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

The consolidated interim financial statements included herein have been prepared by GSE Systems, Inc. (the "Company," "GSE," "we," "us,"Company, GSE, we, us, or "our")our) and are unaudited. In the opinion of the Company's management, all adjustments and reclassifications of a normal and recurring nature necessary to present fairly the financial position, results of operations and cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP")(U.S. GAAP) have been condensed or omitted. 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2016,2017, filed with the Securities and Exchange Commission on March 28, 2017.  Certain reclassifications have been made to prior period amounts to conform to the current presentation.  The Company reclassified research and development costs from selling, general and administrative expenses and presented them as a separate caption within operating expenses on the consolidated statements of operations. In addition, the Company also reclassified the stock-based compensation related to management/employees from cost of revenue and research and development expenses to selling, general and administrative expenses.16, 2018.

The Company has two reportable segments as follows:

Our Performance Improvement Solutions segment primarily encompasses our technical engineering and power plant high-fidelity simulation solutions as well as engineering solutions and interactive computer basedcomputer-based tutorials/simulation focused on the process industry. This segment includes various simulation products, engineering services, and operation training systems delivered across the industries we serve: primarily nuclear and fossil fuel power generation, as well as the process industries. Our simulation solutions include the following: (1) simulation software and services, including operator training systems, for the nuclear power industry, (2) simulation software and services, including operator training systems, for the fossil power industry, and (3) simulation software and services for the process industries used to teach fundamental industry processes and control systems to newly hired employees and for ongoing workforce development and training. GSE and its predecessors have been providing these services since 1976.

Nuclear Industry Training and Consulting provides highly specialized and skilled nuclear operations instructors, procedure writers, technical engineers, and other consultants to the nuclear power industry. These employees work at our clients' facilities under client direction. Examples of these highly skilled positions are senior reactor operations instructors, procedure writers, project managers, work management specialists, planners and training material developers. This business is managed through our subsidiariesthe Hyperspring and Absolute Consulting, Inc.subsidiaries. The business model, management focus, margins and other factors clearly separate this business line from the rest of the Company's product and service portfolio. GSE and its predecessors have been providing these services since 1997.

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. The Company's most significant estimates relate to revenue recognition on long-term contracts with customers, allowance for doubtful accounts, product warranties, valuation of goodwill and intangible assets acquired, valuation of long-lived assets to be disposed of, valuation of contingent consideration issued in business acquisitions, valuation of stock-based compensation awards, and the recoverability of deferred tax assets. Actual results could differ from these estimates and those differences could be material.

The Company recognizesderives its revenue through fixed pricethree broad revenue streams: 1) System Design and Build (SDB), 2) Software, and 3) Training and Consulting services. We recognize revenue from SDB and software contracts for the sale of uniquely designed/customized systems containing hardware, software and other materials which generally apply tomainly through the Performance Improvement Solutions segment and timethe training and materialconsulting service contracts forthrough both the Performance Improvement Solutions segment and Nuclear Industry Training and Consulting segment.

The SDB contracts are typically fixed-price and consist of initial design, engineering, assembly and installation of training simulators which include hardware, software, labor, and post contract support (PCS) on the software. We generally have two main performance obligations for an SDB contract: the training simulator build and PCS. The training simulator build performance obligation generally includes hardware, software, and labor. The transaction price under the SDB contracts is allocated to each performance obligation based on its standalone selling price. We recognize the training simulator build revenue over the construction and installation period using the cost-to-cost input method as our performance creates or enhances assets with no alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward complete satisfaction of the performance obligation. PCS revenue is recognized ratably over the service agreements.period, as PCS is deemed as a stand-ready obligation.

In accordance with Accounting Standards Codification (ASC) 605-35, Construction-Type and Production-Type Contracts (ASC 605),applying the Performance Improvement Solutions segment primarily accounts for revenue under fixed-price contracts usingcost-to-cost input method, we use the percentage-of-completion method.  This methodology recognizes revenue and earnings as work progresses on the contract and is based onactual costs incurred to date comparedrelative to the total estimated costcosts to completemeasure the project.work progress toward the completion of the performance obligation and recognize revenue accordingly. Estimated contract earningscosts are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimateestimates is recognized in the period in which the change is identified. Estimated losses are charged against earningsrecognized in the period such losses are identified. We recognize revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim.

