(Mark One)
|
|||
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended
|
||
or
|
|||
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
|
Commission File Number
|
|
(Exact name of registrant as specified in its charter)
|
|
|
|
(State of incorporation)
|
(I.R.S. Employer Identification Number)
|
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code: (
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Smaller reporting company
|
Emerging growth company
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
Page
|
||
PART I.
|
FINANCIAL INFORMATION
|
3
|
Item 1.
|
Financial Statements (unaudited)
|
|
3
|
||
4
|
||
5
|
||
6
|
||
8
|
||
9
|
||
Item 2.
|
24
|
|
Item 3.
|
38
|
|
Item 4.
|
39
|
|
PART II.
|
40
|
|
Item 1.
|
40
|
|
Item 1A.
|
40
|
|
Item 2.
|
40
|
|
Item 3
|
40
|
|
Item 4
|
40 | |
Item 5.
|
40
|
|
Item 6.
|
41
|
September 30, 2022
|
December 31, 2021
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Restricted cash, current
|
||||||||
Contract receivables, net
|
|
|
||||||
Prepaid expenses and other current assets
|
|
|
||||||
Total current assets
|
|
|
||||||
Equipment, software and leasehold improvements, net
|
|
|
||||||
Software development costs, net
|
|
|
||||||
Goodwill
|
|
|
||||||
Intangible assets, net
|
|
|
||||||
Restricted cash - long term | ||||||||
Operating lease right-of-use assets, net
|
|
|
||||||
Other assets
|
|
|
||||||
Total assets
|
$
|
|
$
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Line of credit
|
$
|
|
$
|
|
||||
Current portion of long-term note
|
|
|
||||||
Accounts payable
|
|
|
||||||
Accrued expenses
|
|
|
||||||
Accrued compensation
|
|
|
||||||
Billings in excess of revenue earned
|
|
|
||||||
Accrued warranty
|
|
|
||||||
Income taxes payable
|
|
|
||||||
Derivative liabilities
|
||||||||
Other current liabilities
|
|
|
||||||
Total current liabilities
|
|
|
||||||
Long-term note, less current portion
|
|
|
||||||
Operating lease liabilities noncurrent
|
|
|
||||||
Other noncurrent liabilities
|
|
|
||||||
Total liabilities
|
|
|
||||||
Commitments and contingencies (Note 16)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock $
|
|
|
||||||
Common stock $
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
Accumulated other comprehensive income (loss)
|
|
(
|
)
|
|||||
Treasury stock at cost,
|
(
|
)
|
(
|
)
|
||||
Total stockholders’ equity
|
|
|
||||||
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
2022
|
September 30,
2021
|
September 30,
2022
|
September 30,
2021
|
|||||||||||||
Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Cost of revenue
|
|
|
|
|
||||||||||||
Gross profit
|
|
|
|
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative
|
|
|
|
|
||||||||||||
Research and development
|
|
|
|
|
||||||||||||
Restructuring (benefit) charges
|
|
(
|
)
|
|
|
|||||||||||
Goodwill and intangible asset impairment charge
|
||||||||||||||||
Depreciation
|
|
|
|
|
||||||||||||
Amortization of intangible assets
|
|
|
|
|
||||||||||||
Total operating expenses
|
|
|
|
|
||||||||||||
Operating loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Interest expense, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Change in fair value of derivative instruments, net
|
|
|
|
|
||||||||||||
Other (loss) income, net
|
(
|
)
|
|
(
|
)
|
|
||||||||||
(Loss) income before income taxes
|
(
|
)
|
|
(
|
)
|
|
||||||||||
(Benefit from) provision for income taxes
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Net (loss) income
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Net (loss) income per common share - basic and diluted
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Weighted average shares outstanding used to compute net
(loss) income per share - basic
|
|
|
|
|
||||||||||||
Weighted average shares outstanding used to compute net (loss) income per share - diluted
|
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30, 2022
|
September 30, 2021
|
September 30, 2022
|
September 30, 2021
|
|||||||||||||
Net (loss) income
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Cumulative translation adjustment
|
|
(
|
)
|
|
|
|||||||||||
Comprehensive (loss) income
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
Common Stock
|
Accumulated |
Treasury Stock
|
||||||||||||||||||||||||||||||
Nine Months Ended
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Other
Comprehensive Loss
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||
Balance, January 1, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
|
|||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Repayment of convertible note in shares |
- | |||||||||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
Balance, January 1, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
|
|||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Balance, September 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Common Stock
|
Accumulated |
Treasury Stock
|
||||||||||||||||||||||||||||||
Three Months Ended
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Other
Comprehensive Loss
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||
Balance, July 1, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
|
|||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Repayment of convertible note in shares |
- | |||||||||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
Balance, July 1, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Net income
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Balance, September 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Nine months ended
|
||||||||
September 30, 2022
|
September 30, 2021
|
|||||||
Cash flows from operating activities:
|
||||||||
Net (loss) income
|
$
|
(
|
)
|
$
|
|
|||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
|
||||||||
Goodwill and intangible asset impairment charge
|
||||||||
Depreciation
|
|
|
||||||
Amortization of intangible assets
|
|
|
||||||
Amortization of capitalized software development costs
|
|
|
||||||
Amortization of deferred financing costs
|
|
|
||||||
Amortization of debt discount
|
||||||||
Gain on PPP loan forgiveness
|
( |
) | ||||||
Stock-based compensation expense
|
|
|
||||||
Bad debt expense (recovery)
|
|
(
|
)
|
|||||
Change in fair value of derivative instruments, net
|
(
|
)
|
|
|||||
Deferred income taxes
|
( |
) | ||||||
Changes in assets and liabilities:
|
||||||||
Contract receivables, net
|
|
(
|
)
|
|||||
Prepaid expenses and other assets
|
|
(
|
)
|
|||||
Accounts payable, accrued compensation and accrued expenses
|
|
|
||||||
Billings in excess of revenue earned
|
(
|
)
|
(
|
)
|
||||
Accrued warranty
|
(
|
)
|
(
|
)
|
||||
Other liabilities
|
(
|
)
|
|
|||||
Net cash provided by (used in) operating activities
|
|
(
|
)
|
|||||
Cash flows from investing activities:
|
||||||||
Capital expenditures
|
(
|
)
|
(
|
)
|
||||
Capitalized software development costs
|
(
|
)
|
(
|
)
|
||||
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Proceeds from line of credit
|
||||||||
Repayment of line of credit
|
(
|
)
|
(
|
)
|
||||
Repayment of insurance premium
|
(
|
)
|
(
|
)
|
||||
Proceeds from issuance of long-term note and warrants, net of debt issuance cost and original issue discount
|
|
|
||||||
Repayment of convertible note
|
( |
) | ||||||
Tax paid for shares whithheld
|
(
|
)
|
(
|
)
|
||||
Net cash provided by (used in) financing activities
|
|
(
|
)
|
|||||
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
(
|
)
|
|||||
Cash, cash equivalents and restricted cash at beginning of the period
|
|
|
||||||
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
|
$
|
|
||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash, current | ||||||||
Restricted cash included in other long-term assets | ||||||||
Total cash, cash equivalents and restricted cash | $ | $ | ||||||
Supplemental cash flow disclosures: | ||||||||
Non-cash financing activities
|
||||||||
Repayment of convertible note
|
$ | $ | ||||||
Discount on issuance of convertible note
|
$ | $ |
(in thousands, except for share data)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30, 2022
|
September 30, 2021
|
September 30, 2022
|
September 30, 2021
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net (loss) income attributed to common stockholders
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Denominator:
|
||||||||||||||||
