GSE Systems
Annual Report 2023

Plain-text annual report

GSE SYSTEMS INC FORM 10-K (Annual Report) Filed 04/02/24 for the Period Ending 12/31/23 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 https://www.edgar-online.com © Copyright 2024, EDGAR Online LLC, a subsidiary of OTC Markets Group. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online LLC, a subsidiary of OTC Markets Group, 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, 2023 ☐ 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, $0.01 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internalcontrol over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared orissued its audit report. Yes ☐ No ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in thefiling reflect the correction of an error to previously issued financial statements. ☐Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensationreceived by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐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 $8,928,827 on June 30, 2023, 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 $3.60.The number of shares outstanding of the registrant’s Common Stock as of March 31, 2024 was 3,034,139 shares.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Proxy Statement for the 2024 Annual Meeting of Shareholders 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.Business3Item 1A.Risk Factors15Item 1B.Unresolved Staff Comments26Item 1C.Cybersecurity26Item 2.Properties27Item 3.Legal Proceedings27Item 4.Mine Safety Disclosures27 PART II Item 5.Market for Registrant’s Common Equity, Related Shareholder 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 Risk38Item 8.Financial Statements and Supplementary Data38Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure74Item 9A.Controls and Procedures74Item 9B.Other Information75Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspection75 PART III Item 10.Directors, Executive Officers and Corporate Governance*75Item 11.Executive Compensation*76Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters*76Item 13.Certain Relationships and Related Transactions, and Director Independence*77Item 14.Principal Accountant Fees and Services*77 PART IV Item 15.Exhibits and Financial Statement Schedules77Item 16.Form 10-K Summary82 SIGNATURES82 Exhibits Index78*to be incorporated by reference from the Proxy Statement for the registrant’s 2024 Annual Meeting of Shareholders.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;•catastrophic failure or other incident at facilities either owned by our customers or our company, or where equipment or services are or may beprovided;•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; andThe 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. 2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. (hereinafter referred to as “GSE”, the “Company”, “we”, “us” or “our”), a Nasdaq-listed company trading under the symbol GVP, is aleading provider of engineering services and technology, expert staffing, and simulation software to clients in the power and process industries. We providecustomers with simulation, engineering technology, engineering and plant services that help clients reduce risks associated with operating their plants, increaserevenue through improved plant and employee performance, and lower costs through improved operational efficiency. In addition, we provide professionalservices that help clients fill key vacancies in the organization on a short-term basis, including but not limited to, the following: procedure writing, planningand scheduling; engineering; senior reactor operator (“SRO”) training and certification; technical support and training personnel focused on regulatorycompliance and certification 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. We are 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. Our operations also include interactive software for tutorials and simulation for the refining, chemical, andpetrochemical industries. We execute projects globally with approximately 271 employees, as of December 31, 2023. We operate from offices in the U.S. and China and with additionalemployees deployed at client sites. While most of our revenue comes from support provided to the nuclear power industry, we also serve agencies in the UnitedStates Department of Energy (“DOE”), the United States Navy and adjacent defense opportunities, and the oil and gas, refining, chemical, and petrochemicalmarkets. GSE was formed to consolidate the simulation and related businesses of General Physics International Engineering & Simulation, S3 Technologies, andEuroSim. We completed our Initial Public Offering in 1995. Since 2014, GSE has grown by consolidating and acquiring businesses serving the nuclear power industry. On November 14, 2014, we acquired Hyperspring,LLC (now doing business as - “GSE Training Services” or “Training Services”). Training Services is a nuclear industry focused staffing and training firm thatemploys highly skilled, high-value professionals primarily filling training and consulting positions on a contract basis for nuclear power plant operators.Training Services professionals provide training, operations and maintenance support including: generic fundamentals exams, accreditation training visitpreparation, SRO certification, procedure development, work management, tagging/labeling, outage execution, planning/scheduling, corrective action, self-assessments and equipment reliability. On September 20, 2017, we acquired Absolute Consulting, Inc. (now doing business as - “GSE Technical Staffing” or“Technical Staffing”). Technical Staffing is a provider of technical consulting and staffing solutions to the global nuclear power industry with expertise inprocedure writing, engineering, technical support, scheduling, planning, project management, training, project controls, and corrective actions. On May 11,2018, we acquired True North Consulting, LLC (now doing business as - “GSE Programs & Performance” or “Programs & Performance”). Programs &Performance is a provider of engineering solutions to nuclear and non-nuclear power plants with an emphasis on regulatory-driven, American Society ofMechanical Engineers (“ASME”) code programs. On February 15, 2019, we acquired DP Engineering Ltd, Co. (now doing business as - “GSE Design &Analysis” or “Design & Analysis”). Design & Analysis is a specialized provider of high-value engineering services and solutions to the nuclear power industry.Founded in 1995 in Fort Worth, Texas, Design & Analysis generates over 90% of its revenue from the nuclear power industry with core expertise in mechanicaldesign; civil/structural design; electrical, instrumentation and controls design; digital controls/cyber security; and fire protection. Design & Analysis primarilyworks under master service agreements as the Engineer of Choice (“EOC”). 3Table of ContentsFOCUS FOR 2024 As we look ahead to 2024 and beyond, there is a continued focus from the current administration on decarbonizing the power sector, driving to a carbon freegrid by 2030, and a net carbon neutral economy beyond that. This effort is recognized as a key means in achieving environmental equity. The bipartisaninfrastructure plan passed in 2021, and Inflation Reduction Act passed in August 2022, each included spending elements specifically in support of nuclearpower and nuclear technology development. The monies from these initiatives should start to flow to support the existing nuclear power fleet operate longerand produce more power from the fleet over time through capital investment. GSE is positioned to align with these primary initiatives of the United Statesoperating fleet. As such, we will focus our efforts on capturing more business as this is where industry spend is focused for the foreseeable future.GSE will also continue to focus on growing business in the DOE lab system and adjacencies. DOE labs related to U.S . Navy and other areas of focus continueto be a growth engine for GSE. Uranium enrichment is also an adjacency where GSE has experienced success, and this will be an area of focus for growth aswell.In sum, GSE is focused on driving business from the existing nuclear power fleet and adjacencies such as DOE and national defense areas.OPERATING SEGMENTS We operate through two reportable business segments: Engineering and Workforce Solutions. Each segment focuses on delivering solutions to customerswithin our target markets. Marketing and communications, accounting, finance, legal, human resources, corporate development, information systems and otheradministrative services are organized at the corporate or parent level. Business development and sales resources are generally aligned with each segment tosupport existing customer accounts and new customer development. The business units collaborate to facilitate cross-selling and the development of newsolutions. The following is a description of our business segments:Engineering (approximately 71.0% of revenue) Our Engineering segment primarily encompasses our power plant high-fidelity simulation solutions, technical engineering services for ASME programs, powerplant thermal performance optimization, and interactive computer-based tutorials/simulation focused on the process industry. The Engineering segmentincludes various simulation products, engineering consulting services, and operation training systems delivered across the industries we serve: primarily in thenuclear, fossil fuel power generation and the process industries. Our simulation solutions include the following: (1) simulation software and services, includingoperator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for the fossil powerindustry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems to newly hiredemployees and for ongoing workforce development and training. We and our predecessors have been providing these services since 1976. Our Engineering segment also provides the following: (1) in-service testing for engineering programs focused on ASME OM code including Appendix J,balance of plant programs, and thermal performance; (2) in-service inspection for specialty engineering including ASME Section XI; (3) software solutions;and (4) mechanical design, civil/structural design, electrical, instrumentation and controls design, digital controls/cyber security, and fire protection for nuclearpower plant design modifications. Our subsidiaries, Programs & Performance and Design & Analysis, typically work as either the EOC or specialty EOC forour clients under master services agreements and are included in our Engineering segment due to their service offerings. We have been providing theseengineering solutions and services since 1995.4Table of ContentsWorkforce Solutions (approximately 29.0% of revenue) The Workforce Solutions segment, formerly known as Hyperspring and Absolute Consulting, supports entire project lifecycles by providing highly specialized,technical talent and specialty services throughout the energy, engineering, and adjacent industries including construction, government, infrastructure,environmental, and manufacturing. This includes a wide range of solutions including training services, professional services, procedure writing services, andflexible staffing and talent acquisition services through our Training Services and Technical Staffing businesses.Working together, Workforce Solutions gives our customers increased agility by providing the ability to identify the right talent, hire quickly for short or long-term needs, and/or even take on entire project scopes with fixed price or hourly billing options. We also partner with and support our Engineering Servicesdivision, offering our customers yet another option for outsourcing managed tasks. Additionally, by utilizing our services, our customers gain additionalbenefits such as reductions in response time, overhead costs, overtime pay, risk, training, time to fill, onboarding, and more. We do these things, all whileproviding timely, flexible, and effective solutions.Examples of some of the highly skilled positions we fulfill are senior reactor operations instructors, procedure writers, project managers, engineers, workmanagement specialists, planners and training material developers.Financial information is provided in Note 18 of the accompanying consolidated financial statements regarding our business segments and geographicoperations and revenue.BUSINESS STRATEGY, INDUSTRY TRENDS, PRODUCTS AND SERVICESBusiness Strategy Serve existing customers and adjacencies with compelling solutions, focused on decarbonization and supporting the investment required to extend theoperating lifetime and produce more power from the fleet overtime Our objective is to create a leading business focused on decarbonizing the power industries by providing a diverse set of highly unique and essential servicesand technologies, primarily in the nuclear power industry. We are now one of the few, publicly-traded engineering and technology companies serving the zero-carbon energy sector of nuclear power and adjacent nuclear markets in Department of Energy, U.S. Navy and related sectors. As a result of this effort andestablished leadership in key sectors, we are positioned to expand into essential clean energy opportunities that may arise such as wind, solar, hydrogenproduction, and others. This positioning has allowed us to grow into adjacencies as the arise such as working on engineering projects for a uranium enrichmententity in the United States. The engineering services and technology that we provide to industry are focused on essential capabilities to help plants extend theiroperating lifetimes, capture the value of the power they produce on to the grid, produce more power from existing assets, and most importantly operate safelyin an optimal manner. In 2023, we were keenly focused on organic growth in the sectors we serve by: cross selling and upselling in our existing markets as wefocus on delivering significant value to our customers; creating new and compelling solutions in-house as a result of advancements in our technology offeringsin partnership with industry early adopters focused on critical business needs; developing new services through combination of our expertise; expanding intocompelling adjacent markets such as clean energy as they may arise with renewed sales focus. The focus on organic growth reflects our need to grow in a self-funded manner to achieve cash flow break even and, ultimately, recover to our pre-pandemic revenue levels. We expect a similar focus in 2024.Cross-sell and upsell into existing markets For the past several years, we have devoted considerable time and effort to diversify both of the Company segment’s solutions capabilities for the nuclearpower sector, via a rollup of essential services providers to the industry. To ensure efficient and streamlined operations for the business, we have brought innew engineering experts who are deeply credentialed in the nuclear power industry. We have also retooled our Workforce Solutions sales and recruiting effortsto ensure we are covering the industry broadly. The business units operate uniformly within their respective structure. This structure greatly enhances theopportunity to cross-sell our capabilities across our entire customer base, fostering an important focus of our sales efforts. This further differentiates us as acomprehensive provider to industry versus providers of specific, niche services. Our expectation is that unified go-to-market efforts, such as cross-sellingcapabilities, will lead to greater share of available spending within the customer base, which in turn will lead to significant upselling opportunity.5Table of ContentsJust as the broader economy was impacted by the onset of the pandemic, so too have our end markets been affected. We believe that the industries that we serveare quick to respond to a crisis and disruption, but slow to emerge and recover to pre-crisis operations. While understandable, we believe that thesecharacteristics are especially true for our primary market: the nuclear power industry. We have previously observed similar cycles during prior market andindustry disruptions including the 2008 global economic crisis and the Fukushima disaster in 2011. Now, more recently, we believe that the industries that weserve responded quickly to the global pandemic and resulting economic disruption but, as with past events, our end markets are only now catching up towidespread delays in necessary engineering, design and related projects. Our Company is well positioned to take advantage of the recovery as it occurs.As a result of a rejuvenated cross-sell and upsell effort, we are equipped to take this new approach to the market. In particular, with the passage of theInfrastructure Investment and Jobs Act and the Inflation Reduction Act, for the first time there are specific economic incentives from the U.S. Government fornuclear power development and the production of more nuclear baseload power to the grid. We are eager for these incentives to flow to industry spurring thecapital investment required to extend the lifetime of the plants and production of more power. With economic incentives in place, the industry can now plan tomake such investments. The challenge we are seeing is that the industry is still slow to advance investments that will result in an uptick in business forcompanies like GSE that serve the sector. Although we believe it is only a matter of time until this rollout progresses, the current pace presents a challenge inthe interim and the company has taken steps to align to the realities of the current state of industry spend. As a key provider of essential services to the nuclearpower sector, we are poised to benefit from industry investment as it rolls out to the vendor ecosystem. We further retooled our Workforce Solutions business in2023 to align to the realities of industry spend, and continue to bring in key engineering talent to align and grow our engineering business teams as thatbusiness has shown nascent signs of growth. We have also spent significant effort putting in place Master Services Agreements (“MSAs”) with key utilityoperators. Having this commercial infrastructure in place is a significant step forward to facilitate ease of consumption of our solutions once a decision to do sois made by clients/prospects. In 2024 this effort will continue with the added focus of converting workorders and PO’s from the MSAs we win.Organic growth through new and compelling technologyWhile managing through the pandemic, in parallel, our leadership was investigating compelling opportunities by which we could utilize our capabilities tocreate significant value for the industry and advance the efforts of decarbonizing the power sector. As a result, we have identified a robust pipeline of new andcompelling technology solutions to develop and take to market. Net new solutions, such as Data Validation and Reconciliation (“DVR”), MeasurementUncertainty Recapture (“MUR”) and Thermal System Monitoring (“TSM”), have created new revenue streams with the potential of on-going licensingrevenue, software maintenance and services revenue. Additional information on our DVR, MUR and TSM developments is included below. GSE hasannounced a handful of new wins for these new solutions, which were created through our unique combination of our industry/engineering know-how andsoftware development capabilities. As we have demonstrated in the past few years, small wins over time accrue into meaningful revenue on an on-going basis.This is a key element of our organic growth thesis: focusing on creating and bringing to market compelling technology solutions.Focus on compelling adjacencies in clean energy, defense, and national labs Research and Development (R&D). We invest in R&D to deliver unique solutions that add value to our end-user markets. Our software tools leverage 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 initiative toward decarbonization. Our software technology includes decision-support tools for engineering simulation supporting design and plant commissioning, operational performance tools, and training platforms.We have also made recent, significant enhancement in product offerings for improving the thermal performance of power plants. We have introduced a nextgeneration platform in TSM, providing a technology platform to centralize and continuously monitor plant thermal performance. The solution benefits ourcustomers by automating standardized reporting in modern dashboards available to engineers and decision makers across the fleet, leveraging automation tofacilitate troubleshooting plant performance issues, reducing time and error with direct access to source data, and applying industry guidelines for problemresolution. This platform also supports integration with DVR (implemented by Programs & Performance) that enhances the quality of data for plantperformance insights, analysis and decision making, providing a solution to better detect and identify faulty measurements/sensors and thus reducemaintenance costs by focusing on critical components. Other recent platform improvements have included integration with Asset Management Systems (tostreamline work processes and increase efficiencies) and enhancements in digitizing troubleshooting knowledge for custom scenarios/plants.6Table of ContentsIn the area of engineering simulations, GSE Systems & Simulation group, delivers nuclear core and balance-of-plant modeling and visualization systems to theindustry. To address the nuclear industry’s need for more accurate simulation of both normal and accident scenarios, we provide our DesignEP® and RELAP5-HD® solutions. Our entire JADETM suite of simulation software, including industry leading JTOPMERET® and JElectricTM software, provides the mostaccurate simulation of balance-of-plant and electrical systems available to the nuclear and fossil plant simulation market. The significant enhancements wehave made to our SimExec® and OpenSimTM platforms enables customers to be more efficient in the daily operation of their simulators. We have broughtSimExec® and OpenSimTM together into a next generation unified environment that adds new capabilities as requested by clients and driven by market need.Additionally, enhancements to training content and delivery continue through the EnVision On-Demand platform, allowing our customers to access trainingcontent from anywhere in synchronous and asynchronous modes, thus increasing their efficiency and reducing infrastructure costs. We intend to continue tomake pragmatic and measured investments in R&D that first and foremost are driven by the market and complement our growth strategy. Such investments inR&D may result in on-going enhancement of existing solutions as well as the creation of new solutions to serve our target markets, ensuring that we addgreater value that is easier to use, at lower total cost of ownership than any alternative available to customers. Recent enhancements to our EnVision On-Demand SaaS platform include usability improvements for administrators, instructors and trainees as well as enhanced access security for cloud learning andsimulation portal. We have pioneered a number of industry standards and intend to continue to be one of the most innovative companies in our industry. We hadR&D expenditures totaling $1.1 million and $1.0 million, of which, $0.5 million and $0.4 million were capitalized during the years ended December 31, 2023and 2022, respectively.Strengthen and develop our talent while delivering high-quality solutionsOver the past several years, we have assembled a unique and highly experienced group of talent through organic growth and strategic acquisition. Ourengineering team is comprised of design, simulation, regulatory compliance, and performance optimization professionals who are unique to the industry andcapable of addressing the entire power generation life cycle. Our workforce solutions team includes numerous industry experts, including hands on experiencewithin the energy and engineering sectors. The experience and knowledge among the staff ensure understanding of customer needs and a better ability to offerthe best solutions. Working together, our engineering and workforce teams are able to offer our customers a full set of services that would otherwise requirenumerous companies to obtain the same capabilities.Our experienced employees and management team are our most valuable resources. The continued integration of our team in parallel with attracting, training,and retaining top talent is critical to our success. To achieve our goals, we intend to remain focused on providing our employees with opportunities to 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.The Company is not immune to the intense pressure and business risks associated with attracting and retaining talented professionals in this currentenvironment. We have developed a strong reputation for quality services based upon our industry-recognized depth of experience, ability to attract and retainquality professionals, 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. Attracting and retaining excellent professionals is a key effort forthe company. 