TSS, Inc.

Note 1 - Significant Accounting Policies

Description of Business

TSS, Inc. ("TSS”, the "Company”, "we”, "us” or "our”) provides a comprehensive suite of services for the integration of complex Artificial Intelligence (AI) technologies, planning, design, deployment, maintenance and refresh of end-user and enterprise systems, including the mission-critical facilities in which they are housed. We provide a single source solution for enabling technologies in data centers, operations centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services consist of technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT procurement services. Beginning in 2024, our systems integration services have been enhanced to include integration of AI enabled data center server racks. TSS was incorporated in Delaware in December 2004. In the second quarter of 2025, we relocated our corporate offices and primary integration facility from Round Rock, Texas to Georgetown, Texas and continued to operate a secondary integration facility in our Round Rock facility for approximately one additional quarter before all operations were migrated to our new facility in Georgetown.

Basis of Presentation

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("U. S. GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates which are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form a basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates are reasonable and that the actual results will not vary significantly from the estimated amounts.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current presentation. The reclassifications are:

These reclassifications had no net effect on our reported results of operations, financial position or cash flows.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary VTC, L.L.C. dba Total Site Solutions. All intercompany accounts and transactions have been eliminated in consolidation.

Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents including money market accounts, accounts receivable, accounts payable and debt.

Based primarily on the short-term nature of cash and cash equivalents, we estimate that their carrying amount approximates their fair value at December 31, 2025 and December 31, 2024. We consider the fair value of our cash and cash equivalents, including money market accounts, to be measured using Level 1 inputs.

As it does not have a quoted market price and its term extends beyond a year, requiring more judgment, we consider our debt balance to be measured using Level 2 inputs. As the debt bears a floating interest rate that is adjusted frequently in line with movements in prevailing interest rates that would be used to discount any future cash flows, we estimate that its carrying value approximates its fair value. SeeNote 7–* Fair Value Measurements.*

Accounting for Business Combinations

We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed, if any, is recorded as goodwill.

We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets such as customer contracts, leases, and any other significant assets or liabilities and contingent consideration. Preliminary purchase price allocation is adjusted, as necessary, up to one year after the acquisition closing date if management obtains more information regarding asset valuations and liabilities assumed.

Revenue Recognition

We recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations based on relative stand-alone selling prices or cost-plus markup as appropriate, depending on the nature of each transaction.

Maintenance services

We generate maintenance services revenues by providing our customers with as-needed maintenance and repair services on MDCs during the contract term. Our contract terms are typically one year in duration, are billed annually in advance, and are non-cancelable. As a result, we record deferred revenue (a contract liability) and recognize revenue from these services using a time-based input method, ratably over the contract term, because the performance obligation represents a stand-ready service and the customer receives and consumes the benefit of having access to maintenance support evenly throughout the contract period. We can mitigate our exposure to credit losses by discontinuing services in the event of non-payment. However, our history of non-payments and bad debt expenses has been insignificant.

Integration services

We generate integration services revenues by providing our customers with customized systems and rack-level integration services. We recognize revenue upon shipment to the customer of the completed systems as this is when we have completed our services and when the customer obtains control of the promised goods.

Pursuant to a long-term agreement signed in 2024 and subsequently amended in 2025, we also recognize revenue monthly at contractually based amounts for certain billable fixed and facility costs and trained staffing levels to support a specified weekly quantity of AI-enabled racks, with staffing fees reduced for any under-staffing, as the performance obligation represents a stand-ready ability for us to support the weekly outputs. The fee for staffing is based on defined services as transferred to the customer and is variable consideration based on the Customer’s weekly demand. However, the revenue recognized is not contingent on the occurrence of any future events or subject to any estimation.

We typically extend credit terms to our integration customers based on their creditworthiness and generally do not receive advance payments. As such, we record accounts receivable at the time of shipment, when our right to consideration becomes unconditional. Accounts receivable from our integration customers are typically due within 30-105 days of invoicing. An allowance for credit losses is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ credit worthiness. As of December 31, 2025, we had no allowance for credit losses compared to a credit loss allowance of $7,000 recorded as of December 31, 2024. The account for which the allowance was provided at December 31, 2024 was subsequently collected in full in 2025 and the related allowance was reversed.

Equipment and Material sales

We generate revenues under fixed price contracts from the sale of data center and related ancillary equipment or materials to customers in the United States. We recognize revenue when the product is shipped to the customer as that is when the customer obtains control of the promised goods and when we have completed our contractual obligations. Typically, we do not receive advance payments for equipment or material sales; however, when we do, we record the advance payment as deferred revenues. Normally we record accounts receivable at the time of shipment, when our right to the consideration has become unconditional. Accounts receivable from our equipment and material sales are typically due within 30-45 days of invoicing.