Weighted-average shares outstanding for basic earnings per share
|
|
|
|
|
||||||||||||
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share
|
|
|
|
|
||||||||||||
Shares related to potentially dilutive securities excluded because inclusion would be anti-dilutive
|
|
|
|
|
(in thousands)
|
September 30, 2022
|
December 31, 2021
|
||||||
Billed receivables
|
$
|
|
$
|
|
||||
Unbilled receivables
|
|
|
||||||
Allowance for doubtful accounts
|
(
|
)
|
(
|
)
|
||||
Total contract receivables, net
|
$
|
|
$
|
|
|
Goodwill
|
Impairment
|
Net
|
|||||||||
|
||||||||||||
Performance Improvement Solutions
|
$ |
|
$ |
(
|
)
|
$ |
|
|||||
Workforce Solutions
|
|
(
|
)
|
|
||||||||
Net book value at September 30, 2022
|
$
|
|
$
|
(
|
)
|
$
|
|
|
Goodwill
|
Impairment
|
Net
|
|||||||||
|
||||||||||||
Performance Improvement Solutions
|
$ |
|
$ |
(
|
)
|
$ |
|
|||||
Workforce Solutions
|
|
|
|
|||||||||
Net book value at December 31, 2021
|
$
|
|
$
|
(
|
)
|
$
|
|
(in thousands)
|
As of September 30, 2022
|
|||||||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Impairment |
Net
|
|||||||||||||
Amortized intangible assets:
|
||||||||||||||||
Customer relationships
|
$
|
|
$
|
(
|
)
|
$ |
( |
) |
$
|
|
||||||
Trade names
|
|
(
|
)
|
|
||||||||||||
Developed technology
|
|
(
|
)
|
|
||||||||||||
Non-contractual customer relationships
|
|
(
|
)
|
|
||||||||||||
Noncompete agreement
|
|
(
|
)
|
|
||||||||||||
Alliance agreement
|
|
(
|
)
|
|
||||||||||||
Others
|
|
(
|
)
|
|
||||||||||||
Total
|
$
|
|
$
|
(
|
)
|
$ | ( |
) |
$
|
|
(in thousands)
|
As of December 31, 2021
|
|||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
||||||||||
Amortized intangible assets:
|
||||||||||||
Customer relationships
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
Trade names
|
|
(
|
)
|
|
||||||||
Developed technology
|
|
(
|
)
|
|
||||||||
Non-contractual customer relationships
|
|
(
|
)
|
|
||||||||
Noncompete agreement
|
|
(
|
)
|
|
||||||||
Alliance agreement
|
|
(
|
)
|
|
||||||||
Others
|
|
(
|
)
|
|
||||||||
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
(in thousands)
|
||||
Years ended December 31:
|
||||
2022 remainder
|
$
|
|
||
2023
|
|
|||
2024
|
|
|||
2025
|
|
|||
2026
|
|
|||
Thereafter
|
|
|||
Total
|
$
|
|
(in thousands)
|
||||||||
September 30, 2022
|
December 31, 2021
|
|||||||
Computer and equipment
|
$
|
|
$
|
|
||||
Software
|
|
|
||||||
Leasehold improvements
|
|
|
||||||
Furniture and fixtures
|
|
|
||||||
|
|
|||||||
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
Equipment, software and leasehold improvements, net
|
$
|
|
$
|
|
Exercise Price
|
$ | ||
Common Stock Price
|
$ | ||
Risk Free Rate
|
% | ||
Volatility
|
% | ||
Term (in years)
|
|
(in thousands)
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
Derivative liability | $ | $ | $ | $ | ||||||||||||
Warrant liability |
||||||||||||||||
Cash settled performance-vesting restricted stock units
|
||||||||||||||||
Total liabilities | $ | $ | $ | $ |
(in thousands)
|
Embedded
Redemption Features
|
Warrant |
Cash Settled
PRSUs
|
Level 3 Total |
||||||||||||
Balance at December 31, 2021
|
$
|
|
$ | $ | $ | |||||||||||
Derivative liabilities at issuance date
|
|
|||||||||||||||
Warrant liabilities at issuance date
|
||||||||||||||||
Change in fair value included in gain on derivative instruments, net
|
( |
) | ( |
) | ( |
) | ||||||||||
Fair value of cash settled PRSUs vested
|
||||||||||||||||
Cash paid on vested shares
|
( |
) | ( |
) | ||||||||||||
Balance at September 30, 2022
|
$
|
|
$ | $ | $ |
Amount
|
||||
Convertible Note issued
|
$
|
|
||
Debt discount
|
(
|
)
|
||
Issuance cost:
|
||||
Commitment fee
|
(
|
)
|
||
Balance of investor’s counsel fees
|
(
|
)
|
||
Net proceeds of Convertible Note
|
$
|
|
||
Fair value of Warrant Liabilities on issuance |
( |
) | ||
Fair value of Conversion Feature on issuance |
( |
) | ||
Allocated OID costs to Convertible Note
|
( |
) | ||
Interest expense accrued on Convertible Note as of September 30, 2022 |
||||
Principal and interest payments as of September 30, 2022 | ( |
) | ||
Balance of Convertible Note as of September 30, 2022 |
$ |
(in thousands)
|
||||
Balance at January 1, 2022
|
$
|
|
||
Current period recovery
|
(
|
)
|
||
Current period claims
|
(
|
)
|
||
Currency adjustment
|
(
|
)
|
||
Balance at September 30, 2022
|
$
|
|
(in thousands)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30,
2022
|
September 30,
2021
|
September 30,
2022
|
September 30,
2021
|
|||||||||||||
Performance Improvement Solutions segment
|
||||||||||||||||
System Design and Build
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Over time
|
|
|
|
|
||||||||||||
Software and Support
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Training and Consulting Services
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Workforce Solutions |
||||||||||||||||
Training and Consulting Services
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30,
2022
|
September 30,
2021
|
September 30,
2022
|
September 30,
2021
|
|||||||||||||
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
Three months ended
|
Nine months ended
|
||||||||||||||
September 30,
2022
|
September 30,
2021
|
September 30,
2022
|
September 30,
2021
|
|||||||||||||
(Loss) income before income taxes
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
(Benefit from) provision for income taxes
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Effective tax rate
|
|
%
|
|
%
|
|
%
|
|
%
|
|
As of
|
|||||||||
Operating Leases
|
Classification
|
September 30, 2022
|
December 31, 2021
|
|||||||
Leased Assets
|
||||||||||
Operating lease - right of use assets
|
|
$
|
|
$
|
|
|||||
Lease Liabilities
|
||||||||||
Operating lease liabilities - Current
|
|
|
|
|||||||
Operating lease liabilities
|
|
|
|
|||||||
|
$ |
|
$
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||||
Lease Cost
|
Classification
|
September 30,
2022 |
September 30,
2021
|
September 30,
2022
|
September 30,
2021
|
|||||||||||||
Operating lease cost (1)
|
Selling, general and administrative expenses
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
Short-term leases costs (2)
|
Selling, general and administrative expenses
|
|
|
|
|
|||||||||||||
Sublease income (3)
|
Selling, general and administrative expenses
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
Net lease cost
|
$
|
|
$
|
|
$
|
|
$
|
|
(in thousands)
|
Gross Future
Minimum Lease
Payments
|
|||
2022 remainder
|
$
|
|
||
2023
|
|
|||
2024
|
|
|||
2025
|
|
|||
2026
|
|
|||
Thereafter |
||||
Total lease payments
|
$
|
|
||
Less: Interest
|
|
|||
Present value of lease payments
|
$
|
|
Lease Term and Discount Rate
|
September 30, 2022
|
December 31, 2021
|
||||||
Weighted-average remaining lease term (years)
|
||||||||
Operating leases
|
|
|
||||||
Weighted-average discount rate
|
||||||||
Operating leases
|
% | % |
(in thousands)
|
Nine months ended
|
|||||||
Cash paid for amounts included in
measurement of liabilities
|
September 30, 2022
|
September 30, 2021
|
||||||
Operating cash flows used in operating leases
|
$
|
|
$
|
|
Three months ended
|
Nine months ended
|
|||||||||||||||
(in thousands)
|
September 30, 2022
|
September 30, 2021
|
September 30, 2022
|
September 30, 2021
|
||||||||||||
Revenue:
|
||||||||||||||||
Performance Improvement Solutions
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Workforce Solutions
|
|
|
|
|
||||||||||||
Total revenue
|
|
|
|
|
||||||||||||
Gross Profit
|
||||||||||||||||
Performance Improvement Solutions
|
||||||||||||||||
Workforce Solutions
|
||||||||||||||||
Total gross profit
|
||||||||||||||||
Operating loss
|
||||||||||||||||
Performance Improvement Solutions
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Workforce Solutions
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Operating loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Interest expense, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Change in fair value of derivative instruments, net |
|
|
|
|
||||||||||||
Other (loss) income, net
|
(
|
)
|
|
(
|
)
|
|
||||||||||
(Loss) income before income taxes
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
•
|
optimization of existing generation assets;
|
•
|
design support and deployment of advanced reactor designs; and
|
•
|
integration with renewable power sources.