A software license sale contract with multiple deliverables typically includes the following elements: license, installation and training services and PCS. The total transaction price of loss have been transferreda software license sale contract is typically fixed, and is allocated to the customer, which generally occurs after aidentified performance obligations based on their relative standalone selling prices. Revenue is recognized as the performance obligations are satisfied. Specifically, license key has beenrevenue is recognized when the software license is delivered to the customer.

We recognizeThe contracts within the training and consulting services revenue understream are either time and materials contracts primarily from the Nuclear Industry Training and Consulting segment and certain cost-reimbursable contracts.  Revenue on time and material contracts is recognized as services are rendered and performed.  (T&M) based or fixed-price based. Under a typical time-and-materials billing arrangement,T&M contract, the Company is compensated based on the number of hours of approved time provided by temporary workers and the bill rates which are fixed per type of work, as well as approved expenses incurred. The customers are billed on a regularly scheduledregular basis, such as weekly, biweekly or monthly. Any unbilled amounts are typically billedIn accordance with Accounting Standards Codification (ASC) 606-10-55-18, we elected to apply the following month."right to invoice" practical expedient, under which we recognize revenue in the amount to which we have the right to invoice. The invoice amount represents the number of hours of approved time worked by each temporary worker multiplied by the bill rate for the type of work, as well as approved expenses incurred. Under cost-reimbursablea typical fixed-price contract, we recognize the revenue over the service period using the cost-to-cost input method as the Company's performance does not create an asset with an alternative use to the Company, and we have an enforceable right to payment for performance completed to date. Cost-to-cost input method best measures the progress toward complete satisfaction of the performance obligation.

For contracts which are subject to a contract ceiling amount, with multiple performance obligations, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance based.  However, if costs exceedallocate the contract ceiling or are not allowable underprice to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the provisions of the contract or applicable regulations, we may not be ableprices charged to obtain reimbursement for all such costs.customers.

In July 2015,May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11,2014-09, SimplifyingRevenue from Contracts with Customers (ASU 2014-09), which provides guidance for revenue recognition. Subsequently, the MeasurementFASB issued a series of Inventoryupdates to the revenue recognition guidance in ASC 606, Revenue from Contracts with Customers (ASC 606). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, the new accounting standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2015-11).2014-09 is effective for the fiscal year ending December 31, 2018 and interim periods therein.

We adopted ASU 2015-11 requires that an entity measure inventory at2014-09 and all the lower of cost and net realizable value.  This ASU does not apply to inventory measured related updates (collectively, the new revenue standard) on January 1, 2018 using the last-in, first-outmodified retrospective transition method. The new revenue standard was applicable to (1) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance. We recognized the cumulative effect of initially applying the new revenue standard as an increase of $0.7 million to the opening balance of accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

In November 2016, includingthe FASB issued ASU No. 2016-18, Restricted Cash (ASU 2016-18). The new guidance applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. This update is intended to reduce diversity in cash flow presentation of restricted cash and restricted cash equivalents and requires entities to include all cash and cash equivalents, both restricted and unrestricted, in the beginning-of-period and end-of-period totals presented on the statement of cash flows. We adopted ASU 2016-18 effective January 1, 2018, on a retrospective basis. As the result of the adoption of ASU 2016-18, we restated the statement of cash flows for the comparative period to include both restricted and unrestricted cash in the beginning-of-period and end-of-period totals, and eliminated the transfers between restricted and unrestricted cash in the statement of cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (ASU 2017-09). The new guidance is intended to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance on ASC 718, Compensation – Stock Compensation. Entities are required to apply modification accounting for any change to an award, except for a change that is deemed to be purely administrative in nature. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based award require an entity to apply modification accounting in ASC 718. The amendments in this update were effective for all entities and for annual periods, and interim periods within that reporting period.those annual periods, beginning after December 15, 2017. We adopted ASU 2015-112017-09 effective January 1, 2017.2018, on a prospective basis. The adoption of this standard did not have a significant impact onto our consolidated financial position, results of operationsstatements or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We are still evaluating the impact of the pending adoption of the new standard on the consolidated financial statements, and we expect that, upon adoption, the recognition of ROU assets and lease liabilities could be material.

Basic (loss) earningsloss per share is based on thecomputed by dividing net loss by weighted average number of outstanding common shares outstanding for the period. Diluted (loss) earningsnet loss per share adjusts the weighted average shares outstanding for the potential dilution that could occur if outstanding vested stock options were exercised.exercised, unless the impact of potential dilutive common shares outstanding has an anti-dilutive impact on diluted net loss per share.

