TSS, Inc.

Condensed Consolidated Balance Sheets

(in thousands except par values)

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per-share amounts)

Unaudited Condensed Consolidated Statements of Changes in Stockholders’** Equity**

Unaudited Condensed Consolidated Statements of Changes in Stockholders’** Equity, Continued**

Unaudited Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Statements

(Unaudited)

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 in May 2025. In May 2026, our largest customer engaged us to provide warehousing and logistics services from our Round Rock, Texas facility for their materials that are expected to ultimately be used in the AI rack integration services we provide them.

Basis of Presentation

The preparation of the condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("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.

The accompanying condensed consolidated balance sheet as of December 31, 2025, derived from audited consolidated financial statements, and the unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial statements and pursuant to the rules and regulations of the SEC for interim reporting and include the accounts of the Company and its consolidated subsidiaries. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations, changes in stockholders’ equity and cash flows. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The Company’s business is not subject to significant seasonal fluctuations.

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 condensed 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 September 30, 2026 and December 31, 2025. 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.See Note 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.

Certain arrangements contain lease components that are accounted for under ASC 842. Revenues associated with such arrangements are recognized as operating lease income and are not included in the Company's ASC 606 revenue disclosures.

Maintenance services

We generate maintenance services revenues by providing our customers with as-needed maintenance and repair services on modular data centers (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 and in July 2026, 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.

Pursuant to a multi-year warehousing and logistics agreement that became effective on May 1, 2026, we provide dedicated warehouse capacity, inventory management, fulfillment, transportation coordination, and related support services from our Round Rock, Texas facility for consigned materials that our largest customer expects us to use in integrating AI racks for them. Although it does not legally contain a sublease, management determined that the arrangement contains an embedded lease under ASC 842. Accordingly, consideration attributable to the customer's right to use the dedicated warehouse facility is recognized as operating lease income on a straight-line basis over the lease term, while consideration attributable to warehousing, logistics, transportation, and related services is recognized as revenue under ASC 606 as the related performance obligations are satisfied. The contract contains both fixed and variable activity-based pricing elements; however, revenue recognized for the non-lease components is based on services transferred to the customer and is not contingent upon future estimates of performance.

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 September 30, 2026 and December 31, 2025, we had no allowance for credit losses.

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 pay 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). Total revenues, as presented in this table, exclude operating lease income of $433,000 and $722,000, respectively, for the three and nine month periods ended September 30, 2026, which are included in Total Revenues on our Statements of Operations, but the accounting of which is prescribed by ASC 842. This note presents only the revenues subject to the revenue recognition principles stipulated in ASC 606.

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 revenues 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.

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 September 30, 2026, total remaining performance obligations and deferred revenue were $109 million. The remaining performance obligation includes:

Contract liabilities consisting of deferred revenues were $13,928,000 on December 31, 2025, and $3,384,000 on December 31, 2024. Substantially all of the recorded deferred revenues at December 31, 2025 and December 31, 2024 had been earned or are expected to be earned and recorded as revenues in the twelve months following each such date.

Concentration of Credit Risk

We are 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 97% of our trade accounts receivable at September 30, 2026 and 98% at December 31, 2025. No other customer represented more than 10% of our trade 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 because 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 condensed 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 condensed 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 incurred, 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.

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 three months and nine months ended September 30, 2026, we incurred approximately $1.1 million and $3.2 million, respectively, of non-cash stock-based compensation expense. In the comparable three months and nine months ended September 30, 2025, we incurred approximately $1.0 million and $2.9 million, respectively, of non-cash stock-based compensation expense. In each period, the expense was included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

Cash, cash equivalents, and restricted cash

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 $54.0 million and $85.5 million, almost all of which was beyond FDIC insured limits on September 30, 2026 and December 31, 2025, respectively. At September 30, 2026, we additionally had $1.8 million of restricted cash in a money market account held by our bank as collateral for a letter of credit securing our electrical service provider, which also exceeded FDIC insured limits. This restricted cash is not available for general corporate purposes and is presented separately in our balance sheet as “Restricted cash.”

Contract and Other Receivables

Accounts receivables 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 condensed 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

The Company previously recorded definite-lived intangible assets, including customer relationships and acquired software, in connection with business acquisitions. These intangible assets were amortized over their estimated useful lives. In the current year, the Company determined that its fully amortized definite-lived intangible assets were no longer in use. Accordingly, the related gross carrying amounts and accumulated amortization were written off. The write-off had no impact on the Company's consolidated statements of operations, financial position, or cash flows because the assets had a net carrying value of zero. As of September 30, 2026, the Company had no recorded definite-lived intangible assets.

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is evaluated for impairment at least annually, or more frequently if events or changes in circumstances indicate that impairment may exist. Goodwill is allocated to the reporting unit to which the related acquisition pertains.

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 at December 31, 2025 and concluded no impairment existed at that date. In the quarter ended September 30, 2026, we considered relevant matters including macroeconomic and other conditions on our operations and noted no triggering events or circumstances that occurred during that period that would indicate the carrying value of our goodwill was impaired. On September 30, 2026, and December 31, 2025, the carrying value of goodwill was $0.8 million.

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, in the fourth quarter of 2025, we 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. In the three months and nine months ended September 30, 2026, this is due primarily to discrete items, such as tax benefits attributed to stock compensation realized in the period, and in the prior three and nine months ended September 30, 2025, this was due to the partial release of the valuation allowance, which was sufficient to absorb such taxes in that period. We recognize any interest and penalty expense associated with uncertain tax positions as a component of income tax expense in the condensed 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.

Common Stock Repurchases

We account for common stock repurchases 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’ decisions 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, 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 September 30, 2026, 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. Although the employer match is voluntary according to the terms of the plan, the Company has contributed in each period presented a matching contribution of 50% of each participant’s employee contributions of up to 6% of eligible wages during the period. During the three and nine months ended September 30, 2026, the Company recognized expense of $0.1 million and $0.3 million, respectively, related to matching contributions. In the comparable prior year three and nine months ended September 30, 2025, the Company recognized expense of $0.1 million and $0.2 million, respectively, related to matching contributions.

Recently Adopted Accounting Guidance

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. We adopted this guidance effective January 1, 2026, and elected to apply the practical expedient. It did not have a material impact on our financial results of operations or financial position.

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 first effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. Adoption of this new guidance will not affect our statement of operations, net operating results or financial position as it serves only to require additional footnote disclosures. We have not yet determined all the effects that adoption will have on our footnote 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 using 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 and other receivables, net were $16,203,000 as of December 31, 2024.

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 $1.5 million and $4.0 million for the three and nine months ended September 30, 2026, respectively. In the comparable three and nine months ended September 30, 2025, we recognized $1.4 million and $2.4 million of depreciation and amortization expense.

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 (unaudited, in $000’s):

Goodwill

Goodwill is attributable to the following reportable segments (in ‘000’s):

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 $28,000 and $64,000 of the deferred financing costs to interest expense during the three and nine-month periods ended September 30, 2026, respectively. In the comparable three and nine-month periods ended September 30, 2025, we amortized $32,000 and $40,000 respectively, of deferred issuance costs. As of September 30, 2026, the effective interest rate on the Company's long-term debt was 6.9%.

Note 3 - Long-Term Debt

On December 31, 2024, we entered into a 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 moved our headquarters and operations in 2025. The Credit Agreement provided 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”). 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. 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 substantially all of the company’s assets, including a $5.0 million cash deposit held in a money market account with related earnings payable to the Company. 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 Secured Overnight Financing Rate (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 Credit 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 Credit 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 2.00x, and a debt service coverage ratio, as defined in the agreement, of at least 1.25x. We were in compliance with all covenants at September 30, 2026 and December 31, 2025.

As of September 30, 2026, 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 September 30, 2026 (unaudited, in $000’s):

To secure the additional electrical capacity required to support increased demand, the utility provider at our Georgetown integration facility required us to provide a $1.8 million bank letter of credit, which was issued in 2026 and collateralized by a corresponding amount of restricted cash. The letter of credit was issued by Susser Bank.