Deployment and Other services

We generate revenues from fees we charge our customers for other services, including repairs or other services not covered under maintenance contracts; installation and servicing of equipment, including MDCs; and other fixed-price services including repair, design and project management services. In some cases, we arrange for a third party to perform “break-fix” and servicing of equipment upon customer request, and in these instances, we recognize revenue as the amount of any fees or commissions to which we expect to be entitled. Other services are typically invoiced upon completion of services or completion of milestones. We record accounts receivable at the time of completion when our right to consideration becomes unconditional.

Procurement services

We generate revenues from fees we charge our customers to procure third-party hardware, software and professional services on their behalf, some of which are then used in our integration services as we integrate these components to deliver a completed system to our customer. We recognize our procurement services revenues upon completion of the procurement activity or delivery of the completed product. For any procurement activities in which we transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of revenues for any costs we incur to procure the related goods (“gross deals”). In some cases, we arrange for the purchase of third-party hardware, software or professional services that are to be provided directly to our customers by another party, we have no control of the goods before they are transferred to the customer, and we do not transform the product in any way. In these instances, we are acting as an agent in the transaction and recognize revenue on a net basis, recording only the amount of any fee or commissions to which we expect to be entitled after paying the other party for the goods or services provided to the customer (“net deals”). Accounts receivable from our procurement activities are typically due within 80 days of invoicing. The majority of the procurement activities involve us transforming the product, and as such most of these transactions are recorded on a gross basis. To accelerate the time in which we receive payment, we generally factor the procurement services receivables utilizing a program that we estimate has an effective annualized interest rate below the rate at which we could borrow funds. Regardless of whether the transaction is recorded as a gross deal or a net deal, the factoring fees we are charged are based on the gross value of each transaction.

The following table presents our revenues disaggregated by reportable segment and by product or service type (in ’000’s):

The following table presents our revenues disaggregated by timing of revenue recognition (in ’000’s)

The following table presents our revenues disaggregated by contract type (in ’000’s)

Judgments

We consider several factors in determining that control transfers to the customer upon shipment of equipment or upon completion of our services. These factors include that legal title transfers to the customer, we have a present right to payment, and the customer has assumed the risks and rewards of ownership at the time of shipment or completion of the services.

Sales taxes

Sales (and similar) taxes that are imposed on our sales and collected from customers are excluded from revenues.

Shipping and handling costs

Costs for shipping and handling activities are recorded as cost of sales and are expensed as incurred. We accrue costs for shipping and handling activities that occur after control of the promised good or service has been transferred to the customer.

Remaining Performance Obligations and Deferred Revenue

Remaining performance obligations include deferred revenue and amounts we expect to receive for goods and services that have not yet been delivered or provided under existing, non-cancellable contracts. For contracts that have an original duration of one year or less, we have elected the practical expedient applicable to such contracts and we do not disclose the transaction price for remaining performance obligations at the end of each reporting period and when we expect to recognize this revenue. As of December 31, 2025, total remaining performance obligations and deferred revenue were $129 million. The remaining performance obligation includes:

Contract liabilities consisting of deferred revenues were $3,384,000 on December 31, 2024, and $3,370,000 on December 31, 2023. Substantially all of the recorded deferred revenues at December 31, 2024 and December 31, 2023 had been earned and recorded as revenues in the years ended December 31, 2025 and 2024, respectively.

Concentration of Credit Risk

We are currently economically dependent upon our relationship with a large US-based IT OEM (Original Equipment Manufacturer). If this relationship is unsuccessful or discontinues, our business and revenue will suffer. The loss of or a significant reduction in orders from this customer or the failure to provide adequate products or services to it would significantly reduce our revenue.

The following customer accounted for a significant percentage of our revenues for the periods shown:

No other customer represented more than 10% of our revenues for any period presented. Our US-based IT OEM customer represented 98% of our accounts receivable at December 31, 2025 and 98% at December 31, 2024. No other customer represented more than 10% of our accounts receivable at either date.

Non-recourse factoring

We have entered into a factoring agreement with a financial institution to sell certain of our accounts receivable from a US-based IT OEM customer under a non-recourse agreement. Due to the extended payment terms from that customer, we use this factoring arrangement as the effective interest rate implicit in this arrangement is less than the rate at which we could borrow the funds to carry those receivables through their due date. Under the arrangement, we sell certain trade receivables on a non-recourse basis and account for the transaction as a sale of the receivable. The financial institution assumes the full risk of collection, without recourse to the Company in the event of a loss. Debtors are directed to send payments directly to the financial institution. The applicable receivables are removed from our consolidated balance sheet when we receive the cash proceeds. We do not service any factored accounts after the factoring has occurred. We utilize this factoring arrangement as part of our financing for working capital. The table below presents information relevant to this factoring program (in $’000’s):

Financing fees were recorded as bank factoring fees in our consolidated statements of operations or in deferred costs if it is related to projects for which revenue has not yet been recognized at the time the expense was recognized, as such there may be differences in the total amount of cash paid in the period. The total amounts factored exceed our total recorded revenues, as the factoring fees apply to the gross value of receivables collected through the program, while we record only our agent fee on procurement contracts as revenue for any procurement activity that is shipped directly from third parties to the end customer.