|
•
|
Design engineering for plant mechanical, electrical, I&C, civil and structural, fire protection and cyber systems
|
•
|
Engineering programs addressing ASME codes, balance of plant programs other regulatory programs and economic driven programs such as plant thermal performance
|
•
|
Simulation engineering for nuclear, thermal and process plant training and virtual commissioning
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
(in thousands)
|
September 30, 2022
|
September 30, 2021
|
September 30, 2022
|
September 30, 2021
|
||||||||||||||||||||||||||||
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
|||||||||||||||||||||
Revenue
|
$
|
11,898
|
100.0
|
%
|
$
|
14,686
|
100.0
|
%
|
$
|
36,918
|
100.0
|
%
|
$
|
41,312
|
100.0
|
%
|
||||||||||||||||
Cost of revenue
|
8,642
|
72.6
|
%
|
11,503
|
78.3
|
%
|
28,063
|
76.0
|
%
|
32,512
|
78.7
|
%
|
||||||||||||||||||||
Gross profit
|
3,256
|
27.4
|
%
|
3,183
|
21.7
|
%
|
8,855
|
24.0
|
%
|
8,800
|
21.3
|
%
|
||||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||||||||||
Selling, general and administrative
|
4,336
|
36.4
|
%
|
3,265
|
22.2
|
%
|
13,253
|
35.9
|
%
|
10,521
|
25.5
|
%
|
||||||||||||||||||||
Research and development
|
186
|
1.6
|
%
|
149
|
1.0
|
%
|
510
|
1.4
|
%
|
460
|
1.1
|
%
|
||||||||||||||||||||
Restructuring (benefit) charges
|
-
|
0.0
|
%
|
(10
|
)
|
(0.1
|
)%
|
-
|
0.0
|
%
|
798
|
1.9
|
%
|
|||||||||||||||||||
Goodwill and intangible asset impairment charge
|
7,505
|
63.1
|
%
|
3
|
0.0
|
%
|
7,505
|
20.3
|
%
|
3
|
0.0
|
%
|
||||||||||||||||||||
Depreciation
|
69
|
0.6
|
%
|
69
|
0.5
|
%
|
213
|
0.6
|
%
|
216
|
0.5
|
%
|
||||||||||||||||||||
Amortization of intangible assets
|
209
|
1.8
|
%
|
286
|
1.9
|
%
|
700
|
1.9
|
%
|
929
|
2.2
|
%
|
||||||||||||||||||||
Total operating expenses
|
12,305
|
103.4
|
%
|
3,762
|
25.6
|
%
|
22,181
|
60.1
|
%
|
12,927
|
31.3
|
%
|
||||||||||||||||||||
Operating loss
|
(9,049
|
)
|
(76.1
|
)%
|
(579
|
)
|
(3.9
|
)%
|
(13,326
|
)
|
(36.2
|
)%
|
(4,127
|
)
|
(10.1
|
)%
|
||||||||||||||||
Interest expense, net
|
(422
|
)
|
(3.5
|
)%
|
(32
|
)
|
(0.2
|
)%
|
(928
|
)
|
(2.5
|
)%
|
(135
|
)
|
(0.3
|
)%
|
||||||||||||||||
Change in fair value of derivative instruments, net
|
263
|
2.2
|
%
|
-
|
0.0
|
%
|
377
|
1.0
|
%
|
-
|
0.0
|
%
|
||||||||||||||||||||
Other (loss) income, net
|
(2
|
)
|
0.0
|
%
|
12,215
|
83.2
|
%
|
(58
|
)
|
(0.2
|
)%
|
16,853
|
40.8
|
%
|
||||||||||||||||||
(Loss) income before income taxes
|
(9,210
|
)
|
(77.4
|
)%
|
11,604
|
79.0
|
%
|
(13,935
|
)
|
(37.7
|
)%
|
12,591
|
30.5
|
%
|
||||||||||||||||||
(Benefit from) provision for income taxes
|
(218
|
)
|
(1.8
|
)%
|
166
|
1.1
|
%
|
(108
|
) |
0.3
|
%
|
127
|
0.3
|
%
|
||||||||||||||||||
Net (loss) income
|
$
|
(8,992
|
)
|
(75.6
|
)%
|
$
|
11,438
|
77.9
|
%
|
$
|
(13,827
|
)
|
(37.5
|
)%
|
$
|
12,464
|
30.2
|
%
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
(in thousands)
|
September 30, 2022
|
September 30, 2021
|
Change
|
September 30, 2022
|
September 30, 2021
|
Change
|
||||||||||||||||||||||||||
Revenue:
|
$ |
|
%
|
$ |
|
%
|
||||||||||||||||||||||||||
Performance
|
$
|
8,052
|
$
|
7,375
|
677
|
9
|
%
|
$
|
22,402
|
$
|
21,318
|
1,084
|
5
|
%
|
||||||||||||||||||
Workforce Solutions
|
3,846
|
7,311
|
(3,465
|
)
|
(47
|
)%
|
14,516
|
19,994
|
(5,478
|
)
|
(27
|
)%
|
||||||||||||||||||||
Total revenue
|
$
|
11,898
|
$
|
14,686
|
(2,788
|
)
|
(19
|
)%
|
$
|
36,918
|
$
|
41,312
|
(4,394
|
)
|
(11
|
)%
|
(in thousands)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||||||||||||||||
September 30, 2022
|
September 30, 2021
|
September 30, 2022
|
September 30, 2021
|
|||||||||||||||||||||||||||||
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
|||||||||||||||||||||
Gross profit:
|
||||||||||||||||||||||||||||||||
Performance Improvement Solutions
|
$
|
2,654
|
33.0
|
%
|
$
|
2,252
|
30.5
|
%
|
$
|
7,037
|
31.4
|
%
|
$
|
6,204
|
29.1
|
%
|
||||||||||||||||
Workforce Solutions
|
602
|
15.7
|
%
|
931
|
12.7
|
%
|
1,818
|
12.5
|
%
|
2,596
|
13.0
|
%
|
||||||||||||||||||||
Total gross profit
|
$
|
3,256
|
27.4
|
%
|
$
|
3,183
|
21.7
|
%
|
$
|
8,855
|
24.0
|
%
|
$
|
8,800
|
21.3
|
%
|
Three months ended
|
Nine months ended
|
|||||||||||||||
(in thousands)
|
September 30, 2022
|
September 30, 2021
|
September 30, 2022
|
September 30, 2021
|
||||||||||||
Corporate charges
|
$
|
3,201
|
$
|
2,364
|
$
|
10,058
|
$
|
7,754
|
||||||||
Business development
|
951
|
714
|
2,511
|
2,230
|
||||||||||||
Facility operation & maintenance (O&M)
|
182
|
186
|
575
|
654
|
||||||||||||
Bad debt expense
|
-
|
-
|
97
|
(133
|
)
|
|||||||||||
Other
|
2
|
1
|
12
|
16
|
||||||||||||
Total
|
$
|
4,336
|
$
|
3,265
|
$
|
13,253
|
$
|
10,521
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
2022
|
September 30,
2021
|
September 30,
2022
|
September 30,
2021
|
|||||||||||||
Net (loss) income
|
$
|
(8,992
|
)
|
$
|
11,438
|
$
|
(13,827
|
)
|
$
|
12,464
|
||||||
Interest expense, net
|
422
|
32
|
928
|
135
|
||||||||||||
Provision for income taxes
|
(218
|
)
|
166
|
(108
|
) |
127
|
||||||||||
Depreciation and amortization
|
365
|
432
|
1,167
|
1,426
|
||||||||||||
EBITDA
|
(8,423
|
)
|
12,068
|
(11,840
|
)
|
14,152
|
||||||||||
Goodwill and intangible asset impairment charge
|
7,505
|
3
|
7,505
|
3
|
||||||||||||
Employee retention credit
|
-
|
(2,087
|
)
|
-
|
(7,162
|
)
|
||||||||||
PPP loan and accumulated interest forgiveness
|
-
|
(10,127
|
)
|
-
|
(10,127
|
)
|
||||||||||
Restructuring charges
|
-
|
(10
|
)
|
-
|
798
|
|||||||||||
Stock-based compensation expense
|
491
|
283
|
1,592
|
784
|
||||||||||||
Change in fair value of derivative instruments, net
|
(263
|
)
|
-
|
(377
|
)
|
-
|
||||||||||
VAT write-off
|
-
|
-
|
-
|
450
|
||||||||||||
Adjusted EBITDA
|
$
|
(690
|
)
|
$
|
130
|
$
|
(3,120
|
)
|
$
|
(1,102
|
)
|
(in thousands)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
September
30, 2022
|
September
30, 2021
|
September
30, 2022
|
September
30, 2021
|
|||||||||||||
Net (loss) income
|
$
|
(8,992
|
)
|
$
|
11,438
|
$
|
(13,827
|
)
|
$
|
12,464
|
||||||
Goodwill and intangible asset impairment charge
|
7,505
|
3
|
7,505
|
3
|
||||||||||||
Employee retention credit
|
-
|
(2,087
|
)
|
-
|
(7,162
|
)
|
||||||||||
PPP loan and accumulated interest forgiveness
|
-
|
(10,127
|
)
|
-
|
(10,127
|
)
|
||||||||||
Restructuring charges
|
-
|
(10
|
)
|
-
|
798
|
|||||||||||
Stock-based compensation expense
|
491
|
283
|
1,592
|
784
|
||||||||||||
Change in fair value of derivative instruments, net
|
(263
|
)
|
-
|
(377
|
)
|
-
|
||||||||||
VAT write-off
|
-
|
-
|
-
|
450
|
||||||||||||
Amortization of intangible assets related to acquisitions
|
209
|
286
|
700
|
929
|
||||||||||||
Adjusted net loss
|
$
|
(1,050
|
)
|
$
|
(214
|
)
|
$
|
(4,407
|
)
|
$
|
(1,861
|
)
|
||||
Adjusted net loss per common share – diluted
|
$
|
(0.05
|
)
|
$
|
(0.01
|
)
|
$
|
(0.21
|
)
|
$
|
(0.09
|
)
|
||||
Weighted average shares outstanding used to compute adjusted net loss per share - diluted(1)
|
21,288,883
|
20,863,479
|
21,101,942
|
20,714,068
|
Item 3. |
Quantitative and Qualitative Disclosure about Market Risk
|
Item 4. |
Controls and Procedures
|
Item 1. |
Legal Proceedings
|
Item 1A. |
Risk Factors
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
Item 3. |
Defaults Upon Senior Securities
|
Item 4. |
Mine Safety Disclosures
|
Item 5. |
Other Information
|
Item 6. |
Exhibits
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, filed herewith.
