TSS Inc(TSSI) - 2025 Q2 - Quarterly Report

"SAFE HARBOR" STATEMENT This statement clarifies that the report contains forward-looking statements subject to risks and disclaims obligation to update them - The report contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995, which are based on management's current plans and expectations and are subject to risks and uncertainties[11][12] - The company expressly disclaims any obligation to publicly release updates or changes to its forward-looking statements[13] PART I – FINANCIAL INFORMATION This part presents TSS, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements This section presents TSS, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, segment performance, and other financial details for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets This section provides a snapshot of TSS, Inc.'s financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :----------------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $36,836 | $23,222 | | Total current assets | $70,895 | $58,197 | | Property and equipment, net | $35,288 | $8,591 | | Total assets | $139,470 | $96,568 | | Accounts payable and accrued expenses | $82,020 | $53,340 | | Total current liabilities | $87,244 | $56,919 | | Long-term debt, non-current | $19,541 | $8,200 | | Total liabilities | $129,932 | $89,430 | | Total stockholders' equity | $9,538 | $7,138 | Unaudited Consolidated Statements of Operations This section outlines TSS, Inc.'s revenues, costs, and profitability over specific reporting periods, including earnings per share Consolidated Statements of Operations Highlights (in thousands, except per-share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $43,970 | $12,159 | $142,929 | $28,052 | | Cost of revenue | $36,155 | $7,623 | $125,904 | $20,802 | | Gross profit | $7,815 | $4,536 | $17,025 | $7,250 | | Income from operations | $2,236 | $1,700 | $6,349 | $1,954 | | Net income | $1,483 | $1,402 | $4,462 | $1,417 | | Earnings per common share - Basic | $0.06 | $0.06 | $0.19 | $0.06 | | Earnings per common share - Diluted | $0.06 | $0.06 | $0.17 | $0.06 | Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in TSS, Inc.'s equity components, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (in thousands) | Metric | Balance January 1, 2025 | Balance June 30, 2025 | | :-------------------------- | :---------------------- | :-------------------- | | Common Stock (Shares) | 25,250 | 25,975 | | Common Stock (Amount) | $3 | $3 | | Additional Paid-in Capital | $74,200 | $76,058 | | Treasury Stock (Shares) | (1,849) | (1,975) | | Treasury Stock (Amount) | $(6,730) | $(10,650) | | Accumulated Deficit | $(60,335) | $(55,873) | | Total Stockholders' Equity | $7,138 | $9,538 | - Net income contributed $2,979 thousand and $1,483 thousand to stockholders' equity for the three months ended March 31, 2025, and June 30, 2025, respectively[19] - Treasury shares repurchased amounted to $(1,654) thousand and $(2,266) thousand for the three months ended March 31, 2025, and June 30, 2025, respectively[19] Unaudited Condensed Consolidated Statements of Cash Flows This section presents TSS, Inc.'s cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash provided by (used in) operating activities | $36,973 | $(1,682) | | Net cash used in investing activities | $(25,779) | $(1,721) | | Net cash provided by (used in) financing activities | $7,420 | $(117) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $18,614 | $(3,520) | | Cash, cash equivalents and restricted cash, end of period | $41,836 | $8,311 | - Cash paid for interest, net of capitalized amounts, was $2,327 thousand in 2025, up from $537 thousand in 2024[21] - Capital expenditures financed with accounts payable amounted to $1,881 thousand in 2025[21] Notes to Condensed Consolidated Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and segment data Note 1 – Significant Accounting Policies This note details TSS, Inc.'s business operations, revenue recognition methods, and key accounting principles applied in financial reporting - TSS, Inc. provides comprehensive services for planning, design, deployment, maintenance, and refresh of end-user and enterprise systems, including AI-enabled data center server racks, and recently relocated its corporate offices to Georgetown, Texas[23] - The company recognizes revenue when control of goods or services is transferred to customers, with specific policies for maintenance, integration, equipment sales, deployment, and procurement services[33] Revenues Disaggregated by Segment and Service Type (Three Months Ended June 30, in thousands) | Segment/Service Type | 2025 | 2024 | | :--------------------------------- | :------- | :------- | | Facilities