Concentration of Credit Risk

We are economically dependent upon our relationship with a large US-based IT OEM. If this relationship is unsuccessful or discontinues, our business and revenue will suffer. The loss of or a significant reduction in orders from this customer or the failure to provide adequate products or services to them would significantly reduce our revenue.

Stock-Based Compensation

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, net of estimated forfeitures. For awards with performance-based vesting criteria, we recognize expense once it is deemed probable that the performance criteria will be met. We award shares of restricted stock and stock options to employees, managers, executive officers, and directors for both incentive and retention purposes.

During the years ended December 31, 2025, 2024, and 2023, we incurred approximately $4.0 million, $1.2 million and $0.6 million, respectively, of non-cash stock-based compensation expense which was included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations*.*

Cash and cash equivalents

Cash and cash equivalents are comprised of cash in banks and highly liquid instruments with original maturities of three months or less, primarily consisting of bank time deposits. We had unrestricted cash of $85.5 million and $18.2 million on December 31, 2025, and 2024, respectively, almost all of which exceeded FDIC insured limits. At December 31, 2024, we additionally had $5.0 million of restricted cash in a money market account held by our bank as collateral for our outstanding bank debt, which also exceeded FDIC insured limits. In December 2025, that restriction was released and almost all of those funds were used to pay down a portion of the outstanding loan balance held at Susser Bank, and restrictions were released on the remainder of that deposit. This balance was classified with cash and cash equivalents at December 31, 2024.

Contract and Other Receivables

Accounts receivable are recorded at the invoiced amount and may bear interest in the event of late payment under certain contracts.

Allowance for Credit Losses

We recognize an allowance for credit losses in an amount equal to the current expected credit loss, which is based on historical loss experience, factors related to the specific credit risk of each customer, current receivable aging, and management’s expectation and reasonable and supportable forecast of future conditions. Historically our credit losses have been minimal. We perform credit evaluations of new customers and may require prepayments or the use of bank instruments such as trade letters of credit to mitigate credit risk. We monitor outstanding amounts to limit our credit exposure to individual accounts. We continue to pursue collection even if we have fully provided for an account balance.

The following table summarizes the changes in our allowance for credit losses (in ’000):

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method for purchased inventories other than inventory bearing serial numbers which are tracked using specific identification. We write down obsolete inventory or inventory quantities more than our estimated usage to its estimated realizable value less costs to sell, if less than its cost. Inherent in our estimates of net realizable value in determining inventory valuation are estimates related to future demand and technological obsolescence of our products. Any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventories and our results of operations and financial position could be materially affected.

Property and Equipment

Property and equipment are recorded at cost, including interest incurred during the construction phase of assets financed at least partly with debt. We provide for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the lease term. Additions and major replacements or improvements are capitalized, while minor replacements and maintenance costs are charged to expense as incurred. Depreciation expense directly related to our revenue producing activities is recorded as a component of cost of revenues in our consolidated statements of operations; the remainder is classified in operating expenses. The cost and accumulated depreciation of assets sold or retired are removed from the accounts and any gain or loss is included in the results of operations for the period of the transaction or the date of determination that the assets have been impaired.

Goodwill and Intangible Assets

We have recorded goodwill and intangible assets with definite lives, including customer relationships and acquired software, in conjunction with the acquisition of various businesses. These intangible assets are amortized based on their estimated economic lives. Goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and it is not amortized. The recorded goodwill is allocated to the reporting unit to which the underlying transaction relates.

U. S. GAAP requires us to perform an impairment test of goodwill on an annual basis or whenever events or circumstances make it more likely than not that impairment of goodwill may have occurred. As part of the annual impairment test, we review for indicators of impairment as “Step Zero” of the annual impairment test and if any exist, we compare the fair value of the reporting unit with its carrying amount. If that fair value exceeds the carrying amount, no impairment charge is required to be recorded. If the carrying value exceeds the reporting unit’s fair value, we would recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. If necessary, the fair value of a reporting unit will be determined using a discounted cash flow analysis, which requires the use of estimates and assumptions. Significant assumptions that may be required include forecasted operating results, and the determination of an appropriate discount rate. Actual results may differ from forecasted results, which may have a material impact on the conclusions reached.

We have elected to use December 31 as our annual assessment date. As circumstances change that could affect the recoverability of the carrying amount of goodwill during an interim period, we will evaluate our goodwill for impairment. The Company performed a qualitative analysis of our goodwill on December 31, 2025, and 2024 and concluded there was no impairment. The valuation results indicated that the fair value of our reporting units was greater than the carrying value for each of our reporting units. Thus, we concluded that there was no goodwill impairment on December 31, 2025, or 2024. On December 31, 2025, and 2024, the carrying value of goodwill was $0.8 million.

In any period with a reported value of intangible assets with definite lives, our policy is to review those intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, a loss is recognized for the difference between the fair value and carrying value of the intangible asset. Our recorded intangible assets with definite lives were fully amortized at December 31, 2025 and 2024; accordingly, no such impairment review was necessary during 2024 or 2025.