|
||
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
||
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
||
101.INS*
|
XBRL Instance Document
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
|
Date: November 14, 2022
|
|
GSE SYSTEMS, INC.
|
|
/S/ KYLE J. LOUDERMILK
|
|
Kyle J. Loudermilk
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
/S/ EMMETT A. PEPE
|
|
Emmett A. Pepe
|
|
Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of GSE Systems, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting;
|
Date: November 14, 2022
|
/s/ Kyle J. Loudermilk
|
|
Kyle J. Loudermilk
|
||
Chief Executive Officer
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of GSE Systems, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant, as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially
affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors:
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;
|
Date: November 14, 2022
|
/s/ Emmett A. Pepe
|
|
Emmett A. Pepe
|
||
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2. |
To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
|
Date: November 14, 2022
|
/s/ Kyle J. Loudermilk
|
/s/ Emmett A. Pepe
|
||
Kyle J. Loudermilk
|
Emmett A. Pepe
|
|||
Chief Executive Officer
|
Chief Financial Officer
|
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 2,000,000 | 2,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 60,000,000 | 60,000,000 |
Common stock, shares issued (in shares) | 23,319,572 | 22,533,005 |
Common stock, shares outstanding (in shares) | 21,720,661 | 20,934,094 |
Treasury stock at cost (in shares) | 1,598,911 | 1,598,911 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME [Abstract] | ||||
Net (loss) income | $ (8,992) | $ 11,438 | $ (13,827) | $ 12,464 |
Cumulative translation adjustment | 91 | (23) | 166 | 1,109 |
Comprehensive (loss) income | $ (8,901) | $ 11,415 | $ (13,661) | $ 13,573 |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies |
Note 1 -
Summary of Significant Accounting Policies
Basis of Presentation
GSE Systems, Inc. is a leading provider of professional and technical
engineering, staffing services and simulation software to clients in the power and process industries. References in this report to “GSE” or “we” or “our” or “the Company” are to GSE Systems, Inc. and our subsidiaries, collectively.
The consolidated interim financial statements included herein have been
prepared by GSE and are unaudited. In the opinion of our management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the
periods presented, have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. All
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2021 was derived from our
audited financial statements, but it does not include all disclosures required by U.S. GAAP.
The results of operations for interim periods are not necessarily an
indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the U.S. Securities and Exchange Commission on March 31, 2022.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Our most significant estimates relate to
revenue recognition on contracts with customers, product warranties, valuation of goodwill and intangible assets acquired including the determination of fair value in impairment tests, valuation of long-lived assets to be disposed of,
valuation of stock-based compensation awards, the recoverability of deferred tax assets, and valuation of warrants and derivative liability related to our convertible note. Actual results of these and other items not listed could differ
from these estimates and those differences could be material.
COVID-19
As of September
30, 2022, most of our employees continue to work remotely except when required to be at the client site for essential project work. As an essential services provider, we maintain a modest office footprint in certain locations to allow for
employees to work from those offices as project needs may arise. Throughout the pandemic GSE has complied with local, state and federal directives and regulations. Our Performance Improvement Solutions segment's (see Item 2) contracts,
which generally are considered essential services, are permitted to and mostly continue without pause. However, we have experienced certain delays in certain new business opportunities. At the onset of the pandemic, many of our Workforce
Solutions segment (see Item 2) customers paused or delayed contracts as they shrank their own on-premise workforces to the minimum operating levels in order to mitigate the effects of the pandemic. As a result, our Workforce Solutions
segment has experienced a decline in its billable employee base during this time. Since the beginning of 2022, the Workforce Solutions segment began to receive an increase in opportunities as clients became more comfortable with employees
returning to on-site work. Notably, the increase in opportunities shifted greatly to direct hire openings, rather than the normal hourly billable base. We cannot fully estimate the length or gravity of the impact of the COVID-19 pandemic to
our business at this time and we have experienced delays in commencing new projects and resuming work on existing contracts. Therefore, our ability to deliver our services and recognize revenue has been delayed for some contracts. We
experienced order reductions, cancellations, and other negative changes to orders due to the pandemic. We routinely monitor our operating expenses as a result of contract delays and order reductions; and we have made adjustments to maintain
our gross profit at a sustainable level.
|
Recent Accounting Pronouncements |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Recent Accounting Pronouncements [Abstract] | |
Recent Accounting Pronouncements |
Note 2 - Recent Accounting Pronouncements
Accounting pronouncements recently adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with
characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made
certain disclosure amendments to improve the information provided to users. This ASU is applicable for public companies starting with fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. The Company
adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach, and because the Company did not have outstanding financial instruments in scope of the ASU, the adoption did not have an impact to our consolidated financial
statements.
Accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain
types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt
securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has
been in an unrealized loss position as a factor in concluding whether a credit loss exists. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
On October 16, 2019, the FASB voted to defer the deadlines for private companies and certain small public companies, including smaller reporting companies, to implement the new accounting standards on credit losses. The new effective date is
January 1, 2023. As a smaller reporting company, we have elected to defer adoption in line with new deadlines and are currently evaluating the effects, if any, that the adoption of this guidance will have on our consolidated financial
position, results of operations and cash flows.
Management has evaluated other recently issued accounting pronouncements and
does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
|
Basic and Diluted (Loss) Income per Share |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted (Loss) Income per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted (Loss) Income per Share |
Note 3 - Basic and Diluted (Loss) Income per Share
Basic earnings per share is based on the weighted average number of outstanding common shares for the period. Diluted earnings per share adjusts the
weighted average shares outstanding for the potential dilution that could occur if outstanding RSU's, stock options and warrants 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) income per common share were as
follows:
|
Coronavirus Aid, Relief and Economic Security Act |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
Coronavirus Aid, Relief and Economic Security Act [Abstract] | |
Coronavirus Aid, Relief and Economic Security Act |
Note 4 - Coronavirus Aid, Relief and Economic Security
Act
Paycheck Protection Program Loan (PPP Loan)
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to extend liquidity to small businesses
and assist in retaining employees during the COVID-19 pandemic. We applied for and, on April 23, 2020, received a payroll protection program loan in the amount of $10.0 million (the “PPP Loan”) under the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”). The application for receipt of the PPP Loan
required us to certify, in good faith, that the economic uncertainty made the loan necessary to support our ongoing operations. The PPP Loan was serviced by Citizens Bank, N.A. (the “Citizens”). The PPP Loan bore interest at a rate of 1% per annum and would mature on April 23, 2022, with the first payment deferred until September 2021. We used the proceeds of the PPP Loan for
payroll and related costs, rent and utilities. Pursuant to the regulations promulgated by the SBA, in order to request forgiveness of the PPP Loan, we were required to submit an application to Citizens substantiating that we were entitled
to the PPP Loan and used the proceeds of the PPP Loan as permitted under the CARES Act. Citizens reviewed our application for forgiveness and associated documentation, and on February 26, 2021 forwarded our application to the SBA with
Citizens’ determination that the loan is fully forgivable. On August 5, 2021, we received notice that full principal amount and all accrued interest thereon of the PPP Loan was formally forgiven by the SBA. We recognized other income of $10.1 million related to this forgiveness during the third quarter of fiscal 2021.