Management | $1,482 | $2,285 | | Systems Integration | $9,486 | $4,960 | | Procurement | $33,002 | $4,914 | | Total Revenues | $43,970 | $12,159 | Revenues Disaggregated by Segment and Service Type (Six Months Ended June 30, in thousands) | Segment/Service Type | 2025 | 2024 | | :--------------------------------- | :------- | :------- | | Facilities Management | $2,780 | $4,431 | | Systems Integration | $16,970 | $7,083 | | Procurement | $123,179 | $16,538 | | Total Revenues | $142,929 | $28,052 | - The company is economically dependent on a large US-based IT OEM, which accounted for 98% of revenues in Q2 2025 and 99% year-to-date 2025, and 98% of accounts receivable at June 30, 2025[47][48] Non-Recourse Factoring Program (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Aggregate gross amount factored | $72,391 | $28,835 | $193,484 | $50,978 | | Financing fees paid | $882 | $427 | $2,425 | $742 | - Non-cash stock-based compensation expense was approximately $0.9 million for Q2 2025 and $1.9 million for the six months ended June 30, 2025, significantly higher than prior year periods[53] - Cash and cash equivalents, including restricted cash, totaled $41.8 million at June 30, 2025, with $5.0 million restricted as collateral for bank debt[54] Allowance for Credit Losses (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $7 | $7 | | Additions charged to expense | $14 | $- | | Balance at end of period | $21 | $7 | - Goodwill carrying value remained at $0.8 million at June 30, 2025, with no impairment identified[65] - The company adopted ASU 2023-07 (Segment Reporting) effective December 31, 2024, resulting in three reportable segments and retrospective reclassification of prior period results[71] Note 2 – Supplemental Balance Sheet Information This note provides detailed breakdowns of specific balance sheet accounts, including receivables, inventories, and long-term debt Contract and Other Receivables, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :------------------------------ | :------------------------ | :------------------ | | Contract and other receivables | $14,018 | $16,210 | | Allowance for credit losses | $(21) | $(7) | | Contracts and other receivables, net | $13,997 | $16,203 | Inventories, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :---------------- | :------------------------ | :------------------ | | Raw Materials | $78 | $201 | | Work in Process | $155 | $120 | | Finished Goods | $14,377 | $17,373 | | Reserve | $(21) | $(21) | | Inventories, net | $14,589 | $17,673 | Goodwill and Intangible Assets (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :--------------------------------- | :------------------------ | :------------------ | | Goodwill | $780 | $780 | | Customer relationships (Gross Carrying Amount) | $906 | $906 | | Customer relationships (Accumulated Amortization) | $(906) | $(906) | | Acquired software (Gross Carrying Amount) | $234 | $234 | | Acquired software (Accumulated Amortization) | $(234) | $(234) | Property and Equipment, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Trade equipment | $5,680 | $763 | | Leasehold improvements | $29,909 | $2,328 | | Construction in Process | $1,469 | $6,701 | | Less accumulated depreciation | $(2,601) | $(3,704) | | Property and equipment, net | $35,288 | $8,591 | Accounts Payable and Accrued Expenses (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :--------------------------------- | :------------------------ | :------------------ | | Accounts payable | $69,281 | $33,491 | | Accrued expenses | $9,674 | $17,802 | | Total accounts payable and accrued expenses | $82,020 | $53,340 | Long-Term Debt, Non-Current (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Borrowed funds (bank loan) | $20,000 | $8,667 | | Deferred debt issuance costs | $(459) | $(467) | | Long-term debt, non-current | $19,541 | $8,200 | Note 3 – Long-Term Debt This note describes TSS, Inc.'s new credit agreement, term loan details, interest rates, and compliance with financial covenants - On December 31, 2024, TSS entered a new Credit Agreement for a $20.0 million term loan facility to fund improvements at its new Georgetown, Texas facility[87] - The company borrowed $8.7 million initially and the remaining $11.3 million by June 30, 2025, bringing the total to $20.0 million[87] - The loan converted to a fully amortizing term loan on July 5, 2025, with monthly payments of approximately $437,000 starting August 5, 2025, and a final due date of January 5, 2030[88] - The loan bears a floating interest rate (1-month SOFR plus 3.0%, with a 4.5% floor) and is secured by a $5.0 million cash deposit and certain equipment[88] - TSS was in compliance with all financial covenants (leverage ratio, debt service coverage ratio) at June 30, 2025[89] Note 4 – Leasing Arrangements This note outlines TSS, Inc.'s operating lease commitments for facilities and equipment, including associated costs and future payment schedules - TSS has operating leases for its office and integration facilities in Round Rock and Georgetown, Texas, and for certain equipment, with remaining lease terms of 9 to 119 months[91] Operating Lease Costs (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $973 | $236 | $1,964 | $457 | | Variable lease cost | $202 | $114 | $324 | $227 | | Total operating lease cost | $1,175 | $350 | $2,288 | $684 | | Cash paid for operating leases | $420 | $136 | $656 | $265 | Future Minimum Lease Payments (as of June 30, 2025, in thousands) | Fiscal Year | Amount | | :---------- | :------- | | 2025 | $1,813 | | 2026 | $3,662 | | 2027 | $3,777 | | 2028 | $3,905 | | 2029 | $3,265 | | 2030 | $1,538 | | Thereafter | $16,678 | | Total minimum future lease payments | $34,638 | | Less imputed interest | $(10,099) | | Total | $24,539 | Note 5 – Earnings Per-Share This note reconciles the calculation of basic and diluted earnings per share, detailing the components of the numerator and denominator Earnings Per Share Reconciliation (in thousands except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (Numerator) | $1,483 | $1,402 | $4,462 | $1,417 | | Weighted-average shares of common stock outstanding (Basic Denominator) | 23,581 | 22,077 | 23,871 | 21,988 | | Basic Earnings per share | $0.06 | $0.06 | $0.19 | $0.06 | | Dilutive options and warrants outstanding | 2,226 | 2,623 | 2,368 | 1,546 | | Number of shares used in diluted per-share computation | 25,807 | 24,700 | 26,239 | 23,534 | | Diluted Earnings per share | $0.06 | $0.06 | $0.17 | $0.06 | - 50,000 restricted shares and options were excluded from diluted EPS calculation for the three and six months ended June 30, 2025, due to their anti-dilutive effect[96] Note 6 – Segment Reporting This note details TSS, Inc.'s three reportable segments, presenting their revenues, gross profits, and capital expenditures - TSS now operates with three reportable segments: Procurement, Systems Integration, and Facilities Management, a change from two segments prior to Q4 2024[97][103] Segment Performance (Three Months Ended June 30, 2025, in thousands) | Metric | Procurement | Systems Integration | Facilities Management | Total Segments | | :------------------------------------------ | :---------- | :------------------ | :-------------------- | :------------- | | Total revenue | $33,002 | $9,486 | $1,482 | $43,970 | | Cost of revenue | $30,463 | $5,311 | $381 | $36,155 | | Segment gross profit | $2,539 | $4,175 | $1,101 | $7,815 | | Segment pre-tax income | $1,783 | $2,178 | $910 | $4,871 | | Capital expenditures | $- | $12,705 | $- | $12,705 | Segment Performance (Six Months Ended June 30, 2025, in thousands) | Metric | Procurement | Systems Integration | Facilities Management | Total Segments | | :------------------------------------------ | :---------- | :------------------ | :-------------------- | :------------- | | Total revenue | $123,179 | $16,970 | $2,780 | $142,929 | | Cost of revenue | $113,612 | $11,144 | $1,148 | $125,904 | | Segment gross profit | $9,567 | $5,826 | $1,632 | $17,025 | | Segment pre-tax income | $7,445 | $2,437 | $1,276 | $11,158 | | Capital expenditures | $- | $27,574 | $- | $27,574 | Reconciliation of Total Segment Pre-Tax Income to Consolidated Pre-Tax Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total segment pre-tax income (loss) | $4,871 | $3,112 | $11,158 | $4,691 | | Less: Unallocated SG&A, depreciation and other operating expenses | $3,494 | $1,790 | $7,136 | $3,443 | | Plus: Unallocated interest income, net | $175 | $106 | $558 | $205 | | Consolidated pre-tax income | $1,552 | $1,428 | $4,580 | $1,453 | Segment Total Assets (in thousands) | Segment | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Procurement | $28,452 | $19,319 | | Systems Integration | $38,789 | $25,855 | | Facilities Management | $2,773 | $932 | | Total Segment Assets | $70,014 | $46,106 | Note 7 – Subsequent Events This note discloses significant events occurring after the balance sheet date, specifically the conversion of the construction loan to a term loan - On July 5, 2025, the $20.0 million principal balance on the Credit Agreement converted to a fully amortizing term loan, with monthly payments of approximately $437,000 beginning August 5, 2025, and a final due date of January 5, 2030[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on TSS, Inc.'s financial performance and condition for the three and six months ended June 30, 2025. It highlights significant revenue