The number of common shares and common share equivalents used in the determination of basic and diluted earningsloss per share were as follows:

On September 20, 2017,May 11, 2018, GSE, through its wholly-owned subsidiary GSE Performance Solutions, Inc. ("(Performance Solutions), entered into a membership interest purchase agreement with Donald R. Horn, Jenny C. Horn, and True North Consulting LLC (the True North Purchase Agreement) to purchase 100% of the membership interests in True North Consulting LLC (True North) for $9.75 million. The purchase price was subject to customary pre- and post-closing working capital adjustments, resulting in total consideration of $9.9 million. The True North Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions subject to certain limitations. An escrow of $1.5 million was funded from the cash paid to the sellers of True North at the closing and is available to GSE to promote retention of key personnel and satisfy indemnification claims for 18 months after the closing. The acquisition of True North was completed on an all-cash transaction basis. In connection with the acquisition, we issued a $10.3 million term loan to finance the transaction (including the transaction costs). See Note 14. Debt, for further details of the loan.

The goodwill is primarily attributable to broader engineering service offering to new and existing customers, the workforce of the acquired business and the significant synergies expected to arise after the acquisition of True North. The total amount of goodwill is expected to be tax deductible. All of the $3.8 million of goodwill was assigned to our Performance Solutions"),Improvement Solutions segment. As of the report date, the Company is still evaluating the impact of the True North acquisition on our reporting units. As discussed above, the goodwill amount is provisional pending receipt of the final valuations of various assets and liabilities.

On September 20, 2017, GSE, through Performance Solutions, acquired 100% of the capital stock of Absolute Consulting, Inc. ("Absolute")(Absolute) for $8.8 million pursuant to the Stock Purchase Agreement by and among Performance Solutions and the sellers of Absolute. The purchase price was subject to a customary working capital adjustment resulting in total consideration of $8.9 million (subject to post-closing adjustment).$9.5 million. An indemnification escrow of $1.0 million was funded from the cash paid to the sellers and is available to GSE and Performance Solutions to satisfy indemnification claims until September 20, 2019. The acquisition of Absolute was completed on an all-cash transaction basis.

Absolute is a provider of technical consulting and staffing solutions to the global nuclear power industry. Located in Navarre, Florida, Absolute has established long-term relationships with blue-chip customers primarily in the nuclear power industry. The acquisition of Absolute is expected to strengthen the Company's global leadership in nuclear training and consulting solutions, add new capacities to our technical consulting and staffing solutions offerings and bring highly complementary customers, while deepening relationships with existing clients.

The following table summarizes the consideration paid to acquire Absolute and the preliminary fair value of the assets acquired and liabilities assumed at the date of the transaction. Due to the recent completion of the acquisition of Absolute, the Company recorded the assets acquired and liabilities assumed at their preliminary estimated fair value. As of September 30, 2017, the Company had not finalized the determination of the fair value allocated to various assets and liabilities, including, but not limited to, contract receivables, prepaid expenses and other current assets, property, and equipment, intangible assets, accrued expenses, accrued compensation and the residual amount allocated to goodwill. The following amounts except for Cash are all reflected in the Consolidated Statement of Cash Flow within the "Acquisition of Absolute Consulting, Inc., net of cash acquired" line caption.

The goodwill is primarily attributable to the additional capacities to offer broader solutions to new and existing customers and the expected enhanced cost and growth synergies as a result of the acquisition. The total amount of goodwill that is expected to be tax deductible is $1.5$2.8 million. All of the $1.5$2.8 million of goodwill was assigned to our Nuclear Industry Training and Consulting segment. As discussed above, the goodwill amount is provisional pending receipt of the final valuations for various assets and liabilities.

The fair value of the assets acquired includes gross trade receivables of $5.1 million, of which the Company expects to collectwas collected in full.full after acquisition. GSE did not acquire any other class of receivable as a result of the acquisition of Absolute.

The Company identified $3.3$2.6 million of other intangible assets, including customer relationships and trademarks/names, and non-compete agreements, with amortization periods of three to fiveten years. The following table summarizes the fair valuesvalue of the intangible assets are provisional pending receiptacquired at the date of acquisition and the final valuations for those assets.related weighted average amortization period:

The unaudited pro forma financial information was prepared basedin the table below summarizes the combined results of operations for GSE, True North, and Absolute as if the business combinations had occurred  on historical financial information.January 1, 2017.