Employee Retention Credits (ERC)
Employee retention tax credits, made available under the CARES Act, allow eligible employers to claim a refundable tax credit against the employer share of
Social Security tax equal to 70% of the qualified wages they pay to employees, initially from March 27, 2020 until June 30, 2021, and extended through September 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 in credits from unremitted payroll taxes as allowed. We recorded other income of $7.2 million related to the employee retention tax credits earned for the year ended December 31, 2021. During the three months ended September 30, 2022, we
receive any employee retention tax credit refunds from the Internal Revenue Service. As of September 30, 2022, we received cumulative
employee retention tax credit refunds totaling $3.6 million of the $5.0 million in refunds sought, with remaining outstanding refunds receivable of $1.4
million which was included in the other current assets balance at September 30, 2022. Subsequently, in October 2022, we received a refund of $0.4
million. |
Contract Receivables |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables |
Note 5 - Contract Receivables
Contract receivables represent our unconditional rights to consideration due
from our domestic and international customers. We expect to collect all contract receivables within the next twelve months.
The components of contract receivables were as follows:
Management reviews collectability of receivables periodically and records an
allowance for doubtful accounts to reduce the Company’s receivables to their net realizable value when management determines it is probable that we will not be able to collect all amounts due from customers. The allowance for doubtful
accounts is based on historical trends of past due accounts, write-offs, specific identification and review of customer accounts.
There was no bad debt expense recorded during the three months ended September 30, 2022 and 2021. During the nine months ended September 30, 2022 and 2021, we recorded net
bad debt expense (recovery) of $97 thousand and $(133) thousand, respectively.
During the month of October 2022, we invoiced $2.5 million of the unbilled
receivables as of September 30, 2022.
Our foreign currency denominated contract receivables, billings in excess of revenue earned and subcontractor accruals that are related to the outstanding
foreign exchange contracts are remeasured at the end of each reporting period into our functional currency, using the current exchange rate at the end of the period. The gain or loss resulting from such remeasurement is included in other
income, net in the consolidated statements of operations. During the three months ended September 30, 2022 and 2021, we recognized a gain on remeasurement of these foreign exchange contracts of $4 thousand and $6 thousand, respectively. During the
nine months ended September 30, 2022 and 2021, we recognized a (loss) gain on remeasurement of these foreign exchange contracts of $(51)
thousand and $27 thousand, respectively.
As of September 30, 2022 and December 31, 2021, we had no customer concentrations in contract receivables that required
disclosure.
|
Goodwill and Intangible Assets |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Goodwill and Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets |
Note 6 - Goodwill and Intangible Assets
The
Company monitors operating results and events and circumstances that may indicate potential impairment of intangible assets.
During
the three months ended September 30, 2022, we determined that the deterioration in sales, decline in revenues, delayed pipeline opportunities, and overall downward performance results and the forecast related to the Workforce Solutions
business segment was material enough to be considered a triggering event that could result in impairment of our long-lived assets. As such, we performed an interim analysis to determine if an impairment existed at September 30, 2022 in
accordance with ASC 350 & ASC 360.
ASC
350 Indefinite-Lived Asset Testing – Based on the triggering event indicated above we performed an interim analysis to determine if an impairment of the Workforce Solutions business unit existed at September 30, 2022. Our Goodwill
impairment analysis, which includes the use of discounted cash flow models that requires management to make assumptions regarding estimates of revenue growth rates and operating margins used to calculate projected future cash flows, and
risk-adjusted discount rates determined the carrying value of Workforce Solutions exceeded the Fair Value by $7.0 million. As
such, impairment of the related goodwill was recorded in the three months ended September 30, 2022.
ASC
360 Long-Lived Asset Testing – Based on the triggering event indicated above we also performed an interim analysis to determine if an impairment existed 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 to test for impairment and concluded that the carrying value of the definite-lived intangible assets of Absolute, a business unit of the Workforce Solutions segment,
exceeded its carrying value by $0.5 million, and we recorded a loss on impairment for this amount as of September 30, 2022.
No impairment was identified related to any other asset groupings.
Goodwill
(in thousands)
(in thousands)
The following table shows the gross carrying amount and accumulated amortization of definite-lived intangible assets:
Amortization expense related to definite-lived intangible assets totaled $0.2 million and $0.3 million for
the three months ended September 30, 2022 and 2021 and $0.7 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively. The following table shows the estimated amortization expense of
the definite-lived intangible assets for the next five years and thereafter:
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Equipment, Software and Leasehold Improvements |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements |
Note 7 - Equipment, Software and Leasehold Improvements
Equipment, software and leasehold improvements, net consist of the following:
Depreciation expense was $69 thousand for both the three months ended September 30, 2022 and 2021. Depreciation expense was $213 thousand and $216 thousand
for the nine months ended September 30, 2022 and 2021, respectively. Capitalization of internal-use software cost of $37 thousand
and $50 thousand were recorded in software for the three months ended September 30, 2022 and 2021, respectively. Capitalization of internal-use
software cost of $114 thousand and $365
thousand were recorded in software for the nine months ended September 30, 2022 and 2021, respectively.
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Fair Value of Financial Instruments |
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Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
Note 8 - Fair Value of Financial Instruments
ASC 820, Fair Value Measurement,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The levels of the fair value hierarchy established by ASC 820 are:
Level 1: inputs are quoted prices, unadjusted, in active markets for
identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2: inputs are other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. A Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: inputs are unobservable and reflect the reporting entity’s own
assumptions about the assumptions that market participants would use in pricing the asset or liability.
As of September 30, 2022 and December 31, 2021, we considered the recorded value of certain of our financial assets and liabilities, which
consist primarily of cash and cash equivalents, contract receivable and accounts payable, to approximate fair value based upon their short-term nature.
Our convertible debt issued in February 2022 (See Note 10) includes certain embedded redemption features that are required to be bifurcated as embedded derivatives and measured at fair value on a recurring basis. We estimate the fair value using a Monte Carlo simulation based on estimates of our future stock price and assumptions about the possible redemption scenarios. The Company used the Monte Carlo simulation model to determine the fair value of the Warrants and Cash-Settled PRSUs, which required the input of subjective assumptions. The fair value of the Warrants as of
September 30, 2022 was estimated with the following assumptions.
The following table presents assets and liabilities measured at fair value at September 30, 2022:
The following table summarizes changes in the fair value of our Level 3
liabilities during the nine months ended September 30, 2022.
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Stock-Based Compensation |
9 Months Ended |
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Sep. 30, 2022 | |
Stock-Based Compensation [Abstract] | |
Stock-Based Compensation |
Note 9 -
Stock-Based Compensation
We recognize compensation expense on a pro rata straight-line basis over the requisite service period for stock-based compensation awards
with both graded and 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 of change. We have not capitalized any portion of our stock-based
compensation. Our forfeiture rate is based on actuals.
During the three months ended September 30, 2022 and 2021, we recognized $0.5 million and $0.3 million of stock-based compensation
expense related to equity awards, respectively. We recognized $1.5 million and $0.8 million of stock-based compensation expense related to equity awards for the nine months ended September 30, 2022 and 2021, respectively, under the fair value method.
We granted no time-based restricted stock units (“RSUs”) during the three months ended September 30, 2022. During the nine months ended September 30, 2022, we granted approximately 960,250 RSUs with an aggregate fair value of approximately $1.5
million. During the three and nine months ended September 30, 2021, we granted approximately 20,000 and 824,661 time-based RSUs with an aggregate fair value of approximately $30 thousand and $1.4 million, respectively. During the three and nine
months ended September 30, 2022, we vested 112,985 and 492,805 RSUs compared to 55,788 and 421,740 RSUs vested during the three and nine months ended September 30, 2021. A portion of the time-based RSUs vest quarterly in
equal amounts over the course of eight quarters, and the remainder vest annually in equal amounts over the course of to three years.
GSE’s 1995 long-term incentive program (“LTIP”) provides for the issuance of performance-vesting and time-vesting restricted stock units to
certain executives and employees. Vesting of the performance-vesting restricted stock units (“PRSU”) is contingent upon the employee’s continued employment and the Company’s achievement of certain performance goals during designated
performance periods as established by the Compensation Committee of the Company’s Board of Directors. We recognize compensation expense, net of estimated forfeitures, for PRSUs on a straight-line basis over the performance period based on the
probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PRSUs that are expected to vest, based on the probability and extent to which the performance goals will be met, and take
into account these estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the performance period, we make a cumulative adjustment to compensation expense based on the revised number
of shares expected to be earned.
During the nine months ended September 30, 2022, we granted 800,000 PRSUs including 200,000 cash-settled grants to employees. These grants are subject to multiple vesting criteria including reaching a 20-day
VWAP of $1.94 prior to the expiration of the awards, and a time-vesting restriction, which will vest in equal portions over
the next 15 quarters ending December 31, 2025. During the three and nine months ended September 30, 2022, we vested 50,000 and 150,000 PRSUs, of
which, 12,500 and 37,500
PRSUs were cash-settled, respectively. No PRSUs were vested during the three and nine months ended September 30, 2021.
