UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September
30, 2014
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.) |
|
|
|
7226 Lee DeForest Drive, Suite 104
Columbia, Maryland |
|
21046 |
(Address of principal executive offices) |
|
(Zip Code) |
(410) 423-7300
(Registrant’s telephone number, including
area code)
(Former name, former address and former
fiscal year, if changed since last report)
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 x
No ¨
Indicate
by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files).
Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer (Do not check if a smaller reporting company) ¨ |
Smaller reporting company x |
Indicated
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
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 13, 2014 15,199,668
TSS, INC.
QUARTERLY REPORT ON FORM 10Q
For the Quarterly Period Ended September
30, 2014
“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, 2013.
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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TSS, Inc.
Condensed Consolidated Balance Sheets
(in thousands
except par values)
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
(unaudited) | | |
(as revised) | |
Current Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 907 | | |
$ | 3,291 | |
Restricted cash | |
| - | | |
| 501 | |
Contract and other receivables, net | |
| 5,926 | | |
| 8,410 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 1,249 | | |
| 544 | |
Inventories, net | |
| 161 | | |
| 217 | |
Prepaid expenses and other current assets | |
| 309 | | |
| 448 | |
Total current assets | |
| 8,552 | | |
| 13,411 | |
Fixed assets, net | |
| 604 | | |
| 437 | |
Goodwill | |
| 1,907 | | |
| 1,907 | |
Intangible assets, net | |
| 1,013 | | |
| 1,116 | |
Other assets | |
| 83 | | |
| 154 | |
Total assets | |
$ | 12,159 | | |
$ | 17,025 | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Convertible notes payable, current portion, net | |
$ | 158 | | |
$ | 137 | |
Borrowings under credit facility | |
| 2,771 | | |
| 3,000 | |
Accounts payable and accrued expenses | |
| 4,647 | | |
| 7,590 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 2,954 | | |
| 2,316 | |
Total current liabilities | |
| 10,530 | | |
| 13,043 | |
Convertible notes payable, less current portion, net | |
| 575 | | |
| 723 | |
Other liabilities | |
| 2 | | |
| 9 | |
Total liabilities | |
| 11,107 | | |
| 13,775 | |
| |
| | | |
| | |
Commitments and Contingencies | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders’ Equity: | |
| | | |
| | |
Preferred stock, $.0001 par value; 1,000 shares
authorized at September 30, 2014 and December 31, 2013; none issued | |
| - | | |
| - | |
Common stock, $.0001 par value; 49,000 shares
authorized at September 30, 2014 and December 31, 2013; 16,095 and 15,395 issued at September 30, 2014 and December 31,
2013, respectively | |
| 2 | | |
| 2 | |
Additional paid-in capital | |
| 67,514 | | |
| 67,152 | |
Treasury stock 895 and 823 shares at cost at September 30, 2014 and December
31, 2013, respectively | |
| (1,512 | ) | |
| (1,512 | ) |
Accumulated deficit | |
| (64,952 | ) | |
| (62,392 | ) |
Total stockholders' equity | |
| 1,052 | | |
| 3,250 | |
Total liabilities and stockholders’ equity | |
$ | 12,159 | | |
$ | 17,025 | |
See accompanying notes to the consolidated
financial statements.
TSS, Inc.
Condensed Consolidated Statements of
Operations
(in thousands, except per-share
amounts; unaudited)
| |
Three Months Ended
Sept. 30 | | |
Nine Months Ended
Sept. 30 | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Results of Operations: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Revenue | |
$ | 6,213 | | |
$ | 10,292 | | |
$ | 19,575 | | |
$ | 31,363 | |
Cost of revenue | |
| 4,051 | | |
| 8,082 | | |
| 13,518 | | |
| 24,422 | |
Gross profit | |
| 2,162 | | |
| 2,210 | | |
| 6,057 | | |
| 6,941 | |
Selling, general and administrative expenses | |
| 2,326 | | |
| 3,067 | | |
| 8,036 | | |
| 8,583 | |
Depreciation and amortization | |
| 129 | | |
| 93 | | |
| 371 | | |
| 217 | |
Total operating costs | |
| 2,455 | | |
| 3,160 | | |
| 8,407 | | |
| 8,800 | |
Loss from operations | |
| (293 | ) | |
| (950 | ) | |
| (2,350 | ) | |
| (1,859 | ) |
Other expense: | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (73 | ) | |
| (64 | ) | |
| (210 | ) | |
| (128 | ) |
Other expense | |
| - | | |
| (5 | ) | |
| - | | |
| (20 | ) |
Loss from operations before income taxes | |
| (366 | ) | |
| (1,019 | ) | |
| (2,560 | ) | |
| (2,007 | ) |
Income tax provision | |
| - | | |
| - | | |
| - | | |
| - | |
Net loss | |
$ | (366 | ) | |
$ | (1,019 | ) | |
$ | (2,560 | ) | |
$ | (2,007 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share: | |
| | | |
| | | |
| | | |
| | |
Loss per common share | |
$ | (0.02 | ) | |
$ | (0.07 | ) | |
$ | (0.17 | ) | |
$ | (0.14 | ) |
Weighted average common shares outstanding | |
| 15,075 | | |
| 14,411 | | |
| 14,935 | | |
| 14,513 | |
See accompanying notes to the consolidated
financial statements.
TSS, Inc.
Condensed Consolidated Statements of
Changes in Stockholders’ Equity
For the Nine
Months Ended Sept. 30, 2014
(in
thousands, except share amounts, unaudited)
| |
| | |
| | |
Additional | | |
| | |
| | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Treasury Stock | | |
Accumulated | | |
Shareholders' | |
| |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Equity | |
Balance at December 31, 2013 | |
| 15,395 | | |
$ | 2 | | |
$ | 67,152 | | |
| 823 | | |
$ | (1,512 | ) | |
$ | (62,392 | ) | |
$ | 3,250 | |
Purchase of treasury stock | |
| - | | |
| - | | |
| - | | |
| 72 | | |
| - | | |
| - | | |
| - | |
Stock-based compensation | |
| 700 | | |
| - | | |
| 362 | | |
| - | | |
| - | | |
| - | | |
| 362 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,560 | ) | |
| (2,560 | ) |
Balance at September 30, 2014 | |
| 16,095 | | |
$ | 2 | | |
$ | 67,514 | | |
| 895 | | |
$ | (1,512 | ) | |
$ | (64,952 | ) | |
$ | 1,052 | |
See accompanying notes to the consolidated
financial statements.