The pro forma amounts havefinancial information for all periods presented has been calculated after applying GSE's accounting policies and adjustinghas also included pro forma adjustments resulting from these acquisitions, including amortization charges of the results of Absolute to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been appliedidentified from these acquisitions, interest expenses related to the financing transaction in connection with the acquisition of True North, and the related tax effects as if aforementioned companies were combined as of January 1, 2016, with2017.

For the consequential tax effects. In 2017, GSEnine months ended September 30, 2018, the Company has incurred $0.5 million of acquisition-related costs.transaction costs related to the acquisition of True North. These expenses are included in general and administrative expense on GSE's consolidated statements of operations and are reflected in pro forma earningsloss for the nine months ended September 30, 2016,2017, in the table below. above.

The pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had been completed on January 1, 2016,2017, nor is it intended to be an indication of future operating results.

Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Under ASC 805, "Business Combination"Combinations, contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

As of September 30, 2017 and December 31, 2016,2017, the remaining contingent consideration, related to our acquisition of Hyperspring via an earnout,  included in current liabilities totaled2014 was $1.7 million, and $2.1 million, respectively. The Company made a paymentall of $0.9 million and $1.4 millionwhich was paid in the first quarter of 2017 and 2016, respectively, related to the liability-classifiedJanuary 2018. There was no contingent consideration arrangements. Asliability as of November 14, 2017, we will not record contingent consideration adjustments for the Hyperspring acquisition due to the expiration of the earnout period.

Contract receivables represent balancesthe Company's unconditional rights to consideration due from a broad base of both domestic and international customers. All contract receivables are considered to be collectible within twelve months.  Recoverable costs and accrued profit not yet billed represent costs incurred and associated profit accrued on contracts that will become billable upon future milestones or completion of contracts.

The components of contract receivables are as follows:

During October 2017,2018, the Company invoiced $4.6$5.0 million of the unbilled amounts related to the balance at September 30, 2017.2018.

As of September 30, 2018, the Company had two customers that accounted for 19.7% and 13.1% of its consolidated contract receivables, respectively. As of December 31, 2017, the Company had one customer that accounted for 26.3%26.7% of the Company's consolidated contract receivables.  As of December 31, 2016, the Company did not have any customers that accounted for more than 10% of the Company'sits consolidated contract receivables.

At September 30, 2018 and December 31, 2017, prepaid expenses and other current assets are comprised primarily of inventory that is beingand other current assets. Inventory has been purchased and used to support the construction of three major nuclear simulation projects related to a significant contract that was executed during the first quarter of 2016. Inventory is recorded at the lower of cost or marketnet realizable value in accordance with ASC 330, Inventory. At December 31, 2016, inventory related to the simulation projects was classified asOther current assets primarily includes value-added tax receivables and cash deposited in a long-term asset within other assets on the consolidated balance sheets. The earliest completion date of these projects is expected to occur in the second quarter of 2018.Swedish tax account.

Certain computer software development costs are capitalized in the accompanying consolidated balance sheets. Capitalization of computer software development costs begins upon the establishment of technological feasibility. Capitalization ceases and amortization of capitalized costs begins when the software product is commercially available for general release to customers.  Amortization of capitalized computer software development costs is included in cost of revenue and is determined using the straight-line method over the remaining estimated economic life of the product, typically three years. On an annual basis, and more frequently as conditions indicate, the Company assesses the recovery of the unamortized software development costs by estimating the net undiscounted cash flows expected to be generated by the sale of the product.  If the undiscounted cash flows are not sufficient to recover the unamortized software costs, the Company will write down the carrying amount of such asset to its estimated fair value based on the future discounted cash flows. The excess of any unamortized computer software costs over the related fair value is written down and charged to operations.

Software development costs capitalized were $53,000 and $325,000 for the three and nine months ended September 30, 2018, respectively, and $38,000 and $126,000 for the three and nine months ended September 30, 2017, respectively,respectively. Total amortization expense was $150,000 and $10,000 and $196,000$353,000 for the three and nine months ended September 30, 2016, respectively.  Total amortization expense was2018, respectively, and $118,000 and $352,000 for the three and nine months ended September 30, 2017, respectively, and $111,000 and $296,000 for the three and nine months ended September 30, 2016, respectively.

The Company's intangible assets include amounts recognized in connection with business acquisitions, including customer relationships, trade names, non-compete agreements contract backlog, and software.alliance agreements.

