1,420 Change in fair value of derivative instruments 52 (56) 17 13 Acquisition-related expense 1 - 192 744 Acquisition-related legal settlement - (2,025) - (2,025)Adjusted EBITDA $1,113 $1,224 $(284) $4,792 40 Table of ContentsAdjusted Net (Loss) Income and Adjusted EPS Reconciliation (in thousands, except per share amounts)References to Adjusted net (loss) income exclude the change in fair value of contingent consideration, loss on impairment, restructuring charges, stock-basedcompensation expense, change in fair value of derivative instruments, acquisition-related expense, acquisition-related legal settlement, amortization ofintangible assets related to acquisitions, release of valuation allowance, and income tax expense impact of adjustments. Adjusted Net Income and adjustedearnings per share (adjusted EPS) are not measures of financial performance under GAAP. Management believes adjusted net income and adjusted EPS, inaddition to other GAAP measures, are useful to investors to evaluate the Company’s results because they exclude certain items that are not directly related tothe Company’s core operating performance and non-cash items that may, or could, have a disproportionate positive or negative impact on our results for anyparticular period. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared inaccordance with GAAP. A reconciliation of non-GAAP adjusted net income and adjusted EPS to GAAP net income, the most directly comparable GAAPfinancial measure, is as follows: Three Months endedDecember 31, Twelve Months endedDecember 31, 2020 2019 2020 2019 (unaudited) (unaudited) audited audited Net loss $(1,469) $(6,349) $(10,537) $(12,085)Litigation 568 - 477 - Loss on impairment - 133 4,302 5,597 Change in fair value of contingent consideration - - - (1,200)Restructuring charges 1,102 1,736 1,297 2,478 Stock-based compensation expense 21 270 378 1,420 Change in fair value of derivative instruments 52 (56) 17 13 Acquisition-related expense 1 - 192 744 Acquisition-related legal settlement - (2,025) - (2,025)Amortization of intangible assets related to acquisitions 415 596 1,943 2,400 Valuation allowance 1,589 6,820 1,589 6,820 Income tax expense impact of adjustments 345 5,612 345 3,851 Adjusted net income $2,624 $6,737 $3 $8,013 Diluted earnings (loss) per common share $(0.07) $(0.31) $(0.52) $(0.60) Adjusted earnings (loss) per common share – Diluted $0.13 $0.33 $0.00 $0.39 Weighted average shares outstanding – Diluted 20,646,910 20,560,399 20,439,157 20,376,255 41 Table of ContentsITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Not required of a smaller reporting company.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageGSE Systems, Inc. and Subsidiaries Report of Independent Registered Public Accounting Firms43 Consolidated Balance Sheets as of December 31, 2020 and 201948 Consolidated Statements of Operations for the Years ended December 31, 2020 and 201949 Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2020 and 201950 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2020 and 201951 Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 201952 Notes to Consolidated Financial Statements5342 Table of ContentsReport of Independent Registered Public Accounting FirmShareholders and the Board of Directors of GSE Systems, Inc.Opinion on the Consolidated Financial StatementWe have audited the accompanying consolidated balance sheet of GSE Systems, Inc. (the “Company”) as of December 31, 2020, the related consolidatedstatements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows, for the year ended December 31, 2020, and the related notes(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for the year ended December 31, 2020, inconformity with U.S. generally accepted accounting principles.Going Concern UncertaintyThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1to the consolidated financial statements, the Company has incurred losses from operations for the years ended December 31, 2020 and 2019 and has negativeworking capital as of December 31, 2020. In addition, the continued impact of the COVID-19 pandemic on the Company’s operating results and compliancewith future debt covenant requirements under the Company’s credit facility raises substantial doubt about the Company’s ability to continue as a going concern.Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulesand regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understandingof internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion.Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as wellas evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that werecommunicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidatedfinancial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alterin any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providingseparate opinions on the critical audit matters or on the accounts or disclosures to which they relate.43 Table of ContentsGoodwill Impairment AssessmentAt December 31, 2020, the Company’s goodwill was $13.3 million. As discussed in Notes 1 and 7 of the consolidated financial statements, the Companyreviews goodwill for impairment at the reporting unit level annually as of December 31 and whenever events or changes in circumstances indicate the carryingvalue of goodwill may not be recoverable.During the first quarter of fiscal 2020, the Company determined that the impact of the COVID-19 pandemic on its operations was an indicator of a triggeringevent that could result in potential impairment of goodwill. As such, the Company performed a Step 1 goodwill analysis whereby, they compared the fair valueof each reporting unit to its respective carrying value. In performing this analysis, the Company makes certain judgments and assumptions in allocating assetsand liabilities to each reporting unit for purposes of determining the respective carrying values. Based upon this analysis, the Company determined the fairvalue of goodwill at the reporting unit levels exceeded the carrying value and thus there was no impairment as of the period ended March 31, 2020. The Step 1analysis was updated as of December 31, 2020 for the Company’s annual impairment test; this analysis also noted no impairment of goodwill as of such date.The Company’s goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make various assumptions andestimates, the most significant of which are revenue growth rates and operating margins used to calculate projected future cash flows, and risk-adjusteddiscount rates.We identified the goodwill impairment assessment as a critical audit matter. The principal considerations for our determination are the high degree of auditorjudgment and subjectivity in evaluating management’s significant assumptions used in the discounted cash flow model, particularly as it relates to evaluatingrevenue growth rates and operating margins.The primary procedures we performed to address this critical audit matter included:•Obtained an understanding of management’s process for developing fair value estimates including testing the completeness, accuracy, and relevanceof underlying data and evaluating significant management assumptions by comparing historical revenue and operating results to budgeted amounts;and reviewing backlog and projected revenues giving consideration to the impact the COVID-19 pandemic has had on the Company’s operations.•Performed a sensitivity analysis of significant assumptions, particularly as it relates to revenue growth rates and operating margin, and evaluated theimpact on future cash flows that form the basis of fair value for the reporting units.•Utilized personnel with specialized knowledge and skills in valuation to assist in: (i) assessing the appropriateness of the fair value methodology, (ii)evaluating the reasonableness of certain assumptions used including the discount rates, and (iii) testing the mathematical accuracy of the discountedcash flow model.Intangible Assets ImpairmentAt December 31, 2020, the Company’s intangible assets were $4.2 million. As discussed in Notes 1 and 7 of the consolidated financial statements, theCompany’s intangible assets include amounts recognized in connection with business acquisitions. These intangibles include customer relationships, tradenames, non-compete agreements and alliance agreements. Due to the impact of the COVID-19 pandemic as discussed above, definite-lived intangible assetswere reviewed for impairment as of March 31, 2020. The undiscounted cash flows evidenced impairment for the DP Engineering asset group. As such, theCompany used a discounted cash flow model to determine the fair value of the DP Engineering asset group and recorded an impairment charge of $4.3 millionas of the three months ended March 31, 2020. The Company updated its intangible asset impairment testing as of December 31, 2020. As a result of thatanalysis, the Company concluded there was no impairment for intangible assets as of such date.44 Table of ContentsThe Company’s intangible asset impairment analysis includes the use of undiscounted and discounted cash flow models that require management to makeassumptions regarding estimates of revenue growth rates and operating margins used to calculate projected future cash flows.We identified the intangible assets impairment assessment as a critical audit matter. The principal considerations for our determination are the high degree ofauditor judgment and subjectivity in evaluating management assumptions used in the cash flow models, particularly as it relates to evaluating revenue growthrates and operating margins.The primary procedures we performed to address this critical audit matter included:•Obtained an understanding of management’s process for developing fair value estimates including testing the completeness, accuracy, and relevanceof underlying data and evaluating significant management assumptions by comparing historical revenue and operating results to budgeted amounts;and reviewing backlog and projected revenues giving consideration to the impact the COVID-19 pandemic has had on the Company’s operations.•Performed a sensitivity analysis of significant assumptions, particularly as it relates to revenue growth rates and operating margins, and evaluating theimpact on the fair values that would result from changes in the assumptions.•Utilized personnel with specialized knowledge and skills in valuation to assist in: (i) assessing the appropriateness of the fair value methodology, (ii)evaluating the reasonableness of certain assumptions used including the discount rates, and (iii) testing the mathematical accuracy of the discountedcash flow model.Revenue recognition -Estimates-at-CompletionAs described in Notes 1 and 5 to the consolidated financial statements, the Company derives its revenue through three broad revenue streams: 1) SystemDesign and Build (SDB), 2) Software, and 3) Training and Consulting services. The Company recognizes revenue from SDB and software contracts mainlythrough the Performance Improvement Solutions segment and the training and consulting service contracts through both the Performance ImprovementSolutions segment and Nuclear Industry Training and Consulting segment.The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware,software, labor, and post contract support (PCS). The Company generally has two main performance obligations for an SDB contract: the training simulatorbuild and PCS. The transaction price under the SDB contracts is allocated to each performance obligation based on its standalone selling price. The Companyrecognizes revenue for the training simulator build over the construction and installation period, using the cost-to-cost input method.In applying the cost-to-cost input method, the Company uses the actual costs incurred to date, relative to the total estimated costs, to measure the work progresstowards the completion of the performance obligation, and recognizes revenue over time as control is transferred to a customer. Estimated contract costs arereviewed and revised periodically during the contract period, and the cumulative effect of any change in estimates is recognized in the period in which thechange is identified.Management’s judgments and estimates involved in the initial creation and subsequent updates to the Company’s estimates-at-completion and related profitrecognized are critical for revenue recognition associated with SDB contracts. Inputs and assumptions requiring significant management judgments includedanticipated direct labor, subcontract labor, and other direct costs required to deliver on unfinished performance obligations. Significant changes to costestimates can result in variances in revenue and related margins.We identified the revenue recognition associated with SDB contracts as a critical audit matter. The principal considerations for our determination are the highdegree of auditor judgment and subjectivity in evaluating management’s judgments involved in the creation and subsequent updates to the Company’sestimates-at-completion and related profit recognition, particularly as it relates to evaluating anticipated direct labor, subcontract labor, and other direct costs.We also considered the material weakness identified by management over the management review of reconciliations over unbilled receivables and billings inexcess of revenue earned on our audit procedures.45 Table of ContentsThe primary procedures we performed to address this critical audit matter included:•We obtained an understanding of management’s process for applying the cost-to-cost method to SBD contracts, including management’s process fordeveloping, revising, and applying estimates-at-completion and the on-going monitoring.•For a sample of contracts, we evaluated inputs and assumptions requiring significant management judgments included within the Company’sestimation of costs to complete by performed the following:•Inspected the underlying contract, related amendments, and change orders (if any) to test the existence of customer arrangements and obtainan understanding of the contractual requirements and related performance obligations.•Tested actual costs incurred to-date and assessed the relative progress toward satisfying the performance obligation(s) of the contract.•Evaluated the estimation of costs to complete including anticipated direct labor, subcontract labor, and other direct cost by:•Inquiring of financial and operational personnel of the Company and evaluating factors within the cost to complete estimates thatmay demonstrate indication of potential management bias.•Inspecting correspondences, if any, between the Company and the customer regarding actual to- date and expected performance.•Evaluating the sufficiency of the Company’s assessment of contract performance risks included within the estimated costs tocomplete.•Performing a “look back” analysis by comparing the Company’s historical estimates of costs to complete to actual costs incurred insubsequent documentation to assess the Company’s ability to develop reliable cost estimates.•In response to the material weakness noted above, we obtained account reconciliations of unbilled receivables and billings in excess of revenue earnedas of December 31, 2020, evaluated the accuracy and completeness of the schedules, and agreed such reconciliations to the trial balance to determinewhether reconciling items were appropriate./S/ D H G LLPWe have served as the Company’s auditor since 2020.Tysons, VirginiaApril 13, 202146 Table of ContentsReport of Independent Registered Public Accounting FirmShareholders and Board of DirectorsGSE Systems, Inc.Columbia, MarylandOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheet of GSE Systems, Inc. (the “Company”) as of December 31, 2019, the related consolidatedstatements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to asthe “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of theCompany at December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generallyaccepted in the United States of America.Going Concern UncertaintyThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1to the 2019 Form 10-K and accompanying consolidated financial statements, the Company has suffered recurring losses from operations and has negativeworking capital as of December 31, 2019. In addition, the risk of future covenant defaults under the Company’s credit agreement raises substantial doubt aboutthe Company’s ability to continue as a going concern. Management’s plans in regard to these matters were also described in Note 1 to the 2019 consolidatedfinancial statements. The 2019 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulesand regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understandingof internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion.Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as wellas evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion./S/ BDO USA, LLPWe served as the Company’s auditor from 2014 through 2020.McLean, VirginiaJune 11, 202047 Table of ContentsPART I - FINANCIAL INFORMATIONItem 1. Financial StatementsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $6,702 $11,691 Contract receivables, net 10,494 17,207 Prepaid expenses and other current assets 1,554 1,880 Total current assets 18,750 30,778 Equipment, software and leasehold improvements, net 616 939 Software development costs, net 630 641 Goodwill 13,339 13,339 Intangible assets, net 4,234 10,479 Deferred tax assets - 57 Operating lease right-of-use assets, net 1,562 2,215 Other assets 59 61 Total assets $39,190 $58,509 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Line of credit $3,006 $- Paycheck Protection Program Loan, current portion 5,034 - Debt, net of issuance costs and discount - 18,481 Accounts payable 570 1,097 Accrued expenses 1,297 1,871 Accrued compensation 1,505 1,876 Billings in excess of revenue earned 5,285 7,613 Accrued warranty 665 921 Income taxes payable 1,621 1,341 Other current liabilities 2,498 1,234 Total current liabilities 21,481 34,434 Paycheck Protection Program Loan, noncurrent portion 5,034 - Operating lease liabilities noncurrent 1,831 3,000 Other noncurrent liabilities 339 956 Total liabilities 28,685 38,390 Commitments and contingencies Stockholders’ equity: Preferred stock $.01 par value; 2,000,000 shares authorized; no shares issued and outstanding - - Common stock $0.01 par value; 60,000,000 shares authorized, 22,192,569 and 21,838,963 shares issued, 20,593,658and 20,240,052 shares outstanding, respectively 222 218 Additional paid-in capital 79,687 79,400 Accumulated deficit (65,191) (54,654)Accumulated other comprehensive loss (1,214) (1,846)Treasury stock at cost, 1,598,911 shares (2,999) (2,999)Total stockholders’ equity 10,505 20,119 Total liabilities and stockholders’ equity $39,190 $58,509 The accompanying notes are an integral part of these consolidated financial statements.48 Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Years ended December 31, 2020 2019 Revenue $57,620 $82,975 Cost of revenue 42,835 62,677 Gross profit 14,785 20,298 Operating expenses Selling, general and administrative 15,765 16,169 Research and development 686 710 Restructuring charges 1,297 2,478 Loss on impairment 4,302 5,597 Depreciation 330 363 Amortization of definite-lived intangible assets 1,943 2,400 Total operating expenses 24,323 27,717 Operating loss (9,538) (7,419) Interest expense (623) (988)Loss on derivative instruments, net (17) (13)Other (expense) income, net (4) 2,068 Loss before income taxes (10,182) (6,352)Provision for income taxes 355 5,733 Net loss $(10,537) $(12,085) Net loss per common share - basic $(0.52) $(0.60) Diluted loss per common share $(0.52) $(0.60) Weighted average shares outstanding used to compute net loss per share - basic 20,439,157 20,062,021 Weighted average shares outstanding - Diluted 20,439,157 20,062,021 The accompanying notes are an integral part of these consolidated financial statements.49 Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands) Years ended December 31, 2020 2019 Net loss $(10,537) $(12,085)Cumulative translation adjustment 632 (211)Comprehensive loss $(9,905) $(12,296)The accompanying notes are an integral part of these consolidated financial statements.50 Table of ContentsGSE SYSTEMS, INC, AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(in thousands) CommonStock AdditionalPaid-in Accumulated AccumulatedOtherComprehensive Treasury Stock Shares Amount Capital Deficit Loss Shares Amount Total Balance, January 1, 2019 21,485 $214 $78,118 $(42,569) $(1,635) (1,599) $(2,999) $31,129 Stock-based compensation expense - - 1,513 - - - - 1,513 Common stock issued for options exercised 9 1 - - - - - 1 Common stock issued for RSUs vested 345 3 (3) - - - - - Shares withheld to pay taxes - - (228) - - - - (228)Foreign currency translation adjustment - - - - (211) - - (211)Net loss - - - (12,085) - - - (12,085)Balance, December 31, 2019 21,839 $218 $79,400 $(54,654) $(1,846) (1,599) $(2,999) $20,119 Stock-based compensation expense - - 378 - - - - 378 Common stock issued for RSUs vested 354 4 (4) - - - - - Shares withheld to pay taxes - - (87) - - - - (87)Foreign currency translation adjustment - - - - 632 - - 632 Net loss - - - (10,537) - - - (10,537)Balance, December 31, 2020 22,193 $222 $79,687 $(65,191) $(1,214) (1,599) $(2,999) $10,505 The accompanying notes are an integral part of these consolidated financial statements.51 Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years ended December 31, 2020 2019 Cash flows from operating activities: Net loss $(10,537) $(12,085)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Loss on impairment 4,302 5,597 Depreciation 330 363 Amortization of intangible assets 1,943 2,400 Amortization of deferred financing costs 82 - Amortization of capitalized software development costs 339 366 Change in fair value of contingent consideration - (1,200)Stock-based compensation expense 378 1,513 Bad debt expense 103 31 Loss on derivative instruments, net 17 13 Deferred income taxes - 5,349 Gain on sale of assets (5) (66)Changes in assets and liabilities: Contract receivables, net 6,901 6,754 Prepaid expenses and other assets 81 532 Accounts payable, accrued compensation and accrued expenses (1,498) (3,458)Billings in excess of revenue earned (2,374) (3,051)Accrued warranty (721) (294)Other liabilities 1,777 1,240 Net cash provided by operating activities 1,118 4,004 Cash flows from investing activities: Capital expenditures (13) (131)Proceeds from sale of equipment 11 13 Capitalized software development costs (328) (392)Acquisition of DP Engineering, net of cash acquired - (13,542)Net cash used in investing activities (330) (14,052) Cash flows from financing activities: Proceeds from line of credit 4,752 - Repayment of line of credit (1,746) - Payment of insurance premium (204) - Proceeds from issuance of long-term debt - 14,263 Repayment of long-term debt (18,481) (4,294)Proceeds from Paycheck Protection Program Loan 10,000 - Proceeds from issuance of common stock - 1 Termination fee on Interest rate swap agreement (209) - Shares withheld to pay taxes (87) (228)Deferred financing costs (91) - Net cash (used in) provided by financing activities (6,066) 9,742 Effect of exchange rate changes on cash 289 (126)Net decrease in cash and cash equivalents (4,989) (432)Cash, cash equivalents at beginning of year 11,691 12,123 Cash, cash equivalents at end of year $6,702 $11,691 The accompanying notes are an integral part of these consolidated financial statements.52 Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2020 and 20191. Summary of Significant Accounting PoliciesPrinciples of consolidationGSE Systems, Inc. is a leading provider of professional and technical engineering, staffing services, and simulation software to clients in the power and processindustries. References in this report to “GSE,” the “Company,” “we” and “our” are to GSE Systems and its subsidiaries, collectively. All intercompany balancesand transactions have been eliminated in consolidation.Accounting estimatesThe preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (U.S.GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoingbasis, the Company evaluates the estimates used, including, but not limited to those related to revenue recognition on long-term contracts, allowance fordoubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, impairment of long-lived assets to be disposed of, valuation ofcontingent consideration issued in business acquisitions, valuation of stock-based compensation awards and the recoverability of deferred tax assets. Actualresults could differ from these estimates.Business combinations Business combinations are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”),ASC 805, Business Combinations, using the acquisition method. Under the acquisition method, the identifiable assets acquired, liabilities assumed and anynon-controlling interest in the acquiree are recognized at fair value on the acquisition date, which is the date on which control is transferred to the Company.Any excess purchase price is recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred. Revenues and the results of operations of the acquired business are included in the accompanying consolidated statements of operations commencing on thedate of acquisition. Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Under ASC 805, contingentconsideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections ofthe acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to estimated fairvalue, and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause amaterial impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods andrates, changes in the timing and amount of revenue and/or earnings estimates, and changes in probability assumptions with respect to the likelihood ofachieving the various earn-out criteria.Revenue recognitionThe Company derives its revenue through three broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3) Training and Consultingservices. We recognize revenue from SDB and software contracts mainly through the Performance Improvement Solutions segment and the training andconsulting service contracts through both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment. 53 Table of ContentsThe SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware,software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the trainingsimulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under theSDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over theconstruction and installation period using the cost-to-cost input method. In applying the cost-to-cost input method, we use the actual costs incurred to daterelative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue over time ascontrol transfers to a customer. Estimated contract costs are reviewed and revised periodically during the contract period, and the cumulative effect of anychange in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses become known. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, softwaremodification and customer acceptance issues. The reliability of these cost estimates is critical to the Company’s revenue recognition as a significant change inthe estimates can cause the Company’s revenue and related margins to change significantly from previous estimates. Management judgments and estimates involved in the initial creation and subsequent updates to the Company’s estimates-at-completion and related profitrecognized are critical for our revenue recognition associated with SDB contracts. Inputs and assumptions requiring significant management judgment includedanticipated direct labor, subcontract labor, and other direct costs required to deliver on unfinished performance obligations.The SDB contracts generally provide a one-year base warranty on the systems. The base warranty will not be accounted for as a separate performanceobligation under the contract because it does not provide the customer with a service in addition to the assurance that the completed project complies withagreed-upon specifications. Warranties extended beyond our typical one-year period will be evaluated on a case by case basis to determine if it provides morethan just assurance that the product operates as intended, which requires carve-out as a separate performance obligation. Revenue from the sale of perpetual standalone and term software licenses, which do not require significant modification or customization, is recognized uponits delivery to the customer. Revenue from the sale of cloud-based, subscription-based software licenses is recognized ratably over the term of such licensesfollowing delivery to the customer. Delivery is considered to have occurred when the customer receives a copy of the software and is able to use and benefitfrom the software. A software license sale contract with multiple deliverables typically includes the following elements: license, installation and training services, and PCS. Thetotal transaction price of a software license sale contract is typically fixed, and is allocated to the identified performance obligations based on their relativestandalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license revenue is recognized when the softwarelicense is delivered to the customer; installation and training revenue are recognized when the installation and training are completed without regard to adetailed evaluation of the point in time criteria due to the short-term nature of the installation and training services (one to two days on average); and PCSrevenue is recognized ratably over the service period, as PCS is deemed as a stand-ready obligation. The contracts within the training and consulting services revenue stream are either time and materials (T&M) based or fixed-price based. Under a typical T&Mcontract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed bytype of work, as well as approved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance withASC 606-10-55-18, Revenue from contracts with customers, we elected to apply the “right to invoice” practical expedient, under which we recognize revenuein the amount to which we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary workermultiplied by the bill rate for the type of work, as well as approved expenses incurred. Under a typical fixed-price contract, we recognize the revenue on aPercentage of Completion basis as it relates to GSE Construction Contracts with revenue recognized based on project delivery over time. Revenue from thesale of short-term contracts with a delivery period of one month or less is recognized in the month completed.For contracts with multiple performance obligations, we allocate the contract price to each performance obligation based on its relative standalone selling price.We generally determine standalone selling prices based on the prices charged to customers.The transaction price for Software contracts is generally fixed, and we recognize revenue upon delivery of the software, with fees due in advance or shortlyafter delivery of the software.54 Table of ContentsWe recognize Training and Consulting Services revenue as services are performed and bill our customers for services that we have provided on a regular basis(i.e. weekly, biweekly or monthly) and in time with revenue recognition.Contract asset, which we classify as unbilled receivables, relates to performance under the contract for obligations that are satisfied but not yet billed. Contractassets are recognized as revenue as they occur.Contract liability, which we classify as billing-in-excess of revenue earned, relates to payments received in advance of performance under the contract.Contract liabilities are recognized as revenue as performance obligations are satisfied.Cash and cash equivalentsCash and cash equivalents represent cash and highly liquid investments including money market accounts with maturities of three months or less at the date ofpurchase.Contract receivables, net and contract asset and liabilitiesContract receivables include recoverable costs and accrued profit not billed which represents revenue recognized in excess of amounts billed. Contract asset(unbilled receivables) include amounts earned in performance of services that have not been invoiced. Contract liabilities include billings in excess of revenueearned on uncompleted contracts in the accompanying consolidated balance sheets represent advanced billings to clients on contracts in advance of workperformed. Generally, such amounts will be earned and recognized over the next twelve months. Billed receivables are recorded at invoiced amounts. The allowance for doubtful accounts is based on historical trends of past due accounts, write-offs, specificidentification and review of customer accounts.Impairment of long-lived assetsLong-lived assets, such as equipment, purchased software, capitalized software development costs, and intangible assets subject to amortization, are reviewedfor impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by theasset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized at the amount by which thecarrying amount of the asset exceeds its fair value. Assets to be disposed of would be separately presented in the consolidated balance sheets and reported at thelower of the carrying amount or fair value less costs to sell, and would no longer be depreciated.Development expendituresDevelopment expenditures incurred to meet customer specifications under contracts are charged to cost of revenue. Company sponsored developmentexpenditures are either charged to operations as incurred and are included in research and development expenses or are capitalized as software developmentcosts. The amounts incurred for Company sponsored development activities relating to the development of new products and services or the improvement ofexisting products and services, were approximately $1.0 million and $1.1 million for the years ended December 31, 2020 and 2019, respectively. Of theseamounts, the Company capitalized approximately $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively.Equipment, software and leasehold improvements, netEquipment and purchased software are recorded at cost and depreciated using the straight-line method with estimated useful lives ranging from three years toten years. Leasehold improvements are amortized over the term of the lease or the estimated useful life, whichever is shorter, using the straight-line method.Upon sale or retirement, the cost and related depreciation are eliminated from the respective accounts and any resulting gain or loss is included in operations.Maintenance and repairs are charged to expense as incurred.55 Table of ContentsSoftware development costsCertain computer software development costs, including direct labor cost, are capitalized in the accompanying consolidated balance sheets. Capitalization ofcomputer software development costs begins upon the establishment of technological feasibility. Capitalization ceases and amortization of capitalized costsbegins when the software product is commercially available for general release to customers. Amortization of capitalized computer software development costsis included in cost of revenue and is determined using the straight-line method over the remaining estimated economic life of the product, typically three years.On an annual basis, or more frequently as conditions indicate, the Company assesses the recovery of the unamortized software development costs by estimatingthe net undiscounted cash flows expected to be generated by the sale of the product. If the undiscounted cash flows are not sufficient to recover theunamortized software costs the Company will write-down the carrying amount of such asset to its estimated fair value based on the future discounted cashflows. The excess of any unamortized computer software costs over the related fair value is written down and charged to operations. Included in capitalizedsoftware development costs are certain expenses associated with the development software as a service. Significant changes in the sales projections could resultin an impairment with respect to the capitalized software that is reported on the Company’s consolidated balance sheets.Goodwill and intangible assetsThe Company’s intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, trade names, non-compete agreements and alliance agreements. Due to the impact of the COVID-19 pandemic, definite-lived intangible assets were reviewed for impairment inthe first quarter of 2020. The undiscounted cash flows evidenced impairment for the DP Engineering asset group as such, we used a discounted cash flowmodel to determine the fair value of the DP Engineering asset group and recorded an impairment charge of $4.3 million as of the period ended March 31, 2020.The Company’s intangible assets impairment analysis includes the use of undiscounted and discounted cash flow models that requires management to makeassumptions regarding estimates of revenue growth rates and operating margins used to calculate projected future cash flows.Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization isrecognized on a straight-line basis over the estimated useful life of the intangible asset, except for contract backlog and contractual customer relations, whichare recognized in proportion to the related project revenue streams. Intangible assets with definite lives are reviewed for impairment if indicators of impairmentarise. The Company does not have any intangible assets with indefinite useful lives.We review goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of goodwill maynot be recoverable. We test goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as definedby U.S. GAAP. We have determined that we have two reporting units, which are the same as our two operating segments: (i) Performance ImprovementSolutions (“Performance”) and (ii) Nuclear Industry Training and Consulting (“NITC”).Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company reviews goodwill for impairment annually as ofDecember 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with AccountingStandards Update (“ASU”) 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The Company tests goodwill at thereporting unit level.ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less thanits carrying amount as a basis for determining whether it is necessary to perform impairment testing. Under ASU 2011-08, an entity is not required to performstep one of the goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. Additionally, ASU2017-04, Simplifying the Test for Goodwill Impairment by eliminating two step approach when there is indication of impairment. On February 15, 2019, we acquired DP Engineering and preliminarily recorded goodwill and identified intangible assets as part of the acquisition. On February23, 2019, an unexpected event occurred at one of DP Engineering’s significant customers and all pending work for that customer was terminated as a result of aroot cause analysis on February 28, 2019. On May 10, 2019, the Company determined that a material impairment had occurred, requiring an assessment forimpairment to be completed related to $5.6 million of goodwill recorded in the acquisition. (See Note 7).56 Table of ContentsDuring the first quarter of fiscal 2020, We determined that the impact of the COVID-19 pandemic on its operations was an indicator of a triggering event thatcould result in potential impairment of goodwill. As such we performed a Step 1 goodwill analysis whereby we compared the fair value of each reporting unitto its respective carrying value, Based upon this analysis, we determined the fair value of goodwill at the reporting unit levels exceeded the carrying value andthus there was no impairment as of the period ended March 31, 2020. The Step 1 analysis was updated as of December 31, 2020 for our annual impairment test,and did not identify any impairment of goodwill as of such date. In addition, we make certain judgments and assumptions in allocating shared assets andliabilities to determine the carrying values for each of our reporting units. As of December 31, 2019, we performed a quantitative step 1 goodwill impairmenttest and concluded that the fair values of each of our reporting units exceeded their respective carrying values.Our goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptions regarding estimates ofrevenue growth rates and operating margins used to calculate projected future cash flows, and risk-adjusted discount rates.Foreign currency translationThe United States Dollar (USD) is the functional currency of GSE and subsidiaries operating in the United States. The functional currency of each of ourforeign subsidiaries is the currency of the economic environment in which the subsidiary primarily does business. Our foreign subsidiaries’ financial statementsare translated into USD using the exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated into USD using theperiod-end spot foreign exchange rates. Income and expenses are translated at the average exchange rate for the year. Equity accounts are translated athistorical exchange rates. The effects of these translation adjustments are cumulative translation adjustments, which are reported as a component ofaccumulated other comprehensive income (loss) included in the consolidated statements of changes in stockholders’ equity. For any business transaction that is in a currency different from the entity’s functional currency, we record a gain or loss based on the difference between theexchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled) to the foreign currency realizedgain (loss) account in the consolidated statements of operations.Income taxesIncome taxes are provided under the asset and liability method. Under this method, deferred income taxes are determined based on the differences between theconsolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected toreverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. A provision is made for theCompany’s current liability for federal, state and foreign income taxes and the change in the Company’s deferred income tax assets and liabilities.We establish accruals for uncertain tax positions taken or expected to be taken in a tax return when it is not more likely than not (i.e., a likelihood of more thanfifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized taxposition is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Favorable or unfavorableadjustment of the accrual for any particular issue would be recognized as an increase or decrease to income tax expense in the period of a change in facts andcircumstances. Interest and penalties related to income taxes are accounted for as income tax expense.Stock-based compensationStock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718, Compensation-StockCompensation. Compensation expense related to stock-based awards is recognized on a pro rata straight-line basis based on the fair value of share awards thatare scheduled to vest during the requisite service period.57 Table of ContentsSignificant customers and concentration of credit riskFor the year ended December 31, 2020, we have a concentration of revenue from one individual customer, which accounted for 14.1% of our consolidatedrevenue. For the year ended December 31, 2019, we had a concentration of revenue from one customer, which accounted for 27.8% of our consolidatedrevenue. This customer is part of both Performance and NITC segments. No other individual customer accounted for more than 10% of our consolidatedrevenue in 2020 or 2019. As of December 31, 2020, we have no customer that accounted over 10% of the Company’s consolidated contract receivables. As of December 31, 2019, theCompany had two customers that accounted for 12.6% and 10.3% of the Company’s consolidated contract receivables.Fair values of financial instrumentsThe carrying amounts of current assets and current liabilities reported in the consolidated balance sheets approximate fair value due to their short term duration.Derivative instrumentsOccasionally, the Company utilizes forward foreign currency exchange contracts to manage market risks associated with the fluctuations in foreign currencyexchange rates. It is the Company’s policy to use such derivative financial instruments to protect against market risk arising in the normal course of business inorder to reduce the impact of these exposures. The Company minimizes credit exposure by limiting counterparties to nationally recognized financialinstitutions. We do not have such derivative instruments as of December 31, 2020.COVID-19 GSE employees began working remotely during the first quarter of 2020 due to the COVID-19 pandemic and will continue to do so when practical and asmandated by local, state and federal directives and regulations. Employees almost entirely work from home within our Performance