The market vesting criteria was achieved in April 2022 for the 800,000 PRSUs which will fully vest over the next 13 quarters. During the three and nine months ended September 30, 2021, we did not grant any PRSUs to employees.
We did not grant any
stock options for the three and nine months ended September 30,
2022 and 2021.
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Debt |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt |
Note 10 - Debt
Convertible
Note
On February 23,
2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global Fund II LP (“Lind Global”), pursuant to which we issued to Lind Global a two-year, secured, interest-free convertible promissory note in the amount of $5.75
million (the “Convertible Note”) and a common stock purchase warrant to acquire 1,283,732 shares of our common stock (the
“Warrant”). The Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We received proceeds
of approximately $4.8 million net of the OID and expenses.
The
Convertible Note provides for monthly principal repayments of $319 thousand beginning 180 days from issuance. Payments can be made
in the form of cash, shares, or a combination of both at the discretion of GSE.
The
Convertible Note is convertible into our common stock at any time after the earlier of six months from issuance of the
Convertible Note or the date of an effective registration statement filed with the SEC covering the underlying shares. The conversion price of the Convertible Note is initially equal to $1.94 per share, subject to customary adjustments. The Convertible Note matures in February of
, although we are permitted to prepay the Convertible Note, provided that Lind Global shall have the option to convert up to of the outstanding principal of the Convertible Note at a price per share equal to the lessor of the Repayment Share price or the conversion price (as
described below). The Convertible Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets. The Convertible Note is not subject to any financial covenants and events of default under the
Convertible Note are limited to events related to payment, certain events pertaining to the underlying shares of common stock and other customary events including, but not limited to, bankruptcy or insolvency. Upon the occurrence of an
event of default, the Convertible Note will become immediately due and payable, subject to any cure periods described in the Convertible Note, and the customer may demand that all or a portion of the outstanding principal amount be
converted into shares of common stock at the lower of the then current conversion price and 80% of the average of the three lowest daily volume-weighted average price (“VWAPs”) during the twenty days prior to delivery of the conversion notice. If there is a change of control of the Company, Lind Global has the right to require us to prepay the outstanding principal
amount of the Convertible Note.A portion of
the proceeds of the Convertible Note were used to repay, in full, all outstanding indebtedness owed to Citizens Bank, N.A. (“Citizens”), and the Amended and Restated Credit and Security Agreement between us, our subsidiaries, and Citizens
was terminated. We will continue to maintain a cash management account and certain letters of credit with Citizens and, accordingly, have entered into a certain Cash Management Agreement with Citizens, as well as certain Cash Pledge
Agreements in amounts corresponding to the current outstanding letters of credits with customers.
The Warrant entitles Lind Global to purchase up to 1,283,732 shares of our common stock until February 23, 2027, at an exercise price of $1.94 per share, subject to customary adjustments described therein. The Warrant is recorded at fair value upon issuance of $0.7 million and is classified as a current liability to be remeasured at each reporting period (see Note 8). The discount created by allocating proceeds to the
Warrant results in a debt discount to be amortized as additional interest expense over the term of the Convertible Note.
The Company evaluated the Convertible Note and concluded that certain embedded redemption features are required to be accounted for as
a derivative liability. Embedded redemption features were recorded at fair value upon issuance of $0.3 million and are
classified as current liabilities to be remeasured at each reporting period (see Note 8). The discount created by allocating proceeds to the
derivative liability results in a debt discount to be amortized as additional interest expense over the term of the Convertible Notes. The Warrant is accounted for as a derivative liability based on certain features included within the
Convertible Note which caused the Company to not be able to assert that it would have sufficient shares in all cases to be able to settle the warrant. As such, the initial proceeds (approximately $4.8 million, net of original issue discounts and other payments to lender) were allocated first to the fair value of the Warrant with the
residual allocated to the Convertible Note host instrument. The proceeds allocated to the Convertible Note were further allocated first to the bifurcated derivative liability based on its fair value with the residual being allocated to
the Convertible Note host instrument.
The direct and incremental costs incurred are allocated to the Convertible Note and the Warrant based on a systematic and rational
approach. The costs allocated to the Warrant have been expensed as incurred while those allocated to the Convertible Note have been capitalized and will be amortized as interest expense over the life of the Convertible Note based on the
effective interest rate. The Company will record ongoing changes to the fair value of the derivative liabilities as other non-operating income (expense).
The Convertible Note was evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per
share purposes. The Warrant is considered a participating security and was not included in the calculation of basic earnings per share for the period ended September 30, 2022 as Company reflected net loss for this period. The Warrant
will be included in the calculation of basic earnings per share in periods of net income.
The issuance costs with respect to the Convertible Note, which are recorded as a debt discount, are deferred and amortized using
effective interest method as additional interest expense over the terms of the Convertible Note.
The Company incurred total interest expense related to the Convertible Note, including the amortization of the various discounts, of $443 thousand and $926
thousand for the three and nine months ended September 30, 2022, respectively.
Revolving Line of Credit
On March 29, 2021, we signed the Ninth Amendment and Reaffirmation Agreement
with an effective date of March 29, 2021. Pursuant to the Ninth Amendment and Reaffirmation Agreement, the Bank waived the fixed charge coverage ratio and leverage ratio for the quarters ended March 31 and June 30, 2021, and we agreed, for
each quarter thereafter, that the fixed charge coverage ratio shall not be less than 1.10 to 1.00. In addition, we agreed to
not exceed a maximum leverage ratio starting on September 30, 2021. We were also required to maintain a minimum of $2.5 million in
aggregate USA liquidity. As part of the amendment, we agreed, at closing, (i) to make a $0.5 million pay down of RLOC; (ii) RLOC
commitment to be reduced to $4.25 million; and (iii) $0.5 million of RLOC will only be available for issuance of Letters of Credit. We also agreed to pay $0.5 million to reduce RLOC to $3.75 million by June 30,
2021 and to $3.5 million by September 30, 2021. Commencing December 31, 2021 and on the last day of each quarter, we will pay $75 thousand to reduce the RLOC. We incurred $25
thousand fees related to this amendment during the year ended December 31, 2021.
On November 12,
2021, we signed the Tenth Amendment and Reaffirmation Agreement with our bank to waive the fixed charge coverage ratio and leverage ratio for the quarters ending September 30 and December 31, 2021, and we agreed, (i) interest on the
outstanding principal amount of the RLOC shall accrue at the interest rate in effect for the RLOC from time to time, but the interest due and payable on the RLOC on each Interest Payment Date shall be determined by subtracting seventy-five
(75) basis points from the Applicable Margin and (ii) the seventy-five (75) basis points of accrued interest on the RLOC not paid on any Interest Payment Date pursuant to clause (i) above shall be due and payable on the Termination Date or the date of
payment in full of the RLOC. In addition, we agreed, by December 31, 2021, to pay the Bank $0.25 million to be applied to the
principal amount outstanding under the RLOC. We incurred $15 thousand of amendment fee related to this amendment.
During the nine months ended September 30, 2022, using proceeds from the Convertible Note, we repaid in full, all outstanding indebtedness of $1.8 million owed to Citizens, and the Amended and Restated Credit and Security Agreement between us, our subsidiaries, and Citizens has been terminated. Certain letters of credit remain
in place with Citizens. As of September 30, 2022, we had four letters of credit totaling $1.1 million outstanding to certain customers which were secured with restricted cash.
|
Product Warranty |
9 Months Ended | ||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||
Product Warranty [Abstract] | |||||||||||||||||||||||||||||||
Product Warranty |
Note 11 - Product Warranty
We accrue for estimated warranty costs at the time the related revenue is
recognized and based on historical experience and projected claims. Our System Design and Build contracts generally include a one year
base warranty on the systems. The portion of our warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $478 thousand, and the remaining $99 thousand is classified
as long-term within other non-current liabilities.
The activity in the accrued warranty accounts during the current period is
as follows:
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Revenue |
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Revenue [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue |
Note 12 - Revenue
We
account for revenue in accordance with ASC 606, Revenue from Contracts with Customers. We primarily generate revenue through three
distinct revenue streams: (1) System Design and Build (“SDB”), (2) Software and (3) Training and Consulting Services across our Performance and Workforce Solutions segments. We recognize revenue from SDB and software contracts mainly through our
Performance segment. We recognize training and consulting service contracts through both segments.