The Company reviews goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company tests goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. After the acquisition of Hyperspring on November 14, 2014, the Company determined that it had two reporting units, which are the same as our two operating segments: (i) Performance Improvement Solutions; and (ii) Nuclear Industry Training and Consulting (which includes Hyperspring and Absolute). As ofThe change in the report date, the Company is still evaluating the impact of the Absolute acquisition on our reporting units. As of September 30, 2017, and December 31, 2016, goodwill of $7.1 million and $5.6 million, respectively, is related to the Nuclear Industry Training and Consulting segment.  The increase of $1.5 million in thenet carrying amount of goodwill during the nine months endedfrom December 31, 2017 through September 30, 20172018 was due tocomprised of the acquisition of Absolute. following items:

No events or circumstances occurred during the current reporting period that would indicate impairment of such goodwill and indefinite-lived intangible assets.goodwill.

As discussed in Note 4, we recognized finite-livedAmortization of intangible assets of $3.3 million upon acquisition of Absolute on September 20, 2017. Amortization of finite-lived intangible assetsother than goodwill is recognized on a straight-line basis over the estimated useful life of the intangible assets, except for contract backlog and contractual customer relationships which are recognized in proportion to the related projected revenue streams. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. The Company does not have any intangible assets with indefinite useful lives, other than goodwill. There were no indications of impairment of intangible assets during the current reporting period. The increase in intangible assets during the three and nine months ended September 30, 2018 was due to the acquisition of True North. See Note 4, Acquisitions for details.

ASC 820, Fair Value Measurement ("ASC 820")820), 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 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.

TheAt September 30, 2018, and December 31, 2017, the Company considers the recorded value of certain of its financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate fair value based upon their short-term nature.

As discussed in Note 14, Debt, we issued a new term loan to finance the fairacquisition of True North. As of September 30, 2018, the carrying amount of the long-term debt was $9.0 million. The carrying value of the respective assets and liabilities at September 30, 2017, and December 31, 2016, Company's long-term debt approximated its fair value based uponon Level 2 inputs since the short-term nature ofdebt carries a variable interest rate that is tied to the assets and liabilities.current LIBOR rate plus an applicable spread.

For the three and nine months ended September 30, 2017,2018, the Company did not have any transfers between fair value Level 1, Level 2 or Level 3.  The Company did not hold any non-financial assets or non-financial liabilities subject to fair value measurements on a recurring basis at September 30, 2017.2018.

The following table presents assets and liabilities measured at fair value at September 30, 2017:2018:

Money market funds at both September 30, 20172018 and December 31, 20162017 are included in cash and cash equivalents in the respective consolidated balance sheets.

The following table presents assets and liabilities measured at fair value at December 31, 2016:2017:

The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the nine months ended September 30, 2017:2018:

The Company utilizes forward foreign currency exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates.  It is the Company's policy to use such derivative financial instruments to protect against market risk arising in the normal course of business to reduce the impact of these exposures. The Company minimizesrates and minimize credit exposure by limiting counterparties to nationally recognized financial institutions.

As of September 30, 2017,2018, the Company had foreign exchange contracts outstanding of approximately 212.5112.5 million Japanese Yen, 0.23.2 million Euro, and 0.2 million Australian Dollars at fixed rates. The contracts expire on various dates through December 2018. At December 31, 2016,2017, the Company had contracts outstanding of approximately 281.4162.5 million Japanese Yen, 0.124,000 Euro, and 0.2 million Euro, 0.6 million Australian Dollars, and 0.5 million Canadian Dollars at fixed rates.

The Company has not designated the foreign exchangederivative contracts as hedges and recorded the estimated net fair values of the contracts on the consolidated balance sheets as follows:

The 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 period into the functional currency using the current exchange rate at the end of the period. The gain or loss resulting from such remeasurement is also included in (loss) gain (loss) on derivative instruments, net, in the consolidated statements of operations.

For the three and nine months ended September 30, 20172018 and 2016,2017, the Company recognized a net (loss) gain (loss) on its derivative instruments as outlined below:

The Company recognizes compensation expense for all equity-based compensation awards issued to employees and directors that are expected to vest. Compensation cost is based on the fair value of awards as of the grant date. The Company recognized $0.5$0.4 million and $0.4$0.5 million of stock-based compensation expense related to equity awards for the three months ended September 30, 20172018 and 2016,2017, respectively, and recognized $1.8$1.4 million and $0.9$1.8 million of stock-based compensation expense related to equity awards for the nine months ended September 30, 2018 and 2017, and 2016, respectively.respectively, under the fair value method. In addition to the equity-based compensation expense recognized, the Company also recognized $92,000$105,000 and $80,000$92,000 of stock-based compensation related to the change in the fair value of cash-settled restricted stock units ("RSUs")(RSUs) during the three months ended September 30, 2018 and 2017, respectively. During the nine months ended September 30, 2018 and 2017, the Company recorded an expense of $165,000 and a net reduction of $80,000 in the fair value of cash-settled RSUs, respectively.