Income Taxes

Deferred income taxes are provided for the temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The U.S. net operating losses generated prior to 2018 and not utilized can be carried forward for 20 years to offset future taxable income. As we now have a history of continued net income and income from operations for the last two years, and anticipate being able to continue generating taxable income, we determined it was more likely than not that we will be able to utilize the majority of our deferred tax assets. As a result, we have released most of the valuation allowance we had previously recorded, keeping in place the valuation allowance related to state income taxes in states in which we no longer generate revenue or taxable income. As a percentage of our pre-tax earnings, the income tax expense presented on our statements of operations is substantially less than one might normally expect to see, as we were able to utilize our deferred tax asset to offset any current federal income taxes due in 2023 and 2024, and reduce the valuation allowance by an equal amount of the deferred tax asset utilized, leaving primarily state income taxes reported as income tax expense for the periods. The income tax benefit recorded in 2025 reflects the reversal of the majority of our deferred tax asset net of the tax expense related to current year activities. We recognize any interest and penalty expense associated with uncertain tax positions as a component of income tax expense in the consolidated statements of operations.

Earnings Per-Common Share

Basic and diluted earnings per share are based on the weighted average number of shares of common stock and potential common stock outstanding during the period. Potential common stock, for the purposes of determining diluted earnings per share, includes the effects of dilutive unvested restricted stock and options to purchase common stock. The effect of such potentially dilutive common stock is computed using the treasury stock method.

Treasury Stock

We account for treasury shares using the cost method. Purchases of shares of common stock are recorded at cost and result in a reduction of stockholders’ equity. In December 2025, the Company’s Board of Directors authorized the retirement of all treasury shares previously held and future retirement of any shares repurchased as a result of employees’ decision to net-share settle to fulfill any tax withholding requirements or amounts due to exercise options. Accordingly, we reduced the recorded par value and additional paid-in capital, as the Company has an accumulated deficit, amounts by an amount equal to what was previously recorded for treasury stock.

Commitments and Contingencies

In the ordinary course of business, the Company may be subject to claims, lawsuits, and proceedings. Management evaluates such matters based on available information and, when necessary, records an accrual for estimated losses. The Company also enters into purchase commitments, subcontractor arrangements, and other contractual obligations in the normal course of operations. Although many of these commitments do not meet the criteria for recognition as liabilities under U.S. GAAP, the Company may provide disclosure of material non‑cancelable or otherwise significant commitments to provide users of the financial statements with additional information about future cash flow requirements.

As of December 31, 2025, management determined that no legal matters required accrual or disclosure, and any additional commitments disclosed elsewhere in the notes represent contractual obligations rather than contingencies.

Defined Contribution Plan

The Company sponsors a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code covering eligible employees. The 401(k) plan allows each participant to contribute up to an amount not to exceed an annual statutory maximum. Effective January 1, 2024, the employer matching contribution was 50% of each participant’s employee contributions of up to 6% of eligible wages during the period. During the fiscal years ended December 31, 2025 and 2024, the Company recognized expense of $0.3 million and $0.2 million, respectively, related to matching contributions.

Recently Adopted Accounting Pronouncements

In December 2023, FASB issued ASU No. 2023-09,Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires that an entity disclose specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Further, this ASU requires certain disclosures of state versus federal income tax expense and taxes paid. We adopted this guidance on a prospective basis effective for the annual period ended December 31, 2025. It did not have a material impact on our financial results of operations or financial position, other than the enhanced disclosures.

Recently Issued Accounting Pronouncements

In November 2024, FASB issued ASU 2024-03,Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which will require that entities provide more granular footnote disclosures of the details contained in certain captions on the company’s income statement, such as “Selling, General and Administrative” expenses. This new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We have not yet determined all the effects that adoption of this new guidance will have on our statement of operations and related footnote disclosures. We do not expect its adoption to affect our net operating results or financial position.

In July 2025, FASB issued ASU 2025-05,*Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets,*which provides public companies with a practical expedient in developing reasonable and supportable forecasts as part of estimating expected credit losses. All entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. Early adoption is permitted. The amendment is effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. Accordingly, it will first be applicable for our three-month period ending March 31, 2026. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU 2025-06,Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which updates the guidance for determining when capitalization of internal-use software costs should begin. The amendments are effective for annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied prospectively to software costs incurred after adoption or through a modified prospective approach based on the status of software development projects at the date of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-10,Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. The ASU establishes authoritative guidance in GAAP about accounting for government grants received by business entities, clarifies the appropriate accounting, in an effort to reduce diversity in practice and increase consistency of application across business entities. The ASU is effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods. Adoption of this ASU can be applied a modified prospective approach, a modified retrospective approach, or a retrospective approach. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-11,Interim Reporting (Topic 270): Narrow-Scope Improvements. The ASU clarifies interim disclosure requirements and the applicability of Topic 270. The objective of the amendments is to provide further clarity about the current interim disclosure requirements. The ASU will first apply to us in the fiscal quarter ending March 31, 2028. Adoption of this ASU can be applied using either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-12,Codification Improvements. The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this Update are not intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026. The adoption method of this ASU may vary, on an issue-by-issue basis. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

Note 2 - Supplemental Balance-sheet Information

Receivables

Contract and other receivables consisted of the following (in $000’s):

Contract assets and other receivables, consisting of accounts receivable, were $3,527,000 at December 31, 2023.