Note 4 - Leasing Arrangements

Lessee Arrangements

We have operating leases for our office, integration and warehouse facilities in both Round Rock, Texas and Georgetown, Texas as well as for certain equipment. Our leases have remaining lease terms of 30 to 104 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 condensed 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 for leases in which we are the lessee is as follows (unaudited, in $000’s):

The following presents information regarding the Company's operating leases as of September 30 (unaudited):

Future minimum lease payments under non-cancellable leases as of September 30, 2026 were as follows (unaudited, in ‘000’s):

Lessor Arrangements

In applying ASC 842, the Company exercises judgment in determining whether customer arrangements contain embedded leases. This assessment considers whether a contract conveys the right to control the use of an identified asset for a period of time, including whether the customer obtains substantially all of the economic benefits from use of the asset and has the right to direct its use.

Effective May 1, 2026, the Company entered into an arrangement with its largest customer whereby the Company uses substantially all of the capacity of the Company's Round Rock, Texas warehouse facility to provide warehousing services for the customer. The term of the agreement runs through the expiration of our lease at that facility on March 31, 2029, and includes the potential of extensions beyond that date if both parties agree. While not legally structured as a sublease, management concluded that the arrangement contains an embedded operating lease under ASC 842. In reaching this conclusion, management considered, among other factors, the customer’s exclusive right to utilize the warehouse capacity and decision‑making authority over how and for what purpose the warehouse is used, as well as the Company’s lack of substantive rights to redirect the asset during the contract term. The Company is the lessee under the underlying property lease and has therefore accounted for the arrangement as a sublease.

Changes in contractual terms or operational practices could impact the Company’s assessment of whether future arrangements contain embedded leases.

Lease income relates solely to the lease component identified within the Round Rock warehousing arrangement. Non-lease components, including warehousing, logistics, transportation, and related services, are accounted for separately under ASC 606 and are not included in the amounts presented below.

The following table presents our lease income (in ’000’s):

Future lease income under noncancelable operating subleases as of September 30, 2026 were as follows (unaudited, in ‘000’s):

Note 5 – Income Taxes

For the three and nine months ended September 30, 2026, the Company recorded an income tax expense of $0.3 million and $1.1 million, respectively. The effective tax rate for the three and nine months ended September 30, 2026 was 22.7% and 19.0%, respectively, which includes applying the projected annual effective tax rate of 27.3% before discrete events and accounting for discrete items, such as additional tax benefits of stock compensation realized during the applicable periods.

For the three and nine months ended September 30, 2025, the Company recorded an income tax expense of $0.1 million and $0.2 million, respectively. The effective tax rate for the three and nine months ended September 30, 2025 was (3.5)% and 5.4%, respectively. The effective tax rate differs from the statutory federal rate of 21% due primarily to the application of valuation allowances. The Company’s conclusion regarding the realizability of its deferred tax assets changed during 2025 due to its history of earnings and expectations of continuing taxable income, resulting in the release of its valuation allowance, with certain limited exceptions, as of December 31, 2025.

At September 30, 2026 and 2025, the Company’s total unrecognized tax benefits, excluding interest, were $0.1 million and $0 respectively. As of September 30, 2026 and September 30, 2025, the Company had less than $0.1 million and $0, respectively, of accrued penalties and interest reflected in accrued expenses.

Note 6 – Commitments and Contingencies

In the normal course of business, we issue binding purchase orders to subcontractors and equipment suppliers. At September 30, 2026, these open purchase order commitments totaled approximately $30.1 million, with $26.0 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 next six months 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 September 30, 2026, 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**

Stock‑based compensation expense, reported as a component of selling, general and administrative expense in all periods presented, was $1.1 million and $3.2 million for the three and nine months ended September 30, 2026, and was $1.0 million and $2.9 million for the comparable periods of 2025. As of September 30, 2026, total unrecognized compensation cost related to unvested share‑based awards was $4.5 million, which is expected to be recognized over a weighted‑average period of 1.7 years.

There were no material changes to the Company’s share‑based payment plans, valuation methodologies, or significant award terms during the quarter.