During the three and nine months ended September 30, 2017,2018, the Company granted 0 and 388,526 time-based RSUs with an aggregate fair value of $0.0 million and $1.3 million, respectively.

The Company did not grant stock options during the three or nine month periods ended September 30, 2017. The Company did not grant any options during the three month period ended September 30, 2016, and granted 40,000 stock options during the nine month period ended September 30, 2016. The fair value of the options granted duringDuring the nine months ended September 30, 2016 was $46,000.2018 and 2017, the Company did not grant performance-based RSUs or stock options.

The Company entered into a three-year, $5.0 million revolving line of credit facility ("RLOC")(RLOC) with Citizens Bank, National Association (the Bank) on December 29, 2016, to fund general working capital needs, including acquisitions. Working capital advances bear interest of one-month LIBOR plus 2.25% per annumneeds. On May 11, 2018, GSE and letter ofPerformance Solutions (collectively, the Borrower) entered into an Amended and Restated Credit and Security Agreement (the Credit Agreement) with the Bank, amending and restating the Company's existing Credit and Security Agreement with the Bank, which included a $5.0 million asset-based revolving credit fees are 1.25% per annum. The Company isfacility between the Borrower and the Bank, to now include (a) a $5.0 million revolving credit facility not required to maintain a restricted cash collateral account at Citizens Bank for outstanding letters of credit and working capital advances. 

We intend to continue using the RLOC for any issuedshort-term working capital needs and outstandingthe issuance of letters of credit in connection with business operations. Letter of credit issuance fees range between 1.25% and working capital advances.  2% depending on the Company's overall leverage ratio, and the Company pays an unused RLOC fee quarterly based on the average daily unused balance.

At September 30, 2017,2018, there were no outstanding borrowings onunder the RLOC and sixfive letters of credit totaling $1.7$2.3 million. We have two letters of credit with Citizen Bank totaling $0.4 million, which have expired and are pending release by the bank and customer. The amount available at September 30, 2017,2018, after consideration of the borrowing base, letters of credit and working capital advances was approximately $3.3$2.7 million.

As discussed in Note 4, Acquisitions, we acquired True North on May 11, 2018 for total consideration of approximately $9.9 million in cash. We drew down $10.3 million to finance the acquisition of True North, $0.5 million of which was repaid to the Bank on the same day. The creditloan bears interest at the adjusted one-month LIBOR plus a margin ranging between 2% and 2.75% depending on the overall leverage ratio of the Company and matures in five years. We also incurred $70,000 debt issuance costs and $75,000 loan origination fees related to the Credit Agreement. Debt issuance costs and loan origination fees are reported as a direct deduction from the carrying amount of the loan and are amortized over the term of the loan using the effective interest method.

At September 30, 2018, the outstanding long-term debt under the delayed draw term loan facility agreement is subjectwas as follows:

The Credit Agreement contains customary covenants and restrictions typical for a financing of this type that, among other things, require the Borrower to standardsatisfy certain financial covenants and reporting requirements.restrict the Borrower's and Guarantors' ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions after any applicable grace period could result in the obligations under the Credit Agreement becoming immediately due and payable and termination of the credit facilities. In addition to non-compliance with covenants and restrictions, the Credit Agreement also contains other customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the Bank may declare the obligations under the Credit Agreement to be immediately due and payable and may terminate the credit facilities. At September 30, 2017,2018, the Company was in compliance with its financial covenants.

At September 30, 2017, the Company had three letters of credit with BB&T totaling $0.9 million, which have expired and are pending release by the bank and customer.  At September 30, 20172018 and December 31, 2016,2017, the cash collateral account with BB&T totaled $1.0$0.0 million and $1.1$1.0 million, respectively. The balances were classified as restricted cash on the consolidated balance sheets.

The Company accrues for estimated warranty costs at the time the related revenue is recognized based on historical experience and projected claims. The Company's long-termSDB contracts generally provide for a one-year base warranty on parts, labor and any bug fixes as it relates to customized software embedded in the systems. The portion of the warranty provision expected to be incurred within 12 months is classified as current within accrued warranty and totals $1.3$1.1 million, while the remaining $0.5$0.6 million is classified as long-term within other liabilities. The activity in the accrued warranty accounts is as follows: