UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q  

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the quarterly period ended September 30, 2020

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 001-33627

 


 

TSS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-2027651

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

110 E. Old Settlers Blvd

Round Rock, Texas

 

78664

(Address of principal executive offices)

 

(Zip Code)

 

(512) 310-1000

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act : None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.             Yes ☒ No ☐

 

Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

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

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐ 

Smaller reporting company ☒

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Number of shares of common stock outstanding as of November 16, 2020              18,945,135

 

 

 

 

TSS, INC.

 

QUARTERLY REPORT ON FORM 10Q

 

For the Quarterly Period Ended September 30, 2020

 

“SAFE HARBOR” STATEMENT

ii

PART I–FINANCIAL INFORMATION

1

Item 1.    Consolidated Financial Statements

1

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.    Controls and Procedures

20

PART II–OTHER INFORMATION

21

Item 1.    Legal Proceedings

21

Item 1A. Risk Factors

21

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

21

Item 6.     Exhibits

22

 

 

 

“SAFE HARBOR” STATEMENT

UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

From time to time, we make oral and written statements that may constitute “forward-looking statements” (rather than historical facts) as defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission (the “SEC”) in its rules, regulations and releases, including Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We desire to take advantage of the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995 for forward looking statements made from time to time, including, but not limited to, the forward- looking statements made in this Quarterly Report on Form 10-Q (the “Form 10-Q”), as well as those made in other filings with the SEC.

 

Forward looking statements can be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “forecast,” “foresee” or other similar words. Such forward looking statements are based on management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that could cause actual results to differ materially from those described in the forward-looking statements. Important factors that could cause actual results to differ materially from those anticipated in our forward-looking statements include, but are not limited to, those described under Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

We expressly disclaim any obligation to release publicly any updates or any changes in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based.

 

As used herein, except as otherwise indicated by the context, the terms “TSS”, “Company”, “we”, “our” and “us” are used to refer to TSS, Inc. and its subsidiaries.

 

ii

 

PART I - FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

TSS, Inc.

 

Consolidated Balance Sheets

(in thousands except par values)

 

    September 30,        
   

2020

   

December 31,

 
   

(unaudited)

   

2019

 
   

 

         

Current Assets:

               

Cash and cash equivalents

  $ 9,455     $ 8,678  

Contract and other receivables, net

    1,258       3,865  

Costs and estimated earnings in excess of billings on uncompleted contracts

    341       181  

Inventories, net

    207       1,353  

Prepaid expenses and other current assets

    237       108  

Total current assets

    11,498       14,185  

Property and equipment, net

    764       705  

Lease right-of-use asset

    1,034       1,481  

Goodwill

    780       780  

Intangible assets, net

    239       307  

Other assets

    230       109  

Total assets

  $ 14,545     $ 17,567  
                 

Current Liabilities:

               

Bank note payable

  $ 373     $ -  

Accounts payable and accrued expenses

    2,888       8,851  

Deferred revenues

    4,959       2,104  

Current portion of lease liabilities

    721       645  

Total current liabilities

    8,941       11,600  

Long-term borrowings

    2,183       2,028  

Non-current portion of lease liabilities

    404       956  

Non-current portion of bank note payable

    520       -  

Non-current portion of deferred revenues

    117       114  

Total liabilities

    12,165       14,698  
                 

Commitments and Contingencies

    -       -  
                 

Stockholders’ Equity:

               

Preferred stock, $.0001 par value; 1,000 shares authorized at September 30, 2020 and December 31, 2019; none issued

    -       -  

Common stock, $.0001 par value; 49,000 shares authorized at September 30, 2020 and December 31, 2019; 18,945 and 18,524 issued; 17,851 and 17,562 outstanding at September 30, 2020 and December 31, 2019, respectively

    2       2  

Additional paid-in capital

    69,902       69,661  

Treasury stock 1,094 and 962 shares at cost at September 30, 2020 and December 31, 2019

    (1,872 )     (1,700 )

Accumulated deficit

    (65,652

)

    (65,094

)

Total stockholders' equity

    2,380       2,869  

Total liabilities and stockholders’ equity

  $ 14,545     $ 17,567  

 

See accompanying notes to the consolidated financial statements.

 

 

1

 

TSS, Inc.

 

Consolidated Statements of Operations

(in thousands, except per-share amounts; unaudited)

 

   

Three Months Ended

September 30

   

Nine Months Ended

September 30

 
   

2020

   

2019

   

2020

   

2019

 

Results of Operations:

                               

Revenue

  $ 20,763     $ 4,176     $ 37,814     $ 12,375  

Cost of revenue

    17,990       2,679       32,673       7,790  

Gross profit

    2,773       1,497       5,141       4,585  

Selling, general and administrative expenses

    1,668       1,425       5,011       4,301  

Depreciation and amortization

    139       84       390       244  

Total operating costs

    1,807       1,509       5,401       4,545  

Income (loss) from operations

    966       (12

)

    (260

)

    40  

Other income (expense):

                               

Interest expense, net

    (105

)

    (78

)

    (271

)

    (238

)

Income (loss)from operations before income taxes

    861       (90

)

    (531

)

    (198

)

Income tax expense

    9       5       27       22  

Net income (loss)

  $ 852     $ (95

)

  $ (558

)

  $ (220

)

                                 

Basic income (loss) per common share

  $ 0.05     $ (0.01

)

  $ (0.03

)

  $ (0.01

)

Diluted income (loss) per common share

  $ 0.04     $ (0.01

)

  $ (0.03

)

  $ (0.01

)

 

See accompanying notes to the consolidated financial statements. 

 

2

 

TSS, Inc.

 

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts, unaudited)

 

                   

Additional

                           

Total

 
   

Common Stock

   

Paid-in

   

Treasury Stock

   

Accumulated

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Deficit

   

Equity

 

Balance January 1, 2019

    17,520     $ 2     $ 69,241       777     $ (1,542

)

  $ (65,220

)

  $ 2,481  

Restricted stock vested

    390       -       -       -       -       -       -  

Stock options exercised

    310       -       31       -       -       -       31  

Treasury shares repurchased

    -       -       -       159       (137

)

            (137

)

Stock-based compensation

    -       -       72       -       -       -       72  

Net loss

    -       -       -       -       -       (31

)

    (31

)

Balance at March 31, 2019

    18,220     $ 2     $ 69,344       936     $ (1,679

)

  $ (65,251

)

  $ 2,416  

Treasury shares repurchased

    -       -       -       20       (16

)

    -       (16

)

Stock options exercised

    230       -       23       -       -       -       23  

Stock-based compensation

    -       -       87       -       -       -       87  

Net loss

    -               -       -       -       (94

)

    (94

)

Balance at June 30, 2019

    18,450     $ 2     $ 69,454       956     $ (1,695 )   $ (65,345

)

  $ 2,416  

Treasury shares repurchased

    -       -       -       3       (3 )     -       (3 )

Stock options exercised

    50       -       5       -       -       -       5  

Stock-based compensation

    -       -       85       -       -       -       85  

Net loss

    -       -       -       -       -       (95 )     (95 )

Balance at September 30, 2019

    18,500     $ 2     $ 69,544       959     $ (1,698 )   $ (65,440 )   $ 2,408  

 

 

                   

Additional

                           

Total

 
   

Common Stock

   

Paid-in

   

Treasury Stock

   

Accumulated

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Deficit

   

Equity

 

Balance January 1, 2020

    18,524     $ 2     $ 69,661       962     $ (1,700

)

  $ (65,094

)

  $ 2,869  

Restricted stock vested

    392       -       -       -       -       -       -  

Treasury shares repurchased

    -       -       -       130       (170 )     -       (170

)

Stock options exercised

    24       -       2       -       -       -       2  

Stock-based compensation

    -       -       109       -       -       -       109  

Net loss

    -       -       -       -       -       (368 )     (368

)

Balance at March 31, 2020

    18,940     $ 2     $ 69,772       1,092     $ (1,870

)

  $ (65,462

)

  $ 2,442  

Stock-based compensation

    -       -       93       -       -       -       93  

Net loss

    -       -       -       -       -       (1,042

)

    (1,042

)

Balance at June 30, 2020

    18,940     $ 2     $ 69,865       1,092     $ (1,870

)

  $ (66,504

)

  $ 1,493  

Treasury shares repurchased

    -       -       -       2       (2 )     -       (2 )

Stock-based compensation

    -       -       37       -       -       -       37  

Restricted stock vested

    5       -       -       -       -       -       -  

Net income

    -       -       -       -       -       852       852  

Balance at September 30, 2020

    18,945     $ 2       69,902       1,094     $ (1,872

)

  $ (66,652

)

  $ 2,380  

 

See accompanying notes to the consolidated financial statements.  

 

3

 

TSS, Inc.

 

Consolidated Statements of Cash Flows

(in thousands; unaudited)

 

     

Nine Months Ended September 30,

 
     

2020

   

2019

 

Cash Flows from Operating Activities:

                 

Net loss

  $ (558

)

  $ (220

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

                 

Depreciation and amortization

    390       244  

Non-cash interest

    90       80  

Amortization of debt discount

    68       60  

Stock-based compensation

    239       244  

Changes in operating assets and liabilities:

                 

Contract and other receivables

    2,607       (129

)

Costs and estimated earnings in excess of billings on uncompleted contracts

    (160

)

    (252

)

Inventories, net

    1,146       (1,077

)

Prepaid expenses and other current assets

    (250

)

    110  

Right-of-use assets

    447       391  

Accounts payable and accrued expenses

    (5,963

)

    817  

Deferred revenues

    2,858       247  

Operating lease liabilities

    (476

)

    (373

)

Net cash provided by operating activities

    438       142  

 

Cash Flows from Investing Activities:

                 

Capital expenditures

    (381

)

    (301

)

Net cash used in investing activities

    (381

)

    (301

)

                 

Cash Flows from Financing Activities:

                 

Proceeds from issuance of equity

    2       59  

Proceeds from bank note payable

    890       -  

Repurchase of stock

    (172

)

    (156

)

Net cash proved by (used in) financing activities

    720       (97

)

Net increase (decrease) in cash and cash equivalents

    777       (256

)

Cash and cash equivalents at beginning of period

    8,678       6,178  

Cash and cash equivalents at end of period

  $ 9,455     $ 5,922  

Supplemental disclosure of cash flow information:

                 

Cash paid for interest

  $ 154     $ 182  

Cash paid for taxes

  $ 62     $ 63  

 

See accompanying notes to the consolidated financial statements.

 

4

 

TSS, Inc.

Notes to 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 planning, design, deployment, maintenance, refresh and take-back of end-user and enterprise systems, including the mission-critical facilities they are housed in. 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 reseller services. Our corporate offices and our integration facility are located in Round Rock, Texas.

 

The accompanying consolidated balance sheet as of December 31, 2019, which has been derived from audited consolidated financial statements, and the unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 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 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, 2019.

 

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 we expect to be entitled to 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 standalone selling prices.

 

Maintenance Services

 

We generate maintenance services revenues from fees that provide our customers with as-needed maintenance and repair services on modular data centers during the contract term. Our contract terms are typically one year in duration, are billed annually in advance, and are non-cancellable. As a result, we record deferred revenue (a contract liability) and recognize revenue from these services on a ratable basis over the contract term. 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 expense has been insignificant.

 

Integration Services

 

We generate integration services revenues from fees that provide our customers with customized system 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. We typically extend credit terms to our integration customers based on their credit worthiness and generally do not receive advance payments. As such, we record accounts receivable at the time of shipment, when our right to the consideration becomes unconditional. Accounts receivable from our integration customers are typically due within 30-60 days of invoicing. An allowance for doubtful accounts 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, 2020, and December 31, 2019, our allowance for doubtful accounts was $8,000.

 

5

 

Equipment Sales

 

We generate revenues under fixed price contracts from the sale of data center and related ancillary equipment 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. Typically, we do not receive advance payments for equipment sales; however, if 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 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 modular data centers that we sold, and other fixed-price services, including repair, design and project management services. In some cases, we arrange for a third party to perform warranty and servicing of equipment, and in these instances, we recognize revenue as the amount of any fees or commissions that we expect to be entitled to receive. 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.

 

Reseller Services

 

We generate revenues from fees we charge our customers to procure third-party hardware, software and professional services on their behalf that are then used in our integration services as we integrate these components to deliver a completed system to our customer. We recognize our reseller services revenue upon completion of the procurement activity. In some cases, we arrange for the purchase of third-party hardware, software or professional services that are resold directly to the original equipment manufacturer (OEM) and other customers, and in these instances, we act as an agent in the transaction and recognize revenue as the amount of any fee or commissions that we expect to be entitled to receive. Accounts receivable from our reseller activities are typically due within 30-60 days of invoicing.

 

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, including those activities that occur subsequent to transfer of control to the customer, 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 transferred to the customer.

 

6

 

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

 

   

Three-Months Ended Sept. 30,

   

Nine-Months Ended Sept 30,

 
   

2020

   

2019

   

2020

   

2019

 

FACILITIES:

                               

Maintenance revenues

  $ 893     $ 996     $ 2,833     $ 3,148  

Equipment sales

    171       192       383       420  

Deployment and other services

    1,299       1,362       2,804       3,913  

Total Facilities revenues

  $ 2,363     $ 2,550     $ 6,020     $ 7,481  
                                 

SYSTEMS INTEGRATION:

                               

Integration services

  $ 2,551     $ 1,486     $ 6,155     $ 4,754  

Reseller services

    15,849       140       25,639       140  

Total Systems Integration revenues

  $ 18,400     $ 1,626     $ 31,794     $ 4,894  

TOTAL REVENUES

  $ 20,763     $ 4,176     $ 37,814     $ 12,375  

 

Remaining Performance Obligations

 

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, 2020, deferred revenue of $5,076,000 includes $2,668,000 of our remaining performance obligations for our maintenance contracts, all of which are expected to be recognized within one year, and $2,291,000 relating to reseller and integration services where we have yet to complete our services for our customers, all of which are expected to be recognized within one year. The remaining $117,000 of deferred revenue is our remaining performance obligations for maintenance services, which is expected to be recognized between one and three years.

 

Concentration of Credit Risk

 

We are currently 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 it would significantly reduce our revenue.

 

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

 

   

Three Months Ended Sept 30,

   

Nine Months Ended Sept 30

 
   

2020

   

2019

   

2020

   

2019

 
                                 

US-based IT OEM

    99 %     93 %     97 %     91 %

 

No other customers represented more than 10% of our revenues for any periods presented. Our US-based IT OEM customer represented 77% and 96% of our trade accounts receivable at September 30, 2020 and December 31, 2019, respectively. No other customer represented more than 10% of our accounts receivable at September 30, 2020 or at December 31, 2019.

 

Non-recourse factoring

 

                We have entered into a factoring agreement with a financial institution to sell certain of our accounts receivables from a US-based OEM customer under a non-recourse agreement. Under the arrangement, we sell certain trade receivables on a non-recourse basis and account for the transaction as sales 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 the cash proceeds are received by us. 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 aggregate gross amount factored under this arrangement was approximately $23.6 million and $4.2 million for the three-month periods ended September 30, 2020 and 2019, respectively. We paid financing fees under this arrangement of approximately $35,000 and $28,000 for the three-month periods ended September 30, 2020 and 2019, respectively, which was recorded as interest expense in our consolidated statement of operations. The aggregate gross amount financed under this agreement for the nine-month periods ended September 30, 2020 and 2019 was approximately $42.3 million and $12.7 million, respectively. We paid financing fees under this arrangement of approximately $69,000 and $102,000 for the nine-month periods ended September 30, 2020 and 2019, respectively, which was recorded as interest expense in our consolidated statement of operations.