Inventories

We state inventories at the lower of cost or net realizable value (in $000’s) as follows:

Property and equipment

Property and equipment consisted of the following (in ’000’s):

Depreciation of property and equipment and amortization of leasehold improvements and software totaled $3.8 million, $0.6 million and $0.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.

The following table presents interest capitalized as property and equipment, as the related debt was used to finance the build-out of a portion of the capital expenditures (in $000’s):

At December 31, 2025 and following the move to our new integration facility, we determined it is no longer likely we will perform any integration activities in our Round Rock facility, and accordingly that there was no remaining utility to the majority of the leasehold improvement assets. Therefore, the remaining $0.7 million net book value of the fixed assets was charged as a “loss on sale or disposal of assets” at December 31, 2025 to our Systems Integration segment.

Goodwill and Intangible Assets

Goodwill and Intangible Assets consisted of the following (in $000’s):

Goodwill attributable to reporting segments (in $000’s ):

We recognized no amortization expense related to intangibles for the years ended December 31, 2025 or 2024, and $35,000 for the year ended December 31, 2023.

Other Assets

Other assets, non-current is comprised of the following amounts (in $000’s):

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in $000’s ):

Long-Term Debt

Long-term debt, non-current consisted of the following (in $000’s ):

Amortization of deferred debt issuance costs began in the quarter ended June 30, 2025, once construction of the Georgetown facility was substantially complete. We amortized $62,000 of the deferred financing costs to interest expense during the year ended December 31, 2025, with no such amortization in the prior year. As of December 31, 2025, the effective interest rate on the Company's long-term debt was 6.9%

Note 3 - Long-Term Debt

In May 2024, we renewed our revolving line of credit (the “revolving line of credit”) with Susser Bank (“Lender”) pursuant to a Business Loan Agreement (Asset Based) effective May 5, 2024. The obligations under the revolving line of credit were secured by substantially all of our accounts receivable. Our wholly owned subsidiaries jointly and severally guaranteed our obligations under the revolving line of credit. We terminated the revolving line of credit on December 31, 2024 when we entered into a new credit agreement with Susser Bank described below. There were no borrowings outstanding on the revolving credit facility during the years ended December 31, 2024 and 2023.

On December 31, 2024, we entered into a new Credit Agreement (the “Credit Agreement”) with Susser Bank to fund improvements at the Georgetown, Texas location we leased on December 2, 2024 to which we have now moved our headquarters and operations. The Credit Agreement provides for a $20.0 million term loan facility, and the option for additional incremental term loans of up to $5.0 million (the “accordion feature”), pending Lender approval. Upon closing on December 31, 2024, we borrowed $8.7 million, with $5.0 million of that amount deposited in a required interest-bearing cash collateral account, $3.4 million reimbursed to us for capital expenditures previously funded with our operating cash, and $0.3 million funding loan closing costs. During the year ended December 31, 2025, we borrowed the remaining $11.3 million of available funds, bringing the total amount borrowed to $20.0 million. Per its terms, we made interest-only payments through July 5, 2025. On July 5, 2025, the loan converted to a fully amortizing term loan with a final due date of January 5, 2030 and monthly payments of approximately $437,000 beginning on August 5, 2025. On September 17, 2025, we exercised the accordion feature on our Credit Agreement, increasing the amount borrowed by $5.0 million, The additional $5.0 million had the same terms, including the interest rate, maturity date and payment terms as those of the original $20.0 million term loan. As the loan bears a floating interest rate, the total payment will fluctuate from time to time with prevailing interest rates. The loan was secured by a $5.0 million cash deposit held in a money market account with related earnings payable to the Company and substantially all of the company’s assets. The restriction on the $5.0 million cash deposit was released in December 2025, with the majority of those funds used to retire the accordion loan, and the remaining funds were released to us. Interest accrues at a rate per annum equal to 1-month SOFR plus 3.0%, subject to a 4.5% floor. Upon an event of default, interest would accrue at a rate equal to the normal rate plus 2.0%. Following the borrowing and subsequent full repayment of the accordion loan, the remaining loan balance is related solely to the original term loan, and monthly payments have returned to approximately $0.4 million.

The Credit Agreement includes customary affirmative covenants for secured transactions of this type, including maintaining adequate books and records, periodic financial reporting, compliance with laws, maintenance of insurance, maintenance of assets, timely payment of taxes, and notices of adverse events. It also includes customary negative covenants including incurrence of other indebtedness, mergers, consolidations and transfers of assets and liens on our assets. The Loan Agreement and ancillary documents also include customary events of default, including payment defaults, failure to perform or observe terms, covenants or agreements included in the Loan Agreement and ancillary documents, insolvency and bankruptcy defaults, judgment defaults, material adverse change defaults, and change of ownership defaults. Financial covenants require us to maintain a leverage ratio, as defined in the agreement, of no more than 2.75x through September 30, 2026; and 2.00x after September 30, 2026, and a debt service coverage ratio, as defined in the agreement, of at least 1.25x. We were in compliance with all covenants at December 31, 2025.