TSS, Inc.
Condensed Consolidated Statements of
Cash Flows
(in thousands; unaudited)
| |
Nine Months Ended
Sept. 30, | |
| |
2014 | | |
2013 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (2,560 | ) | |
$ | (2,007 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 371 | | |
| 194 | |
Amortization of discount on note payable | |
| 48 | | |
| 29 | |
Provision for doubtful accounts | |
| 12 | | |
| 17 | |
Stock-based compensation | |
| 362 | | |
| 293 | |
Write-off on disposal of property | |
| - | | |
| 41 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Restricted cash | |
| 500 | | |
| (536 | ) |
Contract and other receivables | |
| 2,473 | | |
| (3,163 | ) |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| (705 | ) | |
| 29 | |
Inventories, net | |
| 56 | | |
| (952 | ) |
Prepaid expenses and other current assets | |
| 139 | | |
| 17 | ) |
Other assets | |
| - | | |
| 11 | |
Accounts payable and accrued expenses | |
| (2,941 | ) | |
| 1,217 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 638 | | |
| (66 | ) |
Other assets and liabilities, net | |
| (7 | ) | |
| (43 | ) |
Net cash used in operating activities | |
| (1,616 | ) | |
| (4,917 | ) |
Cash Flows from Investing Activities: | |
| | | |
| | |
Capital expenditures | |
| (364 | ) | |
| (254 | ) |
Acquisition of a business | |
| - | | |
| (1,469 | ) |
Net cash used in investing activities | |
| (364 | ) | |
| (1,723 | ) |
Cash Flows from Financing Activities: | |
| | | |
| | |
Payment of debt issuance costs | |
| - | | |
| (194 | ) |
Payment on convertible notes payable | |
| (175 | ) | |
| (1,150 | ) |
Payments on line of credit | |
| (229 | ) | |
| 3,000 | |
Purchase of treasury stock | |
| - | | |
| (8 | ) |
Net cash (used in) provided by financing activities | |
| (404 | ) | |
| 1,622 | |
Net decrease in cash | |
| (2,384 | ) | |
| (5,017 | ) |
Cash and cash equivalents at beginning of period | |
| 3,291 | | |
| 5,608 | |
Cash and cash equivalents at end of period | |
$ | 907 | | |
$ | 591 | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 162 | | |
$ | 132 | |
Cash paid for taxes | |
$ | 45 | | |
$ | 1 | |
See accompanying notes to the consolidated
financial statements.
TSS, Inc.
Notes to Condensed Consolidated Statements
September 30, 2014
(unaudited)
Note 1 – Significant Accounting Policies
Description of Business
TSS, Inc. (“TSS” or the
“Company” or “we”), provides comprehensive services for the planning, design, systems integration,
development and maintenance of mission-critical facilities and information infrastructure as well as integration services. We
provide a single source solution for highly technical mission-critical facilities such as 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, construction
management, facilities management and systems integration. Our corporate offices are in Columbia, Maryland and we also have
facilities in Dulles, Virginia, Round Rock, Texas and Mountain View, California.
The accompanying condensed consolidated
balance sheet as of December 31, 2013, which has been derived from audited financial statements, and the unaudited interim condensed
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US
GAAP”) for interim financial statements and pursuant to the rules and regulations of the SEC for interim reporting, and include
the accounts of the Company and its consolidated subsidiaries. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly
the consolidated financial position of the Company and its consolidated results of operations and cash flows. These interim financial
statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013.
The accompanying condensed consolidated
financial statements have also been prepared on the basis that the Company will continue to operate as a going concern. Accordingly,
assets and liabilities are recorded on the basis that the Company will be able to realize it assets and discharge its liabilities
in the normal course of business. The Company’s history of operating losses and use of cash, in the absence of other factors,
may cause uncertainty about our ability to continue as a going concern. We have reviewed current and prospective sources of liquidity,
significant conditions and events and forecasted financial results and concluded that we have adequate resources to continue to
operate as a going concern. Our business plans and our assumptions around the adequacy of our liquidity are based on estimates
regarding expected revenues and future costs. However, our revenue may not meet our expectations or our costs may exceed our estimates.
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 the remainder of 2014 or significantly affect our level of liquidity, which may require us to
seek additional financing or take other measures to reduce our operating costs or obtain funding in order to continue operating.
These financial statements do not include any adjustments that might result from the Company not being able to continue as a going
concern.
Revenue Recognition
We recognize revenue when pervasive evidence
of an arrangement exists, the contract price is fixed or determinable, services have been rendered or goods delivered, and collectability
is reasonably assured. Our revenue is derived from fixed-price contracts, time-and-materials contracts, cost-plus-fee contracts
(including guaranteed maximum price contracts), facility service and maintenance contracts, and product shipments.
Revenue from fixed price contracts is recognized
on the percentage of completion method. We apply Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 605-35, Construction-Type and Production-Type Contracts, recognizing revenue on the percentage-of-completion
method using costs incurred in relation to total estimated project costs. This method is used because management considers costs
incurred and costs to complete to be the best available measure of progress in the contracts. Contract costs include all direct
materials, subcontract and labor costs and those indirect costs related to contract performance, such as indirect labor, payroll
taxes, employee benefits and supplies.
Revenue on cost-plus-fee contracts is recognized
to the extent of costs incurred, plus an estimate of the applicable fees earned. Fixed fees under cost-plus-fee contracts are recorded
as earned in proportion to the allowable costs incurred in performance of the contract.
Billings in excess of costs and estimated
earnings on uncompleted contracts are classified as current liabilities. Costs and estimated earnings in excess of billings, or
work in process, are classified as current assets for the majority of our projects. Work in process on contracts is based on work
performed but not yet billed to customers as per individual contract terms.
Certain of our contracts involve the delivery
of multiple elements including design management, system installation and facilities maintenance. Revenues from contracts with
multiple element arrangements are recognized as each element is earned based on the relative selling price of each element provided
the delivered elements have value to customers on a standalone basis. Amounts allocated to each element are based on its objectively
determined fair value, such as the sales price for the service when it is sold separately or competitor prices for similar services.