growth driven by AI-enabled systems integration and procurement services, discusses changes in profitability, and outlines the company's liquidity and capital resources, including investments in a new facility Overview This overview describes TSS, Inc.'s core services, strategic investments in a new facility, and key customer agreements driving growth - TSS provides comprehensive services for data centers and mission-critical facilities, with systems integration services enhanced to include AI-enabled data center server racks since 2024[109] - The company has invested approximately $31.6 million in a new 213,000 square foot facility in Georgetown, Texas, to support increased production of AI-enabled computer racks, funded by a $20 million construction loan and cash on hand[113][114][158] - A multi-year agreement with its largest customer for AI-enabled rack integration provides expected minimum monthly volumes and payments to cover facility and debt service costs[113][114] Results of Operations - Three Months Ended June 30, 2025 This section analyzes TSS, Inc.'s financial performance for the second quarter of 2025, detailing revenue, cost, and income changes Revenues This subsection details the significant increase in Q2 2025 revenues, primarily driven by procurement and systems integration services - Total revenues increased by 262% to $44.0 million in Q2 2025, driven by significant growth in procurement (572% increase) and systems integration (91% increase), partially offset by a 35% decrease in facilities management revenue[122] - The increase in systems integration revenues was primarily due to continued growth in AI-enabled computer rack integration, supported by a multi-year agreement with minimum volume commitments[123] Procurement Activities - Three Months Ended June 30 (in thousands, except percentages) | Metric | 2025 | 2024 | Increase | Percentage Increase | | :------------------------------------------ | :------- | :------- | :------- | :------------------ | | Recognized value of all procurement deals (GAAP) | $33,002 | $4,914 | $28,088 | 572% | | Gross profit (GAAP) | $2,539 | $713 | $1,826 | 256% | | Gross margin based on recognized value (GAAP) | 7.7% | 14.5% | | | | Gross value of all procurement deals (Non-GAAP) | $65,731 | $20,988 | $44,743 | 213% | | Gross margin based on gross value (Non-GAAP) | 3.9% | 3.4% | | | Cost of Revenue and Gross Margins This subsection analyzes the changes in cost of revenue and gross margins across segments for Q2 2025, highlighting the impact of procurement growth - Consolidated gross margin decreased to 18% in Q2 2025 from 37% in Q2 2024, primarily due to the outsized increase in the lower-margin procurement business[131] Segment Gross Margins (Three Months Ended June 30) | Segment | 2025 | 2024 | | :------------------ | :----- | :----- | | Procurement | 8% | 15% | | Systems Integration | 44% | 43% | | Facilities Management | 74% | 74% | - Systems integration gross profit increased by 95% to $4.2 million, despite including $0.3 million of rent expense for the new Georgetown facility and uncapitalizable costs related to readying the facility[131] Selling, General and Administrative (SG&A) Expenses This subsection details the increase in SG&A expenses for Q2 2025, attributed to higher headcount and compensation costs - SG&A expenses increased by $2.0 million in Q2 2025, primarily due to higher headcount, compensation costs, and increased accruals for incentive compensation[135] - Non-cash equity-based compensation included in SG&A was $0.9 million in Q2 2025, compared to $0.2 million in Q2 2024[135] Depreciation and Amortization This subsection explains the increase in depreciation and amortization for Q2 2025, primarily due to the new factory - Depreciation and amortization increased from $0.1 million in Q2 2024 to $0.8 million in Q2 2025, due to two full months of depreciation on the new factory put into service in May 2025[136] Operating Income This subsection reports the growth in operating income for Q2 2025, reflecting improved operational efficiency despite increased expenses - Operating income increased by 32% to $2.2 million in Q2 2025, up from $1.7 million in Q2 2024, despite a 97% increase in operating expenses[137] Interest Expense and Interest Income This subsection details the changes in interest expense and income for Q2 2025, influenced by increased debt and cash balances - Interest expense increased to $0.9 million in Q2 2025 from $0.4 million in Q2 2024, due to increased procurement transactions and interest on the $20.0 million construction loan[138][139] - Interest income increased to $0.2 million in Q2 2025 from $0.1 million in Q2 2024, due to a higher average cash balance[140] Net