Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2025

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

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

Basis of Presentation

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

Reclassifications

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

(i)

On our statements of operations, we now present interest expense and bank factoring fees separately, and have reclassified and relabeled bank factoring fees to be included in income from operations and interest expense to be exclusive of bank factoring fees, whereas we presented a single amount “interest expense” in the prior year presentation

	a.	As previously disclosed in the notes to our financial statements, prior year amounts presented as interest expense represented only bank factoring fees
	b.	As we had bank debt outstanding throughout the year ended December 31, 2025, we reclassified and relabeled bank factoring fees onto a separate line item in our income statement and present interest expense separately from bank factoring fees.

	(ii)	In the supplemental disclosures to our statements of cash flows, we now present cash paid for bank factoring fees separately from cash paid for interest whereas these were combined in a single line item of cash paid for interest in the prior year presentation
	(iii)	Accrued expenses which were previously included within the line item “accounts payable and accrued expenses” are now presented separately, and
	(iv)	On the statement of cash flows, we now present non-cash lease expense separately from the change in lease right-of-use asset.

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

Principles of Consolidation

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

Financial Instruments

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

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

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

Accounting for Business Combinations

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

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

Revenue Recognition

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

Maintenance services

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

Integration services

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

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

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

Equipment and Material sales

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

Deployment and Other services

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

Procurement services

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

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

	Year Ended December 31,
	2025		2024		2023
Facilities Management: Maintenance revenues	$	3,906	$	4,446	$	4,543
Facilities Management: Equipment sales, deployment and other services		4,000		3,559		2,524
Total Facilities Management revenues		7,906		8,005		7,067
Systems Integration services		40,337		22,620		8,817
Procurement services		197,476		117,519		38,515
TOTAL REVENUES	$	245,719	$	148,144	$	54,399

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

	Year Ended December 31,
	2025		2024		2023
Revenues recognized at a point in time	$	227,577	$	139,577	$	49,856
Revenues recognized over time		18,142		8,567		4,543
TOTAL REVENUES	$	245,719	$	148,144	$	54,399

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

	Year Ended December 31,
	2025		2024		2023
Revenues recognized on time and materials contracts	$	4,000	$	3,599	$	2,524
Revenues recognized on fixed-price contracts		241,719		144,545		51,875
TOTAL REVENUES	$	245,719	$	148,144	$	54,399

Judgments

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

Sales taxes

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

Shipping and handling costs

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

Remaining Performance Obligations

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

	·	$561,000 of deferred revenue for our maintenance contracts, all of which are expected to be recognized within one year,
	·	$13,367,000 of deferred revenue for procurement 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,
	·	$115,100,000 related to performance obligations which we expect to complete with durations greater than one year. This amount excludes variable consideration and is expected to be recognized ratably over the term of a long-term agreement.

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

Stock-Based Compensation

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

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

Concentration of Credit Risk

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

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

	Year Ended December 31,
	2025			2024			2023
US-based IT OEM		99	%		99	%		96	%

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

Cash and cash equivalents

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

Contract and Other Receivables

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

Recently Issued Accounting Pronouncements

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

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

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

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

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

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

Allowance for Credit Losses

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

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

	December 31,
	2025			2024
Balance at beginning of year	$	7		$	7
Additions charged to expense		14			-
Recovery of amounts previously reserved		(21	)		-
Amounts written off		-			-
Balance at end of year	$	-		$	7

Inventories

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

Property and Equipment

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

Goodwill and Intangible Assets

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

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

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

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

Income Taxes

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

Non-recourse factoring

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

	Year Ended December 31,
	2025		2024		2023
Aggregate gross amount factored		339,765		184,000		137,000
Financing fees paid		3,687		2,595		1,963

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

Earnings Per-Common Share

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

Treasury Stock

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

Recently Adopted Accounting Pronouncements

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

Commitments and Contingencies

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

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

Concentration of Credit Risk one

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

TSS, Inc. 10-K