As of December 31, 2025, all available funds under the Credit Agreement have been drawn.

The following table presents the aggregate future maturities of the Company’s debt as of December 31, 2025 (in $000’s):

Note 4 – Leasing Arrangements

We have operating leases for our office and integration facilities in both Round Rock, Texas and Georgetown, Texas as well as for certain equipment. Our leases have remaining lease terms of 2 to 113 months. We have no remaining renewal options on our Round Rock facility. We have several renewal options available on our Georgetown, Texas facility, which were evaluated at lease commencement and determined not to be reasonably certain to be renewed, as the initial term is 10 years and we cannot accurately predict whether we would be likely or unlikely to exercise such an option that far into the future. As such, it was excluded from the measurement of the right-of-use asset and lease liability.

We determine if an arrangement is a lease at its inception. Operating leases are included in the lease right-of-use assets, current lease liabilities and lease liabilities, non-current, on our consolidated balance sheets. We have elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet. We also selected a package of practical expedients which applies to leases that commenced before the adoption date. By electing the package of practical expedients, we did not need to reassess whether any existing contracts are or contain leases, the lease classification for any existing leases and initial direct costs for any existing leases. Additionally, as an ongoing accounting policy election, we elected the practical expedient to not separate lease components from non‑lease components for our facility and equipment lease asset classes. As a result, each lease component and its related non‑lease components are accounted for together as a single lease component.

Right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term, with variable lease expense recognized in the period in which the costs are incurred. Variable lease expense is comprised of common area maintenance (CAM), property taxes and property insurance. Components of lease expense and other information is as follows (in $000’s ):

The following presents information regarding the Company's operating leases as of December 31:

Future minimum lease payments under non-cancellable leases as of December 31, 2025, were as follows (in $000’s ):

During the year ended December 31, 2025, the Company resolved all required contractual contingencies in order to receive the tenant leasehold improvement allowance of $6.8 million from the lessor and remeasured the associated right-of-use asset and lease liability accordingly. We collected the $6.8 million from the lessor in the year ended December 31, 2025. These funds reimbursed us for capital expenditures we had previously funded with our cash and bank debt for the build-out of our Georgetown integration facility.

Note 5–Income Taxes

The U.S. and non-U.S. components of income from continuing operations before income taxes were as follows (in $000’s):

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are established for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates. The provision/(benefit) for income taxes from continuing operations consists of the following (in $’000):

The significant components of our deferred tax assets and liabilities are as follows (in $000’s):

On December 31, 2025, and 2024, we had net operating losses ("NOL”) of approximately $54 million and $37 million, respectively, to offset future taxable income. A portion of the Company’s net operating loss carryforwards will begin to expire in 2029 if not utilized sooner. Despite the increase in reported pre-tax income according to U.S. GAAP, the NOL grew during 2025 primarily due to the immediate expensing of certain fixed asset additions tied to the buildout of our Georgetown, Texas facility, as allowed under the OBBBA.

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the "change in ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.

Our provision for income taxes reflects the establishment of a valuation allowance against deferred tax assets as of December 31, 2025 and 2024. Accounting Standards Codification Topic 740, “Income Taxes,” requires management to evaluate its deferred tax assets on a regular basis to reduce them to an amount that is realizable on a more likely than not basis. Based on our recent earnings trend and expectations of continuing taxable income, enhanced by signing the extension of our long-term AI rack integration agreement in December 2025, we have determined that it is more likely than not that we will realize the tax benefit of our deferred tax assets, with certain limited exceptions. Consequently, during 2025 the valuation allowance decreased by $8.9 million due to continuing operations. In determining our provision/(benefit) for income taxes, net deferred tax assets, liabilities and valuation allowances, we are required to make judgments and estimates related to projections of profitability, the timing and extent of the utilization of net operating loss carryforwards and applicable tax rates. Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could differ materially from the projections.

Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, the reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2025 was as follows (in $'000, except for percentages):

(a) State taxes in Texas comprised the majority (greater than 50%) of the tax effect in this category.

The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:

We have adopted the provisions of the guidance related to accounting for uncertainties in income taxes. We have analyzed our current tax reporting compliance positions for all open years, and have determined that although not necessarily material, we have identified unrecognized state tax benefits that we have added to the tabular reconciliation schedule. All of our prior federal filings from the 2022 tax year forward remain open under statutes of limitation, and operating losses generated in years prior to 2022 remain open to adjustment until the statute closes for the tax year in which the net operating losses are utilized. State filings from the 2021 tax year forward remain open under statutes of limitation. We have no federal or state income tax returns currently under examination.