Note 9–** Common Stock Repurchases**

During the three and nine months ended September 30, 2026, we repurchased 6,088 and 209,874 shares of our common stock, respectively, with an aggregate value of approximately $72,000 and $2,290,000 respectively, associated with the vesting of restricted stock held by employees or upon the exercise of stock options held by employees. In the comparable three and nine months ended September 30, 2025, we repurchased 39,596 and 262,388 shares of our common stock, respectively, with an aggregate value of approximately $975,000 and $4,895,000. Per terms of the restricted stock agreements, for certain employees we paid the employees’ related taxes associated with the vesting of the employees’ restricted stock and withheld from the shares issued to the employee the market value of shares which corresponded to the taxes, resulting in a share issuance net of taxes to the employee. The value of the shares netted for employee taxes represents common stock repurchased. Per terms of the stock option agreements, for certain employees we paid the exercise price of the stock option and related taxes, and decreased the shares issued to the employee by a corresponding value, resulting in a share issuance net of the exercise price and taxes to the employee.

Note 10 – Related Party Transactions

During the three and nine months ended September 30, 2026, the Company entered into transactions with a related party, Neovia Logistics Services, LLC (“Neovia”). Neovia is considered a related party because its Chief Executive Officer is an independent director on the Company’s board of directors. The transactions consisted of outsourced warehouse management and inventory consulting services. Neovia has managed the Company’s Round Rock, Texas warehouse since May 1, 2026 and has managed the warehousing portion of the Company’s Georgetown, Texas integration facility since September 1, 2026. The services in Round Rock are contracted to continue through the end of that lease on March 31, 2029, and in our Georgetown integration facility through August 31, 2029. For the three and nine-month periods ended September 30, 2026, expenses recognized related to these transactions totaled approximately $1.1 million and $1.6 million, respectively, and are included in Company’s cost of revenues. As of September 30, 2026, amounts due to the related party were $0.5 million and are included in accounts payable. No related party transactions were present, nor any amounts due to or from related parties, in the comparable prior year periods.

Note 11 – Earnings (Loss) Per-Share

Basic and diluted earnings (loss) 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 purpose of determining diluted earnings (loss) per share, includes the effects of dilutive unvested restricted stock, options to purchase common stock and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, as applicable.

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

For the three and nine months ended September 30, 2026, respectively,46,000 and 54,000 restricted shares and options were excluded from the calculation of dilutive shares because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2025, respectively,2,332,292 and 50,000 restricted shares and options 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 and operating lease income, gross profit and pre-tax income (loss), 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 (unaudited, in thousands):

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

The table below presents segment total assets for September 30, 2026 and December 31, 2025 (unaudited, in thousands):

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

Note 13 – Subsequent Events

On October 1, 2026, the Company entered into a lease agreement for 379,886 square feet of warehouse space located in Georgetown, Texas, comprised of two buildings in a single business park (the “Berry Creek Warehouse”). The initial lease term is expected to commence on or about December 1, 2026 subject to customary conditions and expire April 30, 2034. The lease includes the option to renew the lease for one five-year period. The Company took possession of one building comprising 126,722 square feet beginning October 2026, allowing it to begin providing warehousing services to its largest customer. Under the terms of the agreement, the Company is obligated to make fixed lease payments of approximately $32.3 million over the lease term, plus common area maintenance charges, taxes, insurance and other variable payments. The Company is currently evaluating the accounting impact of the lease agreement, including the amount of the right-of-use asset and lease liability that will be recognized upon lease commencement under ASC 842,Leases.

Effective October 1, 2026, the Company entered into an arrangement with its largest customer whereby the Company will use the entire Berry Creek Warehouse to provide warehousing services for the customer. The seven-year term of the agreement, running from October 1, 2026 to September 30, 2033, closely aligns with the lease term and includes the potential of extensions beyond that date if both parties agree. The Company has entered into an agreement with Neovia, a related party described in more detail underNote 10 – Related Parties, whereby Neovia will provide daily management of the warehouse, operations, inventory and transportation services from the Company’s new Berry Creek Warehouse facility beginning October 1, 2026.