Revenue and related costs for master and
other service agreements billed on a time and materials basis are recognized as the services are rendered based on actual labor
hours performed at contracted billable rates, and costs incurred on behalf of the customer. Services are also performed under master
and other service agreements billed on a fixed fee basis. Under fixed fee master service and similar type service agreements for
facilities and equipment, we furnish various unspecified units of service for a fixed price. These services agreements are recognized
on the proportional performance method or ratably over the course of the service period and costs are recorded as incurred in performance.
We recognize revenue from assembled products
when the finished product is shipped, and collection of the resulting receivable is reasonably assured. In arrangements where a
formal acceptance of products or services is required by the customer, revenue is recognized upon meeting such acceptance criteria.
Allowance for Doubtful Accounts
We estimate an allowance for doubtful accounts
based on factors related to the specific credit risk of each customer. Historically our credit losses have been minimal. We perform
credit evaluations of new customers and may require prepayments or use of bank instruments such as trade letters of credit to mitigate
credit risk. As we expand our product offerings and customer base, our risk of credit loss has increased. 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.
Concentration of Credit Risk
We are currently economically
dependent upon our relationship with a large US-based IT Original Equipment Manufacturer (OEM). If this relationship is
unsuccessful or discontinues, our business and revenue may suffer. The loss of or a significant reduction in orders from this
customer or the failure to provide adequate products or services to them could significantly reduce our revenue. We also
periodically perform large construction projects which may comprise a significant portion of our revenues during the
construction phase, and which may cause large fluctuations in our quarterly revenues.
The following customers accounted for a
significant percentage of our revenues for the periods shown:
| |
Three Months Ended Sept.
30, | | |
Nine
Months Ended Sept. 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
US-based IT OEM | |
| 50 | % | |
| 17 | % | |
| 41 | % | |
| 22 | % |
US-based construction company | |
| 7 | % | |
| 37 | % | |
| 12 | % | |
| 23 | % |
Washington DC transportation agency | |
| 1 | % | |
| 10 | % | |
| 1 | % | |
| 29 | % |
No other customers represented more
than 10% of our revenues for any periods presented. Our US-based IT OEM customer represented 69% and 27% of our accounts
receivable at September 30, 2014 and December 31, 2013, respectively. A US-based construction company represented 3% and 41%
of our accounts receivable at September 30, 2014 and December 31, 2013, respectively. A US-based retailer company represented
10% and 8% of our accounts receivable at September 30, 2014 and December 31, 2014, respectively. No other customer
represented more than 10% of our accounts receivable at September 30, 2014 or at December 31, 2013.
Recently Issued Accounting Pronouncements
In May 2014, the FASB
issued ASU 2014-09, Revenue from Contracts with Customers, an accounting pronouncement related to revenue recognition (FASB
ASC Topic 606), which amends the guidance in former ASC Topic 605, Revenue Recognition, and provides a single, comprehensive
revenue recognition model for all contracts with customers. This standard contains principles that an entity will apply
to determine the measurement of revenue and timing of when it is recognized. The entity will recognize revenue to reflect
the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods
or services. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2016, and early adoption is not permitted. We are currently evaluating the impact on our consolidated financial
statements.
In August 2014, the FASB issued ASU No.
2014-15, Presentation of Financial Statements – Going Concern (Topic 205-40): Disclosure of Uncertainties about an
Entity's Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires that management assess
an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently
in U.S. auditing standards. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual periods
and interim periods thereafter. We plan to adopt ASU 2014-15 as of the end of our fiscal year ending December 31, 2017 and do not
anticipate adoption will impact our statements of financial position or results of operations.
Note 2 – Supplemental Balance
Sheet Information
Receivables
Contract and other receivables consist of
the following (in ‘000’s):
| |
September 30,
2014 | | |
December 31, 2013 | |
Contract and other receivables | |
$ | 5,960 | | |
$ | 8,432 | |
Allowance for doubtful accounts | |
| (34 | ) | |
| (22 | ) |
| |
$ | 5,926 | | |
$ | 8,410 | |
Inventory
We state inventories
at the lower of cost or market, using the first-in-first-out-method (in ‘000’s):
| |
September 30, 2014 | | |
December 31, 2013 | |
Work in process | |
$ | 36 | | |
$ | 46 | |
Raw materials | |
| 127 | | |
| 176 | |
Less: Reserve | |
| (2 | ) | |
| (5 | ) |
Inventories, net | |
$ | 161 | | |
$ | 217 | |
Goodwill and Intangible Assets
Goodwill and Intangible Assets consist of
the following (in ‘000’s):
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
Gross | | |
| | |
Gross | | |
| |
| |
Carrying | | |
Accumulated | | |
Carrying | | |
Accumulated | |
| |
Amount | | |
Amortization | | |
Amount | | |
Amortization | |
Intangible assets not subject to amortization: | |
| | | |
| | | |
| | | |
| | |
Goodwill | |
$ | 1,907 | | |
| - | | |
$ | 1,907 | | |
| - | |
Trade name | |
$ | 60 | | |
| - | | |
$ | 60 | | |
| - | |
Intangible assets subject to amortization: | |
| | | |
| | | |
| | | |
| | |
Customer relationships | |
$ | 906 | | |
$ | (123 | ) | |
$ | 906 | | |
$ | (55 | ) |
Acquired software | |
$ | 234 | | |
$ | (64 | ) | |
$ | 234 | | |
$ | (29 | ) |
We recognized amortization
expense related to intangibles of approximately $35,000 for both three month periods ended September 30, 2014 and 2013. We
recognized amortization expense related to intangible assets of approximately $103,000 and $84,000 for the nine months ended
September 30, 2014 and 2013, respectively.
US 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 first have the option to make a qualitative assessment of goodwill
for impairment. If we are able to determine through the qualitative assessment that the fair value of a reporting unit more
likely than not exceeds its carrying value, no further evaluation is necessary. For those reporting units for which the qualitative
assessment is either not performed or indicates that further testing may be necessary, we may then assess goodwill for impairment
using a two-step process. The first step requires comparing the fair value of the reporting unit with its carrying amount,
including goodwill. If that fair value exceeds the carrying amount, the second step of the process is not required to be performed,
and no impairment charge is required to be recorded. If that fair value does not exceed that carrying amount, we must perform the
second step, which requires an allocation of the fair value of the reporting unit to all assets and liabilities of that unit as
if the reporting unit had been acquired in a purchase business combination and the fair value of the reporting unit was the purchase
price. The goodwill resulting from that purchase price allocation is then compared to the carrying amount with any excess recorded
as an impairment charge.
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, the Company will evaluate its indefinite lived
intangible assets for impairment. As a result of net losses, non-compliance with the terms of our credit facility
agreement and not meeting forecasted revenue during the quarter ended June 30, 2014, we performed a quantitative Step 1
interim impairment analysis of our goodwill and intangible assets and concluded that there was no additional impairment at
that time. Due to improved margins and reduced losses in our third calendar quarter, including profitability in the month of
September, we did not perform a quantitative Step 1 interim impairment analysis of our goodwill and intangible assets during
the quarter ended September 30, 2014.
Note 3 – Credit Facility
We have arevolving credit facility
with Bridge Bank NA (“Bridge”) under a Business Financing Agreement that expires in May 2016. Our credit facility
with Bridge provides for a secured revolving line of credit in an aggregate amount of up to $6 million, subject to a
borrowing base of 80% of eligible accounts receivable. Borrowings under the facility bear interest at (1) the greater of (a)
the prime rate published by Bridge, which was 3.25% at September 30, 2014 or (b) 3.25%, plus (2) 2% per annum. The revolving
loans made to us under this credit facility are secured by a lien on substantially all of our assets. We modified this
agreement in July 2014 to extend the term of the facility until May 2016 on substantially the same terms and conditions.
Our credit facility includes customary affirmative
covenants for secured transactions of this type, including maintaining adequate books and records, periodic financial reporting,
compliance with laws, maintenance of insurance, maintenance of assets, timely payment of taxes, and notice of adverse events. The
credit facility also includes customary negative covenants, including incurrence of other indebtedness, mergers, consolidations
and transfers of assets and liens on our assets. The credit facility requires us to maintain an asset coverage ratio of at least
1.50 to 1. The asset coverage ratio is defined as the ratio of unrestricted cash plus eligible accounts receivable to all indebtedness
owed by us to Bridge.
The credit facility includes
customary events of default, including payment defaults, failure to perform or observe terms, covenants or agreements
included in the credit facility, insolvency and bankruptcy defaults, judgment defaults, material adverse change defaults, and
change of management defaults. The occurrence of an event of default could result in the acceleration of obligations under
the credit facility, in which case the Company must repay all loans and related charges, fees and amounts then due and
payable.
We incurred expenses of $0.2 million, including
a commitment fee of $30,000,relating to obtaining this credit facility. These costs are included in other assets and are being
amortized over the original life of the credit facility on a straight line basis. Approximately $19,000 and $19,000 was recorded
as amortization expense for the three-month periods ended September 30, 2014 and 2013, respectively. We recorded approximately
$58,000 and $28,000 as amortization expense for the nine-month periods ended September 30, 2014 and 2013, respectively.
At September 30, 2014, there was $2.78 million
in borrowings outstanding under the credit facility. Based on our borrowing base formula as of September 30, 2014, we had an additional
$526,000 available to borrow under this facility.
In October 2014 we further modified
our credit facility where Bridge consented to releasing its security interest in certain receivables from one of our
customers concurrent with our entering into a vendor payment program with that customer. Under this arrangement, we sell our
receivables from this customer to a third party bank and agree to deposit the proceeds into our account with Bridge. At the
time the sale of the receivable occurs under this arrangement, Bridge releases its security interest in those receivables. We
also modified the terms of the credit facility to exclude this customer’s receivables from our eligible accounts
receivable.
Note 4 – Notes Payable
We currently have outstanding promissory
notes payable to Gerard J. Gallagher, a director and Chief Technical Officer of the Company. As of September 30, 2014 there was
an aggregate principal balance outstanding under the note of $775,000 and a remaining unamortized discount of $42,000.
On September 30, 2014 we amended the terms
of the notes payable to amend the future payment schedule and to extend the maturity date of the promissory note from July 1, 2015
to January 1, 2016. Under the amended payment schedule, the Company will make two quarterly principal payments of $25,000 on October
1, 2014 and January 1, 2015. Thereafter, the Company will make monthly principal payments of $25,000 to Mr. Gallagher for a seven
month period beginning on February 1, 2015 and ending on July 1, 2015. The Company will also make an additional principal payment
of $25,000 on or before October 1, 2015. The remaining outstanding balance is due on January 1, 2016. The Company will continue
to make monthly interest payments.
All other terms and conditions of the notes
remain unchanged. The notes bear interest at an annual rate of 4%. The promissory note remains convertible into shares of the Company’s
common stock at a conversion price of $7.50 per share. All amounts due under the note are immediately due and payable upon the
occurrence of a “change in control” of the Company (as defined in the promissory note) or the death of Mr. Gallagher.
If the Company fails to pay any amount due under the promissory note within five days after the date due, the Company must pay
Mr. Gallagher a late charge equal to 5% of the amount due and unpaid. The Company’s obligations under the promissory note
held by Mr. Gallagher are subordinated to the obligations under our credit facility with Bridge Bank.
The balance of the notes payable at September
30, 2014 and December 31, 2013 were as follows:
| |
September 30,
2014 | | |
December 31, 2013 | |
Convertible, unsecured promissory note, due 2015 (4.0%), net | |
$ | 732,843 | | |
$ | 859,843 | |
Less: current portion, net | |
| 157,843 | | |
| 137,000 | |
Convertible notes payable, long-term, net | |
$ | 575,000 | | |
$ | 722,843 | |
The unamortized discount at September 30,
2014 and December 31, 2013 was approximately $42,000 and $90,000, respectively. The accretion of this discount which is recorded
as interest expense was $16,000 and $48,000 for the three and nine-month periods ended September 30, 2014, and was $20,000 and
$29,000 for the three and nine-month periods ended September 30, 2013.