Income This subsection presents the net income and diluted earnings per share for Q2 2025, showing a modest increase Net Income and EPS (Three Months Ended June 30) | Metric | 2025 | 2024 | | :--------- | :------- | :------- | | Net income | $1,483 | $1,402 | | Diluted EPS | $0.06 | $0.06 | Results of Operations - Six Months Ended June 30, 2025 This section analyzes TSS, Inc.'s financial performance for the first half of 2025, detailing revenue, cost, and income changes Revenues This subsection details the substantial increase in year-to-date revenues, driven by procurement and AI-enabled systems integration - Total revenues increased by 410% to $142.9 million for the six months ended June 30, 2025, driven by procurement (645% increase) and systems integration (140% increase), partially offset by a 37% decrease in facilities management[143] - The increase in systems integration revenues was primarily due to continued growth in AI-enabled computer rack integration[144] Procurement Activities - Six Months Ended June 30 (in thousands, except percentages) | Metric | 2025 | 2024 | Increase | Percentage Increase | | :------------------------------------------ | :------- | :------- | :------- | :------------------ | | Recognized value of all procurement deals (GAAP) | $123,179 | $16,538 | $106,641 | 645% | | Gross profit (GAAP) | $9,567 | $1,622 | $7,945 | 490% | | Gross margin based on recognized value (GAAP) | 7.8% | 9.8% | | | | Gross value of all procurement deals (Non-GAAP) | $171,712 | $40,944 | $130,768 | 319% | | Gross margin based on gross value (Non-GAAP) | 5.6% | 4.0% | | | Cost of Revenue and Gross Margins This subsection analyzes the changes in cost of revenue and gross margins for the first half of 2025, impacted by the growth of lower-margin procurement - Consolidated gross margin decreased to 12% for the six months ended June 30, 2025, from 26% in the prior year, primarily due to the increased proportion of lower-margin procurement business[149] Segment Gross Margins (Six Months Ended June 30) | Segment | 2025 | 2024 | | :------------------ | :----- | :----- | | Procurement | 8% | 10% | | Systems Integration | 34% | 39% | | Facilities Management | 59% | 65% | - Systems integration gross profit increased by 113% to $5.8 million, despite approximately $1.0 million of non-cash rent expense for the new Georgetown facility prior to operations[149] Selling, General and Administrative (SG&A) Expenses This subsection details the increase in SG&A expenses for the first half of 2025, driven by higher headcount and compensation - SG&A expenses increased by $4.5 million (88%) for the six months ended June 30, 2025, due to higher headcount, compensation, and incentive compensation accruals[151] - Non-cash equity-based compensation included in SG&A was $1.8 million for the six months ended June 30, 2025, compared to $0.3 million in the prior year[151] Depreciation and Amortization This subsection explains the increase in depreciation and amortization for the first half of 2025, due to the new factory - Depreciation and amortization increased from $0.2 million in the prior year to $1.1 million for the six months ended June 30, 2025, due to the new factory being put into service[152] Operating Income This subsection reports the significant growth in operating income for the first half of 2025, indicating improved operational leverage - Operating income grew by 225% to $6.3 million for the six months ended June 30, 2025, compared to $2.0 million in the prior year, reflecting effective leveraging of the expense structure[153] Interest Expense and Interest Income This subsection details the changes in interest expense and income for the first half of 2025, influenced by debt and cash balances - Interest expense increased to $2.3 million for the six months ended June 30, 2025, from $0.7 million in the prior year, due to increased procurement transactions and the construction loan[154] - Interest income increased to $0.6 million for the six months ended June 30, 2025, from $0.2 million in the prior year, due to higher average cash balances[155] Net Income This subsection presents the net income and diluted earnings per share for the first half of 2025, showing substantial growth Net Income and EPS (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--------- | :------- | :------- | | Net income | $4,462 | $1,417 | | Diluted EPS | $0.17 | $0.06 | Liquidity and Capital Resources This section discusses TSS, Inc.'s sources and uses of cash, including operating cash flow, investments in facilities, and financing activities - Primary liquidity sources include cash and cash equivalents ($41.8 million at June 30, 2025), vendor trade-credit, projected cash flows from