 

Recent Accounting Pronouncements

 

In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU 2017-04, Intangibles – Goodwill and Other (topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The amendments in this ASU simplify how all entities assess goodwill for impairment by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit’s “implied” goodwill. Specifically, the amendments in ASU 2017-04 eliminates Step 2 from the goodwill impairment test. As amended, the goodwill impairment test consists of one step comparing the fair value of a reporting unit with its carrying amount. An entity should 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 should not exceed the total amount of goodwill allocated to that reporting unit. If fair value exceeds the carrying value, no impairment should be recorded. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. ASU 2017-04 eliminates the requirement to perform a qualitative assessment for any reporting unit with zero or negative carrying amount. For any reporting units with a zero or negative carrying amount, ASU 2017-04 adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included. ASU 2017-04 was effective for the Company for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods. We adopted ASU 2017-04 effective on January 1, 2020 and adoption had no impact on our consolidated financial statements. We will perform future goodwill impairment tests according to ASU 2017-04.

 

7

 

In June 2016, FASB issued Accounting Standards Update ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets. Among the provisions of ASU 2016-13 is a requirement that assets measured at amortized cost, which includes trade accounts receivable, be presented at the net amount expected to be collected. This pronouncement requires that an entity reflect all of its expected credit losses based on current estimates which will replace the current standard requiring that an entity need only consider past events and current conditions in measuring an incurred loss. We are subject to this guidance effective with the consolidated financial statements we issue for the year ending December 31, 2023, and the quarterly periods during that year. We are currently evaluating the adoption date and the impact of the adoption of this guidance on our consolidated financial statements and disclosures.

 

In August 2018, FASB issued Accounting Standards Update 2018-15, Intangibles-Goodwill and Other Internal Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2015-18”). ASU 2018-15 aligns a company’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. ASU 2015-18 clarifies that a company should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is a service contract. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. ASU 2018-15 is effective for our fiscal 2020 year and interim periods beginning in 2020. We applied the prospective transition approach when we adopted this guidance in 2020 as we implement cloud computing arrangements in 2020 and the adoption of this guidance did not have a material impact on our consolidated financial statements.

 

In December 2019, FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also clarifies and amends existing guidance to improve consistent application. The standard will be effective for us in our first quarter of fiscal 2023, with early adoption permitted. We are currently evaluating the adoption date and the impact of the adoption of this guidance on our consolidated financial statements and disclosures.

 

 

Note 2 – Supplemental Balance Sheet Information

 

Receivables

 

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

 

   

September 30,

2020

   

 

December 31,

2019

 
    (unaudited)          

Contract and other receivables

  $ 1,266     $ 3,873  

Allowance for doubtful accounts

    (8 )     (8

)

Contracts and other receivables, net

  $ 1,258     $ 3,865  

 

Inventories

 

We state inventories at the lower of cost or net realizable value, using the first-in-first-out-method (in ‘000’s) as follows:

 

   

September 30,

2020

   

 

December 31,

2019

 
    (unaudited)          

Raw materials

  $ 173     $ 99  

Reseller inventories

    38       1,258  

Reserve

    (4

)

    (4

)

Inventories, net

  $ 207     $ 1,353  

 

8

 

Goodwill and Intangible Assets, Net

 

Goodwill and intangible assets, net consisted of the following (in ‘000’s):

    

    September 30, 2020        
   

(unaudited)

   

December 31, 2019

 
   

Gross

           

Gross

         
   

Carrying

   

Accumulated

   

Carrying

   

Accumulated

 
   

Amount

   

Amortization

   

Amount

   

Amortization

 

Intangible assets not subject to amortization:

                               

Goodwill

  $ 780       -     $ 780       -  

Intangible assets subject to amortization:

                               

Customer relationships

  $ 906     $ (667 )   $ 906     $ (599 )

Acquired software

  $ 234     $ (234 )   $ 234     $ (234 )

 

Goodwill attributable to reporting units (in ‘000’s):

 

   

September 30,

2020

   

December 31,

2019

 
    (unaudited)          

Facilities unit

  $ 643     $ 643  

Systems Integration unit

    137       137  

Total

  $ 780     $ 780  

 

At December 31, 2019, the date of our last annual test, both the facilities unit and the systems integration unit had negative carrying amounts on our records.

 

We recognized amortization expense related to intangibles of approximately $23,000 for each of the three-month periods ended September 30, 2020 and 2019, respectively. We recognized amortization expense related to intangibles of approximately $68,000 for each of the nine-month periods ended September 30, 2020 and 2019, respectively.

 

We have elected to use December 31 as our annual date to test goodwill and intangibles for impairment. As circumstances change that could affect the recoverability of the carrying amount of the assets during an interim period, we will evaluate its indefinite lived intangible assets for impairment. We performed a quantitative analysis of our goodwill and intangibles at December 31, 2019 as part of our annual testing for impairment and concluded that there was no impairment. We considered relevant matters, including macroeconomic conditions and the effects of COVID-19 on our operations, and there was no identified material triggering events or circumstances that occurred during the three and nine-month periods ended September 30, 2020 or 2019 that would have required an interim impairment analysis of our goodwill and other long-lived intangible assets.

 

Property and Equipment

 

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

  

   

Estimated Useful

Lives (years)

   

September 30,

2020

   

December 31,

2019

 
               

(unaudited)

         

Trade equipment

      5       $ 144     $ 105  

Leasehold improvements

    2 - 5       725       638  

Furniture and fixtures

      7         16       16  

Computer equipment and software

      3         2,057       1,802  
                  2,942       2,561  

Less accumulated depreciation

                (2,178

)

    (1,856

)

Property and equipment, net

              $ 764     $ 705  

 

Depreciation of property and equipment and amortization of leasehold improvements and software totaled $116,000 and $62,000 for the three-month periods ended September 30, 2020 and 2019, respectively. Depreciation of property and equipment and amortization of leasehold improvements and software totaled $322,000 and $176,000 for the nine-month periods ended September 30, 2020 and 2019, respectively.

 

9

 

Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following (in ’000’s):

 

   

September 30,

2020

   

December 31,

2019

 
   

  (unaudited)

   

 

 

Accounts payable

  $ 1,636     $ 7,890  

Accrued expenses

    877       473  

Compensation, benefits & related taxes

    362       464  

Other accrued expenses

    13       24  

Total accounts payable and accrued expenses

  $ 2,888     $ 8,851  

 

 

Note 3 – Bank Note Payable

 

In April 2020, VTC, L.L.C. (the “Borrower”), a wholly-owned subsidiary of TSS, Inc., applied to Texas Capital Bank, N.A. under the Small Business Administration Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) for a loan of $889,858 (the “PPP Loan”). On April 17, 2020 the PPP Loan was approved and the Borrower received the PPP Loan proceeds, which the Borrower used for covered payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act.

 

The PPP Loan, which took the form of a promissory note issued by the Borrower, has a two-year term maturing on April 12, 2022, bears interest at a rate of 1% per annum and principal and interest payments will be deferred for the first six months of the loan term, which has since been updated according to the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”).

 

In June 2020, the Flexibility Act was signed into law, which amended the CARES Act. The Flexibility Act changed key provisions of the PPP, including, but not limited to, provisions relating to (i) the maturity of PPP loans, (ii) the deferral period covering PPP loan payments, and (iii) the process for measurement of loan forgiveness. More specifically, the Flexibility Act provides a minimum maturity of five years for all PPP loans made on or after the date of the enactment of the Flexibility Act (“June 5, 2020”) and permits lenders and borrowers to extend the maturity date of earlier PPP loans by mutual agreement. As of the date of this filing, the Company has not approached the lender to request an extension of the maturity date from two years to five years.

 

The Flexibility Act also provides that if a borrower does not apply for forgiveness of a loan within 10 months after the last day of the measurement period (“covered period”), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. Therefore, the Company’s deferral period for principal and interest payments was updated from six months according the terms and conditions of the PPP Loan to ten months after the expiration of the eight-week covered period adopted by the Company, which will be in May 2021. In addition, the Flexibility Act extended the length of the covered period from eight weeks to twenty-four weeks from receipt of proceeds, while allowing borrowers that received PPP loans before June 5, 2020 to determine, at their sole discretion, a covered period of either eight weeks or twenty-four weeks.

 

The Borrower did not provide any collateral or guarantees for the PPP Loan, nor did the Borrower pay any fees to obtain the PPP Loan. The promissory note provides for customary events of default, including, among others, failure to make a payment when due, cross-defaults under any loan documents with the lender, certain cross-defaults under agreements with third parties, events of bankruptcy or insolvency, certain change of control events, and material adverse changes in the Borrower’s financial condition. If an event of default occurs, the lender will have the right to accelerate indebtedness under the PPP Loan and/or pursue other remedies available to the lender pursuant to the terms of the promissory note.

 

The Borrower may apply to the lender for forgiveness of some or all of the PPP Loan, with the amount which may be forgiven equal to the sum of eligible payroll costs, mortgage interest, covered rent and covered utilities payments, in each case incurred by the Borrower during the measurement period following the effective date of the promissory note, calculated in accordance with the terms of the CARES Act. Certain reductions in the Borrower’s payroll costs during the measurement period may reduce the amount of the PPP Loan eligible for forgiveness. We applied for full forgiveness of the loan in August 2020 but have yet to receive a determination from the Small Business Administration to our forgiveness application. There is no guarantee, and the lender does not make any representation, that the Borrower will receive forgiveness for any fixed amount of any of the PPP Loan proceeds received by the Borrower.

 

10

 

   

September 30,

2020

   

December 31,

2019

 
    (unaudited)          

Notes Payable due April 2022

  $ 890     $ -  

Accrued interest

    3       -  
      893       -  

Current portion of promissory notes

    373       -  

Non-current portion of promissory notes

  $ 520     $ -  

 

 

Note 4 – Long-Term Borrowings

   

Long-term borrowings consisted of the following (in ’000’s): 

 

   

September 30,

2020

   

December 31,

2019

 
    (unaudited)          

Notes Payable due July 2022

  $ 1,995     $ 1,995  

Accrued in-kind interest – long term

    341       255  

Less unamortized discount and debt issuance costs

    (153

)

    (222

)

      2,183       2,028  

Current portion of long-term borrowing

    -       -  

Non-current portion of long-term borrowing

  $ 2,183     $ 2,028  

 

In February 2015, we entered into a multiple advance term loan agreement and related agreements with MHW SPV II, LLC (‘‘MHW’’), an entity affiliated with the Chairman of our Board of Directors, for a loan in the maximum amount of $2 million. We borrowed $945,000 under this loan agreement on February 3, 2015 and executed a promissory note to evidence this loan and the terms of repayment which requires interest-only payments until maturity.

 

In July 2017, we amended and restated the terms of this multiple advance term loan agreement whereby we increased the maximum principal amount of loans to $2.5 million for up to sixty days, and $2 million thereafter. The term of the loan was modified to be five years from the date of modification, thereby extending the term of the $945,000 loan to July 19, 2022. As part of this modification, the interest rate on the $945,000 loan remains at a fixed annual rate of 12%, however it was changed so that 6% is paid in cash monthly in arrears, and 6% is payable in kind, to be evidenced by additional promissory notes having an aggregate principal amount equal to the accrued but unpaid interest. We can prepay the loan at any time without penalty.

 

In conjunction with entering into the loan agreement, the Company and MHW also entered into a warrant granting MHW the right to purchase up to 1,115,827 shares of the Company’s common stock. As part of the July 2017 modification, we also modified the warrant to change the exercise price of the shares and to extend the term of the warrant to July 19, 2022. The warrant is now exercisable for a period of five years from July 19, 2017 at an exercise price of $0.10 for the first 390,539 shares, $0.20 for the next 390,539 shares and $0.30 for the final 334,749 shares. The exercise price and number of shares of common stock issuable on exercise of the warrant will be subject to adjustment in the event of any stock split, reverse stock split, recapitalization, reorganization or similar transaction. The fair value of the modified warrant was determined to be approximately $167,000 and the incremental value of the warrant compared to the original warrant was approximately $6,000. This amount was added to the remaining unamortized value of the original warrant such that approximately $93,000 will be amortized to interest expense using the straight-line method (which approximates the effective interest rate method) over the term of the loan. Approximately $5,000 was amortized during each of the three-month periods ended September 30, 2020 and 2019, respectively, for this warrant. Approximately $14,000 was amortized for this warrant during each of the nine-month periods ended September 30, 2020 and 2019, respectively.

 

On July 19, 2017, we borrowed an additional $650,000 from MHW Partners, an entity affiliated with MHW. This loan ranks parri-passu with the $945,000 promissory notes held by MHW and is subject to the same loan agreement. Similar to the notes held by MHW, this note issued to MHW Partners bears interest at 12% per annum payable in cash monthly in arrears at a rate of 6% per annum and payable in kind at a fixed rate of 6% per annum and has a maturity date of July 19, 2022. We can prepay the note issued to MHW Partners at any time without penalty.

 

11

 

The obligations under the loan to MHW and MHW Partners are secured by substantially all of the Company’s assets pursuant to the terms of a security agreement. At the time we entered into the revolving line of credit described below, MHW and MHW Partners executed a subordination agreement to evidence their agreement that their security interest is subordinated to the security interest of Texas Capital Bank, N.A.

 

In conjunction with entering into the loan with MHW Partners, we entered into a warrant granting MHW Partners the right to purchase up to 767,500 shares of our common stock. The warrant is exercisable for a period of 5 years from July 19, 2017, at an exercise price of $0.10 for the first 268,625 shares, $0.20 for the next 268,625 shares and $0.30 for the final 230,250 shares. The exercise price and number of shares of common stock issuable upon exercise of this warrant will be subject to adjustment in the event of any stock split, reverse stock split, recapitalization, reorganization or similar transactions. The fair value of the warrant granted was approximately $115,000. Using the relative-fair value allocation method, the debt proceeds were allocated between the debt value and the fair value of the warrants, resulting in a recognition of a discount on the loan of approximately $98,000 and a corresponding increase to additional paid-in capital. This discount will be amortized to interest expense using the effective interest rate method over the term of the loan. Approximately $5,000 was amortized during each of the three-month periods ended September 30, 2020 and 2019, respectively. Approximately $15,000 was amortized during each of the nine-month periods ended September 30, 2020 and 2019, respectively.

 

Peter H. Woodward, the Chairman of our Board of Directors, is a principal of MHW Capital Management LLC, which is the investment manager of MHW and MHW Partners. MHW Capital Management LLC is entitled to a performance related fee tied to any appreciation in the valuation of the common stock in excess of the applicable strike price under the warrant.

 

On October 6, 2017, we entered into an amendment to our multiple advance term loan agreement and the related security agreement with MHW and MHW Partners, to add new lenders to the loan and security agreements. Upon execution, Mr. Glen Ikeda and Mr. Andrew Berg became new lenders to the Company. In accordance with the terms of the Amendment, Mr. Ikeda then provided a loan in the amount of $300,000 and Mr. Berg provided a loan in the amount of $100,000 (collectively the “New Loans”).

 

The New Loans have a maturity date of July 19, 2022. The New Loans do not bear interest and we are permitted to make optional prepayments at any time without premium or penalty.

 

The New Loans include customary affirmative covenants for secured transactions of this type, including compliance with laws, maintenance of insurance, maintenance of assets, timely payments of taxes and notice of adverse events. The loan agreement and ancillary documents include customary negative covenants including limitations on liens on assets of the Company.

 

Concurrent with the New Loans, we entered into a warrant with Mr. Ikeda granting Mr. Ikeda the right to purchase up to 954,231 shares of our common stock. This warrant was exercisable until July 19, 2022, at an exercise price of $0.10 for the first 498,981 shares, $0.20 for the next 273,981 shares and $0.30 for the final 181,269 shares. Mr. Ikeda exercised the warrant in December 2018.

 

Concurrent with the New Loans, we entered into a warrant with Mr. Berg granting Mr. Berg the right to purchase up to 318,077 shares of our common stock. This warrant was exercisable until July 19, 2022, at an exercise price of $0.10 for the first 166,327 shares, $0.20 for the next 91,327 shares and $0.30 for the final 60,423 shares. Mr. Berg exercised the warrant in December 2018.

 

The fair value of the two warrants granted in connection with the New Loans was approximately $367,000. Using the relative fair-value allocation method, the debt proceeds were allocated between the debt value and the fair value of the warrants, resulting in a recognition of a discount on the New Loans of approximately $191,000, with a corresponding increase to additional paid-in capital. This discount will be amortized to interest expense over the term of the loan using the straight-line method (which approximates the effective interest rate method). Approximately $10,000 was amortized during each of the three-month periods ended September 30, 2020 and 2019, respectively, and approximately $30,000 was amortized during each of the nine-month periods ended September 30, 2020 and 2019, respectively. 

 

 

Note 5 Revolving Line of Credit

 

In December 2018, we entered into a revolving line of credit (the “credit facility”) with Texas Capital Bank, National Association (“Lender”) pursuant to a Business Loan Agreement (Asset Based) (the “Loan Agreement”). The obligations under the credit facility are secured by substantially all of our assets. Our wholly-owned subsidiaries, Vortech L.L.C., and VTC, L.L.C. jointly and severally guarantee our obligations under the credit facility.

 

12

 

The maximum amount of the credit facility is $1,500,000. The credit facility is subject to a borrowing base of 80% of eligible accounts receivables, subject to customary exclusions and limitations. Borrowings under the credit facility will bear interest at LIBOR plus 3% (effective rate of 3.18% at September 30, 2020). Certain accounts receivables subject to a vendor payment program with a customer are excluded from the definition of eligible accounts receivables under the credit facility. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the credit facility, we will pay a 0.25% unused credit facility fee, payable quarterly in arrears. The credit facility matures on December 31, 2020.

 

The credit facility requires that we maintain a minimum liquidity of $500,000 at all times excluding availability under the loan. It also requires us to comply with certain financial covenants including a maximum Total Leverage Ratio of 3.00, a minimum Total Interest Coverage Ratio of 2.50 and a minimum Total Fixed Charge Coverage Ratio of 1.25. The credit facility also limits the amount of new indebtedness to $250,000 per fiscal year without Lender’s prior written approval. In June 2020 we modified the terms of the credit facility so that if we did not meet the Total Interest Coverage Ratio of 2.5, we could satisfy the requirement by meeting a 1.25x minimum Total Interest Coverage Ratio and maintaining unrestricted liquidity for the greater of (i) $2,000,000 or (ii) two times the outstanding balance on the credit facility.

 

The Loan Agreement and ancillary documents include 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. The Loan Agreement and ancillary documents include customary negative covenants, including incurrence of other indebtedness, mergers, consolidations and transfers of assets and liens on assets of the Company. 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 chance defaults, and change of ownership defaults.

 

The maximum amount we would have been eligible to borrow at September 30, 2020 was approximately $122,000. There were no amounts outstanding under this credit facility at September 30, 2020 and December 31, 2019. Due our year-to-date net losses, we were not in compliance with the financial covenants at September 30, 2020, and therefore were not eligible to borrow against the facility.

 

 

Note 6 - Leasing Arrangements

 

We have operating leases for our office and integration facilities as well as for certain equipment and vehicles. Our leases have remaining lease terms of 1 to 3 years. As of September 30, 2020, we have not entered into any lease arrangement classified as a finance lease.

 

We determine if an arrangement is a lease at inception. Operating leases are included in lease right-of-use assets, current lease liabilities and lease liabilities, non-current, on our consolidated balance sheet. We have elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet. We also elected the 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.

 

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. Components of lease expense and other information is as follows:

 

   

Three Months Ended

September 30,

2020

   

Nine Months Ended

September 30,

2020

 

Lease expense

               

Operating lease cost

  $ 202       601  

Variable lease cost

    -       -  

Sublease income

    (16 )     (48

)

Total operating lease cost

    186       553  
                 

Operating Lease – operating cash flows

    (165 )     (476

)

New right-of-use assets – operating leases

    -       -  

Weighted average remaining lease term – operating leases (months)

 

 18

   

21

 

Weighted average discount rate – operating leases

    12.0 %     12.0 %

 

13

 

Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows (in ‘000’s):

 

   

Fiscal

Year

 

2020

  $ 202  

2021

    823  

2022

    209  

2023

    5  

Thereafter

    -  

Total minimum future lease payments

    1,239  

Less imputed interest

    (114

)

Total

  $ 1,125  
         

Reported as of September 30, 2020

       

Current portion of lease liability

  $ 721  

Non-current portion of lease liability

    404  
    $ 1,125  

 

 

Note 7 - Net Income (Loss) Per-Share

 

Basic and diluted income (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 purposes of determining diluted income (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 basic and diluted income (loss) per share computations for net income (loss). In the table below, net income (loss) represents the numerator and shares represents the denominator (in thousands except per share amounts; unaudited).  

 

   

Three Months Ended Sept. 30,

   

Nine Months Ended Sept 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Basic net income (loss) per share:

                               

Numerator:

                               

Net income (loss)

  $ 852     $ (95 )   $ (558 )   $ (220 )

Denominator:

                               

Weighted-average shares of common stock outstanding

    17,844       17,506       17,804       17,363  
                                 

Basic net income (loss) per share

  $ 0.05     $ (0.01 )   $ (0.03 )   $ (0.01 )
                                 

Diluted net income (loss) per share:

                               

Numerator:

                               

Net income (loss)

  $ 852     $ (95 )   $ (558 )   $ (220 )

Less interest expense on convertible debt

    -       -       -       -  
    $ 852     $ (95 )   $ (558 )   $ (220 )

Denominator:

                               

Weighted-average shares of common stock outstanding

    17,844       17,506       17,804       17,363  

Dilutive options and warrants outstanding

    3,156       -       -       -  

Effect of conversion of convertible notes

    -       -       -       -  

Number of shares used in diluted per-share computation

    21,000       17,506       17,804       17,363  
                                 

Diluted net income (loss) per share

  $ 0.04     $ (0.01 )   $ (0.03 )   $ (0.01 )

 

14

 

For the three-month period ended September 30, 2020, no potentially dilutive shares were excluded from the calculation of dilutive shares. For the three-month period ended September 30, 2019, potentially dilutive shares of 3,521,000 were excluded from the calculation of dilutive shares because their effect would have been anti-dilutive.

 

For the nine-month periods ended September 30, 2020 and 2019, potentially dilutive shares of 5,021,000 and 3,325,000 were excluded from the calculation of dilutive shares because their effect would have been anti-dilutive.

 

 

Note 8 – Related Party Transactions

 

We have $945,000 principal outstanding at September 30, 2020 in promissory notes payable to MHW, net of remaining discount of $33,000. Per the terms of the notes, we paid interest of approximately $34,000 and $32,000 during the three-month periods ended September 30, 2020 and 2019, respectively, and we paid interest of approximately $101,000 and $95,000 during the nine-month periods ended September 30, 2020 and 2019, respectively. We have $650,000 principal outstanding at September 30, 2020 in promissory notes payable to MHW Partners, net of remaining discount of $34,000. Per the terms of the notes, we paid interest of $24,000 and $22,000 during the three-month periods ended September 30, 2020 and 2019, respectively, and we paid interest of $69,000 and $65,000 during the nine-month periods ended September 30, 2020 and 2019, respectively. Peter H. Woodward, the Chairman of our Board of Directors, is a principal of MHW Capital Management, LLC, which is the investment manager of MHW and MHW Partners. MHW Capital Management LLC is entitled to a performance-related fee tied to appreciation in the valuation of the common stock in excess of the applicable strike price under the warrant issued to MHW.

 

 

 Note 9 - 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 chief operating decision-maker in assessing performance and allocating resources. Our activities are organized into two major segments: facilities and systems integration. Our facilities unit is involved in the design, project management and maintenance of data center and mission-critical business operations. Our systems integration unit integrates IT equipment for OEM vendors and customers to be used inside data center environments, including modular data centers, and also includes our reseller services where we procure equipment to be used in our integration activities. All revenues are derived from the U.S. market. Segment operating results reflect earnings before stock-based compensation, acquisition related expenses, other expenses, net, and provision for income taxes.

 

Revenue and operating results by reportable segment reconciled to reportable net income (loss) for the three and nine-month periods ended September 30, 2020 and 2019 and other segment-related information is as follows (in ‘000’s, unaudited):

 

   

Three Months Ended Sept. 30,

   

Nine Months Ended Sept. 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenues:

                               

Facilities

  $ 2,363     $ 2,550     $ 6,020     $ 7,481  

Systems integration services

    18,400       1,626       31,794       4,894  

Total revenues

  $ 20,763     $ 4,176     $ 37,814     $ 12,375  
                                 

Income (loss) from operations:

                               

Facilities

  $ 373     $ 475     $ 503     $ 1,499  

Systems integration services

    593       (487 )     (763 )     (1,459 )

Total income (loss) from operations

  $ 966     $ (12 )   $ (260 )   $ 40  
                                 

Depreciation expense:

                               

Facilities

  $ 54     $ 13     $ 170     $ 57  

Systems integration services

    62       47       149       119  

Consolidated depreciation expense

  $ 116     $ 60     $ 319     $ 176  
                                 

Interest expense:

                               

Facilities

  $ 56     $ 43     $ 144     $ 132  

Systems integration services

    49       35       127       106  

Consolidated interest expense

  $ 105     $ 78     $ 271     $ 238  

 

   

Sept 30, 2020

   

Dec. 31, 2019

                 

Total Assets:

                               

Facilities

  $ 954     $ 939                  

Systems integration services

    2,472       6,120                  

Other consolidated activities

    11,119       10,508                  

Total

  $ 14,545     $ 17,567                  

 

Other consolidated activities include assets not specifically attributable to each business segment including cash and cash equivalents, prepaid expenses and other assets that are managed at a corporate level.

 

15

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q and the consolidated financial statements and notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2019 included in our 2019 Annual Report on Form 10-K. This report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve risks and uncertainties. Our expectations with respect to future results of operations that may be embodied in oral and written forward-looking statements, including any forward-looking statements that may be included in this report, are subject to risks and uncertainties that must be considered when evaluating the likelihood of our realization of such expectations. Our actual results could differ materially. The words “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar phrases as they relate to us are intended to identify such forward-looking statements. In addition, please see the “Risk Factors” in Part 1, Item 1A of our 2019 Annual Report on Form 10-K for a discussion of items that may affect our future results. 

 

Overview

 

TSS, Inc. (‘‘TSS’’, the ‘‘Company’’, ‘‘we’’, ‘‘us’’ or ‘‘our’’) provides comprehensive services for the planning, design, deployment, maintenance, and refurbishment of end-user and enterprise systems, including the mission-critical facilities they are housed in. 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 include technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT reseller services. Our headquarters and our integration facility are in Round Rock, Texas.

 

Our business is concentrated on the data center infrastructure and services market. This market continues to be highly competitive as commerce moves to cloud-based solutions and as data storage requirements continue to escalate for many industries. These underlying macroeconomic trends are driving demand for more information technology equipment and more efficient data center design and operation, resulting in continued growth in this market. We compete against many larger competitors who have greater resources than we do, which may affect our competitiveness in the market. We rely on several large customers to win contracts and to provide business to us under ‘‘Master Service Agreements’’, and the loss of such customers would have a material negative effect on our results.

 

During 2019 we began providing reseller services to our clients. Previously almost all inventory used in our systems integration business was consigned to us by our original equipment manufacturer (OEM) and end-user customers. We now offer our customers the ability to procure third-party hardware, software and services on their behalf that are then used in our integration services as we integrate these components to deliver a completed system to our customer. In some cases, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are resold directly to the OEM and other customers. The reseller services allow us to develop relationships with new hardware, software and professional service providers and allow us to generate higher profits on integration projects by broadening our revenue and customer base.

 

In March 2020, the coronavirus disease 2019 ("COVID-19") was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government. The pandemic has negatively affected the U.S. and global economy, disrupted global supply chains and financial markets, and resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

 

The onset of the COVID-19 pandemic has had an immediate and ongoing impact on our operations in both our facilities segment and our systems integration segment. Travel restrictions and other customer-actions that have restricted physical access to customer sites have negatively impacted our facilities segment because we have been unable to access customer locations to provide our services. The delay of projects by customers in 2020 because of the COVID-19 pandemic also negatively affected our facilities segment. Our facilities revenues have decreased by 20% in the first nine-months of 2020 compared to the previous year primarily because of these delays and restrictions. Our systems integration business has not seen a revenue decline because of the pandemic but has been negatively impacted due to logistical and supply-chain issues that have affected component supply to us. This had a material impact on our ability to complete several reseller transactions during the first half of 2020 because we could not complete the procurement of inventory for customers, although this situation has improved during the third quarter of 2020. Safety and other measures that we also had to implement in our systems integration facility because of the pandemic have materially increased the cost of operating and providing our integration services, and this has negatively impacted our 2020 financial performance.

 

16

 

At this point we do not know how long this pandemic and its associated impact on our business will continue, or if it will worsen or improve. To the extent these travel restrictions and customer delays continue, the pandemic worsens, or we have further supply chain challenges, our business will continue to be negatively impacted.

 

During the second quarter of 2020 we were able to participate in the Payroll Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) and qualified for a loan of approximately $890,000. The proceeds were received in April 2020 and were used for covered payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act. We applied for forgiveness of this loan amount during the third quarter of 2020 as contemplated by the CARES Act but have not yet received notification from the Small Business Administration that our application for forgiveness has been successful. There is no guarantee however that we will receive forgiveness for all or any of the loan proceeds.

    

RESULTS OF OPERATIONS

 

Revenue

 

Revenue consists of fees earned from the planning, design and project management for mission-critical facilities and information infrastructures, as well as fees earned from providing maintenance services for these facilities. We also earn revenue from providing system configuration and integration services, including reseller services, to IT equipment vendors. Currently we derive all our revenue from the U.S. market.

 

We contract with our customers under five primary contract types: fixed-price service and maintenance contracts, time and material contracts, cost-plus-fee, guaranteed maximum price and fixed-price contracts. Cost-plus-fee and guaranteed maximum price contracts are typically lower risk arrangements, and thus yield lower profit margins than time-and-materials and fixed-price arrangements which generate higher profit margins generally, relative to their higher risk. Certain of our service and maintenance contracts provide comprehensive coverage of all the customers’ equipment (excluding IT equipment) at a facility during the contract period. Where customer requirements are clear, we prefer to enter into comprehensive fixed-price arrangements or time-and-materials arrangements rather than cost-plus-fee and guaranteed maximum price contracts.

 

Most of our revenue is generated based on services provided either by our employees or subcontractors. To a lesser degree, the revenue we earn includes reimbursable travel and other costs to support the project. Since we earn higher profits from the labor services that our employees provide compared with use of subcontracted labor and other reimbursable costs, we seek to optimize our labor content on the contracts we are awarded to maximize our profitability.

 

We have been concentrating our sales efforts towards maintenance and integration services where we have traditionally earned higher margins. Historically our design and project-management services were tied to a few, high-value contracts for the construction of new data centers at any point in time. In addition to contributing to large quarterly fluctuations in revenue depending upon project timing, these projects required higher levels of working capital and generated lower margins than our maintenance and integration services. We re-focused our design and project management services towards smaller scaled jobs typically connected with addition/move/retrofit activities rather than new construction, to obtain better margins. We have also focused on providing maintenance services for modular data center applications as this market continues to expand. We continue to focus on increasing our systems integration revenues through more consistent revenue streams that will better utilize our assets in that business.

 

Revenues for the three-month period ended September 30, 2020 increased by $16.6 million or 397% compared to the third quarter of 2019. This growth was primarily driven by $15.8 million of reseller services in 2020 that drove a 1032% increase in our systems integration segment compared to the prior year, and from a 71% increase in our core integration service activities compared to the third quarter of 2019. We began providing reseller services in the third quarter of 2019 where we procure third-party hardware, software and services on our customer’s behalf that are then used in our integration services as we integrate those components to deliver a completed system to our customer. Traditionally, the majority of our integration services have been performed using customer-owned inventory.

 

Revenues in our facilities segment decreased by $0.2 million or 7% compared to the third quarter of 2019 due to lower levels of modular data center deployments compared to the previous year. This was caused by customer deferrals of projects and by restrictions on travel and site access primarily as a result of the COVID-19 pandemic that prevented us from accessing customer locations to provide services during the period.

 

Revenues of $37.8 million for the nine-month period ended September 30, 2020 increased by $25.4 million or 206% compared to the $12.4 million we had in the first nine-months of 2019. This increase was primarily attributable to the $25.6 million of reseller services in 2020 that drove a 550% increase in our systems integration segment compared to 2019 when we had just begun providing such services. Primarily due to site access restrictions caused by the COVID-19 pandemic we have seen a $1.5 million, or 20% decrease in our facilities segment revenues in the first nine months of 2020 compared to the comparable period in 2019.

 

17

 

Cost of Revenue

 

Cost of revenue includes the cost of component parts for our products, labor costs expended in the production and delivery of our services, subcontractor and third-party expense, equipment and other costs associated with our test and integration facilities, excluding depreciation of our manufacturing property and equipment, shipping costs, and the costs of support functions such as purchasing, logistics and quality assurance. The cost of revenue as a percentage of revenue was 87% for the three-month period ended September 30, 2020 compared to 64% for the same period in 2019. This increase from the third quarter of 2019 reflects the introduction of our reseller business where we earn much lower margins on product purchase/resell services than we do with our traditional integration and maintenance services. As the percentage of our total revenue derived from reseller services increases, we would anticipate that cost of revenue as a percentage of sales will increase. Absent the reseller business, the profit margin from our integration and maintenance services decreased by 5% in the third quarter of 2020 compared to the same quarter of 2019 primarily due to higher operating costs of our integration facility due to the COVID-19 pandemic. For the nine-month period ended September 30, 2020 the cost of revenue as a percentage of revenue was 86% compared to 63% for the same period in 2019, reflecting the impact of our reseller services on our cost of revenue.     

 

As our reseller business is relatively new, the level of expected revenue from our reseller services has and will continue to fluctuate significantly on a quarterly basis. As a result, our cost of revenue as a percentage of total revenue will also fluctuate significantly. Cost of revenue for reseller services is higher than cost of revenue for our integration and maintenance services.

 

Since we earn higher profits when using our own labor services, we expect gross margins to improve when our labor services mix increases relative to the use of subcontracted labor or third-party labor. Our direct labor costs are relatively fixed in the short-term, and the utilization of direct labor is critical to maximizing our profitability. As we continue to bid and win contracts that require specialized skills that we do not possess, we would expect to have more third-party subcontracted labor to help us fulfill those contracts. In addition, we can face hiring challenges in internally staffing larger contracts. While these factors could lead to a higher ratio of cost of services to revenue, the ability to outsource these activities without carrying a higher level of fixed overhead improves our overall profitability by increasing income, broadening our revenue base and generating a favorable return on invested capital. As we increase the level of IT reseller services in the future, we anticipate that our overall gross margin will decrease as the normal margins on reseller activities are lower than the margins from our traditional facilities and systems integration services.

 

A large portion of our revenue is derived from fixed price contracts. Under these contracts, we set the price of our services and assume the risk that the costs associated with our performance may be greater than we anticipated. Our profitability is therefore dependent upon our ability to estimate accurately the costs associated with our services. These costs may be affected by a variety of factors, such as lower than anticipated productivity, conditions at the work sites differing materially from what was anticipated at the time we bid on the contract, and higher than expected costs of materials and labor. Certain agreements or projects could have lower margins than anticipated or losses if actual costs for contracts exceed our estimates, which could reduce our profitability and liquidity.

 

Gross Profit

 

Our gross profit margin for the three-month period ended September 30, 2020 was 13% compared to a gross profit margin of 36% in the third quarter of 2019. This decrease in margin compared to the third quarter of 2019 was primarily attributable to the introduction of our reseller business where we earn much lower margins on product purchase/resell services than what we earn from our core integration and maintenance activities. The decrease in gross margin in the third quarter was also attributable to the higher operating cost of our systems integration business because of changes made to deal with the COVID-19 pandemic. For the nine-month period ended September 30, 2020 our gross profit margin was 14% compared to a gross profit margin of 37% for the same period of 2019. This decrease in margin was due to the introduction of reseller services in our 2020 results. Because of the impact of reseller revenues in 2020 that increased our revenues compared to 2019, over overall gross profit increased by $1.3 million or 85% for the three-month period ended September 30, 2020, and our gross profits increased by $556,000 or 12% in the nine months ended September 30, 2020 compared to the same period of 2019.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses primarily consists of compensation and related expenses, including variable sales compensation, for our executive, administrative and sales and marketing personnel, as well as related travel, selling and marketing expenses, professional fees, facility costs, insurances and other corporate costs. For the three-month period ended September 30, 2020, our selling, general and administrative expenses increased by $243,000 or 17% compared to the third quarter of 2019. This increase was due primarily to higher compensation-related costs and for higher costs related to increasing our production capabilities, including the introduction of new systems. For the nine-month period ended September 30, 2020, our selling, general and administrative expenses of $5.0 million were $710,00 or 17% higher than the same period of 2019, mainly due to higher levels of staffing and personnel costs.

 

18

 

Operating Income (Loss)

 

For the three-month period ended September 30, 2020, we recorded operating income of $966,000. This compares to an operating loss of $12,000 that we had in the third quarter of 2019. For the nine-month period ended September 30, 2020, we recorded an operating loss of $260,000 which compares to operating income of $40,000 for the comparable period in 2019.

 

Net Income (Loss)

 

After net interest expense and income taxes we recorded net income of $852,000 or $0.05 per share for the three-month period ended September 30, 2020. This compared to a net loss of $95,000 or $(0.01) per share for the third quarter of 2019. For the nine-month period ended September 30, 2020, we recorded a net loss of $558,000 or $(0.03) per share. This compares to a net loss of $220,000 or $(0.01) per share in the nine-month period ended September 30, 2019.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity at September 30, 2020 are our cash and cash equivalents on hand, funds available under our bank credit facility, vendor trade-credit and projected cash flows from operating activities.

 

If we continue to meet the cash flow projections in our current business plan, we expect that we will have adequate capital resources necessary to continue operating our business for at least the next twelve months. Our business plan and our assumptions around the adequacy of our liquidity are based on estimates regarding expected revenues and future costs. However, there are potential risks, including that our revenues may not meet our projections, our costs may exceed our estimates, or our working capital needs may be greater than anticipated particularly as we increase our level of reseller services or due to the economic impacts of the COVID-19 pandemic. Further, our estimates may change, and future events or developments may also affect our estimates. Any of these factors may change our expectation of cash usage in 2020 and beyond or significantly affect our level of liquidity, which may limit our opportunities to grow our business.

 

As at September 30, 2020 and December 31, 2019, we had cash and cash equivalents of $9.5 million and $8.7 million, respectively.