7Table of ContentsIndustry Trends Industry needs 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 three ways: the fact that industry knowledge and experience are being lost as a significant percentage of the existingexperienced workforce reaches retirement age; the knowledge gap between the retiring workforce and those earlier in their career; and the competition fromother employers as, there is a increased demand for the skill sets needed. A challenge we are facing in our Workforce Solutions business is that it continues an extended period of malaise. The reality is that once COVID hit, manyutilities sent employees as well as all contractors and staff augmentation personnel, home, where feasible. Over the past three years, the industry has becomeaccustomed to operating short-staffed and has not begun to ramp up their use of staff augmentation. This is a broadly recognized state of the industry. As aresult, this is an ongoing challenge for our Workforce Solutions business. We remain poised to take advantage of staff augmentation projects as they initiate,albeit few and far between in the current state of industry. Products and Services Engineering 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:•maintain regulatory compliance•extend the operating lifetime of the existing fleet•support capital investment to produce more power from the fleet over timeEngineering Solutions for Decarbonization, Plant Lifetime Extension and More Power Production Over Time With overall decarbonization as a key focus, we will blend our current and future efforts in those areas described above to best support that goal. This willposition our engineering team as recognized leaders in the pursuit of low carbon energy as the world progresses on the current energy transition efforts. Anoverview highlighting many areas of our current and planned involvement, as well as, 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 and providing for national security. We help the industry achieve these goals by providing better training and engineeringservices to optimize performance while maintaining regulatory compliance. Our focus is on products and services that improve efficiency and lower operatingcosts for existing power generation assets as well as helping the next generation of carbon free power plants achieve design approval and plant startup asquickly 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, we provide 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, we have delivered more nuclear power plant simulators than any other company in the world.8Table of ContentsWe deliver training products through cloud-based platforms. This delivery method reduces our customers’ infrastructure and ownership costs and providesanytime, anywhere access to rich learning content. Innovative critical thinking exercises enable autonomous simulation training to take place, reducing theburden on instructors and increasing training touch time for students and employees. All of which enable the training organization to be more flexible andefficient.Our simulation solutions not only address industry training needs, but are used for simulation-assisted engineering, that is, 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,our high-fidelity simulator enables designers to model the interaction between systems in advance of construction. With our combination of simulationtechnology and expert engineering, we were chosen to build first-of-a-kind simulators for the AP1000, PBMR, and small modular reactors such as those beingbuilt by NuScale Power Corporation. This technique reduces design costs, accelerates design approvals, de-risks projects, and provides clients with a tool tosell their new plant designs to both customers and regulators. In essence, enabling our customers to get to market faster.Beyond training, our technology is used to improve the efficiency of existing power generation assets. Our TSM System provides live insights into plantoperations, by monitoring performance of key plant equipment, analyzing degradation and recommending actions. When combined with DVR techniques, wecan help reduce operating and maintenance cost. DVR enhances the quality of data for analysis and decision making, providing a solution to better detect andidentify faulty measurements/sensors and thus reduce maintenance costs by focusing on critical components.Our EP-Plus software suite provides one common platform for all engineering programs, helping client engineers keep track of engineering program inspectionand monitoring requirements aimed at safe plant operations. This reduces the engineering workload of our customers, saving costs and enabling staff to focuson the most critical activities.All of these technologies leverage the vast experience and industry expertise of our engineering team. Our engineering team helps our clients throughout theentire plant lifecycle. We are the Engineer of Choice (“EOC”) 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 asplant thermal 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 As our customers’ experienced employees retire or pursue other opportunities, access to industry experts is essential to ensure ongoing operations andadvancements. Our Workforce Solutions segment provides flexible staffing services, knowledge transfer support, end to end workforce management programs,procedures services, and specialized training programs and services. Staffing and training needs change over time and, in turn, our clients need options. Inorder to find the best solutions for our customers, we emphasize fully understanding the unique needs of each customer.The industries we serve need talent, including but not limited to operating personnel, procedure writers, engineers, operators, technical professionals, andinstructors. Our customers need talent who can step in quickly and make an impact. Identifying technical professionals with the right knowledge andexperience, who can perform the work and/or share their knowledge with others is critical, and we specialize in this area of need. We provide qualifiedprofessionals, instructors and turnkey projects/courses that work within the client’s system and complement the methods already in place.Example staffing services include: Temporary, Temp-to-Hire, Direct Hire, Staff Development, Managed Staffing Programs, Payroll Services, and Vets On Call.9Table of ContentsSample Skilled Categories: Electrical and I&C Engineering Project Management Leadership Mentoring Civil and Mechanical Engineering Manufacturing Operator Requalification Operations, Outage & Work Mgmt. Maintenance Design Project Controls QA/QC Construction Procedure Specialists Safety & Inspection Field Service Procedure Writing Operations Specialists Thermal Performance Training Instructors Simulation Specialists Programs & ComplianceExample training services include: Turn-key Training, On-demand Training, Certification Courses, Continuing Education Courses, Custom Training.Sample Training Programs: ACAD Fundamentals Technical Training for Engineers ANSI Fundamentals Electrical/Mechanical/I&C Generic Fundamentals Maintenance & Technical SRO Certification Radiation Worker/Chemistry Power Plant Familiarization Licensed & Non Licensed Operator Licensed Operator Requalification Control Room Operator Qualification Job and Task Analysis Knowledge/Skill Assessment Media/Mode Evaluation Instructor Bootcamp Curriculum Architecture Training Needs Assessment Program Evaluation Existing Program Audit Instructional TechnologyIn addition to our core training and staffing business lines in the nuclear sector, we believe there may be organic growth opportunity with our WorkforceSolutions segment by expanding our service offerings to meet the evolving needs of the energy and engineering industries. Due to our team’s composition anddirect industry experience, we are positioned to attempt to expand our Workforce Solutions segment offerings through our existing relationships and industryknowledge. Historically, we have placed emphasis on cross-selling and combining the services offered by our Workforce Solutions segment with ourEngineering segment.Workforce solutions is not only a complement to our other service offerings; have looked for opportunities to lead the way as the preferred method for many ofour clients to execute entire projects and/or supplement their own staff during project peak periods or with specialized skill sets that are often hard to find. Ourindustry experts give our customers the ability to ramp up quickly, eliminate risks, and provide more flexible options as situations often demand.The Workforce Solutions segment has historically allowed us to expand our footprint, adding new customers in our primary and adjacent industries. Whilecontinuing to diversify our customer base and add new business, it’s important to remain focused in our areas of expertise. In spite of challenging economicconditions, we believe that Workforce Solutions is uniquely positioned for success. Our flexible solutions, and specialized industry experience, allow us tomore easily adapt to customer needs and position us to serve both current and future needs. One recent example is our demonstrated ability to adapt toincreased customer needs for direct hire services, but as the economic conditions shift, we are seeing a shift to more field professional hiring and anticipatecustomers to continue with this trend.We have endeavored to better position ourselves to support these opportunities with strategic hires, staff alignment, and a unified approach. Following theCOVID-19 pandemic, employees are making changes in their professional lives for many reasons, and our Workforce Solutions team provides our customerswith results and flexibility to support ever-changing 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 offerings,involving or referring our engineering services team, or putting together a customized approach, we have the capabilities to help our customers get the jobdone. We  bring together the collection of skills we have amassed over more than 40 years beginning with our traditional roots in custom high-fidelitysimulation and training solutions for the power industries, extended through the acquisition of specialized engineering capabilities, enhanced by the entry andintermediate level training solutions of EnVision, backed by the extensive Workforce Solutions services of Technical Staffing and Training Services, and nowstrengthened by our ability to successfully adapt, diversify, combine, and offer a solutions based approach with our Workforce Solutions team.10Table of ContentsCUSTOMER AND LOCATIONSFor over 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 2023, approximately 12.1% of our revenue was generated from end-users outside the United States and we have a concentration of revenue from oneindividual customer, which accounted for 22.7% of our consolidated revenue, respectively. A small representative list of our customer base includes: ABB Inc.,American Electric Power, Bechtel Hanford National Laboratory, Duke Energy, EDF Energy (United Kingdom), Emerson Process Management, EntergyNuclear Operations Inc, Exelon, Constellation, PSEG Nuclear, Inc., Siemens AG (Germany), Southern Nuclear Operating Company, Inc., Savannah RiverNuclear Solutions, LLC, Slovenkse Elektrarne, A.S. (Slovakia), Tennessee Valley Authority, and Westinghouse Electric Co. Hydrocarbon and chemicalprocess customers include numerous large oil refineries and chemical plants such as BP (worldwide), Statoil ASA (Norway), Chevron, Shell Oil Company(worldwide), Total (Belgium), Vistra (USA), Urenco (USA), 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’s comprehensive capabilities. Our goal is to provide usefulinformation at each stage of the client’s journey with us. Our ability to support our multi-facility, international, and multinational clients is facilitated by our network of offices and strategic partners in the U.S. andoverseas. In addition to our office located in China, our ability to conduct international business is enhanced by our multilingual and multicultural workforce.We have strategic relationships with system integrators and agents representing its interests in the US, Bulgaria, Japan, Malaysia, Singapore, South Korea,Taiwan, Ukraine and various locations in the Gulf Coast Countries of the Middle East. COMPETITION In the nuclear simulation market, we compete directly with firms primarily from Canada, France and the U.S., such as L-3 MAPPS Inc., CORYS T.E.S.S(France) and Western Services Corporation. In the fossil simulation market, we compete with smaller companies in the US. and overseas. In the processindustry, our main competition comes from large digital control system/automation companies such as Honeywell and Schneider. In our engineering market,we compete with firms primarily from North America such as Enercon Services, Kinectrics, Sargent & Lundy LLC, and AECOM. The Workforce Solutions business services include technical professional and training-related and services as well as staff augmentation solutions. Competitorsof the Company for these services include but is not limited to the following: GP Strategies (acquired by Learning Technologies Group plc in 2021), TheWestwind Group, Professional Training Technologies, and Western Technical Services. The competition for staff augmentation includes: System One, Aerotek,and Peak Technical. Competition with staff augmentation is further impacted by wide-scale industry consolidation as a result of the growing movement towarduse of Managed Staffing Providers (MSPs). As some competitors have been forced to close their doors, MSP models have caused others to lose market share,as MSPs can offer a clearer picture of which companies can best deliver. By conducting in-depth reviews and ensuring strategic alignment with MSP providers,the Company’s Workforce Solutions segment has continuously found success with the MSP models and avoided the missteps that have impacted othercompetitors in this regard.11Table of ContentsCompetitive 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 engineering market and few work across the full spectrum ofenergy markets addressing clean energy sources and decarbonization initiatives, specifically, existing nuclear generation, advanced reactor applications, andongoing integration with renewable power sources. Our unique combination of talent and expertise, built through organic and acquisition-based growth haspositioned 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 we have 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 the Engineering segment’s historical success of maintaining our client connections byproviding clear and immediate returns to the customer, such as optimized power generation and efforts that reduce or extend testing and inspectionrequirements. In parallel, we are aggressively evaluating ways to integrate and package our design, simulation, and plant performance components to furtherenhance client benefit. In many cases this is structured with our historical base scope of supply proposed as the stand-alone foundation with optional scopesincluded 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 advantages are also present through client contracts which helpfund the R&D components of the initiatives. Proprietary 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 us orour customers to develop repeatable high-fidelity, real-time software quickly, accurately and at lower costs. We also have an expertise integrating third-partyengineering codes into our simulation environment, thereby offering some of the most sophisticated technical solutions in the market. We have a substantiallibrary of process-specific simulation models and e-learning modules aimed at the oil and gas, refining and specialty chemicals markets. Lastly, our TSMplatform is being used as a plant performance reporting tool and as the graphical user interface for our DVR service initiatives which provide high value clientreturn through power recovery and other optimization strategies. This platform also serves as the foundation for our new product service initiatives withnumerous optional modules and applications under 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, 2023, we employed ahighly educated and experienced multinational workforce of approximately 271 employees, including approximately 148 engineers and scientists in fields suchas nuclear, chemical, mechanical and electrical engineering, applied mathematics and computer sciences, and approximately 64 instructors and plant operationsstaff specialists.12Table of ContentsUnique Combination of Talent. Few in our market space bring together the sophistication of simulation technology with the engineering expertise, trainingexpertise and plant performance expertise to provide the holistic people and plant engineering solutions as well as we do. Reputation for Customer Satisfaction. As part of its ISO-9001:2015 Quality Program Certification, we measure customer satisfaction across numerous factorssuch as on-time delivery, problem solving, and customer communication. In each category measured, we routinely exceed customer expectations. Training Curricula We have developed hundreds of detailed courses and simulator exercise material and specific industrial applications including oil and gas refining, gas-oilproduction, nuclear and combined cycle gas turbine power plant and desalination. Our Workforce Solutions business is mostly focused on training and operations support. Our trainers and consultants provide their services at customerfacilities which allows us to interface with our customers directly in the course of doing business versus only periodically calling on customers. Our proximitygives us a significant competitive advantage in that we can immediately offer and implement solutions rather than contending with lengthy bid processes. INTELLECTUAL PROPERTY We depend upon our intellectual property rights in our proprietary technologies and our distinctive trade and service marks. We maintain a portfolio of:trademarks and servicemarks (both registered and unregistered) on our logos, product and service names, and other elements of trade dress; copyrights (bothregistered and unregistered) on written materials including software code, manuals, and other creative works; trade secret protections on its proprietarytechnologies and methodologies; and licenses from third parties to use and commercially exploit other protected intellectual property. While such trademarks,copyrights, trade secrets, and inbound licenses as a group are of material importance to us, we do not consider any one trademark, copyright, trade secret, orlicense to be of such importance that the loss or expiration thereof would materially affect us. We distribute our software products under software licenseagreements that grant customers nonexclusive and nontransferable licenses for the use of the products. Usage of our licensed on-premise software is restrictedto designated computers at specified sites, unless the customer obtains a site-wide license for its use of the software. Our software products delivered as aservice (SaaS) over the internet also contain customer verifications and usage limitations. We employ not only software and hardware security measures toprevent unauthorized use of its software, but also detailed contractual terms and limitations within our license and service agreements to prohibit unauthorizedusage or reproduction. We offer our customers both perpetual software licenses with unlimited duration (as long as the customer complies with the licenseterms) and term-limited software licenses and usage agreements. We do not own any patents. We believe that all of our trademarks are valid and will have an unlimited duration as long as they are adequately protected andsufficiently used. We have numerous registered U.S. trademarks, including word and design trademarks on: GSE Systems®, GSE Solutions®,JTOPMERET®, RELAP5-HD®, VPanel®, and SimExec® among others, as well as a design trademark on the “GSE” logo. We believe that our internationaltrademark protection is adequate to our business needs. We also claim trademark rights to various other product and service offerings including DesignEP™,Java Application and Development Environment (JADE)™, OpenSim™, PSA-HD™, SimSuite Pro™, SmartTutor™, THOR™, and Xtreme I/S™, amongothers. Despite these protections, we cannot be sure that we have protected or will be able to protect our intellectual property adequately, that the unauthorizeddisclosure or use of our intellectual property will be prevented, that others have not or will not develop similar technology independently, or, to the extent weown 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 ourproducts are sold do not protect our products and intellectual property rights to the same extent as do 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. 13Table of ContentsINDUSTRIES SERVEDThe following chart illustrates the approximate percentage of our 2023 and 2022 consolidated revenue by industries served: Years ended December 31, 2023 2022 Nuclear power 92% 89%Fossil fuel power 4% 6%Process 4% 5%Total 100% 100%BACKLOG As of December 31, 2023, we had approximately $34.5 million of total gross revenue in backlog compared to $32.9 million as of December 31, 2022. 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, 2023, we had approximately 271 employees, which include 201 in our Engineering segment and 70 in our Workforce Solutions segment.The 271 employees are comprised of 218 fulltime employees and 53 part time employees, excluding our Workforce Solutions segment, which consistsprimarily of technical professionals. Our employee attrition rate for 2023 among all staff was approximately 41.5%. This attrition rate is primarily attributableto the Workforce Solutions business model as the business segment accounts for 66% of all turnover during the year. To date, we have been able to locate andengage highly qualified employees as needed and we expect our growth efforts to be addressed through attracting top talent.Our people are what make us who we are today. Not only does it depend on employing highly skilled professionals but also people who can work together,effectively and collaboratively, as a team, whether departmental, cross functional, or cross company. Our employees come from diverse backgrounds as well asa diverse geography, and we look to attract people by offering a positive and welcoming work environment, strong management and leadership teams, alongwith a competitive compensation and benefit package.Talent Management We are committed to recruiting, hiring, retaining, and developing the most talented and skilled professionals and graduates available in the job market. Ourapproach to talent management includes a rigorous selection process followed by coaching, training, and knowledge transfer. HR provides support but the day-to-day interactions that ensure the employee’s success come from the manager. They coach and develop employees through their active and regularinteractions. This is a critical part of both current performance as well as knowledge transfer from our more experienced staff that may be nearing the end oftheir 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 thiswe can integrate different talent pools to be interchangeable across projects. In addition, we offer tuition reimbursement that allows employees to further theireducation or attend external professional development programs.14Table of ContentsCompensation & BenefitsWe offer market competitive compensation and benefit programs for our employees in order to attract and retain superior talent. In addition to competitive basewages, additional benefits provided include: a Long-Term Incentive Stock Option Plan, a Company matched 401(k) Plan, healthcare and insurance benefits,health savings accounts, paid time off, family leave, and employee assistance programs.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 The health and safety of our employees is of paramount importance to us. Our OSHA records show that we have had zero recordable injuries/illnesses asdefined by OSHA in the past five years, and we attribute that to our employees working carefully so they don’t get injured. We provide a safety manual toemployees that work in the field, and they are also provided with the necessary safety training on site.We provide multiple mental health resources for our employees and their families as well as a wellness program that incentivizes and motivates people to eathealthy, get some form of exercise, and destress. We also offer an Employee Assistance Program (“EAP”) and full access to mental health providers throughour health partner, Cigna. And in order for our employees to be able to assist in the virtual learning environment with their children, we have offered flexiblework schedules to accommodate their needs.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 1 – Business, Item 7 – Management’sDiscussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes under Item 8 – FinancialStatements and Supplementary Data.RISKS RELATED TO A NASDAQ DELISTING EVENTIf we are unable to maintain compliance with Nasdaq’s listing requirements, our common stock may be delisted from The Nasdaq Stock Market,which would allow our Lender to deliver a demand for payment, result in an event of default under certain convertible notes, could have a materialadverse effect on the Company’s financial condition and could make it more difficult for holders of the Company’s common stock to sell their shares.The company’s common stock is listed on the Nasdaq Capital Market and we are, therefore, subject to its continued listing requirements, includingrequirements with respect to the market value of publicly-held shares, market value of listed shares, minimum bid price per share, and minimum stockholder’sequity, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of these continued listing requirements,our common stock may be delisted from the Nasdaq Capital Market.On November 4, 2022, the Company received a written notice (from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”)stating that the Company failed to maintain a minimum closing bid price of $1.00 per share for the prior 30 consecutive trading day period, as set forth inNasdaq Listing Rule 5550(a)(2). Although we accomplished a reverse stock split on October 30, 2023, which resulted the issuance of one newly-issued share ofour common stock for every ten issued and outstanding shares as of such date, and regained compliance with the Nasdaq minimum closing bid price of $1.00per share on November 10, 2023, there can be no assurances that we will continue to satisfy the minimum closing bid price requirement or otherwise satisfy theother listing qualifications of Nasdaq necessary to maintain our listing on Nasdaq. There can also be no assurances that we will continue to satisfy other listedcompany requirements.15Table of ContentsUnder that certain Senior Convertible Promissory Note issued by the Company to Lind Global Fund II LP (“Lind”) on June 23, 2023 (as amended, the “SecondNote”) and the Amended and Restated Senior Convertible Promissory Note issued to Lind on June 23, 2023 (as amended, the “First Note” and, together withthe Second Note, the “Lind Notes”), if our common stock ceases to be listed on Nasdaq (or another stock exchange), Lind (or the holder of the Lind Notes)may deliver a demand for payment to the Company and, if such a demand is delivered, the Company shall, within ten (10) Business Days following receipt ofthe demand for payment from the Holder, pay all of the outstanding principal amount on the Notes or, at its election, Lind (or such holder) may elect to convertall or a portion of the outstanding principal amount and the conversion price shall be adjusted to the lower of the then-current conversion price and eightypercent (80%) of the average of the three (3) lowest daily variable average weighted prices during the twenty (20) trading days prior to delivery. Additionally, ifwe are unable to maintain our listing on Nasdaq, it will constitute an event of default under the Lind Notes, which would trigger certain obligation under theLind Notes including, but not limited to, causing an amount equal one hundred twenty percent (120%) of the outstanding principal amount of the Lind Notes toimmediately become due.Delisting from Nasdaq also may adversely affect our ability to raise additional financing through the public or private sale of equity securities, maysignificantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common stock. Delisting also couldhave other negative results, including the potential loss of investor confidence or interest in strategic transactions or opportunities, as well as negatively impactour ability to recruit and retain personnel through equity incentive awards.RISKS RELATED TO MACROECONOMIC CONDITIONS AND GLOBAL CONDITIONS A regional epidemic or global pandemic, including the reemergence of the COVID-19 pandemic, may adversely affect our business operations andfinancial condition. In March 2020, the World Health Organization declared the COVID-19 virus a global pandemic and then-President Donald J. Trump declared a nationalemergency in the United States. This pandemic caused substantial disruptions to populations, including economic markets and businesses, worldwide. Regulations and restrictions to ensure public safety, adopted at varying times and extents in the affected locations, had serious adverse impacts on economicmarkets and the operation of businesses in those locations. The COVID-19 pandemic increased macroeconomic and stock market volatility and uncertainty.Parts of our business were and continue to be adversely affected by the COVID-19 pandemic. In response to the pandemic, varying restrictions wereimplemented, either by government order or by voluntary measures, such as temporary closures or restrictions on business operations, and/or the imposition ofsocial distancing, quarantine, remote work, or other limitations on in-person meetings. The timing and severity of these imposed restrictions varied and, whilemost have been lifted, restrictions could be reinstated at any time. These disruptions adversely affected our customers’ operations and our business, most prominently by increasing costs and delaying customer projects andexpenditures. The reemergence of the COVID-19 pandemic or the emergence of other regional epidemics or global pandemics, depending upon their duration and severity,could have a material adverse effect on our business. Depending on the severity and duration of these disruptions and the subsequent supply chain effects,customer demand, our ability to meet demand, and our revenue and profit margins, may continue to be negatively impacted. Due to the uncertainty of the severity and duration of these potential events, the extent and effectiveness of containment and mitigation measures that may betaken by governmental authorities or voluntarily, to the extent an epidemic or global pandemic may adversely impact our business, such impact may alsoheighten other risks set forth in this Section 1A – Risk Factors. 16Table of ContentsOur business is subject to risks related to global economic conditions, including inflation, consumer demand, global supply chain challenges and othermacroeconomic issues that could have an adverse effect on our business and financial performance.General economic downturns impacting our key customers and global markets can adversely affect our business operations, demand for our products and ourfinancial results. The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including higher interest rates,relatively high levels of inflation, strained supply chains and expectations of lower economic growth, which have put pressure on our business. For example,Russia’s invasion of Ukraine in the first quarter of 2022 and the resulting geopolitical responses lessened international demand for our simulation products.When challenging macroeconomic conditions such as these exist, our customers may delay, decrease or cancel purchases from us and may also delay paymentor fail to pay us altogether. Suppliers may have difficulty filling our orders and distributors may have difficulty getting our products to customers, which mayaffect our ability to meet customer demands and result in a loss of business. Weakened global economic conditions may also result in unfavorable changes inour product prices and product mix and lower profit margins. All of these factors could have a material adverse effect on demand for our products, our financialcondition and our results of operations.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. RISKS RELATED TO OUR INDUSTRY 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 both 2023 and 2022, 92.0% and 89.0% of our revenue, respectively, was from customers in the nuclear power industry. 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. 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 93 nuclear reactors currently operating inthe United States. In 2023, we continued to experience high customer concentration with respect to each of our businesses. Indeed, one customer accounted for22.7% of our total consolidated revenue for the year-ended December 31, 2023. As a result of this concentration, a reduction in business from our customers,could have a disproportionately adverse effect on our business, results of operations, and prospects. We monitor our customer concentration and seek todiversify our customer base within this concentrated industry. In addition to pursuing diversification strategies and expanding relationships with targetedcustomers, we mitigate the associated customer concentration risk by developing meaningful relationships with each nuclear power plant, which are oftenseparately responsible for vendor selection and individual procurement decisions. 17Table of ContentsThe 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. 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. RISKS RELATED TO OUR PRODUCTS, SERVICES, AND BUSINESS PRACTICES 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. 18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, 2023 and 2022 was $34.5 million and $32.9 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. RISKS RELATED TO FOREIGN OPERATIONSOur 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 12% of our consolidated revenue in 2023 and 16% ofconsolidated revenue in 2022. 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;•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, including particularly the current conflict between Russia and Ukraine•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. The pandemic adversely affected our international customers’ operations, our employees, and our employee productivity.It also impacted the ability of our subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in costs,delays or disruptions in performance. These supply chain effects, and the direct effect of the virus and the disruption on our employees and operations, fromCOVID-19, or from other national or global health related outbreaks, may negatively impact both our ability to meet customer demand and our revenue andprofit margins.In late February 2022, following rising tensions between the regions, Russian military forces launched significant military action against Ukraine, andsustained tension, conflict, and disruption in the region is expected. We do not have employees or operations in Russia or Ukraine, but we do have customerswho do business in these countries or surrounding countries. Such operations and customers may be adversely affected by the continued conflict and anyrelated disruptions, sanctions or other governmental actions. 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, 2023 and 2022, we did not have revenues greater than 10% from any individualforeign country. 19Table of ContentsExports 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 negative diplomaticand trade relations, including sales made by or through our wholly-owned Chinese subsidiary, expose us to particular risks associated with the political andregulatory relationship between the U.S. and China and between the U.S. and such other countries. In October 2018, DOE announced the tightening of certain export control restrictions with regard to the export of nuclear technology to China, includingcertain presumptive denials with regard to the export of identified nuclear technologies to China. Although we do not believe that these policy changes coverall of our technologies or services, restrictions pertaining to U.S. regulation and policy pertaining to international trade with China could adversely affect ourbusiness in China and the performance of our Chinese subsidiary. Finally, regulation pertaining to the sale and export of products and services to China and other countries can be complex and involve judgments exercised bythe Company with which the Department of Commerce, DOE and other regulators may not agree or consent. Violation of export control regulations, includingthose pertaining to China, could subject us to fines and other penalties, such as losing the ability to export for a period of years, which would limit our revenuegrowth opportunities and significantly hinder our attempts to expand our business internationally. Although we take steps to monitor and ensure our compliancewith all applicable export laws and regulations, we are nevertheless exposed to political and regulatory risks that we may not be able to mitigate fully and thatmay 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. 20Table of ContentsRISKS RELATED TO OUR FINANCIAL CONDITIONS, ACCOUNTING, AND CONTRACTS If we cannot comply with the financial or other restrictive covenants in our credit agreements, 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 general working capital needs, repayment of indebtedness, and other corporate purposes, we entered into securities purchase agreement withLind Global Fund II LP (“Lind Global”) on February 23, 2022, pursuant to which we issued to Lind Global a two-year, secured, interest-free convertiblepromissory note in the amount of $5.75 million (the “First Note”) and a common stock purchase warrant to acquire 1,283,732 shares of our common stock (the“First Warrant”). We entered into an amendment and restatement of the First Note on June 23, 2023. On June 23, 2023, the Company entered into a securitiespurchase agreement with Lind Global, pursuant to which the Company issued to Lind Global that certain Senior Convertible Promissory Note, dated February23, 2022 (the “Second Note” and, together with the First Note, the “Lind Notes”) and the issuance of common stock purchase warrant to acquire 4,264,271shares of the Company’s common stock (the “Second Warrant”). In addition to payment obligations, each of the Lind Notes contain covenants pertaining to theCompany and our business including, but not limited to, an obligation to maintain an equity market capitalization of at least $7,000,000. If we fail to maketimely payments on the Lind Notes, or otherwise fail to satisfy the covenants contained therein, Lind Global (or the holder of the Lind Notes) may deliver ademand for payment to the Company and, if such a demand is delivered, the Company shall, within ten (10) Business Days following receipt of the demand forpayment from the holder, pay all of the outstanding principal amount on the Notes or, at its election, Lind (or such holder) may elect to convert all or a portionof the outstanding principal amount and the conversion price shall be adjusted to the lower of the then-current conversion price and eighty percent (80%) of theaverage of the three (3) lowest daily variable average weighted prices during the twenty (20) trading days prior to delivery. Additionally, if we are unable tomaintain our listing on Nasdaq, it will constitute an event of default under the Lind Notes, which would trigger certain obligation under the Lind Notesincluding, but not limited to, causing an amount equal one hundred twenty percent (120%) of the outstanding principal amount of the Lind Notes toimmediately become due. At December 31, 2023, management concluded that substantial doubt exists for the Company to continue as a going concern through March 31, 2025.Additionally, our inability to generate sufficient cash flow to satisfy repayment obligations or to refinance or restructure these obligations on commerciallyreasonable terms could have a material adverse effect on our business, financial condition, results of operations and cash flows. Upon the occurrence of anevent of default under the Convertible Note, or another credit arrangement, our lenders could elect to declare all amounts outstanding thereunder to beimmediately due and payable. If we were unable to repay all outstanding amounts in full, our lenders could exercise various remedies including institutingforeclosure proceedings against our assets pledged to them as collateral to secure that debt.Our revenue, results of operations, and cash flows may suffer upon the loss of a significant customer. For the years ended December 31, 2023 and 2022, four customers have provided more than 10% of Workforce Solutions segment’s revenues: Years ended December 31, 2023 2022 Customer A 23% 9%Customer B 17% 16%Customer C 11% 24%Customer D 11% 9%Training Services and Technical Staffing, which together comprise our Workforce Solutions segment, may lose a significant customer if any existing contractwith 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 Training Services’ and Technical Staffing’s contracts typically are subject to expiration during each year,and either company may lose any of these contracts if we are unable to extend, renew, or renegotiate the contracts. The loss of any significant customer wouldadversely affect our Workforce Solutions segment’s revenue, results of operations, and cash flows. For the years ended December 31, 2023 and 2022, one customer has provided more than 10% of Engineering segment’s revenues, respectively: Years ended December 31, 2023 2022 Customer E 32% 22%Performance (DBA Systems & Simulation), Programs & Performance, and Design & Analysis, which together comprise our Engineering segment, may lose asignificant customer if any existing contract with such customer expires without extension, renewal, or negotiation or if it is terminated by the customer prior toexpiration, to the extent such early termination is permitted by the contract. A majority of the contracts entered into by our Engineering businesses are able tobe terminated by our customer on relatively short notice without cause or further compensation. The loss of any significant customer would adversely affectour Engineering segment’s revenue, results of operations, and cash flows. Customer E also provided 22.7% of our total consolidated revenue for the years ended December 31, 2023. 21Table of ContentsOur 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 $45.0 million and $47.7 million for the years ended December 31, 2023 and 2022, respectively. We incurred an operating loss of $6.8 millionand $14.4 million for the years ended December 31, 2023 and 2022, respectively. Our operating results have fluctuated in the past and may fluctuatesignificantly in the future as a result of a variety of factors, including purchasing patterns, timing of launch or release of new products and enhancements by usand our competitors, and fluctuating global economic conditions. Because our expense levels are based in part on our expectations as to future revenue andincludes certain fixed, pre-negotiated, and prepaid costs, we may be unable to adjust spending in a timely manner to compensate for any revenue shortfall.Because of this lag in response time, such revenue shortfalls likely would have a disproportionate adverse effect on our operating results. Additionally, as wehave seen, industry spend has been very slow to ramp back after the onset of the pandemic in 2020. While the pandemic effects on society have largely passed,there is still a significant reticence on behalf of the industry to ramp spending back up. While meaningful plans for capital investment have been noted, thoseplans have elongated times to convert to the types of spend that have a direct positive impact on our business. This continues lag poses a risk to our business. A deterioration in sales, delayed pipeline opportunities, and overall downward performance could result in write-downs of goodwill and otherintangible assets. 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. As of September 30, 2022, the reduced forecast related to the WorkforceSolutions business segment was material enough to be considered a triggering event that could result in impairment of our long-lived assets. As such, weperformed an interim analysis to determine if an impairment existed in accordance with ASC 350 & ASC 360.Our Goodwill impairment analysis, which includes the use of discounted cash flow models that requires management to make assumptions regarding estimatesof revenue growth rates and operating margins used to calculate projected future cash flows, and risk-adjusted discount rates determined the carrying value ofWorkforce Solutions exceeded the Fair Value by $7.0 million. As such, impairment of the related goodwill was recorded in the three months ended September30, 2022. We also performed an interim analysis to determine if an impairment existed at September 30, 2022 by its individual asset groupings, which we determined tobe at the subsidiary level. We used a discounted cash flow analysis to determine the fair value of our asset group, and we concluded that the carrying value ofthe definite-lived intangible assets of Absolute, a business unit of the Workforce Solutions segment, exceeded its fair value by $0.5 million, and we recorded aloss on impairment for this amount as of September 30, 2022. No impairment was identified related to any other asset groupings.As of September 30, 2023, the reduced forecast related to the Workforce Solutions business segment was material enough to be considered a triggering eventthat could result in impairment of our Goodwill. As Workforce Solutions had remaining long lived assets, we performed an interim analysis to determine if animpairment existed in accordance with ASC 350. As a result, the carrying value of Workforce Solutions was exceeded the Fair Value by $0.9 million, and werecorded a loss on impairment for this amount as of September 30, 2023. No impairment was identified related to any other asset groupings.Based on the continued forecast decline on the Workforce Solutions segment, the re-evaluation of the Company’s Indefinite-Lived assets as of December 31,2023 in accordance with ASC 350’s annual assessment requirements, determined that an additional $0.5 million impairment existed related to the TrainingServices and Technical Staffing business units. No impairment was identified related to any other asset grouping.Write-down of goodwill and other intangible assets in the current and future accounting periods may have an impact on our value, results of operations, andprice of our common stock.22Table of ContentsWe 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. 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. While we had no foreign exchange contracts outstanding as of December 31, 2023, and did not enter into any foreign exchange contracts in 2023, we haveperiodically entered forward foreign exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates on foreign-denominated trade receivables. We could recognize financial losses as a result of volatility in the market values of these contracts or if a derivative instrumentcounterparty fails to perform. We attempt to minimize credit exposure by limiting counterparties to internationally recognized financial institutions, but eventhese counterparties are subject to default and contract risk and this risk is beyond our control. We also engage in interest rate hedging transactions in theordinary 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. We issue letters of credit, performance, advance payment, and bid bonds in the normal course of our business which could result in financial lossesthat negatively impact our net income (loss). We may be required to issue letters of credit, performance, advance payment, and bid bonds to our customers and potential customers as a normal part of ourbusiness 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 contractwithin a specified period after receiving notice from the customer regarding the nature of the breach. For the year ended December 31, 2023, we did not issueany advance payment or performance bonds, but we may be required to do so in the future to secure contract awards. As of December 31, 2023, we had fourletters of credit outstanding for customers totaling $1.1 million. Our 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. 23Table of ContentsRISKS RELATED TO INTELLECTUAL PROPERTY 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. Third-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. RISKS RELATED TO CYBER SECURITY 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 ContentsRISKS RELATED TO ATTRACTING AND RETAINING TALENT 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. The lossof the services of any of our executive officers or other key personnel could harm our business. Our future success also depends on our ability to continue toattract, retain, and motivate highly skilled employees. If we are not able to attract and retain key skilled personnel, our business could be harmed and ourrevenue, 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 Engineering business segment,depend on hiring and retaining qualified technical personnel. An inability to attract or maintain a sufficient number of technical personnel could have a materialadverse effect on our contract performance or on our ability to capitalize on market opportunities. RISKS RELATED TO STATE LAW 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 shareholders. 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 shareholder 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;•limiting who may call special meetings of shareholders;•prohibiting shareholder action by written consent, thereby requiring shareholder action to be taken at a meeting of the shareholders;•establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can beacted on by shareholders at shareholder meetings;•establishing supermajority vote requirements for certain amendments to our certificate of incorporation and bylaws;•limiting the right of shareholders 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 shareholders 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 shareholders, however, and could delay or prevent anacquisition that our Board of Directors determines is not in the best interests of our Company and our shareholders.25Table of ContentsITEM 1B.UNRESOLVED STAFF COMMENTS. None.ITEM 1C.CYBERSECURITY. We acknowledge the increasing importance of cybersecurity in our operations and having processes in place to manage risks and threats associated withpotential unauthorized occurrences on our information systems that could adversely affect the confidentiality, integrity, or availability of our informationsystems and data. We continuously invest in and enhance our cybersecurity infrastructure to mitigate risks and protect against unauthorized access, databreaches, and other cyber incidents that could disrupt our business or compromise sensitive information. We have implemented various cybersecurity measuresto safeguard our information technology infrastructure and data assets:Governance and Oversight:The Audit Committee of the Board of Directors oversees risks from cybersecurity threats as part of its broader risk oversight responsibilities. The boardrecognizes the importance of cybersecurity in safeguarding the company’s assets and operations. GSE’s Risk Management Plan includes an assessment of, andmitigation plans related to, the operational risk of business disruption due to factors including cybersecurity breaches and related events.Risk Assessment and Management:Under the supervision of our chief technology officer, we conduct assessments of our IT systems and networks to identify potential vulnerabilities and threatsto our systems and assets. Based on these assessments, we prioritize and allocate resources to mitigate cyber risks and reduce exposure.Security Controls and Technologies:Under the supervision of our chief technology officer, we employ a multi-layered approach to cybersecurity, deploying a suite of technologies to protect ourendpoints, applications, data, and network. We incorporate various security controls and technologies such as firewalls, encryption mechanisms, next-generation anti-virus, multi-factor authentication and access controls. Furthermore, we invest in threat detection and prevention solutions to proactively identifyand mitigate continuously changing cyber threats.Employee Training and Awareness:We recognize the critical role of employees in maintaining cybersecurity resilience. Accordingly, we provide cybersecurity training and awareness programs toeducate employees about security best practices, phishing awareness, and the importance of safeguarding sensitive information.Incident Response and Business Continuity:In the event of a cybersecurity incident, we have established incident response protocols to facilitate timely detection, containment, and remediation.Additionally, we maintain business continuity and disaster recovery plans to minimize the impact of cyber incidents on our operations and stakeholders.Continuous Monitoring and Improvement:We continuously monitor and assess our cybersecurity posture to adapt to evolving threats and technologies. We conduct periodic reviews and assessments ofour cybersecurity posture to identify gaps and implement enhancements to strengthen our defenses.Our commitment to cybersecurity is integral to our overall risk management strategy and reflects our dedication to protecting the confidentiality, integrity, andavailability of our IT systems and data assets. We remain vigilant in addressing cybersecurity threats and adapting to emerging challenges to minimize thelikelihood and impact of cyber threats and to safeguard our business operations and stakeholders’ interests.26Table of ContentsITEM 2.PROPERTIES. We are headquartered in Columbia, Maryland. On March 5, 2018, we entered into our headquarters lease agreement to rent 5,309 square feet throughSeptember 30, 2024. On December 15, 2022, following a March 18, 2022 building fire that impacted our space and ensuing dispute among us and the landlord,we terminated our lease for 1332 Londontown Boulevard, Eldersburg, Maryland (our former headquarters) and entered into a release and settlement agreementwhereby we agreed to pay, and the landlord agreed to accept, a reduced monthly payment through May 1, 2023 in exchange for early termination of the lease. In addition, we lease office space domestically in Fort Worth, Texas, and internationally in Beijing, China. Our leases for these facilities have terms endingbetween 2024 and 2030. See Note 16 to our consolidated financial statements for information regarding our leases. ITEM 3.LEGAL PROCEEDINGS. We are, from time to time, involved in ordinary routine litigation incidental to the conduct of our business. Neither we nor any of our subsidiaries are a party to,nor is any of our property the subject of, any material pending legal proceedings that, in the opinion of our management, are likely to have a material adverseeffect on our business, financial condition or results of operations.ITEM 4.MINE SAFETY DISCLOSURES. Not applicable.27Table of ContentsPART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASESOF EQUITY SECURITIES. Our common stock is listed on the NASDAQ Stock Market Exchange, where it trades under the symbol “GVP”. The following table sets forth, for the periodsindicated, the high and low sale prices of our common stock, as reported by the NASDAQ Stock Market Exchange for each full quarterly period within the twomost recent fiscal years:On March 31, 2024, there were 3,034,139 shares of our common stock outstanding. As of the latest record date, we had 710 holders of record. This numberdoes not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and otherfiduciaries.ITEM 6.RESERVED. 28Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We are a leading provider of professional and technical engineering, staffing services and simulation software to clients in the power and process industries.Our primary market is the nuclear power industry, predominantly in the United States, but also serving the global nuclear sector with projects in the UnitedKingdom, Slovakia, Korea, Japan and elsewhere. We also serve natural adjacencies to the commercial nuclear power market such as the United StatesDepartment of Energy, and the broader nuclear ecosystem. We additionally serve other heavy industry sectors such as refining, petrochemical, LiquefiedNatural Gas (‘LNG”) and others, with staffing services and our simulation technology and know-how. We provide customers with simulation, engineering andplant services that help clients reduce risks associated with operating their plants, increase revenue through improved plant and employee performance, andlower costs through improved operational efficiency. In addition, we provide professional services that help clients fill key vacancies in their respectiveorganizations, primarily in procedures, engineering, technical support and training focused on regulatory compliance and certification in the nuclear powerindustry. Our operations also include interactive computer-based tutorials and simulation software for the refining, chemical, and petrochemical industries.