operations, and $6.8 million in tenant improvement funds[157][161] - Cash provided by operating activities was $37.0 million for the six months ended June 30, 2025, a significant increase from a $1.7 million use in the prior year, driven by AI-rack integration and procurement services[162] - Investing activities used $25.8 million in cash for the six months ended June 30, 2025, primarily for the buildout of the new integration facility[164] - Financing activities provided $7.4 million in cash, mainly from $11.3 million in construction loan proceeds, partially offset by $3.9 million used to repurchase treasury stock[165] - The company uses a non-recourse factoring agreement for receivables from its largest customer to accelerate cash receipts, which is considered efficient due to a lower effective interest rate than borrowing funds[160] Off-Balance Sheet Arrangements This section confirms that TSS, Inc. had no off-balance sheet arrangements as of the reporting dates - As of June 30, 2025, and December 31, 2024, the company had no off-balance sheet arrangements[168] Critical Accounting Policies and Pronouncements This section states that there have been no material changes to TSS, Inc.'s critical accounting policies since the last annual report - There have been no material changes to the company's critical accounting policies and estimates as set forth in the 2024 Annual Report on Form 10-K[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details TSS, Inc.'s exposure to market risks, primarily focusing on interest rate risk associated with its variable-rate debt and the costs incurred from its accounts receivable factoring program - The company's $20.0 million outstanding debt bears a variable interest rate tied to 1-month SOFR, exposing it to interest rate fluctuations[171] - A hypothetical 25 basis point increase or decrease in annual SOFR rates would increase or decrease annual interest expense by approximately $50,000 on the outstanding debt[171] - Factoring costs for accounts receivable are also based on prevailing SOFR; a hypothetical 25 basis point change could alter annual interest expense by approximately $107,000, assuming $200 million in factored receivables[172] Item 4. Controls and Procedures This section reports on the effectiveness of TSS, Inc.'s disclosure controls and procedures, concluding they were ineffective as of June 30, 2025, due to an un-remediated material weakness in internal control over financial reporting identified in 2024 - Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to an un-remediated material weakness in internal control over financial reporting[175] - The material weakness, identified during the 2024 annual audit, relates to ineffective design of certain management review controls, leading to potential material adjustments to financial statements[176] - Root causes include manual processes, challenges in segregating duties, and a need for additional controls; remediation efforts are ongoing, including engaging external experts and enhancing documentation[176][177] - Despite the material weakness, management believes the condensed consolidated financial statements for the periods ended June 30, 2025, fairly present the company's financial position, results of operations, and cash flows in conformity with GAAP[179] PART II – OTHER INFORMATION This part includes information on unregistered sales of equity securities and a list of exhibits filed with the report Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's purchases of its common stock during the quarter ended June 30, 2025, which were primarily for tax withholding requirements related to employee stock plans Purchases of Common Stock (Quarter Ended June 30, 2025) | Monthly Period | Total Shares Purchased | Average Price paid per Share | | :-------------------------------- | :--------------------- | :--------------------------- | | April 1, 2025 – April 30, 2025 | 5,930 | $6.55 | | May 1, 2025 – May 31, 2025 | 23,766 | $14.44 | | June 1, 2025 – June 30, 2025 | 69,407 | $27.14 | | Total | 99,103 | $22.86 | - All shares were acquired from associates to satisfy tax withholding requirements upon restricted stock vesting or as exercise price for stock options; none were open market trades[182] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including various certifications and XBRL documents - Exhibits include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as Inline XBRL documents[183] SIGNATURES This section provides the official signature and date of the report's filing by the principal financial officer - The report was signed on August 11, 2025, by Daniel M. Chism, Chief Financial Officer (Principal Financial Officer) of TSS, INC[185][186][187]