Improvement Solutions(“Performance”) segment, except when required to be at the client site for essential project work. Our Performance contracts, which are considered an essentialservice, are permitted to and mostly continue without pause; however, we have experienced certain delays in new business. For our staff augmentationbusiness, we have seen certain contracts for our Nuclear Industry Training and Consulting (“NITC”) customers paused or delayed as clients shrink their ownon-premise workforces to the minimum operating levels in response to the pandemic; as a result, our NITC segment has experienced a decline in its billableemployee base since the start of the pandemic. Although we cannot fully estimate the length or gravity of the impact of the COVID-19 pandemic to ourbusiness at this time, we have experienced delays in commencing new projects and thus our ability to recognize revenue has been delayed for some contracts.We have also experienced order reductions or other negative changes to orders due to the pandemic. We routinely monitor our operating expenses as a result ofcontract delays and have made adjustments to keep our gross profit at a sustainable level.Going ConcernIn 2019, our operating results were negatively impacted by the loss of a major customer in our DP Engineering subsidiary. In 2020, we had several projectsdelayed and new orders postponed because of the COVID-19 pandemic. We have amended our credit facility with Citizens Bank in 2020 based upon expectedcovenant violations and have been required to curtail term debt in exchange for revised financial covenants. Scheduled term loan repayments and agreed uponcurtailment required us to use $18.5 million in available cash to pay-off our term debt in 2020. As such, our working capital position on December 31, 2020was a deficit of $2.7 million. This working capital deficit includes $5.0 million from current maturities on our PPP loan, which we expect will be forgiven andhave not received any indications to the contrary (See Note 4). If the PPP loan is not forgiven, in part or in whole, we will work with our bank to extendrepayment terms as permitted to mitigate the impact on our cashflows. However, if unforgiven and unamended, our PPP loan would be due April 23, 2022, inpart or in whole, and may stress our free cash flow and the business to a degree that may cause our covenants to fail.58 Table of ContentsThe COVID-19 macroeconomic environment is considered fluid and although recovery is anticipated to steadily occur over the next 12 months, a furtherdecline will stress our ability to meet covenant requirements. Further continuance of delays in commencing work on outstanding orders or a continued loss oforders, further disruption of our business because of worker illness or mandated shutdowns may also exacerbate the situation. Jurisdictions where ourbusinesses operate across the country are pushing toward re-opening places of business and government support, through the American Rescue Plan Act of2021, will continue support the broad economy on that path. However, the timing of these elements taking place are not predictable and may not serve tomitigate our situation or improve our specific company’s health. We signed the Ninth Amendment and Reaffirmation Agreement (the “Nineth Amendment”) with our bank on March 29, 2021 to waive the fixed chargecoverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and to adjust the thresholds for future covenants to ease the risk of non-compliance experienced in previous quarters (See Note 25). However, our new covenant compliance is dependent on meeting future projections, which aresubject to the variability and unknown speed and extent of post-COVID-19 recovery. The Company also maintains options to compensate for a further decline in operations to bolster cash positions by raising capital through its access to thepublic markets or entering alternative finance arrangements afforded to it through established financial relationships. Impact to net income could be mitigatedthrough one or many of the various cost cutting measures at its disposal, directed at compensation, vendor augmentation or delay of investment initiatives in itscorporate office. These actions and options, which are further supported by positively trending macroeconomic conditions, and the potential to see recovering business andorders ease the risk to the bank covenants experienced in previous quarters. However, when considering the unpredictability of the above, there continues to besubstantial doubt the Company will continue as a going concern over the next twelve months.2. Recent Accounting PronouncementsAccounting pronouncements recently adoptedIn January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test forGoodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwillimpairment test, which required hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the reporting unit’s carryingvalue exceeds its fair value, limited to the carrying value of the goodwill. We adopted the new standard and began using the simplified approach on January 1,2020.Accounting pronouncements not yet adoptedIn June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for credit losses on instruments within itsscope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but notlimited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairmentmodel for available-for-sale debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debtsecurity is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor inconcluding whether a credit loss exists. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periodswithin those fiscal years. On October 16, 2019, the FASB voted to defer the deadlines for private companies and certain small public companies, includingsmaller reporting companies, to implement the new accounting standards on credit losses. The new effective date is January 1, 2023. As a smaller reportingcompany, we have elected to defer adoption in line with new deadlines and are currently evaluating the effects, if any, that the adoption of this guidance willhave on our consolidated financial position, results of operations and cash flows.In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities, Investments – Equity Method and Joint Ventures, and Derivatives andHedging, which provides clarity for companies that holds equity securities at cost to first update the fair value of an investment, immediately prior to applyingthe Equity Method of Accounting; or clarity for companies that enter into forward contracts to purchase additional shares of an equity security that would thenrequire the investee to account for the investment via the Equity Method. This ASU is applicable for public companies starting with fiscal years beginning afterDecember 31, 2020 and interim periods within those fiscal years. The Company plans to adopt ASU 2020-01 in Q1 of Fiscal 2021 and does not currently holdany investments at cost, and thus expects no impact to its financial statements.59 Table of ContentsIn September 2020, the FASB issued ASU 2020-10, Codification Improvements, which is part of an ongoing attempt to improve the consistency of thecodification. Previously the option to disclose information it the footnotes to the financial statements was in one of two sections: Disclosure Section (Section50) or Other Presentation Matters (Section 45). ASU 2020-10 conforms the disclosure requirements into Section 50 and provides additional information onspecific guidance that was previously unclear or not included in the codification. This ASU is applicable for public companies starting with fiscal yearsbeginning after December 15, 2020, with early adoption available for interim and annual financial statements not already filed and using the retrospectiveapproach. Currently, the Company is reviewing the guidance for applicability; however, the FASB does not believe that this should change any of the currentreporting or disclosure requirements. The Company plans to adopt ASU 2020-10 starting in Q1 of Fiscal 2021 and expects no material impact to itsconsolidated financial statements.Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significantimpact on our consolidated financial statements and related disclosures.3 Earnings per shareBasic earnings per share is based on the weighted average number of outstanding common shares for the period. Diluted earnings per share adjusts theweighted average shares outstanding for the potential dilution that could occur if outstanding vested stock options were exercised. Basic and diluted earningsper share are based on the weighted average number of outstanding shares for the period.The number of common shares and common share equivalents used in the determination of basic and diluted (loss) earnings per share were as follows:(in thousands, except for per share data) Years ended December31, 2020 2019 Numerator: Net (loss) income attributed to common stockholders $(10,537) $(12,085) Denominator: Weighted-average shares outstanding for basic earnings per share 20,439,157 20,062,021 Effect of dilutive securities: Employee stock options and warrants - - Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share 20,439,157 20,062,021 Shares related to dilutive securities excluded because inclusion would be anti-dilutive - 314,234 4 Paycheck Protection Program LoanOn March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act’s purpose is to extendliquidity to small businesses and assist in retaining employees during the COVID-19 pandemic. On April 23, 2020, GSE was approved for and on the next dayreceived a $10 million PPP Loan (“PPP Loan” or “Loan”) from the Small Business Administration (SBA) as part of the CARES Act from the Bank. On June 5,2020, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. This new law acted to ease some of the burden of the first legislation inorder to expand the amount of forgiveness available.60 Table of ContentsThe aim of the PPP Loan is to provide funding for businesses for certain payroll and nonpayroll costs. Proceeds for the PPP Loan are eligible for completeforgiveness, if used at least 60% for payroll cost with up to 40% for certain other nonpayroll costs. Forgiveness for amounts less than the total amount of thePPP Loan ($10 million) is allowed, retaining 60/40 requirements, but will be limited based upon the amount of funds used for payroll costs and further reducedby a full-time employee and salary/hourly rate wage reduction limitation. GSE has relied primarily on eligible wages and expenses and is well within the ratios.The SBA has stated that PPP loans above $2 million will be subjected to audited for appropriate usage of the funds and confirmation of loan forgiveness. GSEstated, as part of the initial application, that the receipt of such funds was required in order to maintain its employees during the pandemic, and GSE wasconfident in its ability to report on the proper use the funds and obtain full forgiveness. GSE has also prepared and performed extensive review in itssubmission of the mandated Form 3590 – PPP Loan Necessity Questionnaire and remains confident to that end.The terms of the loan are as follows: The July 5 legislation provides for an automatic 10 months deferment, after the coverage period, on the first payment,placing it on August 9, 2021. Subsequent payments, in accordance with our loan documentation, will occur monthly in equal monthly proportions, beginningwith the first full month following the deferment period and will be comprised of principal and interest, with the loan fully due on April 23, 2022. Although thefirst payment is not required until September 2021, the loan balance accrues at an interest rate of 1% from April 23, 2020. If the loan is forgiven, the relatedinterest incurred is also forgiven.We realized all possible PPP Loan (“PPP Loan” or “Loan”) forgiveness expenses through the 24 week coverage period during the 2020 fiscal year. We haveapplied for forgiveness in Q1 of 2021, with expected response in Q2 of 2021. Any balance unforgiven by the SBA and accruing 1% interest since inception willbe payable starting on the date instructed by the SBA and in equal monthly payments with the final balance due by April 23, 2022. Loan forgiveness isachieved by applying for forgiveness with the Company’s lender, the Bank, with costs eligible for forgiveness as incurred and receiving final clearance fromthe SBA. The Bank has successfully completed their review and provided the loan forgiveness application and support to the SBA on February 26, 2021 fortheir process to begin, legislated to take no more than an additional 90 days. Upon receipt of the funds, a Loan Payable – PPP balance of $10 million wasrecorded and a related interest was accrued and booked through Q4 2020. As of December 31, 2020, GSE reported half of the loan balance and accrued interestas a short term payable.The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that (1) the use ofPPP Loan amount shall be limited to certain qualifying expenses, (2) 100% of the principal amount of the loan is guaranteed by the Small BusinessAdministration.The SBA provides for certain customary events of default, including if the Company (i) fails to do anything required by the Note and other Loan Documents;(ii) does not disclose, or anyone acting on its behalf does not disclose, any material fact to the Bank or the SBA; (iii) makes, or anyone acting on its behalfmakes, a materially false or misleading representation to lender or the SBA; (iv) reorganizes, merges, consolidates or otherwise changes ownership or businessstructure without the Bank’s prior written consent; (v) takes certain prohibited actions after the Bank makes a determination that the PPP Loan is not entitled tofull forgiveness. Upon default the Bank may require immediate payment of all amounts owing under the PPP Loan or file suit and obtain judgment.As of December 31, 2020, we had $10.0 million of outstanding PPP Loan and accrued interest of $69 thousand as debt in our consolidated balance sheets. Weclassified $5.0 million as current and $5.0 million as noncurrent in our consolidated balance sheets. We recorded $69 thousand of interest expense during theyear end December 31, 2020.As of December 31, 2020, management believes the Company was in full compliance with all requirements in order to apply for forgiveness under the PPPLoan.61 Table of Contents5. RevenueWe account for revenue in accordance with ASC 606, Revenue from Contracts with Customers. We primarily generate revenue through three distinct revenuestreams: (1) System Design and Build (“SDB”), (2) Software and (3) Training and Consulting Services across our Performance and NITC segments. Werecognize revenue from SDB and software contracts mainly through our Performance segment. We recognize training and consulting service contracts throughboth segments.The following table represents a disaggregation of revenue by type of goods or services for the years ended December 31, 2020 and 2019, along with thereportable segment for each category:(in thousands) Twelve Months Ended December 31, 2020 2019 Performance Improvement Solutions segment System Design and Build $11,197 $19,573 Point in time 316 299 Over time 10,881 19,274 Software 3,873 2,883 Point in time 1,411 386 Over time 2,462 2,497 Training and Consulting Services 17,720 23,320 Point in time 110 68 Over time 17,610 23,252 Nuclear Industry Training and Consulting segment Training and Consulting Services 24,830 37,199 Point in time 21 63 Over time 24,809 37,136 Total revenue $57,620 $82,975 SDB contracts are typically fixed-priced, and we receive payments based on a billing schedule established in our contracts. We generally have two mainperformance obligations: (1) the training simulator build and (2) the Post Contract Support (“PCS”) period. Fees for PCS are normally paid in advance of therelated service period. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under theSDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over theconstruction and installation period using the cost-to-cost input method. In applying the cost-to-cost input method, we use the actual costs incurred to daterelative to the total estimated costs to measure the work progress toward the completion of the performance obligation and recognize revenue over time ascontrol transfers to a customer. Estimated contract costs are reviewed and revised periodically during the contract period, and the cumulative effect of anychange in estimates is recognized in the period in which the change is identified. Estimated losses are recognized in the period such losses become known. Uncertainties inherent in the performance of contracts include labor availability and productivity, material costs, change order scope and pricing, softwaremodification and customer acceptance issues. The reliability of these cost estimates is critical to the Company’s revenue recognition as a significant change inthe estimates can cause the Company’s revenue and related margins to change significantly from previous estimates. Management judgments and estimates involved in the initial creation and subsequent updates to the Company’s estimates-at-completion and related profitrecognized are critical to our revenue recognition associated with SDB contracts. Inputs and assumptions requiring significant management judgment includedanticipated direct labor, subcontract labor, and other direct costs required to deliver on unfinished performance obligations.The transaction price for Software contracts is generally fixed, and we recognize revenue upon delivery of the software, with fees due in advance or shortlyafter delivery of the software.We recognize Training and Consulting Services revenue as services are performed and bill our customers for services that we have provided on a regular basis(i.e. weekly, biweekly or monthly) and in time with revenue recognition.Contract asset, which we classify as unbilled receivables, relates to performance under the contract for obligations that are satisfied but not yet billed. Contractassets are recognized as revenue as they occur.Contract liability, which we classify as billing-in-excess of revenue earned, relates to payments received in advance of performance under the contract.Contract liabilities are recognized as revenue as performance obligations are satisfied.62 Table of ContentsThe following table reflects the balance of contract liabilities and the revenue recognized in the reporting period that was included in the contract liabilitiesfrom contracts with customers:(in thousands) December 31, 2020 December 31, 2019 Billings in excess of revenue earned (BIE) $5,285 $7,613 Revenue recognized in the period from amounts included in BIE at the beginning of the period $6,691 9,089 For the year ended December 31, 2020, the Company recognized revenue of $0.3 million related to performance obligations satisfied in previous periods. As of December 31, 2020, the aggregate amount of transaction price allocated to the remaining performance obligations of SDB, software and fixed-pricetraining and consulting services contracts is $22.1 million. The Company will recognize the revenue as the performance obligations are satisfied, which isexpected to occur over the next twelve months. Part of the training and consulting services contracts are T&M based. Under a typical T&M contract, the Company is compensated based on the number ofhours of approved time provided by temporary workers and the bill rates, which are fixed by type of work, as well as approved expenses incurred. As part ofour adoption of ASU 2014-09, we have elected to use the optional exemption under ASC 606-10-50-14(b) Revenue from contracts with customers, pursuant towhich we have excluded disclosures of transaction prices allocated to remaining performance obligations under such contracts and when we expect torecognize the revenue.6. Restructuring expensesInternational Restructuring On December 27, 2017, the Board of Directors approved an international restructuring plan to streamline and optimize the Company’s global operations.Beginning in December 2017, GSE has been in the process of consolidating its engineering services and R&D activities to Maryland and ceasing anunprofitable non-core business in the United Kingdom (UK). As a result, the Company closed its offices in Nyköping, Sweden; Chennai, India; and Stockton-on-Tees, UK. These actions are designed to improve Company productivity by eliminating duplicate employee functions, increasing GSE’s focus on its corebusiness, improving efficiency and maintaining the full range of engineering capabilities while reducing costs and organizational complexity.GSE eliminated approximately 40 positions due to these changes, primarily in Europe and India, and has undertaken other related cost-savings measures. As aresult of these efforts, GSE has recorded total restructuring charges of approximately $3.1 million, primarily related to workforce reductions, contractstermination costs and asset write-offs due to the exit activities. We recorded a restructuring charge of $0.1 million and $1.0 million for the years endedDecember 31, 2019 and December 31, 2020, respectively. In addition to the restructuring costs incurred to date, the Company has an estimated $1.2 million ofcumulative translation adjustments that will be charged against net income (loss) and an estimated $0.8 million of tax benefit that will be realized uponliquidation of these foreign entities. GSE expects to recognize the remaining restructuring costs, currency translation adjustments, and tax benefits in 2021.DP Engineering RestructuringDuring the third quarter of 2019, the Company implemented a restructuring plan as a result of the work suspension of DP Engineering’s largest customer andsubsequent notification on August 6, 2019 that the EOC contract was being terminated. Accordingly, the Company took the necessary measures to reduce DP’sworkforce by approximately 12 FTE’s and in addition terminated one of its office leases early resulting in one-time costs of $0.3 million being paid in the thirdquarter 2019. As a result of this plan, we incurred $0.2 million and $0.7 million restructuring cost to align the workforce to the expected level of business forthe years ended December 31, 2020 and 2019, respectively.63 Table of ContentsLease abandonmentAs of December 31, 2019, management decided to cease-use, abandoned, a portion of several operating lease right of use lease assets in long idled space inour Sykesville office and in DP Engineering’s Fort Worth office. This was decided as part of the on-going international restructuring plans to right size theorganization. Management determined the square footage which would remain in use and took steps to ensure the abandoned space was separated from theremaining in use space, end access of all employees to the abandoned sections, and remove any remaining office furniture assets. We applied the abandonmentguidance in ASC 360-10-35. We believe “abandonment” means ceasing to use the underlying asset and lacking either the intent or the ability to sublease theunderlying asset. Accordingly, lease abandonment restructuring charges incurred relating to the right of use assets for the year ended December 31, 2019totaled $1.5 million. No additional charges were incurred for the year ended December 31, 2020.The following table shows the abandoned square footage and right out use asset details: Sykesville DP Engineering Total Square Ft in use December 1, 2019 36,549 19,871 56,420 Square Ft in use December 31, 2019 14,636 9,936 24,572 Abandoned Square Ft 21,913 9,936 31,849 (in thousands) Pre-Abandonment ROU Balance $1,474 $1,291 $2,765 Post-Abandonment Balance 590 646 1,236 Abandonment ROU 884 646 1,529 The following table shows the total restructuring costs: Total 2020RestructuringCosts Total 2019RestructuringCosts Restructuring Costs Lease termination costs $- $1,625 International restructuring 1,119 106 Employee termination benefits 178 747 Total $1,297 $2,478 Expected Restructuring CostsGSE expects no additional restructuring costs under the international restructuring plan, except currency translation adjustments and the related tax benefitsupon liquidation of foreign entities in 2021. As a part of the DP restructuring, the right sizing effort had led to the lease abandonment and related impairment asmentioned above. In a continuing effort to align the Company’s workforce and by extension the available workspace, we expect future restructuring as wecontinue to migrate out of the Sykesville office. At this time management is unable to estimate the ultimate restructuring costs or timeline over which thesecosts will be recognized.7. Goodwill and Intangible AssetsIntangible Assets Subject to AmortizationDuring the first quarter of fiscal 2020, We determined that the impact of the COVID-19 pandemic on the Company’s operations was an indicator of a triggeringevent that could result in potential impairment of goodwill. As such we performed a Step 1 goodwill analysis whereby we compared the fair value of eachreporting unit to its respective carrying value, Based upon this analysis, we determined the fair value of goodwill at the reporting unit levels exceeded thecarrying value and thus there was no impairment for the period ended March 31, 2020. The Step 1 analysis was updated as of December 31, 2020 for ourannual impairment test, and did not identify any impairment of goodwill as of such date. We also had no goodwill impairment for the year ended December 31,2019. 64 Table of ContentsOur goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptions regarding estimates ofgrowth rates used to forecast revenue, operating margin and terminal value as well as determining the appropriate risk-adjusted discount rates and other factorsthat impact fair value determinations. We recognized definite-lived intangible assets of $6.8 million upon acquisition of DP Engineering on February 15, 2019, including customer contracts andrelationships, trademarks and non-compete agreements, with amortization periods of 5 to 15 years. Amortization of our definite-lived intangible assets isrecognized on a straight-line basis over the estimate useful life of the associated assets. Following the February 23, 2019 event occurring at a DP Engineering customer location and subsequent receipt of the Notice of Suspension on February 28,2019, the Company concluded that DP Engineering’s relationship with it’s largest customer has been adversely impacted. The DP Engineering customercontracts and relationships were the major components of the definite-lived intangible assets recognized in connection with the acquisition. Accordingly, theCompany determined that a triggering event had occurred requiring an interim assessment of whether a potential impairment of definite-lived intangible assetimpairment test was necessary in accordance with the related impairment guidance. As a result, it was determined that a material impairment had occurred,requiring an impairment of $5.6 million of goodwill recorded in 2019.Due to the impact of the COVID-19 pandemic, definite-lived intangible assets were reviewed for impairment. The undiscounted cash flows evidencedimpairment for the DP Engineering asset group as such, we used a discounted cash flow model to determine the fair value of the DP Engineering asset groupand recorded an impairment charge of $4.3 million as of the period ended March 31, 2020.The Company’s intangible assets impairment analysis includes the use of undiscounted cash flow and discounted cash flow models that requires managementto make assumptions regarding estimates of growth rates used to forecast revenue, operating margin and terminal value as well as determining the appropriaterisk-adjusted discount rates and other factors that impact fair value determinations. Management determined no additional triggering impact occurred during the year ended December 31, 2020.65 Table of ContentsThe following table shows the gross carrying amount and accumulated amortization of definite-lived intangible assets:(in thousands) As of December 31, 2020 GrossCarryingAmount AccumulatedAmortization Impact ofImpairment Net Amortized intangible assets: Customer relationships $11,730 $(5,504) $(3,102) $3,124 Trade names 2,467 (1,020) (778) 669 Developed technology 471 (471) - - Non-contractual customer relationships 433 (433) - - Noncompete agreement 949 (336) (422) 191 Alliance agreement 527 (277) - 250 Others 167 (167) - - Total $16,744 $(8,208) $(4,302) $4,234 (in thousands) As of December 31, 2019 Gross CarryingAmount AccumulatedAmortization Net Amortized intangible assets: Customer relationships $11,730 $(4,079) $7,651 Trade names 2,467 (727) 1,740 Developed technology 471 (471) - Non-contractual customer relationships 433 (433) - Noncompete agreement 949 (217) 732 Alliance agreement 527 (171) 356 Others 167 (167) - Total $16,744 $(6,265) $10,479 66 Table of ContentsAmortization expense related to definite-lived intangible assets totaled 1.9 million and $2.4 million for the years ended December 31, 2020 and 2019,respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years:(in thousands) Years ended December 31: 2021 $1,213 2022 911 2023 640 2024 435 Thereafter 1,035 $4,234 GoodwillThe change in the net carrying amount of goodwill from January 1, 2019 through December 31, 2019 is noted below, there were no changes in goodwill during2020:(in thousands) PerformanceImprovementSolutions NuclearIndustryTraining andConsulting Total Net book value at January 1, 2019 $4,739 $8,431 $13,170 Acquisition 5,766 - 5,766 Dispositions - - - Goodwill impairment loss (5,597) - (5,597) Net book value at December 31, 2019 $4,908 $8,431 $13,339 8. Contract ReceivablesContract receivables represent the Company’s unconditional rights to consideration due from a broad base of both domestic and international customers. Netcontract receivables are considered to be collectible within twelve months.Recoverable costs and accrued profit not billed represent costs incurred and associated profit accrued on contracts that will become billable upon futuremilestones or completion of contracts. The components of contract receivables are as follows:(in thousands) December 31, 2020 2019 Billed receivables $5,694 $11,041 Unbilled receivables 5,160 6,624 Allowance for doubtful accounts (360) (458)Total contract receivables, net $10,494 $17,207 67 Table of ContentsManagement reviews collectability of receivables periodically and records an allowance for doubtful accounts to reduce our receivables to their net realizablevalue when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the receivable. The allowance fordoubtful accounts is based on historical trends of past due accounts, write-offs, and specific identification and review of customer accounts. During the yearsended December 31, 2020 and 2019, the Company recorded allowances for doubtful accounts of $103 thousand and $31 thousand, respectively. During January 2021, the Company invoiced $3.7 million of the unbilled amounts related to the balance at December 31, 2020.The activity in the allowance for doubtful accounts is as follows:(in thousands) As of and for the Years ended December 31, 2020 2019 Beginning balance $458 $427 Current year provision 103 31 Current year write-offs (201) - Ending balance $360 $458 9. Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consist of the following:(in thousands) December 31, 2020 2019 Income tax receivable $136 $237 Prepaid expenses 883 861 Other current assets 535 782 Total $1,554 $1,880 Other current assets primarily include value-added tax receivables and cash deposited in a Swedish tax account. Prepaid expenses primarily includeprepayment for insurance and other subscription-based services.10. Equipment, Software and Leasehold ImprovementsEquipment, software and leasehold improvements, net consist of the following:(in thousands) December 31, 2020 2019 Computer and equipment $2,229 $2,266 Software 1,695 1,693 Leasehold improvements 660 664 Furniture and fixtures 848 900 5,432 5,523 Accumulated depreciation (4,816) (4,584)Equipment, software and leasehold improvements, net $616 $939 Depreciation expense was $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively.68 Table of Contents11. Product WarrantyAccrued warrantyFor contracts that contain a warranty provision, the Company provides an accrual for estimated future warranty costs based on historical experience andprojected claims. The Company’s contracts may contain warranty provisions ranging from one year to five years. The current portion of the accrued warranty ispresented separately on the consolidated balance sheets within current liabilities whereas the noncurrent portion is included in other liabilities.In the final quarter of 2019, management reassessed the warranty percentage used in determining project budgets for warranty projects which were active at theend of 2019 and used in project budgets for non-warranty projects active at the end of 2019. In 2018 and prior periods, the GSE standard warranty was 4% ofnon-physical material cost of an individual project. Physical material is excluded from this target as the associated vendor typically provides their ownwarranty. Based on historical warranty costs, trends in actual expenses incurred and discussions with sales managers, it is management’s determination that a3% warranty provision is a conservative estimate for all warranty costs both for active warranty projects and active non-warranty projects. The adjustment ofthis change resulted in a $0.2 million decrease in warranty provision.69 Table of ContentsThe activity in the accrued warranty accounts is as follows:(in thousands) As of and for the years ended December 31, 2020 2019 Beginning balance $1,323 $1,621 Current year provision (205) (133) Current year claims (203) (164) Currency adjustment 7 (1) Ending balance $922 $1,323 The current and non-current warranty balance is as follows: December 31, 2020 2019 Current $665 $921 Non-current 257 402 Total Warranty $922 $1,323 12. Fair Value of Financial InstrumentsASC 820, Fair Value Measurement (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputswhen measuring fair value. The levels of the fair value hierarchy established by ASC 820 are: Level 1: inputs are quoted prices, unadjusted, in active markets for identical assets or liabilities that the reporting entity has the ability to access at themeasurement date. Level 2: inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. A Level 2 inputmust be observable for substantially the full term of the asset or liability. For 2019, the Monte Carlo model was used to calculate the fair value of level 2instruments. The inputs used are current stock price, expected term, risk-free rate, number of trials, volatility and interest rates. Level 3: inputs are unobservable and reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing theasset or liability. As of December 31, 2020 and 2019, we considered the recorded value of certain of our financial assets and liabilities, which consist primarily of cash and cashequivalents, contract receivable and accounts payable, to approximate fair value based upon their short-term nature.During the years ended December 31, 2020 and 2019, the Company did not have any transfers into or out of Level 3.70 Table of ContentsThe following table presents assets measured at fair value at December 31, 2020: Quoted Pricesin Active Marketsfor Identical Assets SignificantOther ObservableInputs SignificantUnobservableInputs (in thousands) (Level 1) (Level 2) (Level 3) Total Money market funds $435 $- $- $435 Total assets $435 $- $- $435 The following table presents assets and liabilities measured at fair value at December 31, 2019: Quoted Pricesin Active Marketsfor Identical Assets SignificantOther ObservableInputs SignificantUnobservableInputs (in thousands) (Level 1) (Level 2) (Level 3) Total Money market funds $434 $- $- $434 Foreign exchange contracts - 49 - 49 Total assets $434 $49 $- $483 Liability awards $- $(9) $- $(9)Interest rate swap contract - (160) - (160) Total liabilities $- $(169) $- $(169)As of December 31, 2019, we had classified our foreign exchange contracts within other assets. Our interest rate swap contract and liability awards wereclassified within other noncurrent assets as of the period ended December 31, 2019.13. DebtOn December 29, 2016, we entered a 3-year $5.0 million revolving line of credit facility with the Bank to fund general working capital needs and acquisitions.On May 11, 2018, we entered into the Amended and Restated Credit and Security Agreement (the “Credit Agreement” or the “Credit Facility”) to (a) expandthe $5.0 million revolving line of credit (the “RLOC”) to include a letter of credit sub-facility and not be subject to a borrowing base and (b) to add a $25million term loan facility, available to finance permitted acquisitions over the following 18 months. The credit facility was subject to certain financialcovenants and reporting requirements and was scheduled to mature in five years on May 11, 2023 and accrued interest at the one-month USD LIBOR, plus amargin that varies depending on our overall leverage ratio. The RLOC had required monthly payments of only interest, with principal due at maturity, whileour term loan draws required monthly payments of principal and interest based on an amortization schedule. Our obligations under the Credit Agreement wasguaranteed by our wholly owned subsidiaries Hyperspring, Absolute, True North, DP Engineering and by any future material domestic subsidiaries(collectively, “the Guarantors”).71 Table of ContentsOn January 6, 2020, due to an expected violation of our covenants, we entered into the Sixth Amendment and Reaffirmation Agreement with an effective dateof December 31, 2019, with our Bank to relax the fixed charge coverage ratio and leverage ratio and delay testing of both financial covenants. We agreed to anadditional covenant, requiring us to maintain a consolidated Adjusted EBITDA target of $4.3 million, tested quarterly as of December 31, 2019, March 31,2020 and June 30, 2020. Further, we agreed to maintain a minimum USA liquidity of at least $5.0 million in the aggregate, tested bi-weekly as of the fifteenthand the last day of each month, beginning on December 31, 2019 and until June 30, 2020. In addition to the revised covenants, we agreed to make acceleratedprincipal payments of $3.0 million on January 6, 2020; $1.0 million on March 31, 2020; and $1.0 million on June 30, 2020. We incurred $20 thousand of debtissuance costs related to this amendment. On April 17, 2020, effective March 31, 2020, we entered into the Seventh Amendment and Reaffirmation Agreement, which required us to maintain aminimum fixed charge coverage ratio of 1.25 to 1.00, tested quarterly as of the last day of each quarter, beginning with the quarter ending June 30, 2021. Inaddition, we agreed to not exceed a maximum leverage ratio, tested quarterly as of the last day of each quarter and beginning with the quarter endingSeptember 30, 2020 as follows: (i) 3.00 to 1.00 for the period ending on September 30, 2020; (ii) 2.50 to 1.00 for the period ending on December 31, 2020; and(iii) 2.25 to 1.00 for the period ending on March 31, 2021 and for the periods ending December 31, March 31, June 30 and September 30, thereafter. Weadditionally agreed to make accelerated principal payments of $0.75 million on April 17, 2020 and $0.5 million on June 30, 2020. We incurred $50 thousand ofdebt issuance costs related to this amendment. On August 28, 2020, we signed the Eighth Amendment and Reaffirmation Agreement, “the Eighth Amendment”, with an effective date of June 29, 2020, due toviolating our minimum Adjusted EBITDA covenant during the three months ended June 30, 2020. As part of the amendment, we agreed to pay $10 million tothe Bank during the three months ended September 30, 2020, of which $0.7 million was paid to reduce our RLOC. We paid $9.1 million of our long-term debtand paid out $0.2 million for the unwinding of the interest rate swap agreement during the quarter. We incurred $10 thousand in additional debt issuance costsrelated to the amendment, which we expensed along with a $70 thousand previously deferred debt issuance cost during the year ended December 31, 2020. The Eighth Amendment removed our minimum Adjusted EBITDA covenant and changed our other debt covenants on an ongoing basis as follows: ourmaximum fixed charge coverage ratio will be tested quarterly as of the last day of each quarter, beginning with the quarter ending December 31, 2021 and mustbe 1.00 to 1.00; our leverage ratio will be tested quarterly, starting on March 31, 2021 as follows: (i) 3.00 to 1.00 for the period ending March 31, 2021; (ii)2.75 to 1.00 for the period ending on June 30, 2021, (iii) 2.50 to 1.00 for the period ending on September 30, 2021, and (iv) 2.00 to 1.00 for the period endingon December 31, 2021 and for the periods ending on each December 31st, March 31st, June 30th and September 30th thereafter. We are also required tomaintain a minimum of $3.5 million in aggregate USA liquidity, which was tested on September 15, 2020 and will be tested bi-weekly on an on-going basis.On March 29, 2021, due to a projected violation of Q1 2021 leverage ratio, we signed the Ninth Amendment and Reaffirmation Agreement with an effectivedate of March 29, 2021 (See Note 25). Revolving Line of Credit (“RLOC”) During the year ended December 31, 2020, we paid down $0.7 million on our RLOC as part of the Eighth Amendment, discussed above. Subsequently, wewere able to draw down $0.7 million on the RLOC to fund our working capital needs. As of December 31, 2020, we had outstanding borrowings of $3.0million under the RLOC and three letters of credit totaling $933 thousand outstanding to certain of our customers. After consideration of letters of credit, theamount available under the RLOC was approximately $1.1 million as of December 31, 2020. At December 31, 2019, there were no outstanding borrowingsunder the RLOC and four letters of credit totaling $1.2 million were outstanding. The amount available at December 31, 2019, after consideration of the lettersof credit was approximately $3.8 million. We intend to continue using the RLOC for short-term working capital needs and the issuance of letters of credit in connection with business operationsprovided, we remain in compliance with our covenants. As discussed in Note 25, we entered into a 9th Amendment on our credit facility, as such our covenantshave been waived through June 30, 2021. Letter of credit issuance fees range between 1.25% and 2.00% of the value of the letter of credit, depending on ouroverall leverage ratio. We pay an unused RLOC fee quarterly based on the average daily unused balance.Term Loans We acquired DP Engineering on February 15, 2019 for approximately $13.5 million in cash, mainly from proceeds of $14.3 million from a term loan with ourBank. As of September 30, 2020, the loan is fully repaid including all accrued interest at the adjusted USD LIBOR, plus a margin ranging between 2.00% and2.75% depending on our overall leverage ratio. There were no debt issuance costs or loan origination fees associated with this payoff.72 Table of ContentsAs part of the Eighth Amendment discussed above, we repaid all of $9.1 million outstanding balance on our term loan during the year ended December 31,2020.The Bank also agreed to remove its collateral agreement with the Company’s subsidiaries as part of the Eighth Amendment and repayment of our outstandingterm loans during the year ended December 31, 2020.Paycheck Protection Program LoanWe entered into the PPP Loan agreement with the Bank which was approved by the Bank and funded on April 23, 2020, pursuant to the Paycheck ProtectionProgram under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 24, 2022 and bears interest at arate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for ten months after the last day of the covered period, August 9,2021. The PPP Loan funds were received on April 24, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this type.The Payroll Protection Program provides that (1) the use of PPP Loan amount shall be limited to certain qualifying expenses, (2) 100% of the principal amountof the loan is guaranteed by the Small Business Administration and (3) an amount up to the full principal amount may qualify for loan forgiveness inaccordance with the terms of CARES Act. We are not yet able to determine the amount that might be forgiven. As of December 31, 2020, the Company was infull compliance with respect to the PPP Loan and believes the eligible expenses accumulated during the coverage period satisfy forgiveness criteria. 14. Derivative InstrumentsIn the normal course of business, our operations are exposed to fluctuations in foreign currency values and interest rate changes. We may seek to control aportion of these risks through a risk management program that includes the use of derivative instruments.Foreign Currency Risk ManagementOur foreign currency denominated contract receivables, billings in excess of revenue earned and subcontractor accruals that are related to the outstandingforeign exchange contracts are remeasured at the end of each period into our functional currency, using the current exchange rate at the end of the period. Thegain or loss resulting from such remeasurement is also included in loss on derivative instruments, net in the consolidated statements of operations.We utilize foreign currency exchange contracts to manage market risks associated with fluctuations in foreign currency exchange rates and to minimize creditexposure by limiting counterparties to nationally recognized financial institutions.As of December 31, 2020, we had no foreign exchange contracts outstanding.Interest Rate Risk ManagementIn June 2018, as part of our overall risk management policies, we entered into a pay-fixed, receive-floating interest rate swap contract with a notional amountof $9.0 million to reduce the impact associated with interest rate fluctuations on our outstanding term loans (see Note 13). The notional value amortizesmonthly in equal amounts based on the 5-year principal repayment terms. Per the terms of the swap, we are required to pay interest on the basis of a fixed rateof 3.02%, and we receive interest on the basis of one-month USD LIBOR. As discussed in Note 13, we signed the Eighth Amendment with our Bank and repaid the $9.1 million outstanding balance on our term loan. Accordingly, weexited the swap agreement related to this loan and paid $0.2 million in cash.For the periods presented, we did not elect to designate any of our derivative contracts as hedges. Changes in the fair value of the derivative contracts areincluded in loss on derivative instruments, net in the consolidated statements of operations.73 Table of ContentsFor the years ended December 31, 2020 and 2019, the Company recognized a net (loss) gain on its derivative instruments as outlined below: Years ended December 31, (in thousands) 2020 2019 Foreign exchange contracts- change in fair value $17 $6 Interest rate swap - change in fair value (49) (57)Remeasurement of related contract receivables and billings in excess of revenue earned 15 38 $(17) $(13)15. Income TaxesThe consolidated income before income taxes, by domestic and foreign sources, is as follows:(in thousands) Years ended December 31, 2020 2019 Domestic $(13,834) $(6,671)Foreign 3,652 319 Total $(10,182) $(6,352)The provision (benefit) for income taxes is as follows:(in thousands) Years ended December 31, 2020 2019 Current: Federal $3 $(30)State 67 60 Foreign 285 354 Subtotal 355 384 Deferred: Federal - 4,686 State - 663 Foreign - - Subtotal - 5,349 Total $355 $5,733 74 Table of ContentsThe effective income tax rate for the years ended December 31, 2020 and 2019 differed from the statutory federal income tax rate as presented below: Effective Tax Rate percentage (%) Years ended December 31, 2020 2019 Statutory federal income tax rate 21.0% 21.0%State income taxes, net of federal tax benefit 3.7% (12.1)%Effect of foreign operations (0.9)% (0.3)%Effect of foreign restructuring (6.7)% 0.0%Change in valuation allowance (15.6)% (93.1)%Meals and Entertainment (0.4)% (1.4)%Stock based compensation (2.2)% (1.4)%GILTI Inclusion (0.2)% 0.0%Other permanent differences 0.0% (0.6)%Uncertain Tax Positions (2.5)% 0.9%Prior year reconciling items 0.3% (3.3)%Effective tax rate (3.5)% (90.3)%The difference between the effective rate and statutory rate in 2020 primarily resulted from a change in valuation allowance, permanent differences, accrualsrelated to uncertain tax positions for certain foreign tax contingencies, foreign restructuring and the tax impact of stock compensation forfeitures.75 Table of ContentsDeferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financialstatements. A summary of the tax effect of the significant components of the deferred income tax assets and liabilities is as follows:(in thousands) As of December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $5,406 $4,396 Accruals 387 247 Reserves 309 408 Alternative minimum tax credit carryforwards 69 126 Stock-based compensation expense 251 539 Intangible assets 2,362 1,021 Goodwill 995 1,037 Operating lease liability 747 998 Other 271 464 Total deferred tax asset 10,797 9,236 Valuation allowance (9,165) (7,576)Total deferred tax asset less valuation allowance 1,632 1,660 Deferred tax liabilities: Software development costs (164) (161)Fixed assets (22) (7)Intangible assets - (22)Indefinite-lived intangibles (967) (728)Operating lease - right of use asset (379) (510)Other (100) (175)Total deferred tax liability (1,632) (1,603) Net deferred tax asset $- $57 As of December 31, 2019, the Company had a deferred tax asset of $57 thousand for alternative minimum tax credits which became fully refundable in the firstquarter of 2020 with the enactment of the CARES Act. Accordingly, the entire balance was reclassed to a Federal Tax Receivable account during the firstquarter.The Company files tax returns in the United States federal jurisdiction and in several state and foreign jurisdictions. Because of the net operating losscarryforwards, the Company is subject to U.S. federal and state income tax examinations for tax years 2000, and forward, and is subject to foreign taxexaminations by tax authorities for the years 2015 and forward. Open tax years related to state and foreign jurisdictions remain subject to examination but arenot considered material to our financial position, results of operations or cash flows.In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will notbe realized. The Company’s ability to realize its deferred tax assets depends primarily upon the preponderance of positive evidence that could be demonstratedby three year cumulative positive earnings, reversal of existing deferred temporary differences, and generation of sufficient future taxable income to allow forthe utilization of deductible temporary differences. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regardto future realization of deferred tax assets to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. This analysis isperformed on a jurisdiction by jurisdiction basis. The Company performed an analysis of the valuation allowance position for its worldwide deferred tax assets and determined that a valuation allowancecontinues to be necessary on its U.S. and foreign deferred tax assets at December 31, 2020. 76 Table of ContentsAt December 31, 2020, the Company’s largest deferred tax asset was $6.2 million of net operating losses, excluding the impact of uncertain tax positions. Itprimarily relates to a U.S. net operating loss carryforward of $6.2 million; $4.6 million of the net operating loss carryforward expires in various amountsbetween 2023 and 2037; $1.6 million of the net operating loss carryforward is an indefinite lived deferred tax asset. The Company does not believe that it ismore likely than not that it will be able to realize its deferred tax assets for its U.S. and foreign deferred tax assets at December 31, 2020, therefore we havemaintained a $9.2 million valuation allowance for our net deferred tax assets. As of December 31, 2020 and 2019, the Company’s consolidated cash and cash equivalents totaled $6.7 million and $11.7 million, respectively, including cashand cash equivalents held at non-U.S. entities totaling $3.1 million and $4.4 million, respectively. The non-U.S. entities include operating subsidiaries locatedin China. The Company does not assert permanent reinvestment in China. Accordingly, the Company analyzed the cumulative earnings and profits anddetermined no US deferred liability exists given aggregated accumulated deficits.Uncertain Tax PositionsDuring 2020 and 2019, the Company recorded tax liabilities for certain foreign tax contingencies. The Company recorded these uncertain tax positions in othercurrent liabilities on the consolidated balance sheets.The following table outlines the Company’s uncertain tax liabilities, including accrued interest and penalties for each jurisdiction: China Ukraine South Korea UK U.S. (in thousands) Tax InterestandPenalties Tax InterestandPenalties Tax InterestandPenalties Tax InterestandPenalties Tax InterestandPenalties Total Balance, January 1, 2019 $204 $285 $82 $72 $461 $111 $- $- $996 $4 $2,215 Increases - 33 - - 93 67 - - - 2 195 Decreases 3 - 4 12 - - - - 203 - 222 Balance, December 31, 2019 $201 $318 $78 $60 $554 $178 $- $- $793 $6 $2,188 Increases 13 60 - - 128 96 45 21 - 3 366 Decreases - - 64 50 - - - - - - 114 Balance, December 31, 2020 $214 $378 $14 $10 $682 $274 $45 $21 $793 $9 $2,440 77 Table of Contents16. Capital Stock The Company’s Board of Directors has authorized 62,000,000 total shares of stock of which 60,000,000 are designated as common stock and 2,000,000 aredesignated as preferred stock. The Board of Directors has the authority to establish one or more classes of preferred stock and to determine, within any class ofpreferred stock, the preferences, rights and other terms of such class. As of December 31, 2020, the Company has reserved 6,017,632 shares of common stock for issuance; zero are reserved for shares upon exercise of outstandingstock options and 1,719,732 are reserved for shares upon vesting of restricted stock units. The Company has 1,482,368 shares available for future grants underthe Company’s 1995 Long-Term Incentive Plan.17. Stock-Based CompensationLong-term incentive plan During 1995, the Company established the 1995 Long-Term Incentive Stock Option Plan (the Plan), which permits the granting of stock options (includingincentive stock options and nonqualified stock options) stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards orany combination of these to employees, directors or consultants. The Plan was amended and restated effective April 22, 2016 and expires on April 21, 2026; thetotal number of shares that could be issued under the Plan is 7,500,000. As of December 31, 2020, 4,297,900 shares have been issued under the Plan, zero stockoptions and 1,719,732 restricted stock units (RSUs) were outstanding under the Plan, while 1,482,368 shares remain for future grants under the Plan.The Company recognizes compensation expense on a pro rata straight-line basis over the requisite service period for stock-based compensation awards withboth graded and cliff vesting terms. The Company recognizes the cumulative effect of a change in the number of awards expected to vest in compensationexpense in the period of change. The Company has not capitalized any portion of its stock-based compensation. The Company’s forfeiture rate is based onactuals. During the years ended December 31, 2020 and 2019, the Company recognized $0.4 million and $1.4 million, respectively, of stock-based compensationexpense under the fair value method. Accordingly, the Company recognized associated deferred income tax expense (benefits) of $220 thousand and $86thousand, respectively, during the years ended December 31, 2020 and 2019. During the years ended December 31, 2020 and 2019, there were approximatelyzero and $93 thousand of stock-based compensation expense related to the change in fair value of cash-settled RSUs, which the Company accounts for as aliability.Stock optionsOptions to purchase shares of the Company’s common stock under the Plan expire in either seven years or ten years from the date of grant and becomeexercisable in three, five, or seven installments with a certain percentage of options vesting on the first anniversary of the grant date and additional optionsvesting on each of the subsequent anniversaries of the grant date, subject to acceleration under certain circumstances.78 Table of ContentsInformation with respect to stock option activity as of and for the year ended December 31, 2020 is as follows: Numberof Shares WeightedAverageExercisePrice AggregateIntrinsicValue (inthousands) WeightedAverageRemainingContractual Life(Years) Options outstanding at January 1, 2020 5,000 $1.65 Options expired (5,000) - Options outstanding at December 31, 2020 - - $- - Options exercisable at December 31, 2020 - $- $- - Information with respect to stock option activity as of and for the year ended December 31, 2019 is as follows: Numberof Shares WeightedAverageExercisePrice AggregateIntrinsicValue (inthousands) WeightedAverageRemainingContractual Life(Years) Options outstanding at January 1, 2019 55,000 $1.87 Options exercised (50,000) 1.89 Options outstanding at December 31, 2019 5,000 1.65 $- 0.87 Options exercisable at December 31, 2019 5,000 $- $- - The Company did not grant stock options during the years ended December 31, 2020, and 2019,The Company received cash for the exercise price associated with stock options exercised of $0 and $127 thousand during the years ended December 31, 2020and 2019, respectively. The total intrinsic value realized by participants on stock options exercised was zero during the years ended December 31, 2020 and2019, respectively.79 Table of ContentsRestricted Stock UnitsDuring the years ended December 31, 2020 and 2019, the Company issued RSUs to employees which vest upon the achievement of specific market-based ortime-based measures. The fair value for RSU’s is calculated based on the stock price on the grant date and expensed ratably over the requisite service period,which ranges between one year and five years. The following table summarizes the information about vested and unvested restricted stock units for the yearsended December 31, 2020 and 2019. Number of Shares Weighted AverageFair Value Nonvested RSUs at January 1, 2019 1,571,525 $1.96 RSUs granted 918,459 2.56 RSUs forfeited (64,172) 3.12 RSUs vested (452,087) 3.30 Nonvested RSUs at December 31, 2019 1,973,725 $1.49 Nonvested RSUs at January 1, 2020 1,973,725 $1.49 RSUs granted 689,000 1.09 RSUs forfeited (534,052) 2.49 RSUs vested (408,941) 1.67 Nonvested RSUs at December 31, 2020 1,719,732 $1.36 As of December 31, 2020, the Company had $0.1 million of unrecognized compensation expense related to the RSUs expected to be recognized on a pro-ratastraight line basis over a weighted average remaining service period of approximately 0.63 years.18. LeasesAccording to ASC 842 Leases (Topic 842), for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class ofunderlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally ona straight-line basis over the lease term. Leases generally have remaining terms of one to six years, whereas leases with an initial term of twelve months or lessare not recognized on our consolidated balance sheet. We recognize lease expense for minimum lease payments on a straight-line basis over the term of thelease. We maintain leases of office facilities and equipment, and certain leases include options to renew or terminate. Renewal options are exercisable basedupon our discretion and vary based on the nature of each lease, with renewal periods generally ranging from one to five years. The term of the lease includesrenewal periods, only if we are reasonably certain that we will exercise the renewal option. When determining if a renewal option is reasonably certain of beingexercised, we consider several factors, including but not limited to, the cost of moving to another location, the cost of disruption to our operations, the purposeor location of the leased asset and the terms associated with extending the lease. Operating lease Right-of-Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease paymentsover the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before thecommencement date, less any lease incentives received. Our real estate leases, which are comprised primarily of office spaces, represent most of our remaininglease liability. Most of our lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based onchanges in facts and circumstances related to the use of the ROU and are recorded as incurred. We use an incremental borrowing rate based on rates available atcommencement in determining the present value of future payments.80 Table of ContentsLease abandonmentAs discussed in Note 6, as of December 31, 2019, management decided to cease-use, abandoned, a portion of several operating lease right of use lease assets inlong idled space in our Sykesville office and in DP Engineering’s Fort Worth office. This was decided as part of on the on-going international restructuringplans to right size the organization. Management took steps to ensure the abandoned space was separated from the remaining in use space, end access of allemployees to the abandoned sections, and remove any remaining office furniture assets. We applied the abandonment guidance in ASC 360-10-35. We believe“abandonment” means ceasing to use the underlying asset and lacking either the intent or the ability to sublease the underlying asset. Accordingly, leaseabandonment restructuring charges incurred relating to the right of use assets for the year ended December 31, 2019 totaled $1.5 million. We have lease agreements with lease and non-lease components, which are accounted for as a single lease. We apply a portfolio approach to effectively accountfor the operating lease ROU assets and liabilities. Lease contracts are evaluated at inception to determine whether they contain a lease and whether we obtainthe right to control an identified asset.The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in thousands):Operating Leases Classification December 31,2020 December 31,2019 Leased Assets Operating lease - right of use assets Long term assets $1,562 $2,215 Lease Liabilities Operating lease liabilities - Current Other current liabilities 1,138 1,153 Operating lease liabilities Long term liabilities 1,831 3,000 $2,969 $4,153 During September 2020, we notified the landlord of our consolidated subsidiary Absolute’s home office of our decision not to renew the lease.The Company executed a sublease agreement with a tenant to rent out 3,650 square feet from the lease at its Sykesville office on May 1, 2019. This agreementis in addition to the 3,822 of square feet previously subleased, which was entered into on April 1, 2017. The sublease does not relieve the Company of itsprimary lease obligation. The lessor agreements are both considered operating leases, maintaining the historical classification of the underlying lease. TheCompany does not recognize any underlying assets for the subleases as a lessor of operating leases. The net amount received from the sublease is recordedwithin selling, general and administrative expenses.The table below summarizes the lease income and expenses recorded in the consolidated statements of operations incurred year to date ended December 31,2020 , (in thousands):Lease Cost Classification Twelve months endedDecember 31, 2020 Operating lease cost (1) Selling, general and administrative expenses $780 Short-term leases costs (2) Selling, general and administrative expenses 36 Sublease income (3) Selling, general and administrative expenses (129)Net lease cost $687 (1) Includes variable lease costs which are immaterial. (2) Include leases maturing less than twelve months from the report date. (3) Sublease portfolio consists of 2 tenants, which sublease parts of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.81 Table of ContentsThe Company is obligated under certain noncancelable operating leases for office facilities and equipment. Future minimum lease payments undernoncancelable operating leases as of December 31, 2020 are as follows:(in thousands) Gross FutureMinimum LeasePayments 2021 $1,260 2022 1,166 2023 631 2024 116 2025 3 Thereafter - Total $3,176 Less: Interest 207 Present value of lease payments $2,969 The Company has calculated the weighted-average remaining lease term, presented in years below, and the weighted-average discount rate for our operatingleases. As noted in our lease accounting policy, the Company uses the incremental borrowing rate as the lease discount rate:Lease Term and Discount Rate Twelve months endedDecember 31, 2020 Weighted-average remaining lease term (years) Operating leases 2.64 Weighted-average discount rate Operating leases 5.00%The table below sets out the classification of lease payments in the consolidated statements of cash flows. There was no right-of-use assets obtained inexchange for operating lease liabilities represent new operating leases obtained through our business combination during the year to date ended December 31,2020:(in thousands) Twelve months ended December 31, Cash paid for amounts included in measurement of liabilities 2020 2019 Cash paid for amounts included in measurement of liabilities $1,314 $1,275 Right-of-use assets obtained in exchange for new operating lease liabilities $- $1,777 19. Employee BenefitsThe Company has a qualified defined contribution plan that covers all U.S. employees under Section 401(k) of the Internal Revenue Code. Under this plan, theCompany’s stipulated basic contribution matches a portion of the participants’ contributions based upon a defined schedule for GSE Performance ImprovementSolutions employees. The Company’s contributions to the plan were approximately $260 thousand and $290 thousand for the years ended December 31, 2020and 2019, respectively.20. Segment InformationThe Company has two reportable business segments. The Performance Improvement Solutions segment provides simulation, training and engineering products and services delivered across the breadth ofindustries we serve. Solutions include simulation for both training and engineering applications. Example engineering services include, but are not limited to,plant design verification and validation, thermal performance evaluation and optimization programs, and engineering programs for plants for ASME code andASME Section XI. The Company provides these services across all market segments through our Performance, True North consulting, and DP Engineeringsubsidiaries. Example training applications include turnkey and custom training services. Contract terms are typically less than two years. 82 Table of ContentsOn February 15, 2019, through our wholly-owned subsidiary GSE Performance Solutions, Inc., the Company entered into the DP Engineering PurchaseAgreement, to purchase 100% of the membership interests in DP Engineering. DP Engineering is a provider of value-added technical engineering solutions andconsulting services to nuclear power plants with an emphasis on preparation and implementation of design modifications during plant outages. For reportingpurposes, DP Engineering is included in our Performance segment due to similarities in services provided including engineering solutions and implementationof design modifications to the nuclear power sector. The Nuclear Industry Training and Consulting segment provides specialized workforce solutions primarily to the nuclear industry, working at clients’ facilities.This business is managed through our Hyperspring and Absolute subsidiaries. The business model, management focus, margins and other factors clearlyseparate 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 toconsolidated revenue and operating results to consolidated income before income tax expense (benefit). Inter-segment revenue is eliminated in consolidationand is not significant.(in thousands) Years ended December 31, 2020 2019 Revenue: Performance Improvement Solutions $32,790 $45,776 Nuclear Industry Training and Consulting 24,830 37,199 Total revenue $57,620 $82,975 Operating loss Performance Improvement Solutions $(2,683) $(205)Nuclear Industry Training and Consulting (2,076) (1,617)Litigation (477) - Loss on impairment (4,302) (5,597) Operating loss $(9,538) $(7,419) Interest expense (623) (988)Loss on derivative instruments, net (17) (13)Other (expense) income, net (4) 2,068 Loss before income taxes $(10,182) $(6,352)Additional information relating to segments is as follows:(in thousands) December 31, 2020 2019 Performance Improvement Solutions $25,845 $41,550 Nuclear Industry Training and Consulting 13,345 16,959 Total assets $39,190 $58,509 For the years ended December 31, 2020 and 2019, 89% and 90%, respectively, of the Company’s consolidated revenue was from customers in the nuclearpower industry. The Company designs, develops and delivers business and technology solutions to the energy industry worldwide. Revenue, operating income(loss) and total assets for the Company’s United States, European, and Asian subsidiaries as of and for the years ended December 31, 2020 and 2019 are asfollows:83 Table of Contents(in thousands) Year ended December 31, 2020 UnitedStates Europe Asia Eliminations Consolidated Revenue $56,628 $- $992 $- $57,620 Transfers between geographic locations 465 - 31 (496) - Total revenue $57,093 $- $1,023 $(496) $57,620 Operating income (loss) $(13,041) $3,231 $272 $- $(9,538)Total assets, at December 31 $161,672 $2,679 $3,191 $(128,352) $39,190 (in thousands) Year ended December 31, 2019 UnitedStates Europe Asia Eliminations Consolidated Revenue $81,597 $- $1,378 $- $82,975 Transfers between geographic locations 623 - 124 (747) - Total revenue $82,220 $- $1,502 $(747) $82,975 Operating income (loss) $(7,710) $54 $237 $- $(7,419)Total assets, at December 31 $184,115 $3,526 $2,805 $(131,937) $58,509 Revenues by geographic location above are attributed to the contracting entity. Therefore, revenues from a foreign customer that contracted directly with ourU.S. entity are included in revenues from the United States. All revenues in Asia were attributable to our Chinese subsidiary.Alternatively, revenue from customers domiciled in foreign countries were approximately 17% and 16%, of the Company’s consolidated 2020 and 2019revenue, respectively. Revenue from foreign countries where our customers reside were all individually less than 10% of the Company’s consolidated revenueduring 2020 and 2019.21. Supplemental Disclosure of Cash Flow Information(in thousands) Year ended December 31, 2020 2019 Cash paid for interest and income taxes: Interest $532 $989 Income taxes $194 $489 Noncash activity of financing insurance premium $813 $- 22. Non-consolidated Variable Interest EntityThe Company, through its wholly owned subsidiary DP Engineering, effectively holds a 48% membership interest in DP-NXA Consultants LLC (“DP-NXA”). DP-NXA was established to provide industrial services that include civil, structural, architectural, electrical, fire protection, plumbing, mechanical consultingengineering services to customers. DP-NXA sub-contracts their work to its two owners, NXA Consultants LLC (“NXA”), which owns 52% of the entity, andDP Engineering. DP Engineering and NXA contributed $48 and $52, respectively, for 48% and 52% interest in DP-NXA. DP Engineering recorded thecontributed cash as an equity investment. 84 Table of ContentsThe Company evaluated the nature of DP Engineering’s investment in DP-NXA and determined that DP-NXA is a variable interest entity (“VIE”). Since theCompany does not have the power to direct activities that most significantly impact DP-NXA, it cannot be DP-NXA’s primary beneficiary. Furthermore, theCompany concluded that it did not hold a controlling financial interest in DP-NXA since NXA, the VIE’s majority owner, makes all operational and businessdecisions. The Company accounts for its investment in DP-NXA using the equity method of accounting due to the fact the Company exerts significantinfluence with its 48% of membership interest, but does not control the financial and operating decisions. The Company’s maximum exposure to any losses incurred by DP-NXA is limited to its investment. As of December 31, 2020, the Company has not made anyadditional contributions to DP-NXA and believes its maximum exposure to any losses incurred by DP-NXA was not material. As of December 31, 2020, theCompany does not have existing guarantee with or to DP-NXA, or any third-party work contracted with it. For the year ended December 31, 2020, the carrying value of the investment in DP-NXA was zero. We do not have any investment income or loss from DP-NXA for the year ended December 31, 2020.23. Commitments and ContingenciesJoyce v. Absolute Consulting, Inc. On March 29, 2019, a former employee of Absolute Consulting, Inc., filed a putative class action against Absolute and the Company, Joyce v. AbsoluteConsulting Inc., case number 1:19 cv 00868 RDB, in the United States District Court for the District of Maryland. The lawsuit alleged that the plaintiff andcertain other employees were not properly compensated for overtime hours worked. The Company was subsequently dismissed from the case, leaving Absoluteas the sole defendant. On August 17, 2020, Absolute entered into a Settlement Agreement with the plaintiffs, with a maximum settlement amount of $1.5 million, which requiredCourt approval. On September 8, 2020, the Settlement Agreement between Absolute and the plaintiffs was ratified by the Court, and the case was dismissed,although the parties remain bound by the terms of the settlement agreement. Following Court approval, Absolute made an initial payment toward thesettlement amount, including legal fees, of $625 thousand. After the passing of an opt-in notice period expired, the final cost of settling this case, includingplaintiff’s attorney fees was approximately $1.4 million. Approximately $713 thousand of the settlement amount was paid out prior to December 31, 2020, withapproximately $715 thousand of the remaining balance paid out in 2021. On September 29, 2020, the Company received $952 thousand from a general escrow account, originally set up as part of the Company’s purchase of Absoluteduring fiscal 2017. The Company presented the loss on Joyce legal settlement and the benefit from the proceeds from the release of escrow from the Absolutetransaction in selling, general and administrative expenses, in the amount of $477 thousand for the year ended December 31, 2020. Per ASC 450 Accounting for Contingencies, the Company reviews potential items and areas where a loss contingency could arise. In the opinion ofmanagement, we are not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or in the aggregate, would have amaterial effect on our consolidated results of operations, financial position or cash flows, other than as noted above. We expense legal defense costs as incurred.The Company is involved in litigation in the ordinary course of business. While it is too early to determine the outcome of such matters, management does notexpect the resolution of these matters to have a material impact on the Company’s financial position or results of operations.24. Contingent ConsiderationAcquisitions may include contingent consideration payments based on future financial measures of an acquired company. Under ASC 805, BusinessCombinations, contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities basedon financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligationis revalued to estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements ofoperations and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changesin discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect tothe likelihood of achieving the various earn-out criteria.85 Table of ContentsIn connection with the acquisition of DP Engineering on February 15, 2019, the Company recognized the estimated fair value of contingent consideration for$1.2 million. During the year ended December 31, 2019, as a result of the triggering event described in Note 7, an impairment test was conducted on DPEngineering’s goodwill and definite-lived intangible assets and the Company determined the $1.2 million of contingent consideration recognized uponacquisition of DP Engineering has reduced to zero since the related earn-out payment is no longer expected to be paid. We have recorded this reduction as anoffset to selling, general and administrative expenses in the 2019 consolidated statements of operations. There was zero contingent liability as of December 31,2020.25. Subsequent EventsOn March 29, 2021, due to a projected violation of Q1 2021 leverage ratio, we signed the Ninth Amendment and Reaffirmation Agreement with an effectivedate of March 29, 2021, with our bank to waive the fixed charge coverage ratio and leverage ratio for the quarters ending March 31 and June 30, 2021, and weagreed, for each quarter hereafter, fixed charge coverage ratio shall not be less than 1.10 to 1.00. In addition, we agreed to not exceed a maximum leverageratio and starting on September 30, 2021 as follows: (i) 3.25 to 1.00 for the period ending September 30, 2021; (ii) 3.00 to 1.00 for the period ending onDecember 31, 2021, (iii) 2.75 to 1.00 for the period ending March 31, 2022; (iv) 2.50 to 1.00 for the period ending June 30, 2022 and (iv) 2.00 to 1.00 for theperiods ending September 30, 2022 and each December 31st, March 31st, June 30th and September 30th thereafter. We are also required to maintain aminimum of $2.5 million in aggregate USA liquidity. As part of the amendment, we agreed, at closing, (i) to make a $0.5 million pay down of RLOC; (ii)RLOC commitment to be reduced to $4.25 million; and (iii) $0.5 million of RLOC will only be available for issuance of Letters of Credit. We also agreed topay $0.5 million to reduce RLOC to $3.75 million by June 30, 2021 and to $3.5 million by September 30, 2021. Commencing December 31, 2021 and on thelast day of each quarter, we will pay $75 thousand to reduce the RLOC. We incurred $25 thousand of amendment fee related to this amendment. December 31,2020.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A.CONTROLS AND PROCEDURES.(a) Evaluation of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by it in its reports filed orsubmitted pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s rules and forms and that information required to be disclosed by the Company in its ExchangeAct reports is accumulated and communicated to management, including the Company’s Chief Executive Officer (CEO), who is its principal executive officer,and Chief Financial Officer (CFO), who is its principal financial officer, to allow timely decisions regarding required disclosure. Based on an evaluation of ourdisclosure controls and procedures as of December 31, 2020, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures wereeffective.(b) Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRule 13a-15(f). Our internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles.86 Table of ContentsManagement, including our CEO and CFO, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. Inmaking this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework (2013). Based on management’s assessment, management has concluded that the Company’s internal control overfinancial reporting was not effective as of December 31, 2020 due to the existence of the material weakness in internal control over management review ofreconciliations over unbilled receivables and billings in excess of revenue earned.We evaluated the severity of the identified errors resulting from this material weakness and expanded our analysis to assess if the root cause of the issueimpacted other controls or account balances. We concluded that the material weakness was limited to the reconciliation of the accounts noted above. No furtherissues were identified through expanded testing, Management recognizes there is a reasonable possibility that a material misstatement of the Company’s annualor interim financial statements might not be prevented or detected timely.Through the work to identify and isolate the errors in our balance sheet reconciliation controls, new procedures have been implemented for the reconciliationsthat failed to establish full documentation for reconciling items and plan their resolution. In concert with remediation, redesign and reperformance of thesereconciliations, we have initiated these new procedures to ensure their continued performance.As a result of the material weakness described above, our CEO and CFO concluded that the Company did not maintain effective internal control over financialreporting as of December 31, 2020, based on the Internal Control - Integrated Framework (2013) issued by the COSO.(c) Changes in Internal Control over Financial ReportingIn connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2019, we had identified two materialweaknesses in our internal control (1) misapplication of U.S. GAAP guidance in our evaluation of significant or unusual transactions (2) inadequate design andeffectiveness of controls in our financial reporting closing process relating to journal entry review and approval, balance sheet reconciliation preparation andreview, and monthly flux variance analysis controls.To remediate these material weaknesses as of December 31, 2020 Management (i) hired dedicated staffing including a permanent Controller, (ii) maderevisions of controls to facilitate proper application of guidance, and (iii) implemented substantial remedial measures including shortening the close process,creating new revenue process tools and controls, and expanding its mitigating controls. Further, Management redesigned the tools used in its monthly fluxreviews to evaluate differences at a more precise level in order to identify and prevent errors in the financial close process.Through Management's evaluation of controls as of December 31, 2020 it was determined that the prior year material weakness related to misapplication ofU.S. GAAP was fully remediated. For the material weaknesses related to controls over financial reporting close, management has remediated all but a subset ofthe underlying internal controls weaknesses. The remaining unremediated component of the material weakness is management's review of reconciliations overunbilled receivables and billings in excess of revenue earned. Our remediation of the remaining control weakness includes the hiring of additional skilledpersonnel to prepare and review reconciliations over unbilled receivables and billings in excess of revenue earned. In the interim, we will utilize members ofthe financial management team to perform the review of such reconciliations.Other than described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting. ITEM 9B.OTHER INFORMATION.The Board of Directors of GSE Systems, Inc., a Delaware corporation (the “Company”), has set the date of the 2021 Annual Meeting of Stockholders (the“2021 Annual Meeting”) for June 15, 2021, at 9:00 am Eastern Time, with a record date of April 16, 2021, to be held at 6724 Alexander Bell Drive, Hub SpotConference Center, Suite 105, Columbia, Maryland 21046. The deadline for the receipt of any stockholder proposals and director nominations to be consideredat the 2021 Annual Meeting are set forth below.Because the annual meeting is being advanced by more than 30 calendar days, any stockholder proposal submitted pursuant to Rule 14a-8 under the SecuritiesExchange Act of 1934, as amended (“Rule 14a-8”), for inclusion in the Company’s proxy materials for the 2021 Annual Meeting must be received by ourSecretary at our principal executive offices (GSE Systems, Inc., c/o Secretary, 6940 Columbia Gateway Drive, Suite 470, Columbia, Maryland 21046) areasonable time before the company begins to print and send its proxy materials, and must otherwise comply with the requirements of Rule 14a-8 of theExchange Act. The Company presently intends to print its proxy materials on approximately April 23, 2021.In addition, the Company’s Third Amended and Restated Bylaws (the “Bylaws”) establish an advance notice procedure for stockholders who wish to presentcertain matters before an annual meeting of stockholders without including those matters in the Company’s proxy statement. Such proposals, including theinformation required by the Bylaws, must be received at the Company’s principal executive offices c/ GSE Systems, Inc., c/o Secretary, 6940 ColumbiaGateway Drive, Suite 470, Columbia, Maryland 21046, no later than April 23, 2021, at 5:00 pm ET (i.e., the close of business on the 10th day following theday on which the Company’s notice of the date of the meeting was mailed or other public disclosure of the annual meeting date is first made). A stockholder’snotice to the Company must set forth, as to each matter the stockholder proposes to bring before an annual meeting, the information required by the Bylaws.If a stockholder fails to give notice of a stockholder proposal as required by the Bylaws or other applicable requirements (including those attendant to theExchange Act), then the proposal will not be included in the proxy statement for our 2021 annual meeting of stockholders and the proposal will not bepresented to the stockholders for a vote at the 2021 annual meeting of stockholders.Copies of the Company’s Bylaws are available to stockholders without charge upon request to the Corporate Secretary at the Company’s address set forthabove. ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.The information required by this item, including items 401, 405, 406 and 407 of Regulation S-K, is incorporated by reference to the section captioned“Directors and Executive Officers” in the definitive Proxy Statement for the Company’s 2021 Annual Meeting of Shareholders and incorporated herein byreference or will be provided in an amendment to this Annual Report on Form 10-K. The Company has adopted a Conduct of Business Policy that applies to its directors, officers, and employees, including its principal executive officer, andprincipal financial officer. The Conduct of Business Policy is available on the Company’s website at www.gses.com. In addition, the Company has adopted aCode of Ethics for its principal executive officer and senior financial officers which is also available on the Company’s website. The Company will post on itswebsite information about any amendment to, or waiver from, any provision of the Code of Ethics that applies to its principal executive officer, principalfinancial officer, or principal accounting officer. ITEM 11.EXECUTIVE COMPENSATION.The information required by this item will either be set forth under the “Executive Compensation” section in the definitive Proxy Statement for the 2021Annual Meeting of Shareholders and incorporated herein by reference or will be provided in an amendment to this Annual Report on Form 10-K.87 Table of ContentsITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.The information required by this item will be either set forth under the sections captioned “Voting Securities and Principal Holders Thereof,” and “ExecutiveCompensation” in the definitive Proxy Statement for the 2021 Annual Meeting of Shareholders and incorporated herein by reference or will be provided in anamendment to this Annual Report on Form 10-K. The following table sets forth the equity compensation plan information for the year ended December 31, 2020: Plan Category Number ofSecurities tobe Issued UponExercise ofOutstandingOptions,Warrantsand Rights(a) Weighted AverageExercise PriceofOutstandingOptions,Warrants andRights(b) Number ofSecuritiesRemainingAvailable forFuture IssuanceUnder EquityCompensationPlans(ExcludingSecuritiesReflected inColumn (a))(c) Equity compensation plans approved by security holders Options - $- RSUs 1,719,732 $1.36 1,719,732 $1.36 1,482,368 Equity compensation plans not approved by security holders - $- - Total 1,719,732 $1.36 1,482,368 Table above excludes 180,000 RSUs granted under the Company’s 1995 Long-Term Incentive Plan that are settled in cash instead of shares.For a description of the material terms of our stock-based compensation plans, see Notes to the consolidated financial statements in Item 8 of this report.88 Table of ContentsITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.The information required by this item will be either set forth under the “Directors and Executive Officers” section in the definitive Proxy Statement for the2021 Annual Meeting of Shareholders and incorporated herein by reference or will be provided in an amendment to this Annual Report on Form 10-K.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.The information required by this item will be either set forth under the “Audit Committee Pre-Approval of Audit and Non-Audit Services” section in thedefinitive Proxy Statement for the 2021 Annual Meeting of Shareholders and incorporated herein by reference or will be provided in an amendment to thisAnnual Report on Form 10-K. ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.(a) (1) List of Financial StatementsThe following financial statements are included in Item 8:GSE Systems, Inc. and Subsidiaries Report of Independent Registered Public Accounting Firms Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020 and 2019 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 Notes to Consolidated Financial Statements(a) (2) List of SchedulesAll other schedules to the consolidated financial statements are omitted as the required information is presented in the consolidated financial statements orrelated notes. (a) (3) List of ExhibitsThe Exhibits which are filed with this report or which are incorporated by reference are set forth in the Exhibit index hereto. 89 Table of ContentsITEM 16.FORM 10-K SUMMARY.None.ExhibitDescription of Exhibits 2.Plan of acquisition, reorganization, arrangement, liquidation, or succession 2.1Membership Interests Purchase Agreement, dated as of November 14, 2014, by and between Dale Jennings, Paul Abbott, Shawn McKeever andMickey Ellis and GSE Performance Solutions, Inc. Incorporated herein by reference to Exhibit 2.1 of GSE Systems, Inc. Form 8-K filed withthe Securities and Exchange Commission on November 17, 2014. 2.2Amendment to Membership Interests Purchase Agreement, dated as of May 13, 2015. Incorporated herein by reference to Exhibit 10.2 of GSESystems, Inc. Form 10-Q filed with the Securities and Exchange Commission on May 14, 2015. 2.3Stock Purchase Agreement, dated as of September 20, 2017, by and among GSE Systems, Inc., through its wholly owned subsidiary GSEPerformance Solutions, Inc., Richard and Cynthia Linton (and certain trusts owned thereby) and Absolute Consulting, Inc. Incorporated hereinby reference to Exhibit 2.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on September 20, 2017. 2.4 Membership Interest Purchase Agreement, dated as of May 11, 2018, between True North Consulting LLC, Donald R. Horn, Jenny C. Horn,GSE Performance Solutions, Inc., and Donald R. Horn in his capacity as Seller Representative. Incorporated herein by reference to Exhibit 2.1of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. 2.5Membership Interest Purchase Agreement, dated as of February 15, 2019, between DP Engineering Co. Ltd., Steven L. Pellerin, Christopher A.Davenport, GSE Performance Solutions, Inc., and Steven L. Pellerin in his capacity as Seller Representative. Incorporated herein by referenceto Exhibit 2.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on February 19, 2019. 3.Articles of Incorporation and Bylaws 3.1Restatement of Certificate of Incorporation dated November 14, 2016. Incorporated herein by reference to Exhibit 3.1 of GSE Systems, Inc.Form 10-Q filed with the Securities and Exchange Commission on November 14, 2016. 3.2Amendment to the Certificate of Incorporation of GSE Systems, Inc. Incorporated herein by reference to Exhibit 3.1 of GSE Systems, Inc.Form 8-K filed with the Securities and Exchange Commission on June 15, 2018. 3.3Third Amended and Restated Bylaws of GSE Systems, Inc. Incorporated herein by reference to Exhibit 3.2 of GSE Systems, Inc. Form 8-Kfiled with the Securities and Exchange Commission on September 16, 2016. 3.4First Amendment to the Third Amended and Restated Bylaws of GSE Systems, Inc. Incorporated herein by reference to Exhibit 3.2 of GSESystems, Inc. Form 8-K filed with the Securities and Exchange Commission on June 15, 2018.10.Material Contracts 10.1Office Lease Agreement between 1332 Londontown, LLC and GSE Systems, Inc. (dated as of February 27, 2008). Incorporated herein byreference to Exhibit 10.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on March 11, 2008.90 Table of Contents10.2Amendment of Lease to Office Lease Agreement, dated May 28, 2008. Incorporated herein by reference to Exhibit 10.20 of GSE Systems, Inc.Form 10-K filed with the Securities and Exchange Commission on March 19, 2015. 10.3Second Amendment of Lease to Office Lease Agreement, dated July 22, 2010. Incorporated herein by reference to Exhibit 10.21 of GSESystems, Inc. Form 10-K filed with the Securities and Exchange Commission on March 19, 2015. 10.4Third Amendment of Lease to Office Lease Agreement, dated May 15, 2012. Incorporated herein by reference to Exhibit 10.22 of GSESystems, Inc. Form 10-K filed with the Securities and Exchange Commission on March 19, 2015. 10.5Fourth Amendment of Lease to Office Lease Agreement, dated April 15, 2014. Incorporated herein by reference to Exhibit 10.1 of GSESystems, Inc. Form 10-Q filed with the Securities and Exchange Commission on May 15, 2014. 10.6GSE Systems, Inc. 1995 Long-Term Incentive Plan, amended and restated, dated as of March 6, 2014. Incorporated herein by reference toExhibit A of GSE Systems, Inc. Form DEF 14A filed with the Securities and Exchange Commission on April 29, 2014. * 10.7Form of Option Agreement Under the GSE Systems, Inc. 1995 Long-Term Incentive Plan. Incorporated herein by reference to GSE Systems,Inc. Form 10-K filed with the Securities and Exchange Commission on March 31, 1997. * 10.8Form of Restricted Share Unit Agreement pursuant to the GSE Systems, Inc. 1995 Long-Term Incentive Plan, as amended and restated, datedas of April 22, 2016. Incorporated herein by reference to Exhibit 10.2 of GSE Systems, Inc. Form 10-Q filed with the Securities and ExchangeCommission on November 14, 2016.* 10.9Form of Amendment to Restricted Share Unit Agreement, dated July 1, 2016. Incorporated herein by reference to Exhibit 99.8 of GSESystems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 1, 2016. * 10.10Employment Agreement, dated July 1, 2016, between GSE Systems, Inc. and Emmett A. Pepe. Incorporated herein by reference to Exhibit99.2 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 5, 2016. * 10.11Amendment to Employment Agreement between Emmett Pepe and GSE Systems, Inc. dated as of June 12, 2017. Incorporated herein byreference to Exhibit 99.4 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on June 16, 2017.* 10.12Amendment No. 2 to Employment Agreement between GSE Systems, Inc. and Emmett Pepe, dated as of January 11, 2019. Incorporated hereinby reference to Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on January 11, 2019.* 10.13 Employment Agreement between Bahram Meyssami and GSE Systems, Inc. dated as of December 1, 2015. Incorporated herein by reference toExhibit 10.1 of GSE Systems, Inc. Form 10-Q filed with the Securities and Exchange Commission on May 15, 2017.* 10.14Amendment to Employment Agreement between Bahram Meyssami and GSE Systems, Inc. dated as of June 12, 2017. Incorporated herein byreference to Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on June 16, 2017.*91 Table of Contents10.15Employment Agreement between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2015. Incorporated herein by reference toExhibit 10.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 31, 2015. * 10.16Amendment to Employment Agreement between Kyle J. Loudermilk and GSE Systems, Inc., dated as of June 12, 2017. Incorporated herein byreference to Exhibit 99.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 1, 2016.* 10.17Amendment No. 2 to Employment Agreement between Kyle Loudermilk and GSE Systems, Inc. dated as of June 12, 2017. Incorporated hereinby reference to Exhibit 99.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on June 16, 2017.* 10.18Amendment No. 3 to Employment Agreement, dated January 11, 2019, between GSE Systems, Inc. and Kyle J. Loudermilk. Incorporatedherein by reference to Exhibit 99.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on January 11, 2019.* 10.19Restricted Share Unit Agreement between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2015. Incorporated herein byreference to Exhibit 10.2 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 31, 2015.* 10.20 Amendment to Restricted Share Unit Agreement between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2016. Incorporatedherein by reference to Exhibit 99.2 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 1, 2016.* 10.21Restricted Share Unit Agreement (Cash Award) between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2016. Incorporatedherein by reference to Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 1, 2016.* 10.22Restricted Share Unit Agreement (Common Stock Award) between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2016. Incorporated herein by reference to Exhibit 99.4 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 1,2016.* 10.23Restricted Share Unit Agreement between Emmett A. Pepe and GSE Systems, Inc., dated as of July 1, 2016. Incorporated herein by referenceto Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on July 5, 2016.* 10.24Restricted Share Unit Agreement between Bahram Meyssami and GSE Systems, Inc. dated as of December 1, 2015. Incorporated herein byreference to Exhibit 10.2 of GSE Systems, Inc. Form 10-Q filed with the Securities and Exchange Commission on May 15, 2017.* 10.25Amendment to Restricted Share Unit Agreement between Bahram Meyssami and GSE Systems, Inc. dated as of July 1, 2016. Incorporatedherein by reference to Exhibit 10.3 of GSE Systems, Inc. Form 10-Q filed with the Securities and Exchange Commission on May 15, 2017.* 10.26Credit and Security Agreement, by and between Citizens Bank, National Association, GSE Systems, Inc. and GSE Performance Solutions, Inc.,dated December 29, 2016. Incorporated herein by reference to Exhibit 99.1 of GSE Systems, Inc. Form 8-K filed with the Securities andExchange Commission on January 4, 2017.92 Table of Contents10.27Amended and Restated Credit and Security Agreement, dated as of May 11, 2018, by and among Citizens Bank, National Association, as Bank,and GSE Systems, Inc. and GSE Performance Solutions, Inc., as Borrower. Incorporated herein by reference to Exhibit 99.1 of GSE Systems,Inc. Form 8-K filed with the Securities and Exchange Commission on May 14, 2018. 10.28Amendment and Reaffirmation Agreement, dated February 22, 2017, and effective as of December 29, 2016. Incorporated herein by referenceto Exhibit 10.36 of GSE Systems, Inc. Form 10-K filed with the Securities and Exchange Commission on March 28, 2017. 10.29Second Amendment and Reaffirmation Agreement dated as of May 25, 2018. Incorporated herein by reference to Exhibit 10.35 of Form 10-Kfiled with the Securities and Exchange Commission on June 11, 2020. 10.30Third Amendment and Reaffirmation Agreement dated as of February 15, 2019, by and among GSE Systems, Inc. and GSE PerformanceSolutions, Inc., as Borrowers, GSE True North Consulting, LLC, Hyperspring, LLC, Absolute Consulting, Inc. and DP Engineering Ltd. Co., asGuarantors, and Citizens Bank, National Association, as Bank. Incorporated herein by reference to Exhibit 99.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on February 19, 2019. 10.31Form of Indemnification Agreement. Incorporated herein by reference to Exhibit 10.38 of Form 10-K filed with the Securities and ExchangeCommission on June 11, 2020. 10.32Fourth Amendment and Reaffirmation Agreement dated as of March 20, 2019, by and among GSE Systems, Inc., and GSE PerformanceSolutions, Inc., as Borrowers, GSE True North Consulting, LLC, Hyperspring, LLC, Absolute Consulting, Inc., and DP Engineering LLC, asGuarantors, and Citizens Bank, National Association, as Bank. Incorporated herein by reference to Exhibit 10.39 of Form 10-K filed with theSecurities and Exchange Commission on June 11, 2020. 10.33Fifth Amendment and Reaffirmation Agreement, dated as of June 28, 2019, by and among Citizens Bank, National Association, as Bank, andGSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC, AbsoluteConsulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-Kfiled with the Securities and Exchange Commission on July 1, 2019. 10.34Settlement and Release Agreement, dated as of December 30, 2019, by GSE Performance Solutions, Inc., GSE Systems, Inc. and theirsubsidiaries and affiliate, on the one hand, and Christopher A. Davenport and Steven L. Pellerin, on the other hand, incorporated herein byreference to Exhibit 99.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2020. 10.35Sixth Amendment and Reaffirmation Agreement, dated as of December 31, 2019, by and among Citizens Bank, National Association, as Bank,and GSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC, AbsoluteConsulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-Kfiled with the Securities and Exchange Commission on January 8, 2020. 10.36Seventh Amendment and Reaffirmation Agreement, dated as of March 31 2020, by and among Citizens Bank, National Association, as Bank,and GSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC, AbsoluteConsulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-Kfiled with the Securities and Exchange Commission on April 17, 2020. 10.37Collateral assignment of Rights Under Escrow Agreement dated March 31, 2020, is made by GSE Performance Solutions Inc., in favor ofCitizens Bank, National Association. Incorporated herein by reference to Exhibit 10.45 of Form 10-K filed with the Securities and ExchangeCommission on June 11, 2020. 10.38Eighth Amendment and Reaffirmation Agreement, dated as of June 29, 2020, by and among Citizens Bank, National Association, as Bank, andGSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC, AbsoluteConsulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 10.1 of Form 10-Q filed with theSecurities and Exchange Commission on November 16, 2020. 10.39Ninth Amendment and Reaffirmation Agreement, dated as of March 29, 2021, by and among Citizens Bank, National Association, as Bank, andGSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC, AbsoluteConsulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-Kfiled with the Securities and Exchange Commission on April 2, 2021. 10.40Paycheck Protection Note, by and between GSE Systems, Inc. and Citizens Bank, N.A., dated April 23, 2020,. Incorporated herein by referenceto Exhibit 99.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 30, 2020. 14Code of Ethics 14.1Code of Ethics for the Principal Executive Officer and Senior Financial Officers. Previously filed in connection with the GSE Systems, Inc.Form 10-K filed with the Securities and Exchange Commission on March 31, 2006 and incorporated herein by reference.93 Table of Contents21Subsidiaries. 21.1List of Subsidiaries of Registrant at December 31, 2020, filed herewith. 23Consent of Independent Registered Public Accounting Firm 23.1Consent of Dixon Hughes Goodman LLP, filed herewith. 23.2Consent of BDO USA, LLP. filed herewith. 24Power of Attorney 24.1Power of Attorney for Directors’ and Officers’ Signatures on SEC Form 10-K, filed herewith. 31Certifications 31.1Certification of Chief Executive Officer of the Company pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adoptedpursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002, filed herewith. 31.2Certification of Chief Financial Officer of the Company pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adoptedpursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002, filed herewith. 32Section 1350 Certifications 32.1Certification of Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, file herewith. * Management contracts or compensatory plans required to be filed as exhibits pursuant to Item 15(b) of this report.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. GSE Systems, Inc. By: / s / Kyle J. Loudermilk Kyle J. Loudermilk Chief Executive Officer Pursuant to the requirements of the Securities Act, this report has been signed by the following persons in the capacities and on the dates indicated. Date: April 13, 2021/s / KYLE J. LOUDERMILK Kyle J. Loudermilk, Chief Executive Officer (Principal Executive Officer) Date: April 13, 2021/ s / EMMETT A. PEPE Emmett A. Pepe, Chief Financial Officer (Principal Financial and Accounting Officer) Date: April 13, 2021(Barnie Beasley, Chairman of the Board)By:/ s / EMMETT A. PEPE (William Corey, Chairman of the Audit Committee)Emmett A. Pepe (Kathryn O’Connor Gardner, Director)Attorney-in-Fact (Suresh Sundaram, Director) (Kyle Loudermilk, Director) A Power of Attorney, dated April 13, 2021 authorizing Emmett A. Pepe to sign this Annual Report on Form 10-K for the fiscal year ended December 31, 2020on behalf of certain of the directors of the Registrant is filed as Exhibit 24.1 to this Annual Report. 94 NINTH AMENDMENT AND REAFFIRMATION AGREEMENT THIS NINTH AMENDMENT AND REAFFIRMATION AGREEMENT is dated as of March 29, 2021 (this “Agreement”), by and amongGSE SYSTEMS, INC., a Delaware corporation (“Parent”), GSE PERFORMANCE SOLUTIONS, INC., a Delaware corporation (“GSE Performance” andcollectively with Parent, the “Borrowers” and each a “Borrower”), GSE TRUE NORTH CONSULTING, LLC, a Delaware limited liability company (“TrueNorth”), HYPERSPRING, LLC, a Delaware limited liability company (“Hyperspring”), ABSOLUTE CONSULTING, INC., a Delaware corporation(“Absolute” and together with True North and Hyperspring collectively, the “Original Guarantors” and each an “Original Guarantor”), DP ENGINEERING,LLC, formerly DP Engineering Ltd. Co., a Delaware limited liability company (“DP Engineering” and together with the Original Guarantors collectively, the“Guarantors” and each a “Guarantor” and together with the Borrowers collectively, the “Loan Parties” and each a “Loan Party”), and CITIZENS BANK,NATIONAL ASSOCIATION (the “Bank”). Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms inthe Credit Agreement (as defined below) or the Guaranty (as defined below), as applicable. WHEREAS, pursuant to the terms of that certain Credit and Security Agreement, dated as of December 29, 2016 (as the same may have beenamended, renewed, replaced, or supplemented from time to time prior to the Closing Date (as defined in the Credit Agreement), the “Original CreditAgreement”), by and among Borrowers and Bank, the Bank agreed to provide a revolving line of credit to Borrowers in an amount not to exceed $5,000,000pursuant to a revolving line of credit note dated as of the Initial Closing Date (as defined in the Credit Agreement) of the Borrowers payable to the order of theBank (the “RLOC Note”); WHEREAS, Hyperspring executed and delivered a Guaranty and Suretyship Agreement (as the same may have been amended, restated ormodified from time to time, the “Hyperspring Guaranty”) dated as of December 29, 2016 in favor of Bank in connection with Borrower entering into theOriginal Credit Agreement; WHEREAS, Absolute executed and delivered a Guaranty and Suretyship Agreement (as the same may have been amended, restated ormodified from time to time, the “Absolute Guaranty”) dated as of September 20, 2017 in favor of Bank in connection with the Original Credit Agreement; WHEREAS, True North executed and delivered a Guaranty and Suretyship Agreement (as the same may have been amended, restated ormodified from time to time, the “True North Guaranty”) dated as of May 11, 2018 in favor of Bank in connection with the Credit Agreement; WHEREAS, GSE Performance executed and delivered a Pledge Agreement (as the same may have been amended, restated or modified fromtime to time, the “GSE Performance Pledge Agreement”) dated as of September 20, 2017 in favor of Bank in connection with the Original Credit Agreement; WHEREAS, Borrowers and Bank entered into that certain Amended and Restated Credit Agreement (as the same may have been amended,restated or modified from time to time, the “Credit Agreement”) dated as of May 11, 2018 to continue the RLOC and to provide for a Term Loan Facility in aprincipal amount up to $25,000,000; WHEREAS, Original Guarantors and Bank entered into that certain Security Agreement (as the same may have been amended, restated ormodified from time to time, the “Security Agreement”) dated as of May 11, 2018; WHEREAS, pursuant to that certain Amendment and Reaffirmation Agreement dated as of May 11, 2018, the Borrowers, the OriginalGuarantors and the Bank agreed to amend the terms and conditions of the RLOC Note and the GSE Performance Pledge Agreement; WHEREAS, pursuant to that certain Second Amendment and Reaffirmation Agreement dated as of May 25, 2018, the Borrowers, the OriginalGuarantors and the Bank agreed to amend certain terms and conditions of the Credit Documents to reflect the conversion of True North to a Delaware limitedliability company; WHEREAS, on February 15, 2019, (i) GSE Performance acquired all of the membership interests of DP Engineering, (ii) the Borrowers, theGuarantors and the Bank executed that certain Third Amendment and Reaffirmation Agreement dated as of such date and (iii) DP Engineering executed anddelivered a (a) Guaranty and Suretyship Agreement (the “DP Engineering Guaranty” and together with the True North Guaranty, the Hyperspring Guaranty andAbsolute Guaranty collectively, the “Guaranty”) in favor of Bank in connection with the Credit Agreement and (b) Pledge Agreement in favor of Bank inconnection with the Credit Agreement; WHEREAS, pursuant to that certain Fourth Amendment and Reaffirmation Agreement dated as of March 20, 2019, the Borrowers, theGuarantors and the Bank agreed to amend certain terms and conditions of the Credit Documents to reflect the conversion of DP Engineering to a Delawarelimited liability company; WHEREAS, pursuant to that certain Fifth Amendment and Reaffirmation Agreement dated as of June 28, 2019, the Borrowers, the Guarantorsand the Bank agreed to amend certain financial covenants in the Credit Agreement; WHEREAS, pursuant to that certain Sixth Amendment and Reaffirmation Agreement dated December 31, 2019, the Borrowers, the Guarantorsand the Bank agreed to amend certain financial covenants in the Credit Agreement; WHEREAS, pursuant to that certain Seventh Amendment and Reaffirmation Agreement dated March 31, 2020, the Borrowers, the Guarantors,and the Bank agreed to amend certain financial covenants, definitions, and other provisions in the Credit Agreement;WHEREAS, pursuant to that certain Eighth Amendment and Reaffirmation Agreement dated June 29, 2020, the Borrowers, the Guarantors, and the Bankagreed to the Loan Repayment (as defined therein) and to amend certain financial covenants and other provisions in the Credit Agreement; and WHEREAS, the parties hereto intend to pay down the RLOC, reduce the RLOC Amount and amend certain financial covenants, definitions,and other provisions in the Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties hereto agree, under seal, as follows: ARTICLE I Section 1.01 Amendments to Credit Agreement. The Credit Agreement is hereby amended as follows: (a) The reference to “$5,000,000 (the “RLOC Amount”)”in Background Paragraph B of the Credit Agreement is hereby deleted and replacedwith “the RLOC Amount.” (b) Subsection 1.1.8 of the Credit Agreement is hereby deleted and replaced with the following new Subsection 1.1.8: “1.1.8. “Availability