Future repayments on the notes payable at
September 30, 2014 are as follows:
2014 | |
$ | 20,000 | |
2015 | |
| 172,843 | |
2016 | |
| 550,000 | |
Total | |
$ | 732,843 | |
Note 5 – Net Loss Per-Share
The following table sets forth the computation
of basic and diluted net loss per share (in thousands except per share amounts):
| |
Three Months Ended Sept.
30, | | |
Nine
Months Ended Sept 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (366 | ) | |
$ | (1,019 | ) | |
$ | (2,560 | ) | |
$ | (2,007 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted-average shares of common stock outstanding | |
| 15,075 | | |
| 14,411 | | |
| 14,935 | | |
| 14,513 | |
Dilutive effect of employee stock options and restricted stock awards | |
| - | | |
| - | | |
| - | | |
| - | |
Weighted-average shares for diluted net loss per share | |
| 15,075 | | |
| 14,411 | | |
| 14,935 | | |
| 14,513 | |
| |
| | | |
| | | |
| | | |
| | |
Basic & diluted net loss per share | |
$ | (0.02 | ) | |
$ | (0.07 | ) | |
$ | (0.17 | ) | |
$ | (0.14 | ) |
The calculation of diluted
net loss per share excludes some shares of common stock issuable upon exercise of employee stock options because their inclusion
in the calculation would have been anti-dilutive.
| |
Three Months Ended Sept
30, | | |
Nine Months Ended Sept.
30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock equivalents excluded from calculation because effect would have been anti-dilutive | |
| 2,307 | | |
| 2,561 | | |
| 2,409 | | |
| 2,561 | |
Note 6 – Related Party Transactions
We lease our facility in Columbia, Maryland
from an entity that is 50% owned by Gerard Gallagher, a director and our Chief Technical Officer, and Thomas Rosato, our former
CEO and director and a significant shareholder of the Company until February 28, 2014. The lease expires in July 2016. Rents paid
under this agreement were $69,000 and $138,000 for the three and nine-month periods ended September 30, 2014, respectively. We
paid rents of $69,000 and $208,000 for the three and nine-month periods ended September 30, 2013, respectively
We have $775,000 outstanding at September
30, 2014 in convertible notes payable to Mr. Gallagher. The notes bear interest at 4% per annum and are subordinated to our borrowings
to Bridge Bank under our revolving credit facility. Per the terms of the notes, we paid interest of $8,000 and $24,000 during
the three and nine-month periods ended September 30, 2014, respectively. We repaid principal against the Notes of $25,000 and
$175,000 during the three and nine-month periods ended September 30, 2014, respectively.
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 financial statements and notes thereto included in Item
1 of this Form 10-Q and the 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, 2013 included in our 2013 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 2013 Annual Report
on Form 10-K and in Part II, Item 1A of this Form 10-Q for a discussion of items that may affect our future results.
Overview
TSS, Inc. provides comprehensive services
for the planning, design, development and maintenance of mission-critical facilities and information infrastructure as well as
integration services. We provide a single source solution for highly technical mission-critical facilities such as data centers,
operation 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, construction management,
systems integration, system installations and facilities management.
Our headquarters are in Columbia, Maryland,
and we have offices in Dulles, Virginia, Round Rock, Texas and Mountain View, California.
Our business is concentrated on the data
center infrastructure and services market. This market is becoming increasingly 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 increasingly efficient data center design, construction and operation, resulting in increasing capital expenditures 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 could have a negative effect on our results. We have recently added to our direct sales force to
help diversify our customer base to reduce this risk.
RESULTS OF OPERATIONS
Revenue
Revenue consists of
fees earned from the planning, design and construction of mission-critical facilities and information infrastructures, as well
as fees earned from providing maintenance services on these facilities. We also earn revenue from providing system configuration
and integration services to IT equipment vendors. Currently we derive all of our revenue from the US market.
We contract with our
customers under five primary contract types: cost-plus-fee, guaranteed maximum price, time-and-materials, fixed-price contracts
and fixed price service and maintenance 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. Where customer requirements are clear, we prefer to enter into time-and-materials
and fixed-price 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 in order 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 construction 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 additional
working capital and generated lower margins than our maintenance and integration services. We have re-focused our construction
services towards smaller scaled jobs typically connected with addition/move/retrofit activities rather than new construction, where
we can obtain better margins. We have also focused on providing maintenance services for modular data center applications as this
emerging market expands.
Revenues for the
three-month period ended September 30, 2014 decreased by $4.1 million, or 40% compared to the same period in 2013. This
decrease was primarily due to a $4.8 million decrease in our design and construction services, offset by a $0.8 million
increase in systems integration revenues, reflecting the acquisition of our systems integration business in the second
quarter of 2013. The revenue of $6.2 million in the three-month period ended September 30, 2014 was 1% lower than the $6.3
million in revenues we had in the second quarter of 2014.
Revenues for the nine-month
period ended September 30, 2014 decreased by $11.8 million or 38% compared to the same period in 2013. This decrease primarily
relates to a $4.9 million sale of large industrial batteries in the first quarter of 2013, which did not recur in 2014 and due
to the absence of large construction projects in 2014 compared to 2013. Such construction revenues decreased by $9.3 million in
2014 compared to 2013. These decreases were offset by a $3.4 million increase in systems integration revenues reflecting the acquisition
of our systems integration business in the second quarter of 2013.
Our facility
construction projects tend to be larger in value than the contracts for our other products and services and from a smaller
number of customers. These projects have greater transaction values and can contribute to large quarterly fluctuations in
revenue due to the timing of such projects and their fulfillment, as evidenced by comparing our 2014 results to the prior
year. We have historically had such projects with values that exceeded $10 million annually. A small number of these
transactions could lead to a significant increase in revenue but cause greater volatility in our quarterly results depending
on the deployment timetable of the projects. These projects also increase our liquidity risk because they tend to be longer
in duration and require larger amounts of working capital to fulfill, which we attempt to manage through customer and vendor
payment terms, including paid-when-paid terms, as part of our working capital management.
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, including 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 65% for the
three-month period ended September 30, 2014 compared to 79% for the same period in 2013 and 74% in the second quarter of
2014. This improvement reflects growth in our higher margin maintenance and system integration businesses, including higher
utilization of our systems integration facility in the current quarter as this business continued to grow. Cost of revenue as
a percentage of revenue was 69% of revenue in the nine-month period ended September 30, 2014 compared to 78% in the same
period of 2013. This decrease from the prior year reflects the higher relative costs from greater construction revenues and
costs associated with a large battery sale in 2013.
Since we earn
higher profits on our own labor services, we expect the ratio of cost of services to revenue to decline when our labor
services mix increases relative to the use of subcontracted labor or third-party material. Conversely, as subcontracted labor
or third-party material purchases for customer projects increase relative to our own labor services, we expect the ratio of
cost of services to revenue to increase. 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 larger contracts or 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 economics of these larger jobs are nonetheless
generally favorable because they increase income, broaden our revenue base and have a favorable return on invested
capital.
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
For the three-month period ended September
30, 2014 our gross profit was 35% of revenue, compared to a gross profit margin of 21% in the third quarter of 2013 and a gross
profit margin of 26% in the second quarter of 2014. For the nine-month period ended September 30, 2014 our gross profit margin
was 31%, compared to 22% in the same period of 2013. This increase, despite the decrease in revenue levels from the prior year,reflects
our efforts to focus our business on higher-margin activities such as systems integration and facility maintenance and reflects
the absence of large lower-margin revenue streams in 2014, such as our lower-margin construction projects and the $4.9 million battery
project that we had in 2013. Our ability to further improve gross margins will depend, in part, upon our ability to further increase
sales of our higher-margin services including maintenance and integration services, improve our service margins through further
pricing and operating efficiency including utilization of our direct labor, and increasing our total revenues to a level that will
allow us to increase the utilization of our integration and service operations.
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, 2014 our selling, general and administrative expenses decreased by $744,000 or 24% compared to the same period of 2013.
This decrease was due to lower salaries due to headcount reductions made in 2014, lower professional fees, including
accounting and legal fees, and temporary labor which were impacted in 2013 by the acquisition of our systems integration
business in the second quarter of 2013. These savings were offset by additional costs and overhead of $0.3 million resulting
from adding the systems integration business into our operations, which added a new facility and new sales team, with related
costs, into our cost structure. For the nine-month period ended September 30, 2014, our selling, general and administrative
expenses of $8 million were $547,000 or 6% lower than in the same period of 2013. This decrease was due to cost savings
from headcount reductions and lower professional fees, offset by new costs of approximately $0.8 million related to the
addition of the systems integration business
LIQUIDITY AND CAPITAL RESOURCES
Our primary
sources of liquidity at September 30, 2014 are our cash and cash equivalents on hand, our bank credit facility and projected
cash flows from operating activities. During the third quarter of 2014 we extended the term of our bank credit facility so
that it will continue until May 2016. In October we entered into a vendor financing program with our largest customer that
results in us selling our receivables from this customer to a large U.S. bank at a small discount, which results in quicker
receipt of cash to us from our sales made to this customer. Previously these receivables could be outstanding in excess of
100 days before collection. The use of this vendor financing program resulted in a further $3 million reduction of
receivables in October, and, moving forward, will help us lower our overall level of receivables and improve our overall
working capital management and liquidity by accelerating the receipt of payment from our largest customer.
If we continue to meet
the cash flow projections in our current business plan, we expect that we will have adequate capital resources in order 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. 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 the remainder of 2014 and beyond or significantly affect our level of liquidity, which
may limit our opportunities to grow our business.
Our Business
Financing Agreement with Bridge Bank provides for a total line of credit of up to $6 million, subject to our borrowing base,
and a maturity date of May 2016. The revolving loans made to us under this loan facility are secured by a lien on
substantially all of our assets. As of September 30, 2014, we had outstanding borrowings of $2.77 million under this loan
facility and, based on the borrowing base formula, we had approximately $0.5 million available to borrow under this loan
facility. We are currently in compliance with all loan covenants under the loan facility. For further information regarding
this credit facility, refer to our Annual Report on Form 10-K for the year ended December 31, 2013.
Although
our operating results have shown improvement since June 2014 with higher gross margins and significantly lower losses in
the current quarter including profitability in the month of September, 2014, we continue to look at alternative sources
of funding to strengthen our balance sheet and to further improve our liquidity. We are currently evaluating a number
of alternatives including various potential debt, convertible debt and equity issuances but we have not yet agreed upon the
terms or amount of any such financing. There can be no guarantee that such financing will be available to us in amounts or on
terms reasonably acceptable to us or that we will complete any such financing.
As of September 30, 2014 and December
31, 2013, we had cash and cash equivalents of $0.9 million and $3.3 million, respectively. We had restricted cash,
representing amounts required as collateral for a surety bond, of $0.5 million as of December 31, 2013. The restriction on
this funding was released during the third quarter of 2014 and the funds were made available for our general use at that
time.
Cash used in operating activities for the
nine-month period ended September 30, 2014 was $1.6 million, compared to $4.7 million in the same period of 2013. This decrease
was primarily driven by reductions in our net working capital of $3.5 million offset by $0.4 million of larger net losses.
The changes in working capital are
driven by changes in the timing of product orders and delivery of products and services. We derive revenue from different
products and services and some of these, in particular our construction services, can be large in value, exceeding $10
million in certain cases. As we or our subcontractors perform work on these large contracts, we have significant fluctuations
in the level of our receivables and payables, especially on a quarterly basis. We had one large construction project in
progress at the end of 2013, but did not have such a project in progress at the end of the third quarter of 2014. Due to the
timing of completion of this project, this contributed to a $4.9 million decrease in accounts receivable and unbilled
receivables compared to the prior year, offset by a $3.5 million decrease in our accounts payable compared to the prior year.
We also recovered restricted cash of $0.5 million in this current year which had been used as a performance guarantee against
a multi-year service contract with a government agency. We have increased our level of billings in excess of revenue by $0.7
million this year as we increase our install base of maintenance contracts and have a higher level of annual and renewal
billings of those contracts.
Cash used in investing activities in
2014 consists of purchases of property and equipment. Our capital expenditures increased by approximately $0.1 million
compared to 2013 as we invested in additional equipment and testing infrastructure in our systems integration facility, and
invested in sales management and time management software. In 2013 we used approximately $1.5 million of cash in connection
with the acquisition of our systems integration business.
Cash used in financing activities for
the nine month period ended September 30, 2014 comprised $175,000 paid against our convertible note borrowings and $229,000
repaid against our revolving bank credit facility as our level of eligible assets has fluctuated.
Our history of operating losses, continuing
use of cash to fund operations, declining revenue, and declining current ratio may cause uncertainty about our ability to continue
to operate our business as a going concern. We have reviewed our current and prospective sources of liquidity, significant conditions
and events as well as our forecasted financial results and concluded that we have adequate resources to continue to operate as
a going concern. We recently extended the term of our bank credit facility to ensure availability of this resource through May
2016. In October 2014 we entered into a customer financing program with our largest customer that allows us to accelerate the receipt
of cash from receivables owed by that customer that resulted in the accelerated receipt of $3.1 million from outstanding receivables.
In September 2014 we also restructured the repayment terms of our notes payable held by Mr. Gallagher, a director and our Chief
Technical Officer, to defer payments of a large portion of this obligation to 2016, further reducing short term liquidity requirements
on our business. These steps taken have collectively improved our liquidity position since June, 2014. During the third quarter
we also considered various sources of additional debt, convertible debt and equity financing that may be available and so we continue
to negotiate with various third parties to see if such financing can be obtained in amounts and on terms acceptable to us.
Our business plans and our assumptions
around the adequacy of our liquidity are based on estimates regarding estimated revenues and future costs and our ability to
secure these sources of funding if needed. However our revenue may not meet our expectations or our costs may exceed our
estimates. 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 during the remainder of 2014 and beyond or significantly affect our level of
liquidity, which may require us to seek additional financing or take other measures to reduce our operating costs in order to
continue operating. Any action to reduce operating costs may negatively affect our range of products and services that we
offer or our ability to deliver such products and services, which could materially impact our financial results depending on
the level of cost reductions taken. These financial statements do not include any adjustments that might result from the
Company not being able to continue as a going concern.
If we raise additional
funds through the issuance of convertible debt or equity securities, the ownership of our existing stockholders could be significantly
diluted. If we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment
of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions
on our operations. We do not know whether we will be able to secure additional funding, or funding on terms acceptable to us, to
continue our operations as planned. If financing is not available, we may be required to reduce, delay or eliminate certain business
activities or to sell all or parts of our operations.
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, and borrowings
under our revolving credit facility. We believe that as long as we continue to have the use of our credit facility and vendor financing
programs, our planned operations should enable us to continue operating as a going concern.
All of the above risks and the other risks
defined in our Annual Report for the year ended December 31, 2013, may have a material adverse effect on our business results or
liquidity. 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 or the sale of part or all of our operations. However, the timing and effect of these steps may not completely
alleviate a material effect on liquidity.
OFF BALANCE SHEET ARRANGEMENTS
As of September 30, 2014 and 2013, we had
no off balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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, 2013. 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, 2014. Based upon that evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded that, as a result of the material weaknesses of the Company’s
internal controls over financial reporting discussed below, our disclosure controls and procedures were not effective as of September
30, 2014.
As disclosed in its Annual Report on Form
10-K for the year ended December 31, 2013, management has determined that the Company’s internal controls over financial
reporting were not effective as of December 31, 2013, because of the material weaknesses in its internal control over financial
reporting described below.
The Company recognizes revenue on certain
projects using the percentage of completion method based upon actual costs incurred and estimated costs to complete such projects.
Labor is one cost component of the total job costs and as such the internal controls related to recognition of labor costs against
specific jobs may be material to the recognition of revenue. Management found that internal controls related to the recognition
of such labor costs were not operating effectively as of December 31, 2013. During 2014 we have strengthened our controls over
the recording and authorization of time sheets to remediate this material weakness. We also have implemented changes to the systems
that we use to automate the time tracking systems to further remediate this material weakness. Management will test the relevant
internal controls over financial reporting to determine whether that implementation has effectively remediated that material weakness.
From time to time the Company enters into
non-standard transactions and such transactions may require complex accounting analysis. The Company did not sufficiently engage
appropriate third party resources in prior years to evaluate and properly assist in the recording of such transactions. Management
is in the process of identifying the appropriate changes to its internal control over financial reporting to effectively remediate
this material weakness.
Changes in Internal Control over Financial Reporting
Subject to the above, there were no
changes in the Company’s internal control over financial reporting for the three and nine months ended September 30,
2014 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. As described
above, the Company implemented an on-line automated time tracking system to remediate the material weakness related to the
recognition of labor costs described above.
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.
This information discussed in this item
should be read in conjunction with our discussion included in Part I, “Item 1A: Risk Factors” in our Annual Report
on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results.
The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results.
Item 6. Exhibits.
10.1* |
Business Financing Modification Agreement, dated as of August 8, 2014, by and among TSS, Inc., Innovative Power Systems, Inc. and VTC, LLC and Bridge Bank, National Association |
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|
10.2 |
Executive Employment Agreement, dated August 29, 2014, between TSS, Inc. and John K. Penver (previously filed with the Commission as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on September 2, 2014, and incorporated herein by reference |
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10.3 |
Award Agreement, dated August 29, 2014, between TSS, Inc. and John K. Penver (previously filed with the Commission as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on September 2, 2014, and incorporated herein by reference |
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10.4 |
Amendment to Amended and Restated Convertible Promissory Note Agreement issued by TSS, Inc. to Gerard J. Gallagher dated as of September 30, 2014 (previously filed with the Commission as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on October 1, 2014, and incorporated herein by reference). |
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10.5* |
Business Financing Modification Agreement, dated as of October 3, 2014, by and among TSS, Inc., Innovative Power Systems, Inc. and VTC, LLC and Bridge Bank, National Association |
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31.1* |
Certification of TSS, Inc. Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* |
Certification of TSS, Inc. Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1** |
Certification of TSS, Inc. Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2** |
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 |
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.
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TSS, INC. |
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Date: November 13, 2014 |
By: |
/s/ Anthony Angelini |
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Anthony Angelini |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ John K. Penver |
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John K. Penver |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 10.1
BUSINESS
FINANCING MODIFICATION AGREEMENT
This
Business Financing Modification Agreement is entered into as of July 2, 2014, by and between TSS, Inc., Innovative Power Systems,
Inc., and VTC, L.L.C. (individually “Borrower”, and collectively “Borrower” or “Borrowers”)
and Bridge Bank, National Association (“Lender”).