The following table
represents a disaggregation of revenue by type of goods or services for the three and nine months ended September 30, 2022 and 2021, along with the reporting segment for each category:
The following table reflects revenue recognized in the
reporting periods presented that was included in contract liabilities from contracts with customers as of the beginning of the periods presented:
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Income Taxes |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
Note 13 - Income Taxes
The following table presents the provision for income taxes and
our effective tax rates:
Our income tax expense for the interim periods presented is determined
using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. Total income tax expense for the three and nine months ended September 30, 2022 was comprised mainly of current foreign tax benefit,
deferred federal and state tax benefit related to the portion of goodwill which cannot be offset by deferred tax assets and state tax expense. Total income tax expense for the three and nine months ended September 30, 2021 was comprised mainly
of current state and foreign tax expense.
Our effective income tax rate was 2.37% and 0.78% for the three and
nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2022, the difference between our income tax benefit at an effective tax rate of 2.37% and 0.78% respectively, and the U.S. statutory federal
income tax rate of 21% was primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, a
change in valuation allowance in our U.S. entity, the permanent disallowance of interest expense related to disqualified debt, and discrete item adjustments for U.S. and foreign taxes. For the three and nine months ended September 30, 2021, the
difference between our income tax expense at an effective rate of 1.4% and 1.0% respectively, and the U.S. statutory federal income tax rate of 21%
was primarily due to accruals related to uncertain tax positions for certain foreign tax contingencies, a change in tax valuation allowance in our U.S. entity, and discrete item adjustments for U.S. and foreign taxes.
Because of our net operating loss carryforwards, we
are subject to U.S. federal and state income tax examinations from the year 2000 and forward and are subject to foreign tax
examinations by tax authorities for years 2016 and forward.
An uncertain tax position taken or expected to be taken in a tax return is recognized
in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position
would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense.
We recognize deferred tax assets to the extent that it
is believed that these assets are more likely than not to be realized. We have evaluated all positive and negative evidence and determined that we will continue to assess a full valuation allowance on our U.S., China, and Slovakia net deferred
assets as of September 30, 2022. We have determined that it is not more likely than not that the Company will realize the benefits of its deferred taxes in the U.S. and foreign jurisdictions. The Company has a deferred
tax liability in the amount of $13 thousand at September 30, 2022 related to the portion of Goodwill which cannot be offset by
deferred tax assets.
|
Leases |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases |
Note 14 - Leases
We have lease agreements with lease and non-lease components, which are
accounted for as a single lease. We apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Lease contracts are evaluated at inception to determine whether they contain
a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets:
(in thousands)
We entered into a lease agreement to lease 2,200 square feet of office space on September 26, 2022, and the lease term will be end on November 30, 2024.
We executed a sublease agreement with a tenant to sublease 850 square feet from the Sykesville office space on September 13, 2021. This agreement is in addition to the previous sublease for 3,650 square feet entered into on May 1, 2019. The addition of the second sublease is for a portion of the space previously abandoned in December 2019. The sublease does not
relieve us of our primary lease obligation. The lease agreements are all considered operating leases, maintaining the historical classification of the underlying lease. We do not recognize any underlying assets for the subleases as a lessor
of operating leases. The net amount received from the sublease is recorded within selling, general and administrative expenses.
The table below summarizes lease income and expense
recorded in the consolidated statements of operations incurred during the three and nine months ended September 30, 2022 and 2021, (in thousands):
(1) Includes variable lease costs which are immaterial.
(2) Includes leases maturing less than twelve months from the report date.
(3) Sublease portfolio consists of two
tenants, which sublease parts of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.
The Company is obligated under certain noncancelable operating leases for
office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of September 30, 2022 are as follows:
We calculated the weighted-average remaining lease term, presented in years
below and the weighted-average discount rate for our operating leases, and we use the incremental borrowing rate as the lease discount rate.
The table below sets out the classification of lease payments in the
consolidated statement of cash flows.
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Segment Information |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
Note 15 - Segment Information
We have two reportable business segments. The Performance Improvement Solutions segment provides simulation, training and engineering products and services
delivered across the breadth of industries we serve. Solutions include simulation for both training and engineering applications. Example engineering services include, but are not limited to, plant design verification and validation, thermal
performance evaluation and optimization programs, and engineering programs for plants for American Society of Mechanical Engineers ("ASME") code and ASME Section XI. The Company provides these services across all market segments through our
Performance, True North consulting, and DP Engineering 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 managed through our Hyperspring and Absolute subsidiaries. The business model, management focus,
margins and other factors clearly separate this business line from the rest of the GSE product and service portfolio.
The following table
sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated income before income taxes. Inter-segment revenue is
eliminated in consolidation and is not significant:
The operating loss above
for the three and nine months ended September 30, 2022 includes goodwill and intangible asset impairment charge of $7.5 million for
Workforce Solutions. There was no impairment recognized for the same periods in 2021 for Workforce Solutions. The operating loss above
for the three and nine months ended September 30, 2021 includes impairment of ROU assets of $3 thousand for Performance Improvement
Solutions. There was no impairment recognized for the same periods in 2022 for Performance Improvement Solutions.
|
Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2022 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies |
Note 16 -
Commitments and Contingencies
Per ASC 450
Accounting for Contingencies, the Company
reviews potential items and areas where a loss contingency could arise. In the opinion of management, we are not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or in the aggregate, would
have a material effect on our consolidated results of operations, financial position or cash flows. We expense legal defense costs as incurred.
|
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2022 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Presentation |
Basis of Presentation
GSE Systems, Inc. is a leading provider of professional and technical
engineering, staffing services and simulation software to clients in the power and process industries. References in this report to “GSE” or “we” or “our” or “the Company” are to GSE Systems, Inc. and our subsidiaries, collectively.
The consolidated interim financial statements included herein have been
prepared by GSE and are unaudited. In the opinion of our management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the
periods presented, have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. All
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet data for the year ended December 31, 2021 was derived from our
audited financial statements, but it does not include all disclosures required by U.S. GAAP.
The results of operations for interim periods are not necessarily an
indication of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the U.S. Securities and Exchange Commission on March 31, 2022.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Our most significant estimates relate to
revenue recognition on contracts with customers, product warranties, valuation of goodwill and intangible assets acquired including the determination of fair value in impairment tests, valuation of long-lived assets to be disposed of,
valuation of stock-based compensation awards, the recoverability of deferred tax assets, and valuation of warrants and derivative liability related to our convertible note. Actual results of these and other items not listed could differ
from these estimates and those differences could be material.
|
Recent Accounting Pronouncements (Policies) |
9 Months Ended |
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Sep. 30, 2022 | |
Recent Accounting Pronouncements [Abstract] | |
Accounting pronouncements recently adopted/not yet adopted |
Accounting pronouncements recently adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with
characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made
certain disclosure amendments to improve the information provided to users. This ASU is applicable for public companies starting with fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. The Company
adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach, and because the Company did not have outstanding financial instruments in scope of the ASU, the adoption did not have an impact to our consolidated financial
statements.
Accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain
types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt
securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has
been in an unrealized loss position as a factor in concluding whether a credit loss exists. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
On October 16, 2019, the FASB voted to defer the deadlines for private companies and certain small public companies, including smaller reporting companies, to implement the new accounting standards on credit losses. The new effective date is
January 1, 2023. As a smaller reporting company, we have elected to defer adoption in line with new deadlines and are currently evaluating the effects, if any, that the adoption of this guidance will have on our consolidated financial
position, results of operations and cash flows.
Management has evaluated other recently issued accounting pronouncements and
does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
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Basic and Diluted (Loss) Income per Share (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted (Loss) Income per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Loss) Income Per Share, Basic and Diluted |
The number of common shares and common share equivalents used in the determination of basic and diluted (loss) income per common share were as
follows:
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Contract Receivables (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Receivables |
The components of contract receivables were as follows:
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Goodwill and Intangible Assets (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Carrying Amount of Goodwill |
Goodwill
(in thousands)
(in thousands)
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Schedule of Acquired Finite-Lived Intangible Assets by Major Class |
The following table shows the gross carrying amount and accumulated amortization of definite-lived intangible assets:
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Finite-Lived Intangible Assets, Future Amortization Expense | The following table shows the estimated amortization expense of
the definite-lived intangible assets for the next five years and thereafter:
|
Equipment, Software and Leasehold Improvements (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment, Software and Leasehold Improvements |
Equipment, software and leasehold improvements, net consist of the following:
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Fair Value of Financial Instruments (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 3 Fair Value Measurement Inputs |
The Company used the Monte Carlo simulation model to determine the fair value of the Warrants and Cash-Settled PRSUs, which required the input of subjective assumptions. The fair value of the Warrants as of
September 30, 2022 was estimated with the following assumptions.