As of December 31, 2025, reserves for uncertain tax positions consisted of uncertain tax positions related to state limitations on the deductibility of production costs. Activity within our reserve for uncertain tax positions as well as the penalties and interest are recorded as a component of the Company's income tax expense. Interest and penalties accrued were $26,000 for the current year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in $’000):

On July 4, 2025, the U.S. H.R.1, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14. (the “OBBBA”) was enacted. The OBBBA introduces multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses, capital expenditures, and U.S. taxation of international earnings; the repeal or acceleration of the sunset of certain tax credits under the 2022 Inflation Reduction Act and elimination of certain penalties for violations of certain regulatory credit programs. We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the year ended December 31, 2025. We will continue to evaluate the impact of these provisions on our 2026 and subsequent consolidated financial statements.

Note 6**–** Commitments and Contingencies

In the normal course of business, we issue binding purchase orders to subcontractors and equipment suppliers. At December 31, 2025, these open purchase order commitments amount to approximately $54.6 million, with $53.6 million of that related to our procurement segment operations. The majority of services to be delivered and inventory or equipment to be received is expected to be satisfied during the first six months of 2026 at which time these commitments will be fulfilled.

We are not a party to any material litigation in any court, and we are not aware of any contemplated proceeding by any governmental authority against us. From time to time, we are involved in various legal matters and proceedings concerning matters arising in the ordinary course of business such as employment-related matters. We believe that any potential liability arising out of these matters and proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

Note 7**– Fair Value Measurements**

U. S. GAAP 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. U. S. GAAP also established 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. As of December 31, 2025, we did not have any assets measured at fair value on a recurring basis that would require disclosure based on the fair value hierarchy of valuation techniques. In addition, certain non-financial assets and liabilities are to be initially measured at fair value on a non-recurring basis. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) and non-financial, long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets and liabilities, including goodwill and property and equipment, are measured at fair value using Level 3 inputs, which result in management’s best estimate of fair value from the perspective of a market participant, when there is an indication of impairment and are recorded at fair value only when impairment is recognized.

Note 8–** Share-Based Payments**

In June 2015, our stockholders approved our 2015 Omnibus Incentive Compensation Plan and reserved 2.5 million shares of our common stock for issuance to employees and directors through incentive stock options, non-qualified stock options or restricted shares. At our 2021 Annual Meeting of Stockholders our stockholders approved a further increase of 3.0 million shares of our common stock reserved for our 2015 plan. In June 2025, our stockholders approved a new 2025 Omnibus Incentive Compensation Plan (the “Plan”) and reserved a further 1.5 million shares of our common stock for issuance to employees and directors through incentive stock options, non-qualified stock options or restricted shares. On December 31, 2025,1,492,090 shares remain available for issuance.

The Plan is administered by the compensation committee of our Board of Directors. Subject to the express provisions of the Plan, the compensation committee has the Board of Directors' authority to administer and interpret the Plan, including the discretion to determine the form of grant, exercise price, vesting schedule and any performance criteria, contractual life and the number of shares to be issued. We have historically issued restricted stock under the Plan; however, as further incentive to key employees, the Company also issued options to purchase shares of our common stock during the years ended December 31, 2025, 2024 and 2023.

Stock-based Compensation Expense

For the years ended December 31, 2025, 2024, and 2023, we recognized stock-based compensation of approximately $3,956,000, $1,235,000 and $581,000, respectively, which was included in selling, general and administrative expenses on the accompanying Consolidated Statements of Operations.

As of December 31, 2025, the total unrecognized compensation cost related to unvested restricted stock and options to purchase common stock was approximately $4.6 million with a weighted average remaining vest life of 0.89 years.

Stock Options

Although we have historically issued restricted stock under the Plan, we also issued options to purchase shares of our common stock during the years ended December 31, 2025, 2024 and 2023. Option grants can have various vesting features but typically involve time-based vesting.

Fair Value Determination –We utilize a Black-Scholes-Merton model to value stock options vesting over time. We will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under these models.

Volatility -The expected volatility of the options granted was estimated based upon historical volatility of our share price through weekly observations of our trading history corresponding to the expected term for Black-Scholes-Merton model.

Expected Term -Given the lack of historical experience, the expected term of options granted to employees was determined utilizing a plain vanilla approach whereby minimum or median time to vest and the contractual term of 10 years are averaged.

Risk-free Interest Rate -The yield was determined based on U.S. Treasury rates corresponding to the expected term of the underlying grants.

Dividend Yield -The Black-Scholes-Merton valuation model requires an expected dividend yield as an input. We currently do not anticipate paying dividends; therefore, the yield was estimated at zero.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the date of grant and accounts for forfeitures as they occur. The following table summarizes weighted-average assumptions used in our calculations of fair value for stock-option grants for the years ended December 31, 2025 and 2024:

During the year ended December 31, 2025, we granted stock options to purchase 6,000 shares of common stock at a weighted-average exercise price of $17.79 per share, which reflected the 30-day weighted fair market value of the shares on date of grant. The weighted-average fair value of options granted during the year ended December 31, 2025, as determined under the Black-Scholes-Merton valuation model was $5.35.