Amount” means as of any date of determination, an amount equal to the sum of (a) the RLOC Amount, minus (b)the outstanding principal balance of any Advances, minus (c) the aggregate amount available to be drawn on outstanding Letters of Credit,minus (d) the positive difference between $500,000 and the aggregate amount to be drawn on outstanding Letters of Credit issued after theNinth Amendment Date.” (c) Subsection 1.1.26 of the Credit Agreement is hereby deleted and replaced with the following new Subsection 1.1.26:“1.1.26. “Consolidated Adjusted EBITDA” means, (i) for the Measurement Period ending September 30, 2021, Consolidated Adjusted EBITDA for thequarters ending June 30, 2021 and September 30, 2021 multiplied by two, (ii) for the Measurement Period ending December 31, 2021, Consolidated AdjustedEBITDA for the quarters ending June 30, 2021, September 30, 2021 and December 31, 2021, multiplied by 4/3rds and (iii) for the Measurement Period endingMarch 31, 2022 and each period of determination thereafter, Consolidated Net Income for such period plus, without duplication and to the extent reflected as acharge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or write-off ofdebt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loan), (c)depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary,unusual or non-recurring non-cash expenses or losses including impairment charges to goodwill and assets classified as discontinued operations, (f) any cashexpenditures for extraordinary, unusual or non-recurring costs, expenses, charges or losses not to exceed $500,000 over any period of four (4) fiscal quarters ofthe Borrower and its Subsidiaries (including, without limitation, charges incurred in connection with Permitted Acquisitions and unusual or non-recurringoperating expenses directly attributable to the implementation of cost savings initiatives, severance costs, relocation costs, integration costs, restructuring costs,other business optimization expenses or reserves, signing costs, retention or completion bonuses, transition costs, costs related to closure/consolidation offacilities or of discontinued operations and curtailments or modifications to pension and post-retirement employee benefit plans), (g) costs, fees and expensesincurred in connection with Permitted Acquisitions or the incurrence, amendment or modification of Indebtedness permitted under this Agreement (including arefinancing thereof), in each case, whether or not successful, (h) any costs, fees and expenses associated with any acquisition, investments, disposition or equityissuance not prohibited by this Agreement, (i) any non-cash losses associated with any disposition not prohibited by this Agreement, (j) any non-cash lossattributable to the mark-to-market movement in the valuation of obligations pursuant to Hedging Contracts, and (k) any non-cash charges related to anydeferred compensation plans and minus, (i) to the extent included in the statement of such Consolidated Net Income for such period, the sum of (1) interestincome, (2) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement ofsuch Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business), (3) income tax credits (to the extent notnetted from income tax expense), (4) any non-cash gain attributable to the mark-to-market movement in the valuation of obligations pursuant to HedgingContracts, (5) any cash payments related to any deferred compensation plans, (6) any non-cash gains associated with any disposition not prohibited by thisAgreement, and (7) any other non-cash income and (ii) any cash payments made during such period in respect of items described in clause (e) abovesubsequent to the fiscal quarter in which the relevant non-cash expenses or losses were reflected as a charge in the statement of Consolidated Net Income, all asdetermined on a consolidated basis; provided, however, that Borrower and Bank shall agree on deemed “Consolidated Adjusted EBITDA” for Subsidiariesacquired by Borrower in a Permitted Acquisition at the time of such Permitted Acquisition for the purpose of calculating “Consolidated Adjusted EBITDA” forthe three (3) fiscal quarters following such Permitted Acquisition and thereafter, the actual Consolidated Net Income of Subsidiaries acquired by Borrower inPermitted Acquisitions shall be used for purposes of calculating the financial covenants set forth herein.” (d) Subsection 1.1.52 of the Credit Agreement is hereby deleted and replaced with the following new Subsection 1.1.52. “1.1.52. “Fixed Charge Coverage Ratio” means the ratio resulting from dividing (a) Consolidated Adjusted EBITDA for the mostrecent Measurement Period minus the aggregate cash Unfinanced Capital Expenditures, only to the extent Unfinanced Capital Expendituresexceed $500,000 for the Measurement Period, minus the aggregate amount of any Distributions, by (b) the sum of Current Portion of LongTerm Debt for the most recent Measurement Period plus scheduled maturities of Capital Leases (to the extent not included in Current Portionof Long Term Debt) plus Consolidated Cash Interest Charges for the most recent Measurement Period plus the aggregate amount of federal,state, local and foreign income, valued added, franchise, use or equivalent income type tax expense paid in cash (including any state singlebusiness unitary and similar taxes imposed in lieu of income taxes) for the applicable period plus required $75,000 quarterly payments onRLOC commencing on December 31, 2021.” (e) The chart in the definition of “Letter of Credit Issuance Fee” in Section 1.1.68 of the Credit Agreement is hereby deleted and replaced withthe following chart:Leverage RatioIssuance Fee PercentageCategory lGreater than or equal to 3.25 to 1.003.00%Category 2Greater than or equal to 3.00 to 1.00, but less than 3.25 to 1.002.75%Category 3Greater than or equal to 2.75 to 1.00, but less than 3.0 to 1.002.50%Category 4Greater than or equal to 2.00 to 1.00, but less than 2.75 to 1.002.25%Category 5Greater than or equal to 1.00 to 1.00, but less than 2.00 to 1.002.00%Category 6Less than 1.00 to 1.001.75% (f) Subsection 1.1.93 of the Credit Agreement is hereby deleted and replaced with the following new Subsection 1.1.93: “1.1.93. “RLOC Amount” means (i) on the Ninth Amendment Date, $4,250,000, (ii) on the earlier of June 30, 2021 or the dateBorrower makes the second $500,000 payment required by Subsection 2.1.5(d) hereof, $3,750,000, (iii) on September 30, 2021, $3,500,000and (iv) on December 31, 2021 and on each March 31, June 30, September 30 and December 31 thereafter, the RLOC Amount immediatelyprior to each such date reduced by $37,500.” (g) Subsection 1.1.105 of the Credit Agreement is hereby deleted and replaced with the following new Subsection 1.1.105: “1.1.105. “Unused Fee Percentage” means 0.55%. (h) Section 1.1 of the Credit Agreement is hereby amended to add the following definition in the appropriate alphabetical order: “”Ninth Amendment Date” means March 29, 2021.” (i) Section 2.1.4 of the Credit Agreement is hereby amended to append the following sentence to Section 2.1.4.: “Without limiting theforegoing, on or after the Ninth Amendment Date, the Bank shall have no obligation to issue one or more Letters of Credit to the extent that thesum of (a) the face amount of any Letter of Credit requested to be issued after the Ninth Amendment Date, plus (b) the aggregate amount to bedrawn on all outstanding Letters of Credit issued after the Ninth Amendment Date would exceed $500,000.” (j) The Credit Agreement is hereby amended to add the following new Subsection 2.1.5(d): “(d) On the Ninth Amendment Date, Borrower shall pay Bank $500,000 to be applied to the principal amount outstanding under theRLOC. By June 30, 2021, Borrower shall pay Bank an additional $500,000 to be applied to the principal amount outstanding under theRLOC. Commencing on December 31, 2021 and on each March 31, June 30, September 30 and December 31 thereafter, Borrower shall payBank $75,000 to be applied to the principal amount outstanding under the RLOC.” (k) Section 7.1 of the Credit Agreement is hereby deleted and replaced with the following new Section 7.1: “Section 7.1 Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall maintain a minimum Fixed Charge Coverage Ratio of1.10 to 1.00, to be tested quarterly as of the last day of each quarter beginning with the quarter ending September 30, 2021, on rolling four-quarter basis, calculated based on the financial statements received by the Bank in accordance with the terms of this Agreement.Notwithstanding the foregoing, the Borrower’s liabilities and expenses under the PPP Loan shall be excluded in the calculation of FixedCharge Coverage Ratio for any period of time of determination unless, until and only to the extent it has been finally determined that all or anyportion of the Borrower’s PPP Loan will not be forgiven pursuant to Section 1106 of the CARES Act.” (l) Section 7.2 of the Credit Agreement is hereby deleted and replaced with the following new Section 7.2: “Section 7.2. Leverage Ratio. Borrower and its Subsidiaries shall not exceed a maximum Leverage Ratio, to be tested quarterly as ofthe last day of each quarter beginning with the quarter ending September 30, 2021, on a rolling four-quarter basis, calculated based on thefinancial statements received by the Bank in accordance with the terms of this Agreement, as follows: (i) 3.25 to 1.00 for the period ending onSeptember 30, 2021, (ii) 3.00 to 1.00 for the period ending on December 31, 2021, (iii) 2.75 to 1.00 for the period ending on March 31, 2022,(iv) 2.50 to 1.00 for the period ending on June 30, 2022 and (v) 2.00 to 1.00 for the period ending on September 30, 2022 for the periodsending on each December 31st, March 31st, June 30th and September 30th thereafter. Notwithstanding the foregoing, the Borrower’s liabilitiesand expenses under the PPP Loan shall be excluded in the calculation of Leverage Ratio for any period of time of determination unless, untiland only to the extent it has been finally determined that all or any portion of the Borrower’s PPP Loan will not be forgiven pursuant to Section1106 of the CARES Act.” (m) Section 7.4 of the Credit Agreement is hereby deleted and replaced with the following new Section 7.4: “Section 7.4 Capital Expenditures. Borrower and its Subsidiaries shall not make Capital Expenditures, financed with Indebtednesshaving an original term longer than twelve (12) months, in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate, tested quarterly based on thefinancial statements received by Bank in accordance with this Agreement.” (n) Section 7.5 of the Credit Agreement is hereby deleted and replaced with the following new Section 7.5: “Section 7.5 Minimum USALiquidity. Borrower and its Subsidiaries shall maintain a minimum USA Liquidity of at least $2,500,000.00 in the aggregate, to be tested bi-weekly as of the fifteenth (15th) and the last day of each month beginning on March 31, 2021 and thereafter and to be reported by Borrower toBank within five (5) Business Days of such measurement date.” (o) Schedule 8.1 to the Credit Agreement is hereby deleted and replaced with Schedule 8.1 attached hereto. (p) The chart in the definition of the “Applicable Margin” on Exhibit C to the Credit Agreement is hereby deleted and replaced with thefollowing:Leverage RatioMarginCategory 1Greater than or equal to 3.25 to 1.004.00%Category 2Greater than or equal to 3.00 to 1.00, but less than 3.25 to 1.003.75 %Category 3Greater than or equal to 2.75 to 1.00, but less than 3.00 to 1.003.50%Category 4Greater than or equal to 2.00 to 1.00, but less than 2.75 to 1.003.25%Category 5Greater than or equal to 1.00 to 1.00, but less than 2.00 to 1.003.00%Category 6Less than 1.00 to 1.002.75% ARTICLE IIReaffirmation Section 2.01 Reaffirmation. (a) Each Guarantor hereby: (i) affirms and confirms its guarantee and other commitments and obligations, under the Guaranty, theSecurity Agreement and any other Credit Documents executed by such Guarantor and (ii) confirms that each guarantee and other commitments and obligationsunder the Guaranty, the Security Agreement and any other Credit Documents executed by such Guarantor shall continue to be in full force and effect and shallcontinue to accrue to the benefit of the Bank notwithstanding the effectiveness of the Credit Agreement. (b) Each Borrower hereby affirms the execution and delivery to Bank of the Credit Documents, and the Credit Documents arecontinued in full force and effect and are in all respects hereby affirmed and ratified. ARTICLE III Representations and Warranties Each Loan Party, to the extent applicable, hereby represents and warrants, which representations and warranties shall survive execution anddelivery of this Agreement, as follows: Section 3.01 Organization. Each Loan Party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Section 3.02 Authority; Enforceability. Each Loan Party has the corporate or limited liability company power to execute, deliver and carry out the terms andprovisions of this Agreement and has taken all necessary corporate and other action, to authorize the execution, delivery and performance by it of thisAgreement. Each Loan Party has duly executed and delivered this Agreement, and this Agreement constitutes a legal, valid and binding obligation of suchLoan Party, enforceable against it in accordance with the terms hereof. Section 3.03 Credit Documents. The representations and warranties made by each Loan Party and set forth in the Credit Documents are true and correct onand as of the date hereof with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relateto an earlier date (in which case any such representation and warranty shall have been true and correct as of such earlier date). ARTICLE IVMiscellaneous Section 4.01 Conditions to Effectiveness of Agreement. The Bank’s willingness to agree to the amendments set forth in this Agreement is subject to (a) theexecution and delivery to the Bank of this Agreement by the Borrowers and Guarantors and (b) the payment by Borrowers to the Bank of (i) $500,000 to beapplied to the principal amount outstanding under the RLOC, (ii) a $25,000 amendment fee, and (iii) the reasonable fees and expenses of the Bank’s outsideand in-house counsel in connection with this Agreement. Section 4.02 Notices. All communications and notices hereunder shall be in writing and given as provided in Section 10.9 of the Credit Agreement or Section13 of the Guaranty, as applicable. Section 4.03 Expenses. Each Loan Party acknowledges and agrees that the Bank shall be entitled to reimbursement of expenses as provided in Section 10.2 ofthe Credit Agreement and Section 10 of the Guaranty, as applicable. Section 4.04 Credit Document. This Agreement is a “Credit Document” executed pursuant to the Credit Agreement and shall be construed, administered andapplied in accordance with the terms and provisions thereof. Section 4.05 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respectivesuccessors and assigns. Section 4.06 No Novation. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the CreditDocuments, which shall remain in full force and effect except as modified by this Agreement and the Credit Agreement. Section 4.07 Governing Law; Waiver of Jury Trial. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware.EACH LOAN PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUIT,ACTION OR PROCEEDING BROUGHT OR INSTITUTED BY ANY PARTY HERETO OR ANY SUCCESSOR OR ASSIGN OF ANY PARTY, ON ORWITH RESPECT TO THIS AGREEMENT, ANY OF THE OTHER DOCUMENTS, THE COLLATERAL OR THE DEALINGS OF THE PARTIES WITHRESPECT HERETO OR THERETO, WHETHER BY CLAIM OR COUNTERCLAIM. Section 4.08 Remaining Force and Effect. Except as specifically amended hereby, the Credit Documents remain in full force and effect in accordance withtheir original terms and conditions. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed under seal by its respective authorizedofficers as of the day and year first above written. BANK: Witness/Attest: CITIZENS BANK, NATIONAL ASSOCIATIONBy: /s/ Joseph R. Sileo (SEAL) Joseph R. SileoSenior Vice President BORROWERS: Witness/Attest:/s/ Leah BrewsterGSE SYSTEMS, INC.By: /s/ Emmett Pepe (SEAL) Emmett Pepe Chief Financial Officer Witness/Attest:/s/ Leah BrewsterGSE PERFORMANCE SOLUTIONS, INC.By: /s/ Emmett Pepe (SEAL) Emmett Pepe Treasurer GUARANTORS: Witness/Attest:/s/ Leah Brewster ABSOLUTE CONSULTING, INC.By: /s/ Emmett Pepe (SEAL) Emmett Pepe Treasurer Witness/Attest:/s/ Leah Brewster HYPERSPRING, LLCBy: /s/ Emmett Pepe (SEAL) Emmett Pepe Treasurer Witness/Attest:/s/ Leah Brewster GSE TRUE NORTH CONSULTING, LLCBy: /s/ Emmett Pepe (SEAL) Emmett Pepe Treasurer Witness/Attest:/s/ Leah Brewster DP ENGINEERING, LLCBy: /s/ Emmett Pepe (SEAL) Emmett Pepe Treasurer Exhibit 21.1SUBSIDIARIES OF REGISTRANT AT DECEMBER 31, 2020The following are significant subsidiaries of GSE Systems, Inc. as of December 31, 2020, and the states or jurisdictions in which they are organized. GSESystems, Inc. owns, directly or indirectly, at least 99% of the voting securities of substantially all of the subsidiaries included below. The names of particularsubsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute, as of the end of the year covered by thisreport, a "significant subsidiary" as that term is defined in Regulation S-X under the Securities Exchange Act of 1934.Name Place of Incorporation or Organization GSE Systems Engineering (Beijing) Company, Ltd Peoples Republic of ChinaGSE Power Systems AB SwedenGSE Process Solutions, Inc. State of DelawareGSE Services Company L.L.C. State of DelawareGSE Performance Solutions, Inc. State of DelawareHyperspring, LLC State of DelawareAbsolute Consulting, Inc.GSE True North Consulting, LLCDP Engineering, LLC State of DelawareState of DelawareState of DelawareGSE Systems Slovakia s.r.o Slovakia Exhibit 23.1Consent of Independent Registered Public Accounting FirmGSE Systems, Inc. We consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333- 212241, 333-183427, 333-150249 and 333-138702, etc.)of GSE Systems, Inc. of our report dated April 13, 2021, with respect to the consolidated financial statements, which is included in this Annual Report on Form10-K for the year ended December 31, 2020. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern. /s/ Dixon Hughes Goodman LLPTysons, VirginiaApril 13, 2021 Exhibit 23.2Consent of Independent Registered Public Accounting FirmGSE Systems, Inc.Columbia, Maryland We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-212241, 333-183427, 333-150249 and 333-138702)of GSE Systems, Inc. of our report dated June 11, 2020, relating to the consolidated financial statements, which appears in this Form 10-K. Our report containsan explanatory paragraph regarding the Company’s ability to continue as a going concern. /s/ BDO USA, LLPMcLean, VirginiaApril 13, 2021 Exhibit 24.1POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kyle J. Loudermilk andEmmett A. Pepe, and each of them, with full power of substitution and reconstitution and each with full power to act for him and without the other, as his trueand lawful attorney-in-fact and agent, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this AnnualReport on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commissionor any state, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thingrequisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying andconfirming all that said attorneys-in-fact and agents, or any of them, or their, his or her substitutes or substitute, may lawfully do or cause to be done by virtuehereof.Pursuant to the requirements of the Security Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in thecapacities and on the date indicated.Date: April 12, 2021/s/ Kyle J. Loudermilk Kyle J. Loudermilk Chief Executive Officer Date: April 12, 2021/s/ Emmett A. Pepe Emmett A. Pepe Chief Financial Officer Date: April 12, 2021/s/ Barnie Beasley Barnie Beasley Chairman of the Board Date: April 12, 2021/s/ William Corey William Corey Chairman of the Audit Committee Date: April 12, 2021/s/ Kathryn O’Connor Gardner Kathryn O’Connor Gardner Director Date: April 12, 2021/s/ Suresh Sundaram Suresh Sundaram Director Exhibit 31.1Certification of the Chief Executive OfficerI, Kyle J. Loudermilk, certify that:1.I have reviewed this annual report on Form 10-K 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 thestatements 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 annual report, fairly present in all material respects thefinancial 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 ExchangeAct 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 theregistrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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 inaccordance 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 effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth quarter thathas materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: April 13, 2021 /s/ Kyle J. Loudermilk Kyle J. Loudermilk Chief Executive Officer(Principal Executive Officer) Exhibit 31.2Certification of the Chief Financial OfficerI, Emmett A. Pepe, certify that:1.I have reviewed this annual report on Form 10-K 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 thestatements 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 financialcondition, 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 ExchangeAct 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 theregistrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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 inaccordance 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 effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: April 13, 2021 /s/ Emmett A. Pepe Emmett A. Pepe Chief Financial Officer(Principal Financial and Accounting Officer) Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of GSE Systems, Inc. (the “Company”) for the year ended December 31, 2020 as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), I, Kyle J. Loudermilk, Chief Executive Officer of the Company, and I, Emmett A. Pepe, ChiefFinancial 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; and2.To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company.Date: April 13, 2021/s/ Kyle J. Loudermilk /s/ Emmett A. Pepe Kyle J. Loudermilk Emmett A. Pepe Chief Executive Officer Chief Financial Officer

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