 

Significant Uses of Cash

 

Operating Activities:

 

Cash provide by operating activities for the nine-month period ended September 30, 2020 was $438,000 compared to cash provided by operating activities of $142,000 for the nine-month period ended September 30, 2019. This change was largely attributable to the financial aspects of our reseller business which we did not have in the comparable period of 2019 despite the operating losses we incurred in 2020. During the quarter as we prepared for more reseller transactions, we saw an increase in inventory, receivables and payables all tied to our reseller business. We have been able to structure our reseller activities in such a way as to minimize their overall impact on our liquidity by using trade creditors as the primary way to finance these activities. However due to timing it is possible to see fluctuations on a quarterly basis for reseller contracts in progress at the end of a particular reporting period. As we executed these transactions in the third quarter we generated approximately $2.5 million in operating cash flows through management of the cash flows associated with these transactions. On a year-to-date basis the net cash flows of these transactions offset and balance out, and the resulting profits increased our cash flows from operations. We believe that we will have adequate trade credit available to us to continue financing our reseller activities as we grow this business during 2020 and beyond.

 

Investing Activities:

 

Cash used in investing activities was $381,000 in the nine-month period ended September 30, 2020 for the purchases of property and equipment as we expanded our production floor and added new infrastructure and equipment to support new services. This compares to cash used in the same period of 2019 of $301,000 for purchases of property and equipment.

 

Financing Activities:

 

Cash provided by financing activities was $720,000 for the nine-month period ended September 30, 2020 compared to cash used in financing activities of $97,000 for the nine-month period ended September 30, 2019. In April 2020, we received approximately $890,000 in proceeds from a loan (the “PPP Loan”) issued pursuant to the Small Business Administration Paycheck Protection Program of the Coronavirus Air, Relief and Economic Security Act of 2020 (the “CARES Act”). These funds were made available to qualifying companies to help cover payroll, rent and other costs to assist companies in managing the economic impact of the COVID-19 pandemic. We also received $2,000 in proceeds provided by the exercise of employee stock options in 2020 and used $172,000 in the purchase of stock related to tax obligations around option exercises and vesting of restricted shares in 2020. In 2019 there was $59,000 received from the exercise of employee stock options and $156,000 used in the purchase of stock related to tax obligations around the option exercises.

 

19

 

In August 2020, we applied to our bank for forgiveness of all of the PPP Loan, with the amount which may be forgiven based upon the sum of eligible payroll costs, mortgage interest, covered rent, and covered utility payments, in each case incurred by us during the eight-week period following the effective date of the loan, calculated in accordance with the terms of the CARES Act. Certain reductions in our payroll costs during the eight-week period may reduce the amount of the PPP Loan eligible for forgiveness. We have not yet received any notification from the Small Business Administration that the loan will be fully or partially forgiven, and under the CARES Act they have up to ninety days from the date of our request to process it. There is no guarantee that we will receive forgiveness for any fixed amount of any PPP Loan proceeds.

 

Future Uses of Cash

 

Our primary liquidity and capital requirements are to fund working capital for current operations. Our primary sources of funds to meet our liquidity and capital requirements include cash on hand, funds generated from operations including the funds from our customer financing programs, trade credit extended to us by our vendors, and borrowings under our bank credit facility. We believe that if future results do not meet expectations, we can implement reductions in selling, general and administrative expenses to better achieve profitability and therefore improve cash flows, or that we could take further steps such as the issuance of new equity or debt. However, the timing and effect of these steps may not completely alleviate a material effect on liquidity. We may also require additional capital if we seek to acquire additional businesses as a way to increase the scale of our operations, or if there is a sudden increase in the level of reseller services. There is no guarantee, however, that such capital would be available on terms acceptable to us.

 

Off-Balance Sheet Arrangements

 

As at September 30, 2020 we had no off -balance sheet arrangements.

 

Critical Accounting Policies and Pronouncements

 

There have been no material changes to our critical accounting policies and estimates as set forth in the Annual Report for the year ended December 31, 2019 with the exception of the adoption and evaluation of the adoption date and the impact of the adoption of recently issued accounting pronouncement guidance on our consolidated financial statements and disclosures. See also Item 1. Financial Statements Note 1 – Significant Accounting Policies regarding Recent Accounting Pronouncements.

  

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Our management performed an evaluation under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer) of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2020. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2020, the Company’s disclosure controls and procedures were effective such that information relating to the Company (including its combined subsidiaries) required to be disclosed in the Company’s SEC reports (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding financial disclosures.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting for the three month period ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting as such term is defined in Rule 13a-15 and 15d-15 of the Exchange Act of 1934, as amended.

 

20

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Currently, we are not a party to any material litigation in any court, and management is 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. We currently believe that any ultimate 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.

 

Item 1A. Risk Factors.

 

The COVID-19 pandemic has and will likely continue to negatively affect various aspects of our business and has and will likely continue to result in reduced demand from our customers as their businesses may also be negatively affected.

 

The onset of the COVID-19 pandemic has had an immediate and ongoing impact on our operations in our facilities segment and systems integration segment. Ongoing restrictions due to the pandemic could continue to negatively impact our facilities segment as we are unable to travel or face restricted access to customer sites to perform services. For example, a significant customer of this segment has restricted access to its data centers sites, which prevented us from deploying new modular data centers and performing other activities for this customer which contributed to a 20% reduction in revenues in our facilities segment in the first nine-months of 2020 compared to the prior year. During the first and second quarters of 2020, our systems integration segment experienced a number of project delays caused by interruptions in our largest customer’s supply chain. This customer was unable to source the necessary IT components for many of its jobs because of the effects of the pandemic on production facilities in China. These interruptions prevented us from performing integration services on those projects and also delayed our ability to complete reseller services for some of our customers. We have also incurred additional personnel and operating costs to meet health and safety guidelines imposed because of the COVID-19 pandemic so that we could continue to operate our integration facility throughout the pandemic. The Company does not know how long the travel restrictions and logistical and supply-chain issues will continue as a result of the COVID-19 pandemic. To the extent these restrictions continue or we or our customers have further supply chain challenges for the foreseeable future, the effects on our business, results of operations, and financial condition could be material.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

      The following table sets forth information about our purchases of outstanding shares of our common stock during the quarter ended September 30, 2020:

 

Monthly Period During the Quarter Ended

September 30, 2020

 

Total Shares

Purchased

   

Average

Price paid

per Share

   

Total Shares

Purchased as Part

of Publicly

Announced Plans

   

Approximate

Dollar Amount of

Shares Yet To Be Purchased Under

Plans

 

Jul. 1, 2020 - Jul. 31, 2020

    0     $ -       -       -  

Aug.1, 2020 – Aug. 31, 2020

    1,730     $ 0.94                  

Sep. 1, 2020 – Sep, 30, 2020

    0     $ -       -       -  

Total

    1,730     $ 0.94                  

 

(a)

All of these shares were acquired from associates to satisfy tax withholding requirements upon the vesting of restricted stock.

 

21

 

Item 6. Exhibits. 

 

31.1*

Certification of TSS, Inc. Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2*

Certification of TSS, Inc. Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1**

 

32.2**

Certification of TSS, Inc. Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Certification of TSS, Inc. Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 


 

 

101.INS *

XBRL Instance Document

101.SCH *

XBRL Taxonomy Extension Schema

101.CAL *

XBRL Taxonomy Extension Calculation Linkbase

101.DEF *

XBRL Taxonomy Extension Definition Linkbase

101.LAB *

XBRL Taxonomy Extension Label Linkbase

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase

 

   

*

Filed herewith.

 

**

Furnished herewith.

 

22

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

TSS, INC.

 

 

 

Date: November 16, 2020

By:

/s/ Anthony Angelini

 

 

Anthony Angelini

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

By:

/s/ John K. Penver

   

John K. Penver

   

Chief Financial Officer

   

(Principal Financial Officer)

 

 

23
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