During the year ended December 31, 2024, we granted stock options to purchase 770,000 shares of common stock at a weighted-average exercise price of $0.86 per share, which reflected the 30-day weighted fair market value of the shares on date of grant. The weighted-average fair value of options granted during the year ended December 31, 2024, as determined under the Black-Scholes-Merton valuation model was $0.57.

The following table includes information with respect to stock option activity and stock options outstanding for the year ended December 31, 2025:

*Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market price).

The aggregate intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $1.3 million and $10.5 million respectively. There were no options exercised during the year ended December 31, 2023.

The following table summarizes non-vested stock options for the years ended December 31, 2025:

The following table includes information concerning stock options exercisable and stock options expected to vest on December 31, 2025:

Restricted Stock

We have granted shares of restricted stock under the Plan. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. Restricted shares issued to employees typically vest over two or three years in equal installments on the anniversaries of the grant date, contingent upon employment with the Company on the vesting dates. Occasionally, we also require recipients to meet certain performance criteria in addition to the vesting time period. The related compensation expense is recognized over the service period and is based on the grant date fair value of the stock and the number of shares expected to vest. For performance-based restricted stock grants, expense recognition begins only once we determine it is probable that the performance criteria will be met.

The fair value of restricted stock awarded for the years ended December 31, 2025, 2024, and 2023 was $7,243,063, $1,539,525, and $598,770 respectively, and was calculated using the value of TSS’ common stock on the grant date. The value of awards is amortized over the vesting periods of the awards considering the effect of an estimated forfeiture rate of zero associated with termination behavior for the years ended December 31, 2025, 2024, and 2023 respectively.

The following table summarizes the restricted stock activity during the years ended December 31, 2025:

The weighted-average grant date fair value per restricted share granted in the years ended December 31, 2025, 2024 and 2023 was $14.33, $1.02 and $0.52, respectively.

Note 9–** Common Stock Repurchases**

During the years ended December 31, 2025, 2024, and 2023, we repurchased 263,892,753,810 and 104,711 treasury shares, respectively, with an aggregate value of approximately $4,904,000, $4,485,000 and $40,000 respectively, associated with the vesting of restricted stock held by employees or upon the exercise of stock options held by employees. Per terms of the restricted stock agreements, for certain employees we paid the employees’ related taxes associated with the employees’ vested stock and decreased the freely tradable shares issued to the employee by a corresponding value, resulting in a share issuance net of taxes to the employee. The value of the shares netted for employee taxes represents treasury stock repurchased. Per terms of the stock option agreements, for certain employees we paid the exercise price of the stock option and decreased the freely tradable shares issued to the employee by a corresponding value, resulting in a share issuance, net of the exercise price to the employee.

Note 10–** Related Party Transactions**

We had no related party transactions in the years ended December 31, 2025, 2024 and 2023.

Note 11–** Net Income Per-Share**

Basic and diluted income per share is based on the weighted average number of shares of common stock and potential common stock outstanding during the period. Potential common stock, for the purpose of determining diluted income per share, includes the effects of dilutive unvested restricted stock and options to purchase common stock. The effect of such potential common stock is computed using the treasury stock method.

The following table presents a reconciliation of the numerators and denominators of the basic and diluted income per share computations for income from continuing operations. In the table below, income represents the numerator, and shares represent the denominator (in thousands except per share amounts):

For the years ended December 31, 2025, 2024, and 2023,39,000,2,126,000 and 3,226,000 potentially dilutive shares, respectively, were excluded from the calculation of dilutive shares because their effect would have been anti-dilutive.

Note 12 - Segment Reporting

Segment information reported in the tables below represents the operating segments of the Company organized in a manner consistent with which separate information is available and for which segment results are evaluated regularly by our President and CEO, who is our chief operating decision-maker (CODM), in assessing performance, allocating resources and awarding incentive compensation. Our CODM evaluates our operations and allocates resources on the basis of three segments, which are our reportable segments as noted below. Our revenues are substantially all derived from the U.S. market, and all revenues presented are from external customers; we have no intercompany revenues.

The Company’s reportable segments are as follows:

The CODM evaluates the performance of the segments based on segment revenue, gross profit and pre-tax income, by comparing actual results to historic results and previously forecast financial information. Segment results are exclusive of certain corporate activities and expenses that are not allocated to specific segments, and which are reconciled below to our consolidated pre-tax income.

Other consolidated assets not specifically attributable to or allocated to business segments are principally cash and cash equivalents, prepaids and deposits, certain fixed assets, and operating lease right-of use assets. Other operating expenses (income) in the following tables generally represent property taxes, rent and related costs, travel and entertainment, professional fees, office supplies and other similar items utilized by the specific reportable segments but not separately identified in the tables below as none of the costs are individually significant.

Information regarding our reportable segments is presented below (in thousands):

The table below reconciles total segment pre-tax income for each period presented above to consolidated pre-tax income (in thousands):

The table below presents segment total assets for December 31, 2025 and 2024 (in thousands):

The table below reconciles combined segment total assets for each period above to consolidated total assets (in thousands):