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Assets and Liabilities Measured at Fair Value |
The following table presents assets and liabilities measured at fair value at September 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Fair Value of Level 3 Liabilities |
The following table summarizes changes in the fair value of our Level 3
liabilities during the nine months ended September 30, 2022.
|
Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Note |
On February 23,
2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global Fund II LP (“Lind Global”), pursuant to which we issued to Lind Global a two-year, secured, interest-free convertible promissory note in the amount of $5.75
million (the “Convertible Note”) and a common stock purchase warrant to acquire 1,283,732 shares of our common stock (the
“Warrant”). The Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We received proceeds
of approximately $4.8 million net of the OID and expenses.
|
Product Warranty (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||
Product Warranty [Abstract] | |||||||||||||||||||||||||||||||
Activities in the Accrued Warranty Accounts |
The activity in the accrued warranty accounts during the current period is
as follows:
|
Revenue (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue |
The following table
represents a disaggregation of revenue by type of goods or services for the three and nine months ended September 30, 2022 and 2021, along with the reporting segment for each category:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance of Contract Liabilities and Revenue Recognized in Reporting Period |
The following table reflects revenue recognized in the
reporting periods presented that was included in contract liabilities from contracts with customers as of the beginning of the periods presented:
|
Income Taxes (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for (Benefit from) Income Taxes |
The following table presents the provision for income taxes and
our effective tax rates:
|
Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Classification of Operating ROU Assets and Lease Liabilities on the Balance Sheet |
Lease contracts are evaluated at inception to determine whether they contain
a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets:
(in thousands)
|
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Lease Income and Expenses |
The table below summarizes lease income and expense
recorded in the consolidated statements of operations incurred during the three and nine months ended September 30, 2022 and 2021, (in thousands):
(1) Includes variable lease costs which are immaterial.
(2) Includes leases maturing less than twelve months from the report date.
(3) Sublease portfolio consists of two
tenants, which sublease parts of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Future Minimum Lease Payments |
The Company is obligated under certain noncancelable operating leases for
office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of September 30, 2022 are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Lease Weighted Average Remaining Lease Term And Discount Rate |
We calculated the weighted-average remaining lease term, presented in years
below and the weighted-average discount rate for our operating leases, and we use the incremental borrowing rate as the lease discount rate.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Classification of Lease Payments in the Statement of Cash Flows |
The table below sets out the classification of lease payments in the
consolidated statement of cash flows.
|
Segment Information (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Segment Revenue to Consolidated Revenue and Operating Results to Consolidated Income Before Income Taxes |
The following table
sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated income before income taxes. Inter-segment revenue is
eliminated in consolidation and is not significant:
|
Basic and Diluted (Loss) Income per Share (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Numerator [Abstract] | ||||
Net (loss) income attributed to common stockholders | $ (8,992) | $ 11,438 | $ (13,827) | $ 12,464 |
Denominator [Abstract] | ||||
Weighted-average shares outstanding for basic earnings per share (in shares) | 21,288,883 | 20,863,479 | 21,101,942 | 20,714,068 |
Effect of dilutive securities [Abstract] | ||||
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share (in shares) | 21,288,883 | 20,863,479 | 21,101,942 | 20,714,068 |
Shares related to potentially dilutive securities excluded because inclusion would be anti-dilutive (in shares) | 3,283,400 | 14,229 | 2,383,171 | 77,871 |
Contract Receivables (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Oct. 31, 2022
USD ($)
|
Sep. 30, 2022
USD ($)
Customer
|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2022
USD ($)
Customer
|
Sep. 30, 2021
USD ($)
|
Dec. 31, 2021
USD ($)
Customer
|
|
Components of contract receivables [Abstract] | ||||||
Billed receivables | $ 5,512 | $ 5,512 | $ 6,124 | |||
Unbilled receivables | 5,648 | 5,648 | 6,143 | |||
Allowance for doubtful accounts | (1,008) | (1,008) | (1,010) | |||
Total contract receivables, net | 10,152 | 10,152 | $ 11,257 | |||
Bad debt expense (recovery) | 0 | $ 0 | 97 | $ (133) | ||
Gain (loss) on foreign exchange contracts | $ 4 | $ 6 | $ (51) | $ 27 | ||
Subsequent Event [Member] | ||||||
Unbilled Contract Receivables [Abstract] | ||||||
Subsequent billing | $ 2,500 | |||||
Contract Receivable [Member] | ||||||
Concentration Risk [Abstract] | ||||||
Number of customers accounting for contract receivables | Customer | 0 | 0 | 0 |
Product Warranty (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2022
USD ($)
| |
Product warranty provision [Abstract] | |
Warranty terms for SDB contracts | 1 year |
Accrued warranty, current | $ 478 |
Accrued warranty, noncurrent | 99 |
Activities in product warranty account [Abstract] | |
Balance at beginning of period | 748 |
Current period recovery | (3) |
Current period claims | (158) |
Currency adjustment | (10) |
Balance at end of period | $ 577 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Income Taxes [Abstract] | ||||
(Loss) income before income taxes | $ (9,210) | $ 11,604 | $ (13,935) | $ 12,591 |
(Benefit from) provision for income taxes | $ (218) | $ 166 | $ (108) | $ 127 |
Effective tax rate | 2.37% | 1.40% | 0.78% | 1.00% |
Statutory federal income tax rate | 21.00% | 21.00% | 21.00% | 21.00% |
Income Tax Examination [Abstract] | ||||
Probability of uncertain tax position to be recognized | 50.00% | |||
Percentage of tax position realized upon ultimate settlement | 50.00% | |||
Deferred tax liability | $ 13 | $ 13 | ||
Federal [Member] | ||||
Income Tax Examination [Abstract] | ||||
Income tax examination, year under examination | 2000 | |||
State [Member] | ||||
Income Tax Examination [Abstract] | ||||
Income tax examination, year under examination | 2000 | |||
Foreign [Member] | ||||
Income Tax Examination [Abstract] | ||||
Income tax examination, year under examination | 2016 |
Leases (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022
USD ($)
|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2022
USD ($)
ft²
Tenant
|
Sep. 30, 2021
USD ($)
|
Dec. 31, 2021
USD ($)
|
|||||||
Leased Assets [Abstract] | |||||||||||
Operating lease - right of use assets | $ 777 | $ 777 | $ 1,200 | ||||||||
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Operating lease - right of use assets | Operating lease - right of use assets | Operating lease - right of use assets | ||||||||
Lease Liabilities [Abstract] | |||||||||||
Operating lease liabilities - current | $ 965 | $ 965 | $ 1,205 | ||||||||
Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration] | Other current liabilities | Other current liabilities | Other current liabilities | ||||||||
Operating lease liabilities | $ 209 | $ 209 | $ 790 | ||||||||
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration] | Operating lease liabilities | Operating lease liabilities | Operating lease liabilities | ||||||||
Lease liabilities | $ 1,174 | $ 1,174 | $ 1,995 | ||||||||
Area of office space leased | ft² | 2,200 | ||||||||||
Lease agreement date | Sep. 26, 2022 | ||||||||||
Lease expiration date | Nov. 30, 2024 | ||||||||||
Sublease Agreement [Abstract] | |||||||||||
Sublease square feet | ft² | 850 | ||||||||||
Sublease date | Sep. 13, 2021 | ||||||||||
Previously subleased square feet, one | ft² | 3,650 | ||||||||||
Previous sublease date, one | May 01, 2019 | ||||||||||
Consolidated Statement of Operations Information [Abstract] | |||||||||||
Operating lease cost | [1] | 174 | $ 179 | $ 534 | $ 548 | ||||||
Short-term leases costs | [2] | 15 | 15 | 45 | 45 | ||||||
Sublease income | [3] | (18) | (32) | (55) | (96) | ||||||
Net lease cost | 171 | $ 162 | $ 524 | 497 | |||||||
Number of tenants | Tenant | 2 | ||||||||||
Minimum Lease Payments [Abstract] | |||||||||||
2022 remainder | 347 | $ 347 | |||||||||
2023 | 701 | 701 | |||||||||
2024 | 151 | 151 | |||||||||
2025 | 10 | 10 | |||||||||
2026 | 3 | 3 | |||||||||
Thereafter | 0 | 0 | |||||||||
Total lease payments | 1,212 | 1,212 | |||||||||
Less: Interest | 38 | 38 | |||||||||
Present value of lease payments | $ 1,174 | $ 1,174 | $ 1,995 | ||||||||
Lease Term and Discount Rate [Abstract] | |||||||||||
Weighted-average remaining lease term (in years) | 1 year 2 months 19 days | 1 year 2 months 19 days | 1 year 9 months 18 days | ||||||||
Weighted-average discount rate | 5.00% | 5.00% | 5.00% | ||||||||
Cash paid for amounts included in measurement of liabilities [Abstract] | |||||||||||
Operating cash flows used in operating leases | $ 934 | $ 958 | |||||||||
|
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