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, 2023 % 2022 % Revenue $45,041 100.0% $47,734 100.0%Cost of revenue 33,111 73.5% 35,824 75.0% Gross profit 11,930 26.5% 11,910 25.0%Operating expenses Selling, general and administrative 16,092 35.7% 17,028 35.7%Research and development 572 1.3% 611 1.3%Goodwill and intangible asset impairment charge 1,391 3.1% 7,505 15.7%Depreciation 185 0.4% 304 0.6%Amortization of definite-lived intangible assets 508 1.1% 868 1.8%Total operating expenses 18,748 41.6% 26,316 55.1% Operating loss (6,818) (15.1%) (14,406) (30.2%) Interest expense (1,932) (4.3%) (1,272) (2.7%)Change in fair value of derivative instruments, net 850 1.9% 477 1.0%Other (loss) income, net (802) -1.8% (91) (0.2%) Loss before taxes (8,702) (19.3%) (15,292) (32.0%)Provision for income taxes 22 0.0% 51 0.1% Net loss $(8,724) (19.4%) $(15,343) (32.1%)Comparison of the Years Ended December 31, 2023 to December 31, 2022. Revenue. Revenue for the year ended December 31, 2023, totaled $45.0 million, which was 5.6% less than the $47.7 million of revenue for the year endedDecember 31, 2022. (in thousands) Year ended December 31, 2023 2022 Change Revenue: $% Engineering $31,790 $29,919 1,871 6.3%Workforce Solutions 13,251 17,815 (4,564) (25.6)%Total revenue $45,041 $47,734 (2,693) (5.6)%Engineering revenue increased 6.3% from $29.9 million to $31.8 million for the years ended December 31, 2022 and 2023, respectively. The increase inrevenue was primarily attributable to increased orders across the segment. We recorded total Engineering orders of $37.6 million and $22.0 million for theyears ended December 31, 2023 and 2022, respectively. The increase in orders is primarily due to renewed training and consulting work with a long standingcustomer and two large orders during the twelve months ended December 31, 2023, for SDB work including software and maintenance components.For the year ended December 31, 2023, Workforce Solutions revenue decreased 25.6% to $13.3 million compared to revenue of $17.8 million for the yearended December 31, 2022. The decrease in revenue was primarily due to the wind down of large projects resulting in a reduction in demand for staffing fromour major customers. We recorded total new orders of $9.7 million and $17.6 million for the years ended December 31, 2023 and 2022, respectively.30Table of ContentsAs of December 31, 2023, our backlog was $34.5 million, $29.0 million was attributed to the Engineering segment and $5.5 million was attributed to theWorkforce Solutions segment. As of December 31, 2022, our backlog was $32.9 million with $23.8 million attributed to the Engineering segment and $9.1million attributed to the Workforce Solutions segment.Gross profit. Gross profit was $11.9 million, or 26.5% of revenue, for the year ended December 31, 2023 compared to $11.9 million, or 25.0% of revenue, forthe year ended December 31, 2022. ($ in thousands) Years ended December 31, 2023 % 2022 % Gross profit: Engineering $10,073 31.7% $9,557 31.9%Workforce Solutions 1,857 14.0% 2,353 13.2%Consolidated gross profit $11,930 26.5% $11,910 25.0%The Engineering segment’s gross profit increased by $0.5 million during fiscal year 2023 over fiscal year 2022. The increase is driven by segment revenuegrowth as the gross profit margin percentage remained relatively constant.The Workforce Solutions segment’s gross profit decreased by $0.5 million during fiscal year 2023 over fiscal year 2022. The decrease in the three months andnine months ended September 30, 2023 was primarily due to the reduction in the demand from existing customers for additional workforce professionals.Selling, general and administrative expenses. Selling, general and administrative (SG&A) expenses totaled $16.1 million and $17.0 million for the years endedDecember 31, 2023 and 2022, respectively. Fluctuations in the components of SG&A spending were as follows: ($ in thousands) Years ended December 31, 2023 % 2022 % Selling, general and administrative expenses: Corporate charges $11,529 71.6% $12,795 75.1%Business development 3,866 24.0% 3,256 19.1%Facility operation & maintenance (O&M) 451 2.8% 737 4.3%Credit loss Expense 232 1.4% 221 1.3%Other 14 0.1% 19 0.1%Total $16,092 100.0% $17,028 100.0%Corporate charges decreased $1.3 million in 2023 compared to 2022. The decrease was primarily due to a $0.8 million decrease in stock compensationexpense, a $0.8 million decrease in indirect labor & burden cost due to decreased corporate headcount, a $0.2 million decrease in business insurance, and a$0.2 million increase in legal fees and other business expenses during the fiscal year 2023.Business development charges increased $0.6 million in 2023 compared to 2022. The increase was primarily due to increased recruiting fees, commissionexpense, and indirect labor & burden due to increased headcount in 2023.Facility O&M expenses decreased $0.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease in facilityO&M fees was primarily due to the termination of the Sykesville lease in Q4 2022 and reduced lease space under the new Fort Worth lease executed in Q22023.Credit loss Expense. We recorded bad debt expense of $0.2 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022,respectively. GSE’s allowance for credit loss is an estimate of lifetime expected credit loss in accordance with ASU 2016-13, “Credit Losses (Topic 326)Measurement of Credit Losses on Financial Instruments”.31Table of ContentsResearch and development. Research and development costs consist primarily of software engineering personnel and other related costs. Research anddevelopment costs, net of capitalized software, totaled $0.6 million for both the years ended December 31, 2023 and 2022. Goodwill and Intangible asset impairment charge. We recognized a $1.4 and $7.5 million goodwill and intangible asset impairment charge for the years endedDecember 31, 2023 and 2022, respectively. In the interim periods ended September 30, 2023 and 2022, we determined that the deterioration in sales, decline inrevenues, delayed pipeline opportunities, and overall downward performance results and the forecast related to the Workforce Solutions business segment wasmaterial enough to be considered a triggering event that could result in impairment of our long-lived assets. As a result of the ASC 350 and 360 analysis, therewas determined to be an impairment of goodwill totaling $0.9 million as September 30, 2023, impairment of goodwill and intangible assets, totaling $7.5million as of September 30, 2022. The re-evaluation of the Company’s Indefinite-Lived assets at December 31, 2023 in accordance with ASC 350’s annualassessment requirements, determined that an additional $0.5 million impairment existed related to the Training Services and Technical Staffing business units.No impairment was identified related to any other asset grouping.Depreciation. Depreciation expense totaled $0.2 and $0.3 million for the years ended December 31, 2023 and 2022, respectively. Amortization of definite-lived intangible assets. Amortization expense related to definite-lived intangible assets totaled $0.5 million and $0.9 million for theyears ended December 31, 2023 and 2022, respectively. The decrease in amortization expense was primarily due to the Workforce Solutions’ definite-livedintangible assets being fully impaired at September 30, 2022. Further, the amortization decreased as a result of Customer Contracts and Relationships, whichare amortized at a declining rate over the 15-year useful life. Interest expense. Interest expense totaled $1.9 million and $1.3 million for the years ended December 31, 2023 and 2022. The increase was due to an additional$.05 million interest charge related to the amendment of the 2022 Lind financing arrangement during June 2023. Other (loss) income, net. The Company recognized other (loss) income, net of $(0.8) million and $(0.1) million for the years ended December 31, 2023 and2022, respectively. This increase is primarily due to loss on debt repayments made in shares.Provision for Income Taxes. The Company files tax returns in the United States federal jurisdiction and in several state and foreign jurisdictions. Because of thenet operating loss carryforwards, the Company is subject to U.S. federal and state income tax examinations for tax years 2003, and forward, and is subject toforeign tax examinations by tax authorities for the years 2018 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 2023 was $22 thousand, representing an annual effective tax rate of (0.3)%, and consisted of $10 thousand of current taxprovision and $12 thousand of deferred tax expense related to the portion of goodwill which cannot be offset by deferred tax assets. The Company’s taxexpense in 2022 was $51 thousand, representing an annual effective rate of (0.3)% and consisted of $137 thousand of current tax provision and $(86) thousandof deferred tax (benefit) related to the removal of the portion of goodwill, which cannot be offset by deferred tax assets. The significant change of $1.5 million in net operating loss carryforwards was primarily driven by the generation of Federal and state net operating lossesduring the current year.The difference between the effective rate and statutory rate primarily resulted from a change in valuation allowance, permanent differences, includingadjustments related to the convertible debt, accruals related to uncertain tax positions, the tax impact of stock compensation vests, and state tax expense. Pleasesee Note 13 for additional information.Critical Accounting Policies and EstimatesIn preparing our consolidated financial statements, management makes several estimates and assumptions that affect our reported amounts of assets, liabilities,revenues and expenses. Those accounting estimates that have the most significant impact on our operating results and place the most significant demands onmanagement’s judgment are discussed below. For all of these policies, management cautions that future events rarely develop exactly as forecasted, and thebest estimates may require adjustment. 32Table of ContentsRevenue Recognition. We derive our revenue through three broad revenue streams: 1) System Design and Build (“SDB”), 2) software, and 3) training andconsulting services. We recognize revenue from SDB and software contracts mainly through the Engineering segment and revenue from training and consultingservices through both the Engineering segment and Workforce Solutions segment. The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware,software, labor, and post contract support (“PCS”) on the software. We generally have two main performance obligations for an SDB contract: the trainingsimulator build and PCS period. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction priceunder the SDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenueover the construction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to us,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 our revenue recognition as asignificant change in the estimates can cause the our revenue and related margins to change significantly from the amounts estimated in the early stages of theproject. 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 typicalT&M contract, we are compensated based on the number of hours of approved time provided by workers and the bill rates which are fixed per type of work, aswell as approved expenses incurred. Our 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 amountto which 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 ratefor the type of work, as well as approved expenses incurred. Under a typical fixed-price contract, we recognize the revenue on a percentage of completion basisas it relates to 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.33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. Our intangible assets impairment analysis includes the use of undiscounted cash flow and discounted cashflow models that require management to make assumptions regarding estimates of revenue growth rates and operating margins used to calculate projectedfuture cash flows, risk-adjusted discount rates and future economic factors that may impact each asset group. We review goodwill and intangible assets forimpairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Wetest 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 Note6). Capitalization of Computer Software Development Costs. In accordance with U.S. GAAP, we capitalize computer software development costs incurred aftertechnological feasibility has been established, but prior to the release of the software product for sale to customers. Once the product is available to be sold, weamortize the costs, on a straight-line method, over the estimated useful life of the product, which is typically three years. As of December 31, 2023, we have netcapitalized software development costs of $0.8 million. On an annual basis, and more frequently as conditions indicate, we assess the recovery of theunamortized software development costs by estimating the net undiscounted cash flows expected to be generated by the sale of the product. If the undiscountedcash flows are not sufficient to recover the unamortized software costs, we will write-down the investment to its estimated fair value based on future discountedcash flows. The excess of any unamortized computer software costs over the related net realizable value is written down and charged to operations. Included incapitalized software development costs are certain expenses associated with the development software services. These are similarly capitalized, although notsubjected to the same recoverability considerations. Significant changes in the sales projections could result in an impairment with respect to the capitalizedsoftware that is reported on our consolidated balance sheets. Deferred 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 ability to realize our deferred tax assets. In makingthis assessment, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realizationof deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.Management considers the scheduled reversal of our deferred tax liabilities and projected future taxable income in making this assessment. A valuationallowance is recorded to reduce the total deferred income tax asset to its realizable value. As of December 31, 2023, our largest deferred tax asset was $9.4million of net operating losses. It primarily relates to a U.S. net operating loss carryforward of $7.8 million; $3.8 million of the net operating loss carryforwardexpires in various amounts between 2024 and 2038; $4.0 million of the net operating loss carryforward is an indefinite-lived deferred tax asset. We do notbelieve that it is more likely than not that we will be able to realize our deferred tax assets for our U.S. and foreign deferred tax assets as of December 31, 2023,and therefore we have recorded a $14.0 million valuation allowance for our net deferred tax assets. The Company has a deferred tax liability in the amount of$18 thousand at December 31, 2023 related to the portion of goodwill which cannot be offset by deferred tax assets. Liquidity and Capital Resources. As of December 31, 2023, we had cash and cash equivalents of $2.3 million compared to $2.8 million at December 31, 2022. As of December 31, 2023, we have current restricted cash and long-term restricted cash of $0.4 million and $1.1 million, respectively. We have total restrictedcash of $1.1 million to secure four letters of credit with various customers and $0.4 million to secure our corporate credit card program.Cash flows from operating activities: For the years ended December 31, 2023 and 2022, net cash provided by operating activities was $1.6 million and $0.7million, respectively. The year over year increase in cash flows provided by operating activities was primarily driven by lower operating expenses primarilyrelated to the costs reduction initiatives implemented during the year.34Table of ContentsCash flows from investing activities: For the year ended December 31, 2023, net cash used in investing activities was $(0.7) million compared to net cash of$(0.6) million used in investing activities in the prior year. The decrease in cash outflow in 2023 was primarily related to lower capital expenditures.Cash flows from financing activities: For the years ended December 31, 2023 and 2022, net cash used in financing activities was $(1.5) million and net cashprovided by financing activities was $0.8 million, respectively. The increase in used in financing activities of $2.3 million was primarily driven by $(3.4)million decrease in proceeds received from issuance of the Convertible Notes, and increase in Principle payments of $(1.0) million, offset by a $1.8 millionrepayment of the line of credit during fiscal year 2022.Convertible NoteDuring the twelve months ended December 31, 2022, using proceeds from the Convertible Note, we repaid in full, all outstanding indebtedness of $1.8 millionowed to Citizens was terminated. During the year ended December 31, 2023, we received net proceeds $1.4 million pursuant to the Second Note entered intoon June 23, 2023, for general working capital purposes and to support ongoing business operations. We continue to maintain a cash management account andcertain letters of credit with Citizens and, accordingly, have entered into a certain Cash Management Agreement with Citizens, as well as certain Cash PledgeAgreements in amounts corresponding to the current outstanding letters of credits with customers. As of December 31, 2023, we had four letters of credittotaling $1.1 million outstanding to certain of our customers which were secured with restricted cash.Foreign Exchange A portion of our international sales revenue has been and may be received in a currency other than the currency in which the expenses relating to such revenueare paid. Accordingly, we periodically enter into forward foreign exchange contracts to manage the market risks associated with the fluctuations in foreigncurrency exchange rates. As of December 31, 2023, we did not hold a position in forward foreign exchange contracts. Other Matters Management believes inflation has had a negative impact on the business. Increased costs and high interest rates have impacted our customers, which have haddownstream impacts of reduced O&M budgets, project scope decreases, delays and cancelations. Inflation has specifically impacted the Workforce Solutionssegment, as it forces customers to approve higher pay rates, and also decreases the availability of workforce professionals in the market as labor mobility hasdecreased during uncertain economic times.35Table of ContentsEBITDA and Adjusted EBITDA Reconciliation (in thousands) References to “EBITDA” mean net (loss) income, before considering interest expense, provision for income taxes, depreciation and amortization. Referencesto Adjusted EBITDA excludes irregular or non-recurring items and are not directly related to the Company’s core operating performance. EBITDA andAdjusted EBITDA are not measures of financial performance under U.S. GAAP. Management believes EBITDA and Adjusted EBITDA, in addition tooperating profit, net income and other U.S. GAAP measures, are useful to investors to evaluate the Company’s results because it excludes certain items thatmay, or could, have a disproportionate positive or negative impact on our results for any particular period. Investors should recognize that EBITDA andAdjusted EBITDA might not be comparable to similarly-titled measures of other companies. This measure should be considered in addition to, and not as asubstitute for or superior to, any measure of performance prepared in accordance with U.S. GAAP. A reconciliation of non-U.S. GAAP EBITDA and AdjustedEBITDA to the most directly comparable U.S. GAAP measure in accordance with SEC Regulation G follows: Three Months EndedDecember 31, Twelve Months EndedDecember 31, 2023 2022 2023 2022 (unaudited) (unaudited) audited audited Net (loss) income $(2,253) $(1,516) $(8,724) $(15,343)Interest expense, net 449 344 1,932 1,272 Provision for income taxes 103 159 22 51 Depreciation and amortization 223 344 1,015 1,511 EBITDA (1,478) (669) (5,755) (12,509)Provision for legal settlement 260 - 1,010 - Goodwill and intangible asset impairment charge 454 - 1,391 7,505 Advisory fees 28 - 288 - Loss on debt conversion payments 763 - 763 - Stock-based compensation expense 305 362 1,158 1,954 Change in fair value of derivative instruments, net (430) (100) (850) (477)Adjusted EBITDA $(98) $(407) $(1,995) $(3,527)36Table of ContentsAdjusted Net (Loss) Income and Adjusted EPS Reconciliation (in thousands, except per share amounts)References to Adjusted net Loss excludes certain items that are not directly related to the Company’s core operating performance and non-cash items that may,or could, have a disproportionate positive or negative impact on our results for any particular period. Adjusted Net Loss and Adjusted Loss per Share (adjustedEPS) are not measures of financial performance under U.S. GAAP. Management believes Adjusted Net Loss and Adjusted Loss per Share, in addition to otherU.S. GAAP measures, are useful to investors to evaluate the Company’s results because the excluded items may, or could, have a disproportionate positive ornegative impact on our results for any particular period. These measures should be considered in addition to, and not as a substitute for or superior to, anymeasure of performance prepared in accordance with U.S. GAAP. A reconciliation of non-U.S. GAAP Adjusted Net Loss and Adjusted Loss per common Shareto U.S. GAAP net loss, the most directly comparable U.S. GAAP financial measure, is as follows: Three Months endedDecember 31, Twelve Months endedDecember 31, 2023 2022 2023 2022 (unaudited) (unaudited) audited audited Net (loss) income $(2,253) $(1,516) $(8,724) $(15,343)Provision for legal settlement 260 - 1,010 - Goodwill and intangible asset impairment charge 454 - 1,391 7,505 Advisory fees 28 - 288 - Loss on debt conversion payments 763 - 763 - Stock-based compensation expense 305 362 1,158 1,954 Change in fair value of derivative instruments, net (430) (100) (850) (477)Amortization of intangible assets related to acquisitions 108 168 508 868 Adjusted net loss $(765) $(1,086) $(4,456) $(5,493) Diluted (loss) earnings per common share $(0.82) $(0.68) $(3.51) $(7.18) Adjusted loss per common share – Diluted $(0.28) $(0.49) $(1.79) $(2.57) Weighted average shares outstanding – Diluted 2,744,901 2,213,631 2,486,550 2,136,290 37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 Firms39Consolidated Balance Sheets as of December 31, 2023 and 202242Consolidated Statements of Operations for the Years ended December 31, 2023 and 202243Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2023 and 202244Consolidated Statements of Changes in Shareholders’ Equity for the Years ended December 31, 2023 and 202245Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 202246Notes to Consolidated Financial Statements47 38Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders, Board of Directors, and Audit CommitteeGSE Systems, Inc.Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of GSE Systems, Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022,the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for each of the two years in the periodended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and itscash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United Statesof America. Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to thefinancial statements, the Company has incurred losses from operations for the year ended December 31, 2023. In addition, the continued decline in revenueshas significantly impacted the Company’s operating results and 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 financial statements do not include any adjustments that might result from theoutcome of this uncertainty. Adoption of ASC 326 Current Expected Credit Losses (CECL) As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for the recognition of credit losses for financialinstruments in 2023 due to the adoption of ASC 326 Current Expected Credit Losses (CECL). The financial statements include an opening adjustment thatresults from the outcome of this adoption. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in thefinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.39Table of ContentsCritical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or requiredto be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved ourespecially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financialstatements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or onthe accounts or disclosures to which they relate. Goodwill Impairment Assessment During the year ended December 31, 2023, the Company recorded goodwill impairment of $1.4 million. At December 31, 2023, the Company carried aremaining goodwill balance of $4.9 million. As discussed in Notes 1 and 6 of the financial statements, the Company reviews goodwill for impairment at thereporting unit level annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may be greater thanits fair value. The Company’s goodwill impairment analysis includes the use of a discounted cash flow model that requires management to make assumptionsregarding estimates of revenue growth rates and operating margins used to calculate projected future cash flows, and risk-adjusted discount rates. TheCompany also made certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reportingunits. The Company completed its annual quantitative analysis as of December 31, 2023, and concluded that the fair value of the Workforce Solutions businesssegment did not exceed its carrying value and the goodwill was fully impaired. No impairment was determined to exist for the Engineering segment as ofDecember 31, 2023 as the fair value of the reporting unit exceeded its carrying value. We identified the Company’s goodwill impairment assessment as a critical audit matter. The principal consideration for our determination is the high degree ofauditor judgment and subjectivity in evaluating management’s significant assumptions used in the discounted cash flow model, particularly as it relates toevaluating revenue growth rates, operating margins and discount rates. Furthermore, auditing certain of these inputs and assumptions made by managementrequires the use of an auditor-employed valuation specialist. The primary procedures we performed to address this critical audit matter included: •Obtained an understanding of management’s goodwill impairment assessment process, including management’s assessment of the significant inputsand assumptions utilized in determining the reporting unit fair value. •Evaluated management’s forecasted revenue growth rates and operating margins by comparing actual results to management’s historical forecasts. •Assessed sensitivity analyses over management’s significant assumptions including forecasted revenue growth rates and operating margins whenassessing the overall impact on the estimate of fair value compared to the carrying value. •Utilizing personnel with specialized knowledge and skills in valuation, we evaluated the significant assumptions in assessing the appropriateness ofthe fair value methodology utilized, including: •Evaluating the reasonableness of certain assumptions used in the discounted cash flow model including the discount rates used by management bycomparing it to a range of discount rates developed using existing market information, and •Evaluating the mathematical accuracy of the calculations included in the fair value methodology. 40Table of ContentsRevenue Recognition – Estimated Costs to Complete As described in Notes 1 and 5 to the financial statements, the Company derives its revenue through three broad revenue streams: 1) System Design and Build(SDB), 2) Software, and 3) Training and Consulting services. The transaction price under the SDB contracts is allocated to each performance obligation basedon its standalone selling price and the Company recognizes revenue for certain performance obligations over time as control is transferred to a customer usingthe cost-to-cost input method based on actual costs incurred to date relative to the total estimated costs. Estimated contract costs are reviewed and revisedperiodically during the contract period, and the cumulative effect of any change in estimates is recognized in the period in which the change is identified.Management’s judgments and estimates involved in the initial creation and subsequent updates to the Company’s estimated costs to complete 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 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 process, including the design of internal controls, in developing estimates andassumptions involved in the creation and subsequent updates to the Company’s estimated costs to complete, particularly as it relates to evaluating anticipateddirect labor, subcontract labor, and other direct costs. The primary procedures we performed to address this critical audit matter included: •Obtained an understanding of management’s process for applying the cost-to-cost method to SDB contracts, including management’s process fordeveloping and revising accurate estimated costs to complete on contracts in process. •For a sample of contracts, we evaluated inputs and assumptions requiring significant management judgments included within the Company’sestimation of costs to complete and performed the following: •Inspected the underlying contract, related amendments, and change orders, if any, to test the existence of customer arrangements and obtain anunderstanding of the contractual requirements and related performance obligation(s). •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 that maydemonstrate 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 to complete. •Performing a “look back” analysis by comparing the Company’s historical estimates of costs to complete to actual costs incurred in subsequentdocumentation to assess the Company’s ability to develop reliable cost estimates. •Obtained account reconciliations of unbilled receivables and billings in excess of revenue earned as of December 31, 2023, evaluated theaccuracy and completeness of the schedules, agreed such reconciliations to the trial balance to determine whether reconciling items wereappropriate and isolated and investigated all unbilled receivables with no recent activity. Going Concern As described further in Note 1 to the financial statements, the Company has experienced continued declines in revenue that have impacted operations.Management has assessed the Company’s current liquidity position and its projected cash flows from operations and determined they are not sufficient to meetthe Company’s obligations as they come due at least one year from the issuance date of these financial statements. We identified the Company’s going concern assessment as a critical audit matter. The principal considerations for our determination are the high degree ofauditor judgment and subjectivity involved in evaluating the growth rate assumptions utilized in their cash flow forecast. The primary procedures we performed to address this critical audit matter included: •Obtained an understanding of management’s process for developing its projections including testing the completeness and accuracy of the underlyingdata used in the cash flow forecast. •Evaluated the probability of management’s plans to alleviate the substantial doubt that has been raised. •Evaluated management’s growth rate assumptions used in the development of its forecast by assessing historical budget to actual comparisons. •Assessed the sensitivity analysis over the projected growth rates and operating margins used in management’s cash flow projections. •Evaluated the adequacy of the financial statement disclosure regarding the Company’s liquidity and compared the disclosure to other audit evidenceobtained to determine consistency with or contradictory to the Company’s liquidity disclosure. /s/ FORVIS, LLPWe have served as the Company’s auditor since 2020.Tysons, VAApril 2, 202441Table of ContentsPART I - FINANCIAL INFORMATIONItem 1. Financial StatementsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $2,250 $2,789 Restricted cash, current 378 1,052 Contract receivables, net 10,166 10,064 Prepaid expenses and other current assets 879 2,165 Total current assets 13,673 16,070 Equipment, software and leasehold improvements, net 754 772 Software development costs, net 750 574 Goodwill 4,908 6,299 Intangible assets, net 1,179 1,687 Restricted cash - long term 1,083 535 Operating lease right-of-use assets, net 413 506 Other assets 45 53 Total assets $22,805 $26,496 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Line of credit $- $- Current portion of long-term note 810 3,038 Accounts payable 3,300 1,262 Accrued expenses 1,053 2,084 Accrued legal settlements 1,010 - Accrued compensation 1,086 1,071 Billings in excess of revenue earned 5,119 4,163 Accrued warranty 176 370 Income taxes payable 1,701 1,774 Derivative liabilities 1,132 603 Other current liabilities 956 1,286 Total current liabilities 16,343 15,651 Long-term note, less current portion 637 310 Operating lease liabilities noncurrent 357 160 Other noncurrent liabilities 126 144 Total liabilities 17,463 16,265 Commitments and contingencies (Note 21) Shareholders’ equity: Preferred stock $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding - - Common stock $0.01 par value; 60,000,000 shares authorized, 3,194,030 and 2,404,681 shares issued, 3,034,139 and2,244,790 shares outstanding, respectively 32 24 Additional paid-in capital 86,983 83,127 Accumulated deficit (78,708) (69,927)Accumulated other comprehensive income (loss) 34 6Treasury stock at cost, 159,891 shares (2,999) (2,999)Total shareholders’ equity 5,342 10,231 Total liabilities and shareholders’ equity $22,805 $26,496 The accompanying notes are an integral part of these consolidated financial statements.42Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Years ended December 31, 2023 2022 Revenue $45,041 $47,734 Cost of revenue 33,111 35,824 Gross profit 11,930 11,910 Operating expenses Selling, general and administrative 16,092 17,028 Research and development 572 611 Goodwill and intangible asset impairment charge 1,391 7,505 Depreciation 185 304 Amortization of definite-lived intangible assets 508 868 Total operating expenses 18,748 26,316 Operating loss (6,818) (14,406) Other income and expenses, net Interest expense (1,932) (1,272)Change in fair value of derivative instruments, net 850 477 Other (loss) income, net (802) (91)Loss before taxes (8,702) (15,292)Provision for income taxes 22 51 Net loss $(8,724) $(15,343) Net loss per common share - basic $(3.51) $(7.18) Diluted loss per common share $(3.51) $(7.18) Weighted average shares outstanding used to compute net loss per share - basic 2,486,550 2,136,290 Weighted average shares outstanding - Diluted 2,486,550 2,136,290 The accompanying notes are an integral part of these consolidated financial statements.43Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands) Years ended December 31, 2023 2022 Net loss $(8,724) $(15,343)Cumulative translation adjustment 28 110Comprehensive loss $(8,696) $(15,233)The accompanying notes are an integral part of these consolidated financial statements.44Table of ContentsGSE SYSTEMS, INC, AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(in thousands) CommonStock AdditionalPaid-in Accumulated AccumulatedOtherComprehensive Treasury Stock Shares Amount Capital Deficit Loss Shares Amount Total Balance, January 1, 2022 2,253 $23 $80,708 $(54,584) $(104) (160) $(2,999) $23,043 Stock-based compensation expense - - 1,859 - - - - 1,859 Common stock issued for RSUs vested 53 1 (1) - - - - - Shares withheld to pay taxes - - (263) - - - - (263)Foreign currency translation adjustment - - - - 110 - - 110 Repayment of convertible note in shares 99 1 824 - - - - 825 Net loss - - - (15,343) - - - (15,343)Balance, December 31, 2022 2,405 $24 $83,127 $(69,927) $6 (160) $(2,999) $10,231 Adoption of ASC 326 Current Expected Credit Losses (CECL) - - - (57) - - - (57) Adjusted balance, January 1, 2023 2,405 24 83,127 (69,984) 6 (160) (2,999) 10,174 Stock-based compensation expense - - 1,168 - - - - 1,168 Common stock issued for RSUs vested 98 1 (1) - - - - - Shares withheld to pay taxes - - (190) - - - - (190)Foreign currency translation adjustment - - - - 28 - - 28 Repayment of convertible note in shares 691 7 2,879 - - - - 2,886 Net loss - - - (8,724) - - - (8,724)Balance, December 31, 2023 3,194 32 86,983 (78,708) 34 (160) (2,999) 5,342 The accompanying notes are an integral part of these consolidated financial statements.45Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years ended December 31, 2023 2022 Cash flows from operating activities: Net loss $(8,724) $(15,343)Adjustments to reconcile net loss to net cash provided by operating activities: Goodwill and intangible asset impairment charge 1,391 7,505 Loss on debt settled in shares 907 66 Depreciation 185 304 Amortization of intangible assets 508 868 Amortization of capitalized software development costs 322 339 Amortization of debt discount 1,940 1,289 Amortization of deferred financing costs 31 17 Stock-based compensation expense 1,158 1,954 Deferred income taxes 12 (86)Credit loss expense 232 221 Gain on derivative instruments, net (850) (477)Legal settlement 1,010 - Changes in assets and liabilities: Contract receivables, net (408) 908 Prepaid expenses and other assets 1,841 3,710 Accounts payable, accrued compensation and accrued expenses 1,018 472 Billings in excess of revenue earned 966 (829)Accrued warranty (217) (239)Other liabilities 237 59Net cash provided by operating activities 1,559 738 Cash flows from investing activities: Capital expenditures (168) (238)Capitalized software development costs (498) (380)Net cash used in investing activities (666) (618) Cash flows from financing activities: Repayment of line of credit - (1,817)Repayment of insurance premium financing (876) (1,068)Proceeds from issuance of long-term debt and warrants 1,800 5,750 Payments of debt issuance and original discount on issuance of long-term debt and warrants (386) (968)Principal repayment of convertible note (1,886) (839)Tax paid for shares withheld (190) (263)Net cash (used in) provided by financing activities (1,538) 795 Effect of exchange rate changes on cash (20) (89)Net (decrease) increase in cash and cash equivalents (665) 826 Cash, cash equivalents and restricted cash at beginning of year 4,376 3,550 Cash, cash equivalents and restricted cash at the end of year $3,711 $4,376 Cash and cash equivalents $2,250 $2,789 Restricted cash, current 378 1,052 Restricted cash included in other long-term assets 1,083 535 Total cash, cash equivalents and restricted cash $3,711 $4,376 The accompanying notes are an integral part of these consolidated financial statements.46Table of ContentsGSE SYSTEMS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2023 and 20221. 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, Inc. and its subsidiaries, collectively. All intercompanybalances and transactions have been eliminated in consolidation.Reverse Stock SplitOn October 30, 2023, the Company effected a ten-for-one reverse stock split of the Company’s common stock whereby each ten shares of the Company’sauthorized and outstanding common stock was replaced with one share of common stock. The par value of the common stock was not adjusted. All commonshare and per share amounts for all periods presented in the consolidated financial statements and the notes to the consolidated financial statements have beenretrospectively adjusted to give effect to the reverse stock split.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, we evaluate the estimates used, including, but not limited to those related to revenue recognition on long-term contracts, allowance for credit loss,product warranties, valuation of goodwill and intangible assets acquired, impairment of long-lived assets to be disposed of, valuation of stock-basedcompensation awards and the recoverability of deferred tax assets. Actual results could differ from these estimates.Business combinationsBusiness combinations are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations, using theacquisition method. Under the acquisition method, the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree arerecognized at fair value on the acquisition date, which is the date on which control is transferred to us. 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 recognitionWe derive our revenue through three broad revenue streams: 1) System Design and Build (“SDB”), 2) software, and 3) training and consulting services. Werecognize revenue from SDB and software contracts mainly through the Engineering segment and the training and consulting service contracts through both theEngineering segment and Workforce Solutions segment.47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 PCS on the software. We generally have two main performance obligations for an SDB contract: (1) the training simulator build and (2) thePCS period. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under the SDBcontracts 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 our revenue recognition as a significant change in the estimatescan cause our revenue and related margins to change significantly from previous estimates.Management judgments and estimates involved in the initial creation and subsequent updates to our estimates-at-completion and related profit recognized arecritical for our revenue recognition associated with SDB contracts. Inputs and assumptions requiring significant management judgment included anticipateddirect 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 T&M based or fixed-price based. Under a typical T&M contract, we arecompensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed by type of work, as well asapproved expenses incurred. The customers are billed on a regular basis, such as weekly, biweekly or monthly. In accordance with ASC 606-10-55-18, Revenuefrom contracts with customers, we elected to apply the “right to invoice” practical expedient, under which we recognize revenue in the amount to which wehave the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary worker multiplied by the bill rate 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 construction contracts with revenue recognized based on project delivery over time.48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.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).Contract asset relates to performance under the contract for obligations that are satisfied but not yet billed, which we classify as contract receivables, net.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. Cash and cash equivalents may at times exceed the FDIC insured limits.Restricted cashRestricted cash represents cash that is legally or contractually restricted as to its withdrawal or usage. The Company is required to pledge or otherwise restrict aportion of our cash related to letters of credit and other vendor agreements. Restricted cash is presented as a current or long term asset in our consolidatedbalance sheets based on the amounts becoming unrestricted in the twelve month period following the reporting date.Contract receivables, net and contract liabilitiesContract receivables, net include recoverable costs for both billed and unbilled receivables. Unbilled receivables include amounts earned in performance ofservices that have not been invoiced. Contract liabilities include billings in excess of revenue earned on contracts in advance of work performed. Generally,such amounts will be earned and recognized over the next twelve months.Billed receivables are recorded at invoiced amounts. The allowance for credit loss are recorded in accordance with ASU 2016-13, “Credit Losses (Topic326) Measurement of Credit Losses on Financial Instruments.” This requires an entity identify and record the contract receivable’s lifetime expected credit lossas an allowance, which the FASB believes will result in more timely recognition of such losses. Under the CECL impairment model, the Company developedand documented its allowance for credit losses on its contract receivables based on three portfolio segments by customer geographic location: North America,China, Rest of World (ROW). The determination of portfolio segments is based primarily on the qualitative consideration of the nature of the Company’sbusiness operations and the characteristics of the underlying trade receivables.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 $1.1 million and $1.0 million for the year ended December 31, 2023 and 2022, respectively. Of theseamounts, the Company capitalized approximately $0.5 million and $0.4 million for the year ended December 31, 2023 and 2022, respectively.49Table of ContentsEquipment, 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.Software development costsCertain computer software development costs, including direct labor costs, 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, we assess the recovery of the unamortized software development costs by estimating the netundiscounted cash flows expected to be generated by the sale of the product. If the undiscounted cash flows are not sufficient to recover the unamortizedsoftware cost we will write-down the carrying amount of such asset to its estimated fair value based on the future discounted cash flows. The excess of anyunamortized computer software costs over the related fair value is written down and charged to operations. Included in capitalized software development costsare certain expenses associated with the development software as a service. Significant changes in the sales projections could result in an impairment withrespect to the capitalized software that is reported on our consolidated balance sheets.Goodwill and intangible assetsOur intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, trade names, non-competeagreements and alliance agreements.Our intangible assets impairment analysis includes the use of undiscounted and discounted cash flow models that requires management to make assumptionsregarding 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. We do not have any intangible assets with indefinite useful lives.Goodwill represents the excess of costs over the fair value of assets of an acquired business. We review goodwill for impairment annually as of December 31and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. We test goodwill at the reporting unit level.A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. We have determined that we have two reportingunits, which are the same as our two operating segments: (i) Engineering and (ii) Workforce Solutions.We completed our annual quantitative step 1 analysis as of December 31, 2023 and 2022 and concluded that the fair value of the Workforce Solutions businesssegment did not exceed it’s carrying value. A discounted cashflow analysis was performed and we concluded the Goodwill on Workforce Solutions segment of$0.5 million was fully impaired at December 31, 2023. Per the annual valuation performed, no impairment was determined to exist for the Engineeringsegment as of December 31, 2023.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. We make certain judgments andassumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.50Table of ContentsForeign currency translationThe United States Dollar (USD) is our functional currency and that of our 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 loss included in the consolidated statements of changes in shareholders’ 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 ourcurrent liability for federal, state and foreign income taxes and the change in our 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 restricted stock unit (RSU) awards is recognized on a pro rata straight-line basis based of the fair value ofshare awards that are scheduled to vest during the requisite service period. Compensation expense related to performance-vesting restricted stock unit (PRSU)awards is recognized on a straight-line basis over the performance period based on the probable outcome of achievement of the financial targets. The Companycan also elect to issue cash-settled RSUs or PRSUs which are subject to fair value remeasurement at each reporting date.Significant customers and concentration of credit riskWe have a concentration of revenue from one individual customer, which accounted for 22.7% and 13.6% of our consolidated revenue for the years endedDecember 31, 2023 and December 31, 2022, respectively. No other individual customer accounted for more than 10% of our consolidated revenue in 2023 or2022.As of December 31, 2023, we had one customer who accounted for 12.1% of the Company’s consolidated contract receivables. No customer accounted forover 10% of the Company’s consolidated contract receivables as of December 31, 2022.Fair values of financial instrumentsWe established mark-to-market liabilities related to certain common stock purchase warrants and certain embedded features included in our convertible debt.The fair values of these are estimated upon issuance and at each reporting period thereafter. For all accounting policies described in this document,management cautions that future events rarely develop exactly as forecasted and even our best estimates may require adjustment as facts and circumstanceschange.The carrying amounts of current assets and current liabilities reported in the consolidated balance sheets approximate fair value due to their short term duration.51Table of ContentsReclassifications and immaterial corrections of previously issued Financial StatementsCertain prior year amounts have been reclassified to conform with the current year presentation. “Loss on debt settled in shares” and was reclassed out of“Other liabilities” and presented in its own line item within operating cash flows section on our consolidated statement of cash flows.Liquidity and Going ConcernThe accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and inaccordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that the Companywill continue in operation one year after the date these financial statements are issued and will be able to realize its assets and satisfy its liabilities andcommitments in the normal course of business. Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification(“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there areconditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from thedate these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have notbeen fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under thismethodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continueas a going concern. The mitigating effect of management’s plans, however, are only considered if both (1) it is probable that the plans will be effectivelyimplemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate therelevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financialstatements are issued. Management determined that the implemented plans to mitigate relevant conditions may not alleviate management’s concerns that raisesubstantial doubt about the Company’s ability to continue as a going concern within the twelve months ended March 31, 2025.The Company has incurred operating losses and has not demonstrated an ability to generate cash in excess of its operating expenses for a sustained period oftime. During the year ended December 31, 2023, the Company generated a loss from operations of $6.8 million, which includes non-cash impairment chargesof long-lived assets and goodwill from our Workforce Solutions segment totaling $1.4 million. As of December 31, 2023, the Company had domesticunrestricted cash and cash equivalents of $1.0 million which is not sufficient to fund the Company’s planned operations through one year after the date theconsolidated financial statements are issued. Although the Company has shown significant improvement in the second half of the year, it has not achieved itsforecast for several periods and there is no assurance that it will achieve its forecast over the twelve months ending March 31, 2025. These factors createsubstantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that our audited consolidated financialstatements are issued.In making this assessment we performed a comprehensive analysis of our current circumstances and to alleviate these conditions, management is monitoringthe Company’s performance and evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are notlimited to, restructuring of operations to grow revenues and decrease expenses, obtaining equity financing, issuing debt, or entering into other financingarrangements. The analysis used to determine the Company’s ability to continue as a going concern does not include cash sources outside the Company’s directcontrol that management expects to be available within the next twelve months ending March 31, 2025.2. Recent Accounting PronouncementsAccounting pronouncements recently adoptedIn June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) to replace the incurred loss impairment methodology underU.S. GAAP. This ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which could result in earlier recognition ofcredit losses and additional disclosures related to credit risk. The CECL model will require the Company to use a forward-looking expected credit lossimpairment methodology for the recognition of credit losses for financial instruments at the time the financial asset is originated or acquired, and require a lossbe recognized before it is realized. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The new standard willapply to accounts receivable, loans, and other financial instruments with credit risk. This standard was effective for the Company beginning January 1, 2023.The Company adopted the new guidance starting January 1, 2023 on a modified retrospective basis. The impact of this ASU is reflected in the consolidatedfinancial statements and was not material.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.Accounting pronouncements not yet adoptedIn November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires apublic entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosuresabout a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title andposition of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them,or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in thisASU retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of this accountingstandard will have on its financial 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 theweighted average shares outstanding for the potential dilution that could occur if outstanding vested stock options or other share equivalents were exercised.Basic and diluted earnings per share are based on the weighted average number of outstanding shares for the period.The number of common shares and common share equivalents used in the determination of basic and diluted (loss) earnings per share were as follows:(in thousands, except for per share data) Years ended December 31, 2023 2022 Numerator: Net income (loss) attributed to common shareholders $(8,724) $(15,343) Denominator: Weighted-average shares outstanding for basic earnings per share 2,486,550 2,136,290 Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share 2,486,550 2,136,290 Total shares considered for dilution 1,068,722 460,113 52Table of Contents4. Coronavirus Aid, Relief and Economic Security ActEmployee Retention Credits (ERC)Employee retention tax credits, made available under the CARES Act, allow eligible employers to claim a refundable tax credit against the employer share ofSocial Security tax equal to 70% of the qualified wages they pay to employees, initially from March 27, 2020 until June 30, 2021, and extended throughSeptember 30, 2021. In 2021, we applied for $5.0 million in refunds from the Internal Revenue Service with filing of our 941s and achieved $2.2 million incredits from unremitted payroll taxes as allowed. We recorded other income of $7.2 million related to the employee retention tax credits earned for the yearended December 31, 2021. During the years ended December 31, 2023 and 2022, the Company received cash refunds related to the employee retention creditsin the amounts of $1.0 million and $3.0 million, respectively. As of December 31, 2023, there is no remaining refunds owed.5. 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 Engineering and Workforce Solutionssegments. We recognize revenue from SDB and software contracts mainly through our Engineering segment. We recognize training and consulting servicecontracts through both segments. The following table represents a disaggregation of revenue by type of goods or services for the years ended December 31, 2023 and 2022, along with thereportable segment for each category:(in thousands) Twelve Months Ended December 31, 2023 2022 Engineering segment System Design and Build - Over time $6,307 $6,595 Software 4,652 4,684 Point in time 568 921 Over time 4,084 3,763 Training and Consulting Services 20,831 18,640 Point in time 448 245 Over time 20,383 18,395 Workforce Solutions segment Training and Consulting Services 13,251 17,815 Point in time 343 62 Over time 12,908 17,753 Total revenue $45,041 $47,734 The 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 31,2023 December 31,2022 Billings in excess of revenue earned (BIE) $5,119 $4,163 Revenue recognized in the period from amounts included in BIE at the beginning of the period $3,751 $3,785 As of December 31, 2023, the aggregate amount of transaction price allocated to the remaining performance obligations of SDB, software and fixed-pricetraining and consulting services contracts is $19.1 million. We will recognize the revenue as the performance obligations are satisfied, which is expected tooccur over the next twelve months.Part of the training and consulting services contracts are T&M based. Under a typical T&M contract, we are compensated based on the number of hours ofapproved time provided by temporary workers and the bill rates, which are fixed by type of work, as well as approved expenses incurred. We have elected touse the optional exemption under ASC 606-10-50-14(b) Revenue from Contracts with Customers, pursuant to which we have excluded disclosures oftransaction prices allocated to remaining performance obligations under such contracts and when we expect to recognize the revenue.53Table of Contents6. Goodwill and Intangible AssetsThe Company monitors operating results and events and circumstances that may indicate potential impairment of intangible assets.ASC 350 Indefinite-Lived Asset Testing – Pursuant to Accounting Standards Codification (ASC) 350, “Intangibles - Goodwill and Other,” the Companyevaluates goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill maynot be recoverable.During the three months ended September 30, 2022, we experienced a deterioration in sales, decline in revenues, delayed pipeline opportunities, and overalldownward performance results and forecast results related to the Workforce Solutions business segment, which was determined to be a triggering event thatmay result in impairment of our long-lived assets. We performed an interim analysis and determined an impairment existed at September 30, 2022 inaccordance with ASC 350. As such, we recorded an impairment of the related goodwill assets of $7.0 million. Goodwill impairment was allocated to theTraining Services and Technical Staffing business units based on their pro rata share of Workforce Solution’s book value of Goodwill. The annual evaluation ofthe Company’s Goodwill assets at December 31, 2022, determined no additional impairment existed at that time.During the three months ended September 30, 2023, we determined that the overall market capitalization deterioration due to the falling share price, decline inrevenues, and delayed pipeline opportunities was material enough to be considered a triggering event that could result in impairment of our long-lived assets.We performed an interim analysis and determined an impairment existed for the Workforce Solutions business segment at September 30, 2023 in accordancewith ASC 350. As such, we recorded an impairment of the related goodwill of $0.9 million for the three and nine months ended September 30, 2023 to theTraining Services and Technical Staffing business units based on their pro rata share of Workforce Solution’s book value of Goodwill. No impairment wasidentified related to any other asset grouping.The annual evaluation of the Company’s Goodwill assets at December 31, 2023, determined that the remaining $0.5 million Goodwill balance on WorkforceSolutions segment was fully impaired. The $0.5 million charge was recorded as a component of operating expenses during the period.ASC 360 Long-Lived Asset Testing – ASC 360 requires the Company to review long-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of these assets may not be recoverable. Such events may include, but are not limited to, changes in market conditions,technological obsolescence, adverse changes in customer demand, and significant decreases in revenue or earnings.Based on the triggering events noted above during the three months ended September 30, 2022 we performed an interim analysis to determine if an impairmentexisted at September 30, 2022 by its individual asset groupings, which we determined to be at the subsidiary level. We used a discounted cash flow analysis todetermine the fair value of our asset group, and we concluded that the carrying value of the definite-lived intangible assets of Technical Staffing, a business unitof the Workforce Solutions segment, exceeded its fair value by $0.5 million, and we recorded a loss on impairment for this amount as of September 30, 2022.No Intangible assets were determined to be impaired as of December 31, 2022.We performed additional discounted cash flow analysis for the three months ended September 30, 2023 and December 31, 2023 in conjunction with triggeringevents noted above for those periods. We concluded no impairment was identified related to any other asset groupings. No Intangible assets were determined tobe impaired as of December 31, 2023.The following table shows the gross carrying amount and accumulated amortization of definite-lived intangible assets:(in thousands) As of December 31, 2023 GrossCarryingAmount AccumulatedAmortization Impact ofImpairment Net Amortized intangible assets: Customer relationships $8,164 $(7,395) $- $769 Trade names 1,689 (1,283) - 406 Developed technology 471 (471) - - Non-contractual customer relationships 433 (433) - - Noncompete agreement 527 (523) - 4 Alliance agreement 527 (527) - - Others 167 (167) - - Total $11,978 $(10,799) $- $1,179 (in thousands) As of December 31, 2022 GrossCarryingAmount AccumulatedAmortization Impact ofImpairment Net Amortized intangible assets: Customer relationships $8,628 $(7,050) $(464) $1,114 Trade names 1,689 (1,196) - 493 Developed technology 471 (471) - - Non-contractual customer relationships 433 (433) - - Noncompete agreement 527 (486) - 41 Alliance agreement 527 (488) - 39 Others 167 (167) - - Total $12,442 $(10,291) $(464) $1,687 54Table of ContentsAmortization expense related to definite-lived intangible assets totaled $0.5 million and $0.9 million for the years ended December 31, 2023 and 2022,respectively. The $1.2 million of intangible assets at December 31, 2023, have a weighted average remaining life of 9.5 years.The following table details the estimated amortization expense of the definite-lived intangible assets for the next five years:(in thousands) Years ended December 31: 2024 $332 2025 255 2026 204 2027 169 2028 108 Thereafter 111 $1,179 Goodwill(in thousands) Goodwill Impairment Net Engineering $8,278 $(3,370) $4,908 Workforce Solutions 8,431 (8,431) - Net book value at December 31, 2023 $16,709 $(11,801) $4,908 Goodwill Impairment Net Engineering $8,278 $(3,370) $4,908 Workforce Solutions 8,431 (7,040) 1,391 Net book value at December 31, 2022 $16,709 $(10,410) $6,299 55Table of Contents7. Contract ReceivablesContract receivables represent our unconditional rights to consideration due from a broad base of both domestic and international customers. Net contractreceivables 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, 2023 2022 Billed receivables $5,720 $6,074 Unbilled receivables 4,729 5,146 Allowance for credit loss (283) (1,156)Total contract receivables, net $10,166 $10,064 During the first quarter of 2023, the Company adopted ASU 2016-13, “Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.”This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including accounts receivable.Under the new guidance, an entity recognizes its estimate of lifetime expected credit losses as an allowance, which the FASB believes will result in moretimely recognition of such losses. Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its contractreceivables based on three portfolio segments by customer geographic location: North America, China, Rest of World (ROW). The determination of portfoliosegments is based primarily on the qualitative consideration of the nature of the Company’s business operations and the characteristics of the underlying tradereceivables. During the years ended December 31, 2023 and 2022, we recorded credit loss expense of $232 thousand and $221 thousand, respectively.During January 2024, we invoiced $4.5 million of the unbilled amounts related to the balance at December 31, 2023.The following table sets forth the activity in allowance for credit losses:(in thousands) As of and for the Years ended December 31, 2023 2022 Beginning balance $1,156 $1,010 Adoption of ASC326 Current Expected Credit Losses (CECL) 57 - Adjusted beginning balance 1,213 1,010 Current period provision for expected credit loss 178 221 Write-offs charged against the allowance, net of recoveries (1,070) (7)Currency adjustment (38) (68)Ending balance $283 $1,156 56Table of Contents8. Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consist of the following:(in thousands) December 31, 2023 2022 Income tax receivable $38 $78 Prepaid expenses 796 947 ERC receivable - 1,028 Other current assets 45 112 Total $879 $2,165 Prepaid expenses primarily include prepayment for insurance and other subscription-based services. The Employee Retention Credits not yet received as ofDecember 31, 2022, was fully collected as of December 31, 2023.9. Equipment, Software and Leasehold ImprovementsEquipment, software and leasehold improvements, net consist of the following:(in thousands) December 31, 2023 2022 Computer and equipment $2,381 $2,363 Software 2,292 2,291 Leasehold improvements 805 659 Furniture and fixtures 840 838 6,318 6,151 Accumulated depreciation (5,564) (5,379)Equipment, software and leasehold improvements, net $754 $772 Depreciation expense was approximately $0.2 and $0.3 million for the years ended December 31, 2023 and 2022, respectively.Capitalization of internal-use software costs of $0.1 million related to the ongoing systems upgrade and implementation effort were recorded in software for theyear ended December 31, 2022. There were no capitalized internal-use software costs during the year ended December 31, 2023.10. Product WarrantyAccrued warrantyFor contracts that contain a warranty provision, we provide an accrual for estimated future warranty costs based on historical experience and projected claims.Our contracts may contain warranty provisions ranging from one year to five years. The current portion of the accrued warranty is presented separately on theconsolidated balance sheets within current liabilities whereas the noncurrent portion is included in other liabilities.The activity in the accrued warranty accounts is as follows:(in thousands) As of and for the years ended December 31, 2023 2022 Beginning balance $502 $748 Current year provision (133) (44) Current year claims (83) (195) Currency adjustment (2) (7) Ending balance $284 $502 The current and non-current warranty balance is as follows: December 31, 2023 2022 Current $176 $370 Non-current 108 132 Total Warranty $284 $502 57Table of Contents11. 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.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, 2023 and 2022, 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.Our convertible debt issued in February 2022, amended in June 2023 and February 2024, and our new convertible debt issued in June 2023 (see Note 12)includes certain embedded redemption features that are required to be bifurcated as embedded derivatives and measured at fair value on a recurring basis. Weestimate the fair value using a Monte Carlo simulation based on estimates of our future stock price and assumptions about the possible redemption scenarios.The Company used the Monte Carlo simulation model to determine the fair value of the Warrants and Cash-Settled PRSUs, which required the input ofsubjective assumptions. The fair value of the Warrants and Convertible Note redemption features as of December 31, 2023 was estimated with the followingassumptions. Amended 2022Convertible Note The “2022Warrants” 2023Convertible Note The “2023Warrants” Exercise Price $19.40 $19.40 $5.00 $5.00 Common Stock Price $2.01 $2.01 $2.01 $2.01 Risk Free Rate 5.13% 3.93% 4.41% 3.81%Volatility 90.0% 90.0% 90.0% 90%Term (in years)0.4 yrs. 3.2 yrs. 1.5 yrs. 4.5 yrs. 58Table of ContentsThe following table presents assets measured at fair value at December 31, 2023: Quoted PricesinActive Marketsfor IdenticalAssets SignificantOtherObservableInputs SignificantUnobservableInputs (in thousands) (Level 1) (Level 2) (Level 3) Total Derivative liability $- $- $588 $588 Warrant liability - - 520 520 Cash settled performance-vesting restricted stock units - - 24 24 Balance at December 31, 2023 $- $- $1,132 $1,132 The following table presents assets measured at fair value at December 31, 2022: Quoted PricesinActive Marketsfor IdenticalAssets SignificantOtherObservableInputs SignificantUnobservableInputs (in thousands) (Level 1) (Level 2) (Level 3) Level 3 Total Derivative liability $- $- $285 $285 Warrant liability - - 267 267 Cash settled performance-vesting restricted stock units - - 51 51 Balance at December 31, 2022 $- $- $603 $603 The following table summarizes changes in the fair value of our Level 3 liabilities during the twelve months ended December 31, 2023.(in thousands) EmbeddedRedemptionFeatures Warrant Cash SettledPRSUs Level 3 Total Balance at December 31, 2022 $285 $267 $51 $603 FV of derivatives with new convertible note issuance 286 1,120 - 1,406 Change in FV included in gain on derivative instruments, net 17 (867) - (850)Stock compensation less payments made - - (27) (27)Balance at December 31, 2023 $588 $520 $24 $1,132 12. DebtConvertible NotesOn February 23, 2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global Fund II LP (“Lind Global”) pursuant to which weissued to Lind Global a two-year, secured, interest-free convertible promissory note in the amount of $5.75 million (the “2022 Convertible Note”) and acommon stock purchase warrant to acquire 128,373 shares of our Common Stock (the “2022 Warrant”). We entered into an amendment and restatement of the2022 Convertible Note on June 23, 2023. The 2022 Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We receivedproceeds of approximately $4.8 million net of the OID and expenses.59Table of ContentsOn June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to whichwe issued to Lind Global that certain Senior Convertible Promissory Note, dated February 23, 2022 (the “2023 Convertible Note” and, together with the 2022Convertible Note, the “Convertible Notes”)(see Note 1) and a common stock purchase warrant to acquire 426,427 shares of our Common Stock (the “2023Warrant”). The 2023 Convertible Note does not bear interest but was issued at a $0.3 million discount (“OID”). We received proceeds of approximately $1.4million net of the OID and expenses.(in thousands) 2022ConvertibleNote 2023ConvertibleNote TotalConvertibleNotes Amount Amount Amount 2022 Convertible Note issued $5,750 $1,800 $7,550 Debt discount (750) (300) (1,050)Issuance cost: Commitment fee (175) (52) (227)Balance of investor’s counsel fees (43) (34) (77)Net proceeds of Convertible Note $4,782 $1,414 $6,196 Additional OID costs not in original funds flow (121) (15) (136)Fair value of Warrant Liabilities on issuance (724) (1,119) (1,843)Fair value of Conversion Features on issuance (306) (286) (592)Allocated OID costs to Convertible Note 25 30 55 Allocation of Discounts on Troubled Debt Restructuring (660) 660 - Interest expense accrued on Convertible Note as of December 31, 2023 2,946 283 3,229 Principal and interest payments as of December 31, 2023 (5,462) - (5,462)Balance of 2022 Convertible Note as of December 31, 2023 $480 $967 $1,447 The Convertible Notes provide for variable monthly principal repayments beginning 180 days from issuance (with respect to the 2022 Convertible Note) and12 months from issuance (with respect to the 2023 Convertible Note). Remaining monthly principle payments range from $0.1 to $0.2 million and can be madein the form of cash, shares, or a combination of both at the discretion of GSE.The following table details the future principal payments of the Convertible Note, gross of debt discounts:(in thousands) Years ended December 31: 2024 $1,849 2025 750 Thereafter - $2,599 Prior to the June 2023 amendments, described below, the 2022 Convertible Note was convertible into our Common Stock at any time after the earlier of sixmonths from issuance of the Convertible Note or the date of an effective registration statement filed with the SEC covering the underlying shares. Theconversion price of the 2022 Convertible Note was equal to $19.40 per share, subject to customary adjustments. The 2022 Convertible Note matured inFebruary 2024, although we were permitted to prepay the 2022 Convertible Note, provided that Lind Global had the option to convert up to one third of theoutstanding principal of the 2022 Convertible Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as describedbelow).The 2022 Convertible Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets. The 2022 Convertible Note is notsubject to any financial covenants and events of default under the 2022 Convertible Note are limited to events related to payment, market capitalization, certainevents pertaining to conversion and the underlying shares of Common Stock and other customary events including, but not limited to, bankruptcy orinsolvency. Upon the occurrence of an event of default, the 2022 Convertible Note will become immediately due and payable at an amount equal to 120% ofthe outstanding principal, subject to any cure periods described in the 2022 Convertible Note, and the customer may demand that all or a portion of theoutstanding principal amount be converted into shares of common stock at the lower of the then current conversion price and 80% of the average of the threelowest daily volume-weighted average price (“VWAPs”) during the twenty days prior to delivery of the conversion notice. If there is a change of control of theCompany, Lind Global has the right to require us to prepay the outstanding principal amount of the 2022 Convertible Note.60Table of ContentsOn June 23, 2023, the Company and Lind Global agreed to amend and restate the 2022 Convertible Note. The 2022 Convertible Note, as now amended, is nowsecured, interest free convertible promissory note in the principal amount of $2,747,228, such amount being the outstanding balance of the 2022 ConvertibleNote as of June 23, 2023. Just prior to the amendment, there was an event of default (EOD) related to the total market capitalization provision in the original2022 Convertible Note. The EOD that occurred was waived, and we incurred a 20% charge included in the amended and restated 2022 Convertible Note,which the Company has treated as additional interest. The 2022 Convertible Note now has a maturity date of August 23, 2024 was payable, commencing onJuly 23, 2023, in twelve (12) consecutive monthly payments of $186,343 each and two (2) final payments of $255,556 each. The remainder of the terms of the2022 Convertible Note, including terms around payment, prepayment, default and conversion, are unchanged.On October 6, 2023, the Company and Lind Global entered into that certain First Amendment to the 2022 Convertible Note (“A&R Note Amendment”),amending the 2022 Convertible Note to extend the beginning period of required compliance with certain default provisions until January 31, 2024. The A&RNote Amendment amended Section 2.1 pertaining to events of default by deleting and replacing Section 2.1(r), which previously provided for an event ofdefault under the Note in the event that the Company’s Market Capitalization was below $7 million for ten (10) consecutive days. As amended, the A&R Noteprovided that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million forten (10) consecutive days. Prior to the Amendment, the “Conversion Price” in Section 3.1(b) of the A&R Note “was $19.40, and shall be subject to adjustmentas provided herein.” The A&R Note Amendment amended the definition of “Conversion Price” “the lower of (i) $19.40 and (ii) eighty-five percent (85%) ofthe average of the three (3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice ofconversion.” There was no accounting impact related to this amendment as conversion options are already bifurcated as an embedded derivative and recordedat fair value at each reporting period.The 2022 Warrant entitles Lind Global to purchase up to 128,373 shares of our Common Stock until February 23, 2027, at an exercise price of $19.40 pershare, subject to customary adjustments described therein. The Warrant is recorded at fair value upon issuance of $0.7 million and is classified as a currentliability to be remeasured at each reporting period (see Note 8). The discount created by allocating proceeds to the Warrant results in a debt discount to beamortized as additional interest expense over the term of the Convertible Note.On June 23, 2023 in connection with the 2022 amended and restated Convertible Note transaction, the Company evaluated the amendment and concluded itqualified as a troubled debt restructuring. The restructuring did not result in a gain or loss but revised the effective interest rate used to amortized the note goingforward.On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to whichthe Company issued to Lind Global the 2023 Convertible Note at the same time that the Company and Lind Global amended and restated the 2022 ConvertibleNote. The closing occurred on June 23, 2023, and consisted of the issuance of a secured, two-year interest free convertible promissory note with a fundingamount of $1,500,000 and a principal amount of $1,800,000 (as defined above, the ”2023 Convertible Note”) and the issuance of common stock purchasewarrant to acquire 426,427 shares of the Company’s common stock (the “2023 Warrant” and, together with the 2022 Warrant, the “Warrants”). The proceedsfrom the transactions contemplated by the 2023 Purchase Agreement were for general working capital purposes and other corporate purposes.On October 6, 2023, the Company and Lind Global entered into that certain First Amendment to Senior Convertible Promissory Note, amending theCompany’s 2023 Convertible Note (the “Note Amendment”) to extend the beginning period of required compliance with certain default provisions untilJanuary 31, 2024. The Note Amendment amended Section 2.1 of the 2023 Convertible Note pertaining to events of default by deleting and replacing Section2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization (as defined in the Note) wasbelow $7 million for ten (10) consecutive days. As amended, the Note provides that, at any time after January 31, 2024, an event of default will occur in theevent that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days.61Table of ContentsCommencing one year after the issuance of the 2023 Convertible Note, the Company shall pay the outstanding principal amount of the 2023 Convertible Notein twelve (12) consecutive monthly payments of $150,000 each. At the option of the Company, the monthly payment can be made in cash, shares of thecommon stock of the Company (the “Repayment Shares”) at a price based on 90% of the average five (5) consecutive daily VWAPs during the twenty (20)days prior to the payment date, or a combination of cash and Repayment Shares, subject to the terms of the 2023 Convertible Note. The Repayment Sharesmust either be eligible for immediate resale under Rule 144 or be registered. The number of Repayment Shares is limited such that, when added to the numberof shares of common stock issued and issuable pursuant to the transactions contemplated by the 2023 Purchase Agreement, it may not exceed 493,727 shares ofcommon stock unless the Company obtains stockholder approval to issue additional Repayment Shares. The holder of the 2023 Convertible Note may electwith respect to no more than two (2) of the above described monthly payments to increase the amount of such monthly payment up to $300,000 each inRepayment Shares upon notice to the Company. Any such increased payment shall be deducted from the amount of the last monthly payment owed under the2023 Convertible Note. The Company can prepay Lind Global all the outstanding principal amount of the 2023 Convertible Note, provided that Lind Globalshall have the option to convert up to one third (1/3) of the outstanding principal amount of the 2023 Convertible Note at a price per share equal to the lesser ofthe Repayment Share price or the conversion price (as described below).Upon the occurrence of an event of default as described in the 2023 Convertible Note, the 2023 Convertible Note will become immediately due and payable atthe default premium described in the 2023 Convertible Note, subject to any cure periods described in the 2023 Convertible Note. Events of default include, butare not limited to, a payment default on any other indebtedness in excess of $250,000; the shares no longer publicly being traded or cease to be listed on atrading market; if after six months, the shares are not available for immediate resale under Rule 144; and the Company’s market capitalization is below$7,000,000 for ten (10) consecutive days. Upon an event of default, subject to any applicable cure period, the holder of the 2023 Convertible Note can, amongother things, accelerate payment of the 2023 Convertible Note and demand full payment and demand that all or a portion of the outstanding principal amountbe converted into shares of common stock at the at the lower of the then current conversion price and 85% of the average of the three (3) lowest daily VWAPsduring the twenty (20) days prior to delivery of the conversion notice. If there is a change of control of the Company, Lind Global has the right to require theCompany to prepay 105% of the outstanding principal amount of the 2023 Convertible Note. A change of control includes a change in the composition of amajority of the Board of Directors of the Company, at a single shareholder meeting, a change, without prior written consent of Lind Global where a majority ofthe individuals that were directors as of June 20, 2023 cease to be directors of the Company (provided that any individual who is nominated by the board ofdirectors (or a duly authorized committee thereof) as of June 20, 2023 and is elected or appointed as a director of the Company shall be deemed a member ofthe board of directors of the Company for all such purposes), a shareholder acquiring beneficial ownership of more than 50% of the common stock of theCompany, or the sale or other disposition of the Company of all or substantially all of its assets. The 2023 Convertible Note is convertible into common stockof the Company at any time after the earlier of six (6) months from issuance or the date the registration statement is effective, provided that no such conversionmay be made that would result in beneficial ownership by Lind Global and its affiliates of more than 4.99% of the Company’s outstanding shares of commonstock. The conversion price of the 2023 Convertible Note is equal to $5.00, subject to customary adjustments.The 2023 Warrant entitles Lind Global to purchase up to 426,427 shares of common stock of the Company until the earlier of (a) June 23, 2028 and (b) amerger, sale event or other reclassification of the Company’s common stock, at an exercise price of $5.00 per share, subject to customary adjustments describedtherein. The 2023 Warrant is in addition to the 2022 Warrant.The Company evaluated the 2022 Convertible Note and concluded that certain embedded redemption features are required to be accounted for as a derivativeliability. Embedded redemption features were recorded at fair value upon issuance of $0.3 million and are classified as current liabilities to be remeasured ateach reporting period (see Note 11). The discount created by allocating proceeds to the derivative liability results in a debt discount to be amortized asadditional interest expense over the term of the Convertible Notes. The Warrants are accounted for as a derivative liability based on certain features includedwithin the Convertible Note which caused the Company to not be able to assert that it would have sufficient shares in all cases to be able to settle the Warrants.As such, the proceeds (approximately $4.8 million, net of original issue discounts and other payments to lender) were allocated first to the fair value of theWarrants with the residual allocated to the Convertible Notes host instrument. The proceeds allocated to the Convertible Notes were further allocated first tothe bifurcated derivative liability based on its fair value with the residual being allocated to the Convertible Notes host instrument.62Table of ContentsUpon issuance of the 2023 Convertible Note, the Company re-evaluated the 2022 Convertible Note, in accordance with ASC 815-40-25-10 and its sequencingpolicy, and concluded that the embedded conversion option is required to be bifurcated and accounted for as a derivative liability as a result of the Companynot being able to assert that it would have sufficient shares in all cases to be able to settle the conversion of the 2022 Convertible Note. The embeddedconversion option will be combined with the bifurcated redemption features as a single derivative and is classified as a current liability to be remeasured ateach reporting period. The discount resulting from bifurcating the embedded conversion option will be amortized as additional interest expense over the termof the 2022 Convertible Note.The direct and incremental costs incurred are allocated to the Convertible Note and the Warrant based on a systematic and rational approach. The costsallocated to the Warrants have been expensed as incurred while those allocated to the Convertible Note have been capitalized and will be amortized as interestexpense over the life of the Convertible Notes based on the effective interest rate. The Company will record ongoing changes to the fair value of the derivativeliabilities as other non-operating income (expense).The Convertible Notes are evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per share purposes. The Warrantsare considered a participating security and was not included in the calculation of basic earnings per share for the year ended December 31, 2023 as Companyreflected net loss for this period. The Warrant will be included in the calculation of diluted earnings per share in periods of net income.The issuance costs with respect to the Convertible Notes, which are recorded as a debt discount, are deferred and amortized using the effective interest methodas additional interest expense over the terms of the Convertible Note at an effective interest rate of 68.6%.The Company incurred total interest expense related to the Convertible Notes of $1.9 million, including $0.5 million default charge and the amortization of thevarious discounts for the year ended December 31, 2023. The Company incurred total interest expense related to the Convertible Notes of $1.3 million for theyear ended December 31, 2022.Subsequent to the reporting period, on February 12, 2024, the Company and Lind Global entered into an agreement to amend certain provisions of theConvertible Notes (as amended) to extend the beginning period of required compliance with certain default provisions until June 1, 2024. The agreementamended Section 2.1 pertaining to events of default, to extend the period in which an event of default would occur, as defined above, to anytime after June 1,2024, previously anytime after January 31, 2024 as provided in the October 6th amendment defined above. But for the amendment, the Company would haveincurred an event of default after the tenth (10th) trading day following January 31, 2024 if the market capitalization of the Company was less than sevenmillion dollars ($7,000,000). The amendments amended the definition of “Conversion Price” in the 2023 Convertible Note to “the lower of (i) $5.00 and (ii)eighty-five percent (85%) of the average of the three (3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of theapplicable notice of conversion.” No other concession was given with this amendment and legal fees were expenses as incurred.At December 31, 2023, the outstanding debt under the Convertible Note agreement was as follows: Principal DebtDiscounts Net Current portion of Long-Term Debt $1,849 $(1,039) $810 Long-Term Debt less current portion 750 (113) 637 Balance of Convertible Notes as of December 31, 2023 $2,599 $(1,152) $1,447 At December 31, 2022, the outstanding debt under the Convertible Note agreement was as follows: Principal DebtDiscounts Net Current portion of Long-Term Debt $3,833 $(795) $3,038 Long-Term Debt less current portion 320 (10) 310 Balance of Convertible Notes as of December 31, 2022 $4,153 $(805) $3,348 Revolving Line of Credit (“RLOC”)In February 2022, using proceeds from the Convertible Note, we repaid in full, all outstanding indebtedness of $1.8 million owed in connection with thatcertain Amended and Restated Credit and Security Agreement (“RLOC”) between us, our subsidiaries, and Citizens Bank, N.A. (“Citizens”), and such RLOCwas thereafter terminated. We continue to maintain a cash management account and certain letters of credit with Citizens and, accordingly, have entered into acertain Cash Management Agreement with Citizens, as well as certain Cash Pledge Agreements in amounts corresponding to the current outstanding letters ofcredits with customers. As of December 31, 2023, we had four letters of credit totaling $1.1 million outstanding to certain customers which were secured withrestricted cash.63Table of Contents13. Income TaxesThe consolidated income before income taxes, by domestic and foreign sources, is as follows:(in thousands) Years ended December 31, 2023 2022 Domestic $(8,584) $(15,128)Foreign (118) (164)Total $(8,702) $(15,292)The provision (benefit) for income taxes is as follows:(in thousands) Years ended December 31, 2023 2022 Current: Federal $- $- State 33 42 Foreign (23) 95 Subtotal 10 137 Deferred: Federal - (47)State 12 (39)Foreign - - Subtotal 12 (86)Total $22 $51 The effective income tax rate for the years ended December 31, 2023 and 2022 differed from the statutory federal income tax rate as presented below: Effective Tax Rate percentage (%) Years ended December 31, 2023 2022 Statutory federal income tax rate 21.0% 21.0%State income taxes, net of federal tax benefit 2.4% 2.4%Effect of foreign operations (0.3)% (0.3)%Change in valuation allowance (16.5)% (20.7)%Stock-based compensation (2.1)% (0.9)%Convertible Note transactions (5.0)% (1.2)%Uncertain tax positions 0.3% (0.7)%Other (0.1)% 0.1%Effective tax rate (0.3)% (0.3)%The difference between the effective tax rate and statutory rate in 2023 primarily resulted from a change in valuation allowance, permanent differences relatedto disallowed interest expense and mark-to-market adjustments on the Convertible Note which is a disqualified debt instrument for tax purposes, accrualsrelated to uncertain tax positions, the tax impact of stock compensation vests, and state tax expense.64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, 2023 2022 Deferred tax assets: Net operating loss carryforwards $9,372 $7,853 Accruals 330 62 Reserves 139 409 Stock-based compensation expense 228 283 Intangible assets 2,228 2,356 Goodwill 1,687 1,551 Operating lease liability 121 132 Fixed assets 27 65 Sec. 174 R&D costs 228 129 Other 196 231 Total deferred tax asset 14,556 13,071 Valuation allowance (14,008) (12,572)Total deferred tax asset less valuation allowance 548 499 Deferred tax liabilities: Software development costs (17) (59)Indefinite-lived intangibles (440) (346)Operating lease - right of use asset (109) (100)Other - -Total deferred tax liability (566) (505) Net deferred tax liability $(18) $(6)We file tax returns in the United States federal jurisdiction and in several state and foreign jurisdictions. Because of the net operating loss carryforwards, we aresubject to U.S. federal and state income tax examinations for tax years 2003 and forward, and is subject to foreign tax examinations by tax authorities for theyears 2018 and forward. Open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material to our financialposition, results of operations or cash flows.In assessing the ability to realize our deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets willnot be realized. Our ability to realize the deferred tax assets depends primarily upon the preponderance of positive evidence that could be demonstrated bythree-year cumulative positive earnings, reversal of existing deferred temporary differences, and generation of sufficient future taxable income to allow for theutilization of deductible temporary differences.As of each reporting date, our management considers new evidence, both positive and negative, that could impact management’s view with regard to futurerealization 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.We performed an analysis of the valuation allowance position for its worldwide deferred tax assets and determined that a valuation allowance continues to benecessary on its U.S. and foreign deferred tax assets at December 31, 2023.Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the TCJA) eliminated the option to deduct research and development expenses currently and requirestaxpayers to amortize such costs over a period of five years for expenses incurred in the United States and a period of 15 years for expenses incurred outsidethe United States. While it is possible the federal government may enact future legislation which would repeal this provision of the TCJA, there is no assurancesuch legislation will be enacted or whether, if enacted, such legislation would be enacted on a retrospective basis to 2022. This provision of the TCJA resultedin increases of $100 thousand and $129 thousand in deferred tax assets, and an equal increase to the Company’s valuation allowance, during the year endedDecember 31, 2023 and December 31, 2022, respectively, related to research and development expenses incurred during the period. There was no materialimpact to the Company’s current or deferred tax provision or operating cash flows during the year ended December 31, 2023 and December 31, 2022 as a resultof this provision of the TCJA given the Company incurred net operating losses (NOLs) during both periods. The Company does not currently expect thisprovision of the TCJA will have a material impact on its tax provision or operating cash flows for the year ended December 31, 2023, however, the actualimpact of this provision to future periods is uncertain as of this time.65Table of ContentsAs of December 31, 2023, our largest deferred tax asset was $9.4 million of net operating net loss carry forwards. It primarily relates to a U.S. net operatingloss carryforward of $7.8 million; $3.8 million of the net operating loss carryforward expires in various amounts between 2024 and 2038; $4.0 million of thenet operating loss carryforward is an indefinite-lived deferred tax asset. We do not believe that it is more likely than not that we will be able to realize itsdeferred tax assets for its U.S. and foreign deferred tax assets at December 31, 2023 and therefore we have maintained a $14.0 million valuation allowance forour net deferred tax assets. The Company has a deferred tax liability in the amount of $18 thousand at December 31, 2023 related to the portion of Goodwillwhich cannot be offset by deferred tax assets, which is included as a part of other non-current liabilities on the consolidated balance sheets.As of December 31, 2023 and 2022, our consolidated cash and cash equivalents totaled $2.3 million and $2.8 million, respectively, including cash and cashequivalents held at non-U.S. entities totaling $1.2 million and $0.8 million, respectively. The non-U.S. entities include operating subsidiaries located in China.We do not assert permanent reinvestment in China. Accordingly, we analyzed the cumulative earnings and profits and determined the US deferred liabilityrelated to this position is immaterial.Uncertain Tax PositionsDuring 2023 and 2022, we recorded tax liabilities for certain foreign tax contingencies. We recorded these uncertain tax positions in income taxes payable onthe consolidated balance sheets.The following table outlines our uncertain tax liabilities, including accrued interest and penalties for each jurisdiction: China South Korea UK (in thousands) Tax Interest andPenalties Tax Interest andPenalties Tax Interest andPenalties Total Balance, January 1, 2022 $220 $428 $644 $335 $45 $30 $1,702 Increases - 4 - 51 - 61 116 Decreases (17) - (22) - (5) - (44)Balance, December 31, 2022 $203 $432 $622 $386 $40 $91 $1,774 Increases - 25 - 57 - - 82 Decreases (5) - (19) - (40) (91) (155)Balance, December 31, 2023 $198 $457 $603 $443 $- $- $1,701 66Table of Contents14. Capital StockWe are authorized to issue 62,000,000 total shares of capital stock, of which, 60,000,000 are designated as common stock and 2,000,000 are designated aspreferred stock. Our Board of Directors has the authority to establish one or more classes of stock and to determine, within any class of stock, the preferences,rights and other terms of such class.As of December 31, 2023, the Company has reserved 750,000 shares of common stock for issuance under the Plan (as further defined below); zero shares ofcommon stock are reserved for issuance upon exercise of outstanding stock options pursuant to the Plan (because no options have presently been granted, and164,837 shares of common stock are reserved for issuance upon vesting of certain outstanding restricted stock units. There are no shares available for futuregrants under the Plan (as further defined below).The Company has registered approximately 1.7 million shares related to the Convertible Notes and separately reserved such shares for the potential issuance inaccordance with the terms of the Convertible Notes (Note 12). As of December 31, 2023, 1.5 million shares remain in this plan for issuance.15. Stock-Based CompensationLong-term incentive planDuring 1995, we established the 1995 Long-Term Incentive Stock Option Plan (the “Plan”), which permits the granting of stock options (including incentivestock options and nonqualified stock options) stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards or anycombination 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 750,000. As of December 31, 2023, we have issued 585,163 shares under the Plan, zerostock options and 164,837 non-cash settled restricted stock units (RSUs) were outstanding under the Plan, while zero shares remain for future grants under thePlan.We recognize compensation expense on a pro rata straight-line basis over the requisite service period for stock-based compensation awards with both gradedand cliff vesting terms. We recognize the cumulative effect of a change in the number of awards expected to vest in compensation expense in the period ofchange. We have not capitalized any portion of our stock-based compensation. Our forfeiture rate is based on actuals.During the years ended December 31, 2023 and 2022, we recognized $1.2 million and $2.0 million, respectively, of stock-based compensation expense underthe fair value method. Accordingly, we recognized associated deferred income tax expense of $179 thousand and $140 thousand before valuation allowance,respectively, during the years ended December 31, 2023 and 2022.During the years ended December 31, 2023 and 2022, we issued RSUs and PRSUs to employees which vest upon the achievement of specific market-based ortime-based measures. The fair value of RSU’s is calculated using the stock price on the grant date and expensed ratably over the service period. The fair valuefor PRSU’s is determined using a Monte Carlo simulation model and expensed ratably over the derived service period, which typically ranges between oneyear and five years.The following table summarizes the information about vested and unvested restricted stock units for the years ended December 31, 2023 and 2022. Number of Shares Weighted AverageFair Value Nonvested RSUs at January 1, 2022 159,567 $17.70 RSUs granted 179,025 14.89 RSUs forfeited (47,297) 21.34 RSUs vested (78,870) 16.82 Nonvested RSUs at December 31, 2022 212,425 $13.99 Nonvested RSUs at January 1, 2023 212,425 $13.99 RSUs granted 199,810 2.17 RSUs forfeited (60,612) 11.01 RSUs vested (176,786) 7.87 Nonvested RSUs at December 31, 2023 174,837 $7.29 67Table of ContentsAs of December 31, 2023, we had $0.6 million of unrecognized compensation expense related to the RSUs expected to be recognized on a pro-rata straight linebasis over a weighted average remaining service period of approximately 0.9 years.GSE’s 1995 long-term incentive program (“LTIP”) provides for the issuance of performance-vesting and time-vesting restricted stock units to certainexecutives and employees. Vesting of the performance-vesting restricted stock units (“PRSU”) is contingent upon the employee’s continued employment andthe Company’s achievement of certain performance goals during designated performance periods as established by the Compensation Committee of theCompany’s Board of Directors. We recognize compensation expense, net of estimated forfeitures, for PRSUs on a straight-line basis over the performanceperiod based on the probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PRSUs that areexpected to vest, based on the probability and extent to which the performance goals will be met, and take into account these estimates when calculating theexpense for the period. If the number of shares expected to be earned changes during the performance period, we make a cumulative adjustment tocompensation expense based on the revised number of shares expected to be earned.Restricted Stock UnitsDuring the year ended December 31, 2023, we granted approximately 140,044 RSUs with an aggregate fair value of approximately $0.4 million. During theyear ended December 31, 2022, we granted approximately 99,025 time-based RSUs with an aggregate fair value of approximately $1.5 million. During theyear ended December 31, 2023, we forfeited 5,575 RSUs compared to 10,583 RSUs forfeited for the year ended December 31, 2022. During the year endedDecember 31, 2023, we vested 156,786 RSUs compared to 58,870 RSUs vested during the year ended December 31, 2022. A portion of the time-based RSUsvest quarterly in equal amounts over the course of eight quarters, and the remainder vest annually in equal amounts over the course of one to three years.Performance Restricted Stock UnitsDuring the year ended December 31, 2023, we granted 59,767 PRSUs. These grants are subject to multiple vesting criteria including reaching a 20-day VWAPof $15.0 prior to the expiration of the awards, and a time-vesting restriction, which will vest in equal parts over the next 15 quarters ending December 31, 2026.During the year ended December 31, 2023, we forfeited 55,037 PRSUs and vested (20,000) PRSUs of which, (5,000) PRSUs were cash-settled, respectively.During the year ended December 31, 2022, we granted 80,000 PRSUs including 20,000 cash-settled grants to employees. These grants are subject to multiplevesting criteria including reaching a 20-day VWAP of $19.4 prior to the expiration of the awards, and a time-vesting restriction, which will vest in equalportions over the next 15 quarters ending December 31, 2025. During the year ended December 31, 2022, we forfeited 36,714 PRSUs and vested (20,000)PRSUs, of which, (5,000) PRSUs were cash-settled, respectively.16. LeasesWe 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. The operating lease ROU amortization was $388 thousand and $632 thousand for the twelve months endedDecember 31, 2023 and 2022, respectively.68Table of ContentsLease contracts are evaluated at inception to determine whether they contain a lease and whether we obtain the right to control an identified asset. Thefollowing table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets:(in thousands)Operating Leases Classification December 31, 2023 December 31, 2022 Leased Assets Operating lease - right of use assets Long term assets $413 $506 Lease Liabilities Operating lease liabilities - Current Other current liabilities 234 418 Operating lease liabilities Long term liabilities 357 160 $591 $578 We entered into a lease agreement to lease 2,200 square feet of office space on September 26, 2022, and the lease term will end on November 30, 2024. OnDecember 15, 2022, following a March 18, 2022 building fire that impacted our space and ensuing dispute among us and the landlord, we terminated our leasefor 1332 Londontown Boulevard, Eldersburg, Maryland (our former headquarters) and entered into a release and settlement agreement whereby we agreed topay, and the landlord agreed to accept, a reduced monthly payment through May 1, 2023 in exchange for early termination of the lease. The lease terminationresulted in a gain of $94 thousand and is reflected in other (loss) income, net for the year ended December 31, 2022. As a part of this agreement, we assignedboth active subleases to the landlord effective as of the execution date.The table below summarizes the lease income and expenses recorded in the consolidated statements of operations incurred year to date ended December 31,2023, (in thousands):Lease Cost Classification Twelve monthsended, December31, 2023 Twelve monthsended, December31, 2022 Operating lease cost (1) Selling, general and administrative expenses $418 700 Short-term leases costs (2) Selling, general and administrative expenses 29 60 Sublease income (3) Selling, general and administrative expenses - (62)Net lease cost $447 698 (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.We are obligated under certain noncancelable operating leases for office facilities and equipment. Future minimum lease payments under our noncancelableoperating leases as of December 31, 2023 are as follows:(in thousands) Gross Future Minimum Lease Payments 2024 $263 2025 150 2026 96 2027 90 2028 61 Thereafter - Total $660 Less: Interest 69 Present value of lease payments $591 69Table of ContentsThe below table summarizes the weighted-average remaining lease term, presented in years, and the weighted-average discount rate for our operating leasesincluded in the consolidated balance sheet as of December 31, 2023:Lease Term and Discount Rate Twelve months endedDecember 31, 2023 Weighted-average remaining lease term (years) Operating leases 3.38 Weighted-average discount rate Operating leases 6.10%There was right-of-use assets obtained in exchange for operating lease liabilities of $460 thousand during the year ended December 31, 2023. The table belowsets out the classification of lease payments in the consolidated statements of cash flows:(in thousands) Twelve months ended December 31, Cash paid for amounts included in measurement of liabilities 2023 2022 Cash paid for amounts included in measurement of liabilities $453 $1,233 17. Employee BenefitsWe have a qualified defined contribution plan that covers all U.S. employees under Section 401(k) of the Internal Revenue Code. Under this plan, ourstipulated basic contribution matches a portion of the participants’ contributions based upon a defined schedule for eligible employees. Our contributions to theplan were approximately $531 thousand and $479 thousand for the years ended December 31, 2023 and 2022, respectively.18. Segment InformationWe have two reportable business segments for which the Company’s president and CEO is the chief operating decision maker (CODM) for both. TheEngineering segment provides simulation, training and engineering products and services delivered across the breadth of industries we serve. WorkforceSolutions include simulation for both training and engineering applications. Example engineering services include, but are not limited to, plant designverification and validation, thermal performance evaluation and optimization programs, and engineering programs for plants for American Society ofMechanical Engineers (“ASME”) code and ASME Section XI. The Company provides these services across all market segments through our Systems &Simulation, Programs & Performance, and Design & Analysis subsidiaries. Example training applications include turnkey and custom training services.Contract terms are typically less than two years.Workforce Solutions segment provides specialized workforce solutions primarily to the nuclear industry, working at clients’ facilities. This business is managedthrough our Training Services and Technical Staffing subsidiaries. The business model, management focus, margins and other factors clearly separate thisbusiness line from the rest of the GSE product and service portfolio.70Table of ContentsThe 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 taxes. Inter-segment revenue is eliminated in consolidation and is notsignificant.(in thousands) Years ended December 31, 2023 2022 Revenue: Engineering $31,790 $29,919 Workforce Solutions 13,251 17,815 Total revenue 45,041 47,734 Gross profit Engineering 10,073 9,557 Workforce Solutions 1,857 2,353 Total gross profit 11,930 11,910 Operating loss Engineering (3,789) (6,388)Workforce Solutions (3,029) (8,018)Operating loss (6,818) (14,406) Interest expense (1,932) (1,272)Change in fair value of derivative instruments, net 850 477 Other (loss) income, net (802) (91)Loss before taxes $(8,702) $(15,292)The operating loss above for the years ended December 31, 2023 and 2022 include goodwill and intangible asset impairment charges of $1.4 million and $7.5million for Workforce Solutions, respectively.Additional information relating to segments is as follows:(in thousands) December 31, 2023 2022 Engineering $20,980 $21,705 Workforce Solutions 1,825 4,791 Total assets $22,805 $26,496 For the years ended December 31, 2023 and 2022, 92% and 89%, respectively, of our consolidated revenue was from customers in the nuclear power industry.We design, develop and deliver business and technology solutions to the energy industry worldwide. Revenue, operating (loss) income and total assets for ourUnited States, European, and Asian subsidiaries as of and for the years ended December 31, 2023 and 2022 are as follows:(in thousands) Year ended December 31, 2023 United States Asia Consolidated Revenue $44,040 $1,001 $45,041 Operating loss $(6,676) $(142) $(6,818)Net assets, at December 31 $21,202 $1,603 $22,805 (in thousands) Year ended December 31, 2022 United States Asia Consolidated Revenue $46,622 $1,112 $47,734 Operating loss $(14,225) $(181) $(14,406)Net assets, at December 31 $24,631 $1,865 $26,496 71Table of ContentsRevenues 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 12% and 16%, of our consolidated 2023 and 2022 revenue,respectively. Revenue from foreign countries where our customers reside were all individually less than 10% of our consolidated revenue during 2023 and2022.19. Supplemental Disclosure of Cash Flow Information(in thousands) Year ended December 31, 2023 2022 Cash paid for interest and income taxes: Interest $947 $546 Income taxes $79 $47 Non-cash financing activities: Repayment of convertible note in shares $2,886 $824 Establishment of new right-of-use assets 320 60 Establishment of new operating lease liability (454) (58)Discount on issuance of convertible note $300 $750 20. Non-consolidated Variable Interest EntityThrough our wholly owned subsidiary, DP Engineering, we effectively hold 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 thousand and $52 thousand, respectively, for 48% and 52% interest in DP-NXA. DP Engineeringrecorded the contributed cash as an equity investment.We evaluated the nature of DP Engineering’s investment in DP-NXA and determined that DP-NXA is a variable interest entity (“VIE”). Since we do not havethe power to direct activities that most significantly impact DP-NXA, we are not DP-NXA’s primary beneficiary. Furthermore, we concluded that we do nothold a controlling financial interest in DP-NXA since NXA, the VIE’s majority owner, makes all operational and business decisions. We account for DPEngineering’s investment in DP-NXA using the equity method of accounting due to the fact DP Engineering exerts significant influence with its 48% ofmembership interest, but does not control the financial and operating decisions.Our maximum exposure to any losses incurred by DP-NXA is limited to DP Engineering’s investment. As of December 31, 2023, DP Engineering has notmade any additional contributions to DP-NXA and we believe DP Engineering’s maximum exposure to any losses incurred by DP-NXA was not material. Asof December 31, 2023, we do not have existing guarantee with or to DP-NXA, or any third-party work contracted with it.For the year ended December 31, 2023, 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, 2023.72Table of Contents21. Commitments and ContingenciesPer ASC 450 Accounting for Contingencies, the Company reviews potential items and areas where a loss contingency could arise. In the opinion ofmanagement, other than items disclosed below, we are not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or inthe aggregate, which would be reasonably possible to have a material effect on our consolidated results of operations, financial position or cash flows. Weexpense legal defense costs as incurred.Three former employees of Absolute Consulting, Inc. and Hyperspring, LLC, filed putative class action lawsuits against the Company, alleging that theCompany failed to pay overtime wages as required by the Fair Labor Standards Act and state law. The three cases Natalie Adams v. Absolute Consulting, Inc.,Case No. 6:20-cv-01099, Matthew Waldecker v. Hyperspring, LLC, Case No. 2:20-cv-1948, Don Pharr v. Absolute Consulting, Inc., Case No. 23-cv-01558-JRR were filed on December 2, 2020, December 15, 2020, and June 8, 2023 respectively.On August 22, 2023, Plaintiffs in Adams, Waldecker and Pharr and GSE Systems, Inc., Hyperspring and Absolute participated in private mediation. Themediation was successful and an agreement in principle was reached before the conclusion of the mediation to resolve and dismiss all three pending matters inexchange for a settlement payment.The parties’ settlement agreement was executed on October 30, 2023 and will result in the dismissal of all three cases. In addition to customary terms, GSESystems, Hyperspring and Absolute will be obligated to make a series of payments in 2024, eventually totaling $750,000 inclusive of attorneys’ fees and costs.This amount is included in accrued legal settlements as of December 31, 2023, and included as a part of selling, general and administrative costs for the yearended 2023.One former employee of Hyperspring, LLC, had filed charged with the Equal Employment Opportunity Commission, alleging discrimination and retaliation,which Hyperspring, LLC, filed a response denying those claims. On December 19, 2023, a complaint was filed in the United States Eastern District ofTennessee against GSE Systems, Inc and its subsidiaries.Subsequent to the year ended December 31, 2023, a settlement agreement was executed by the parties on February 29, 2024, dismissing the case with theobligation to pay approximately $260,000 inclusive of attorneys’ fees. As such, this amount is included in accrued legal settlements as of December 31, 2023,and included as a part of selling, general and administrative costs for the year ended 2023.73Table of ContentsITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A.CONTROLS AND PROCEDURES.(a) Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports filed or submittedpursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periodsspecified in the rules promulgated by the Securities and Exchange Commission’s and the forms and information required to be disclosed by us in such reportsis accumulated and communicated to management, including our Chief Executive Officer (“CEO”), who is our principal executive officer, and our ChiefFinancial Officer (“CFO”), who is our principal financial officer, to allow timely decisions regarding required disclosure. Based on an evaluation of ourdisclosure controls and procedures as of December 31, 2023, 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.Management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).74Table of ContentsBased on management’s assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2023.Management recognizes there is a reasonable possibility that a material misstatement of our annual or interim financial statements might not be prevented ordetected timely.(c) Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) ofthe Exchange Act that occurred during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.ITEM 9B.OTHER INFORMATION.(a) None.(b) During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or“non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION.Not Applicable.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.The information required by this item, including items 401, 405, and 407 of Regulation S-K, is incorporated by reference to the section captioned “Directorsand Executive Officers” in our definitive Proxy Statement for the Annual Meeting of Shareholders and incorporated herein by reference or will be provided inan amendment to this Annual Report on Form 10-K.75Table of ContentsWe have adopted a Conduct of Business Policy that applies to its directors, officers, and employees, including its principal executive officer, and principalfinancial officer. The Conduct of Business Policy is available on our website at www.gses.com. In addition, we have adopted a Code of Ethics for its principalexecutive officer and senior financial officers which is also available on our website. We will post on its website information about any amendment to, orwaiver from, any provision of the Code of Ethics that applies to its principal executive officer, principal financial 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 2024Annual Meeting of Shareholders and incorporated herein by reference or will be provided in an amendment to this Annual Report on Form 10-K.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDERMATTERS.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 2024 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, 2023:Plan Category 1 Number ofSecurities tobe Issued UponExercise ofOutstandingOptions,Warrants andRights(a) WeightedAverage ExercisePrice ofOutstandingOptions, Warrantsand Rights(b) Number ofSecuritiesRemainingAvailable for FutureIssuance UnderEquityCompensation Plans(ExcludingSecuritiesReflected inColumn (a))(c) Equity compensation plans approved by security holders Options - $- 1 RSUs 174,837 7.29 174,837 $7.29 - Equity compensation plans not approved by security holders - $- - Total 174,837 $7.29 - Table above excludes 10,000 RSUs granted under our 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.76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 the2024 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 2024 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 (PCAOB ID 686) Consolidated Balance Sheets as of December 31, 2023 and 2022 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023 and 2022 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 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.77Table of ContentsExhibitDescription 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, ShawnMcKeever and Mickey Ellis and GSE Performance Solutions, Inc. Incorporated herein by reference to Exhibit 2.1 of GSE Systems, Inc.Form 8-K filed with the 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 ofGSE Systems, 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. Incorporatedherein by reference to Exhibit 2.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on September 20,2017. 2.4Membership 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 toExhibit 2.1 of 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. Incorporatedherein by reference to Exhibit 2.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on February 19,2019. 3.Certificate 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-K filed 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 ofGSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on June 15, 2018. 3.5Certificate of Amendment to the Restated Certificate of Incorporation of GSE Systems, Inc. Incorporated herein by reference to Exhibit3.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on October 26, 2023. 10.Material Contracts 10.1Office Lease Agreement between 1332 Londontown, LLC and GSE Systems, Inc. (dated as of February 27, 2008). Incorporated hereinby reference to Exhibit 10.1 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on March 11, 2008. 10.2Amendment 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, 2015.78Table of Contents10.5Fourth 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 GSESystems, 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,dated as of April 22, 2016. Incorporated herein by reference to Exhibit 10.2 of GSE Systems, Inc. Form 10-Q filed with the Securities andExchange Commission 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 toExhibit 99.2 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. Incorporatedherein by reference to Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on January 11,2019.* 10.13Employment Agreement between Bahram Meyssami and GSE Systems, Inc. dated as of December 1, 2015. Incorporated herein byreference to Exhibit 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 hereinby reference to Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission on June 16, 2017.* 10.15Employment Agreement between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2015. Incorporated herein by referenceto Exhibit 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. Incorporatedherein by reference 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. Incorporatedherein by 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.*79Table of Contents10.20Amendment to Restricted Share Unit Agreement between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2016. Incorporated herein by reference to Exhibit 99.2 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission onJuly 1, 2016.* 10.21Restricted Share Unit Agreement (Cash Award) between Kyle J. Loudermilk and GSE Systems, Inc., dated as of July 1, 2016. Incorporated herein by reference to Exhibit 99.3 of GSE Systems, Inc. Form 8-K filed with the Securities and Exchange Commission onJuly 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 onJuly 1, 2016.* 10.23Restricted Share Unit Agreement between Emmett A. Pepe and GSE Systems, Inc., dated as of July 1, 2016. Incorporated herein byreference to 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 hereinby reference 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 Securitiesand Exchange Commission on January 4, 2017. 10.27Amended and Restated Credit and Security Agreement, dated as of May 11, 2018, by and among Citizens Bank, National Association, asBank, and GSE Systems, Inc. and GSE Performance Solutions, Inc., as Borrower. Incorporated herein by reference to Exhibit 99.1 of GSESystems, 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 byreference to 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 Form10-K filed 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., as Guarantors, 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 andExchange Commission 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,as Guarantors, and Citizens Bank, National Association, as Bank. Incorporated herein by reference to Exhibit 10.39 of Form 10-K filedwith the Securities 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,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 Form8-K filed with the Securities and Exchange Commission on July 1, 2019.80Table of Contents10.34Settlement 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 10.1 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, asBank, and GSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC,Absolute Consulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 10.1 of our Current Reporton Form 8-K filed 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, asBank, and GSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC,Absolute Consulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 99.1 of our Current Reporton Form 8-K filed 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 andExchange Commission 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,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 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, asBank, and GSE Systems, Inc. and GSE Performance Solutions, Inc. as Borrower, GSE True North Consulting, LLC, Hyperspring, LLC,Absolute Consulting, Inc. and DP Engineering, LLC as Guarantor. Incorporated herein by reference to Exhibit 99.1 of our Current Reporton Form 8-K filed 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 byreference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 30, 2020. 10.41Tenth Amendment and Reaffirmation Agreement, dated as of November 12, 2021. Incorporated herein by reference to Exhibit 10.41 ofForm 10-K filed with the Securities and Exchange Commission on March 31, 2022. 10.42Securities Purchase Agreement, dated as of February 23, 2022, by and between GSE Systems, Inc. and Lind Global Fund II LP,Incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commissionon February 28, 2022. 10.43Senior Convertible Promissory Note due February 23, 2024 made by GSE Systems, Inc. in favor of Lind Global Fund II LP, datedFebruary 23, 2022. Incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with the Securities andExchange Commission on February 28, 2022. 10.44Common Stock Purchase Warrant issued by GSE Systems, Inc. to Lind Global Fund II LP. Incorporated herein by reference to Exhibit10.3 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 28, 2022. 10.45First Amendment, dated as of March 9, 2022, to Securities Purchase Agreement, dated February 23, 2022 by and between GSE Systems,Inc. and Lind Global Fund II LP. Incorporated herein by reference to Exhibit 10.45 of Form 10-K filed with the Securities and ExchangeCommission on March 31, 2022. 10.46Securities Purchase Agreement, dated as of June 23, 2023, by and between GSE Systems, Inc. and Lind Global Fund II LP, Incorporatedherein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26,2023. 10.47Senior Convertible Promissory Note, dated June 23, 2023, made by GSE Systems, Inc. in favor of Lind Global Fund II LP. Incorporatedherein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26,2023. 10.48Amended and Restated Convertible Promissory Note, dated June 23, 2023, made by GSE Systems, Inc. in favor of Lind Global Fund IILP. Incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed with the Securities and ExchangeCommission on June 26, 2023. 10.49Common Stock Purchase Warrant issued by GSE Systems, Inc. to Lind Global Fund II LP, dated June 23, 2023. Incorporated herein byreference to Exhibit 10.4 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2023. 10.50First Amendment to Senior Convertible Promissory Note, by and between GSE Systems, Inc. and Lind Global Fund II LP, dated October6, 2023. Incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and ExchangeCommission on October 6, 2023. 10.51First Amendment to Amended and Restated Senior Convertible Promissory Note, by and between GSE Systems, Inc. and Lind GlobalFund II LP, dated October 6, 2023. Incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with theSecurities and Exchange Commission on October 6, 2023. 10.52Second Amendment to Senior Convertible Promissory Note, by and between GSE Systems, Inc. and Lind Global Fund II LP, datedFebruary 12, 2024. Incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities andExchange Commission on February 13, 2024. 10.53Second Amendment to Amended and Restated Senior Convertible Promissory Note, by and between GSE Systems, Inc. and Lind GlobalFund II LP, dated February 12, 2024. Incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with theSecurities and Exchange Commission on February 13, 2024. 10.54Letter Agreement between GSE Systems, Inc. and Kyle J. Loudermilk, dated July 28, 2023. Incorporated herein by reference to Exhibit10.1 of Form 8-K filed with the Securities and Exchange Commission on July 28, 2023. 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. 21Subsidiaries. 21.1List of Subsidiaries of Registrant at December 31, 2020, filed herewith. 81Table of Contents23Consent of Independent Registered Public Accounting Firm 23.1Consent of FORVIS 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 adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, file herewith. 97 97.1GSE Systems, Inc. Amended and Restated Clawback Policy, filed herewith. * Management contracts or compensatory plans required to be filed as exhibits pursuant to Item 15(b) of this report.ITEM 16.FORM 10-K SUMMARY.None.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 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 2, 2024/s / KYLE J. LOUDERMILK Kyle J. Loudermilk, Chief Executive Officer (Principal Executive Officer) Date: April 2, 2024/ s / EMMETT A. PEPE Emmett A. Pepe, Chief Financial Officer (Principal Financial and Accounting Officer) Date: April 2, 2024(Kathryn O’Connor Gardner, Chairman of the Board)By:/ s / EMMETT A. PEPE (William Corey, Chairman of the Audit Committee) Emmett A. Pepe (Thomas J. Dougherty, Director) Attorney-in-Fact (Suresh Sundaram, Director) (Kyle Loudermilk, Director) A Power of Attorney, dated April 1, 2024 authorizing Emmett A. Pepe to sign this Annual Report on Form 10-K for the fiscal year ended December 31, 2023on behalf of certain of the directors of the Registrant is filed as Exhibit 24.1 to this Annual Report.82Exhibit 21.1SUBSIDIARIES OF REGISTRANT AT DECEMBER 31, 2023The following are significant subsidiaries of GSE Systems, Inc. as of December 31, 2023, 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 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. State of DelawareGSE True North Consulting, LLCState of DelawareDP Engineering, LLCState of DelawareGSE Systems Slovakia s.r.o SlovakiaExhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-212241, 333-183427, 333-150249 and 333-138702) andS-3 (No. 333-264114) of GSE Systems, Inc., of our report dated April 2, 2024, with respect to the consolidated financial statements of GSE Systems, Inc., forthe years ended December 31, 2023 and 2022 and for each of the two years in the period ended December 31, 2023 included in this Annual Report on Form 10-K for the year ended December 31, 2023. Our report contains an explanatory paragraph describing conditions that raise substantial doubt about the Company'sability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of thisuncertainty./s/ FORVIS, LLPTysons, VirginiaApril 2, 2024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 1, 2024/s/ Kyle J. Loudermilk Kyle J. Loudermilk Chief Executive Officer Date: April 1, 2024/s/ Emmett A. Pepe Emmett A. Pepe Chief Financial Officer Date: April 1, 2024s/ Kathryn O’Connor Gardner Kathryn O’Connor Gardner Chairman of the Board Date: April 1, 2024/s/ William Corey William Corey Chairman of the Audit Committee Date: April 1, 2024/s/ Thomas J. Dougherty Thomas J. Dougherty Director Date: April 1, 2024/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 2, 2024/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:6.I have reviewed this annual report on Form 10-K of GSE Systems, Inc.;7.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;8.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;9.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:e)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;f)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;g)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; andh)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; and10.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:c)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; andd)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 2, 2024/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, 2023 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 2, 2024/s/ Kyle J. Loudermilk /s/ Emmett A. Pepe Kyle J. Loudermilk Emmett A. Pepe Chief Executive Officer Chief Financial Officer Exhibit 97.1GSE SYSTEMS, INC.Amended and Restated Clawback PolicyIntroductionThe Board of Directors (the “Board”) of GSE Systems, Inc., a Delaware corporation (the “Company”), believes that it is in the best interests of the Companyand its stockholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performancecompensation philosophy. The Board has therefore adopted this policy (this “Policy”) which provides for the recoupment of certain executive compensation inthe event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws. ThisPolicy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).AdministrationThis Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the Boardshall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected individuals.Covered ExecutivesThis Policy applies to the Company’s and its subsidiaries’ current and former executive officers, as determined by the Board in accordance with Section 10D ofthe Exchange Act and the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”), and such other senior executives who may from time to time bedeemed subject to the Policy by the Board (“Covered Executives”).Recoupment; Accounting RestatementIn the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with anyfinancial reporting requirement under applicable securities laws, the Board will require reimbursement or forfeiture of any excess Incentive Compensation(defined below) received by any Covered Executive during the three (3) completed fiscal years immediately preceding the date on which the Company isrequired to prepare an accounting restatement. Recoupment of Incentive Compensation pursuant to this Policy is made on a “no fault” basis, without regard towhether any misconduct occurred or any Covered Executive’s responsibility for the noncompliance that resulted in the accounting restatement.Clawback PolicyPage 1 of 4103777\000001\4889-5926-1619.v1Incentive CompensationFor purposes of this Policy, “Incentive Compensation” means any of the following; provided that such compensation is granted, earned, or vested basedwholly or in part on the attainment of a financial reporting measure:•Annual bonuses and other short- and long-term cash incentives;•Stock options;•Stock appreciation rights;•Restricted stock;•Restricted stock units;•Performance shares;•Performance units; and•Other awards of equity or equity-like compensation provided by the Company and its subsidiaries.For purposes of this Policy, “financial reporting measures” include:•Company stock price;•Total shareholder return;•Revenues;•Net income;•Earnings before interest, taxes, depreciation, and amortization (EBITDA);•Funds from operations;•Liquidity measures such as working capital or operating cash flow;•Return measures such as return on invested capital or return on assets;•Profit margins and growth rates; and•Earnings measures such as earnings per share.Excess Incentive Compensation: Amount Subject to RecoveryThe amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the IncentiveCompensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board.If the Board cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accountingrestatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.Clawback PolicyPage 2 of 4103777\000001\4889-5926-1619.v1Method of RecoupmentThe Board will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include, without limitation:•requiring reimbursement of cash Incentive Compensation previously paid;•seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;•offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive; and/or•cancelling outstanding vested or unvested equity awards.In addition, the Board may, in its sole discretion, determine whether and to what extent additional action is appropriate to address the circumstancessurrounding the noncompliance so as to minimize the likelihood of any recurrence and to impose such other discipline as it deems appropriate.No IndemnificationThe Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation.InterpretationThe Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of thisPolicy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any applicablerules or standards adopted by the Securities and Exchange Commission (the “SEC”) or any national securities exchange on which the Company's securities arelisted.Effective DateThis Policy was amended and restated and, as such, shall be effective as of the date it is adopted by the Board (the “Effective Date”) and shall apply toIncentive Compensation that is approved, awarded or granted to Covered Executives on or after that date.Amendment; TerminationThe Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final regulations adopted bythe SEC under Section 10D of the Exchange Act and to comply with any rules or standards adopted by a national securities exchange on which the Company’ssecurities are listed. The Board may terminate this Policy at any time.Clawback PolicyPage 3 of 4103777\000001\4889-5926-1619.v1Other Recoupment RightsThe Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity awardagreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a CoveredExecutive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies orrights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement,or similar agreement and any other legal remedies available to the Company.ImpracticabilityThe Board shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by theBoard in accordance with Rule 10D-1 of the Exchange Act and Nasdaq’s listing standards.SuccessorsThis Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legalrepresentatives.Clawback PolicyPage 4 of 4103777\000001\4889-5926-1619.v1

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