1. DESCRIPTION
OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrowers to Lender, Borrowers are indebted
to Lender pursuant to, among other documents, a Business Financing Agreement, dated May 21, 2013, by and among Borrowers and Lender,
as may be amended from time to time (the “Business Financing Agreement”). Capitalized terms used without definition
herein shall have the meanings assigned to them in the Business Financing Agreement.
Hereinafter,
all indebtedness owing by Borrowers to Lender shall be referred to as the “Indebtedness” and the Business Financing
Agreement and any and all other documents executed by Borrowers in favor of Lender shall
be referred to as the “Existing Documents.”
2. DESCRIPTION
OF CHANGE IN TERMS.
A. Modification(s)
to Business Financing Agreement:
(i) Subsection
4.9 in Section 4 entitled “Miscellaneous Provisions” is hereby amended as follows:
4.9 Maintain
all depository and operating accounts with Lender and, in the case of any investment accounts not maintained with Lender, grant
to Lender a first priority perfected security interest in and “control” (within the meaning of Section 9104
of the UCC) of such deposit account pursuant to documentation acceptable to Lender, provided however, Borrower may maintain an
operating account with PNC Bank with an aggregate balance not to exceed $200,000 (the “Permitted Accounts”). Borrower
shall provide to Lender no later than 30 day after the end of each month, the monthly statements and such other reports related
to the Permitted Accounts as Lender may request in its sole discretion.
(ii) The
following defined term in Section 12.1, entitled “Definitions” is hereby amended as follows:
“Maturity
Date” means May 21, 2016 or such earlier date as Lender shall have declared the Obligations immediately due
and payable pursuant to Section 7.2.
3. CONSISTENT
CHANGES. The Existing Documents are each hereby amended wherever necessary to reflect the changes described above.
4. PAYMENT
OF FEES. Borrower shall pay Lender the Facility Fee in the amount of $30,000, and the Due Diligence Fee in the amount
of $1,000, plus all out-of-pocket expenses.
5. NO
DEFENSES OF BORROWER/GENERAL RELEASE. Borrower agrees that, as of this date, it has no defenses against the obligations to
pay any amounts under the Indebtedness. Each of Borrower and Guarantor
(each, a “Releasing Party”)
acknowledges that Lender would not enter
into this Business Financing Modification Agreement without Releasing Party’s assurance that it has no claims against Lender
or any of Lender’s officers, directors, employees or agents. Except for the obligations arising hereafter under this Business
Financing Modification Agreement, each Releasing Party releases Lender, and each of Lender’s and entity’s officers,
directors and employees from any known or unknown claims that Releasing Party now has against Lender of any nature, including
any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now had if they
had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability, including
but not limited to any claims arising out of or related to the Agreement or the transactions
contemplated thereby. Releasing Party waives the provisions of California Civil Code section 1542, which states:
A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The
provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents,
employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit
of Lender and its agents, employees, officers, directors, assigns and successors in interest. The provisions of this section shall
survive payment in full of the Obligations, full performance of all the terms of this Business Financing Modification Agreement
and the Agreement, and/or Lender’s actions to exercise any remedy available under the Agreement or otherwise.
6. CONTINUING
VALIDITY. Borrower understands and agrees that in modifying the existing Indebtedness, Lender is relying upon Borrower’s
representations, warranties, and agreements, as set forth in the Existing Documents. Except as expressly modified pursuant to this
Business Financing Modification Agreement, the terms of the Existing Documents remain unchanged and in full force and effect. Lender’s
agreement to modifications to the existing Indebtedness pursuant to this Business Financing Modification Agreement in no way shall
obligate Lender to make any future modifications to the Indebtedness. Nothing in this Business Financing Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrower to retain as liable parties all
makers and endorsers of Existing Documents, unless the party is expressly released by Lender in writing. No maker, endorser, or
guarantor will be released by virtue of this Business Financing Modification Agreement. The terms of this paragraph apply not only
to this Business Financing Modification Agreement, but also to any subsequent Business Financing modification agreements.
7. CONDITIONS.
The effectiveness of this Business Financing Modification Agreement is conditioned upon payment of the Facility Fee and the Due
Diligence Fee.
8. NOTICE
OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT
MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
9. COUNTERSIGNATURE.
This Business Financing Modification Agreement shall become effective only when executed by Lender, Borrowers, and Guarantors.
BORROWER: |
LENDER: |
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TSS, INC. |
BRIDGE BANK, NATIONAL ASSOCIATION |
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By: |
/s/ ANTHONY ANGELINI |
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By: |
/s/ [ILLEGIBLE] |
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Name: |
ANTHONY ANGELINI |
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Name: |
[ILLEGIBLE] |
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Title: |
PRESIDENT & CEO |
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Title: |
EVP Manager |
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INNOVATIVE POWER SYSTEMS, INC. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
PRESIDENT |
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VTC, L.L.C. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
CHAIRMAN |
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Guarantor
consents to the modifications to the Indebtedness pursuant to this Business Financing Modification Agreement, hereby ratifies
the provisions of the Guaranty and confirms that all provisions of that document are in full force and effect.
GUARANTOR: |
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TOTAL SITE SOLUTIONS AZ, INC. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
MANAGER |
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Date: July 2, 2014 |
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VORTECH, L.L.C. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
CHAIRMAN |
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Date: July 2, 2014 |
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ALLETAG BUILDERS, INC. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
PRESIDENT |
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Date: July 2, 2014 |
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Exhibit 10.5
BUSINESS
FINANCING MODIFICATION AGREEMENT
This
Business Financing Modification Agreement is entered into as of October 3, 2014, by and between TSS, Inc., Innovative Power Systems,
Inc., and VTC, L.L.C. (individually a “Borrower”, and collectively, “Borrower” or “Borrowers”)
and Bridge Bank, National Association (“Lender”).
1. DESCRIPTION
OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrower to Lender, Borrower is indebted to
Lender pursuant to, among other documents, a Business Financing Agreement, dated May 21, 2013, by and between Borrower and Lender,
as may be amended from time to time (the “Business Financing Agreement”). Capitalized terms used without definition
herein shall have the meanings assigned to them in the Business Financing Agreement.
Hereinafter,
all indebtedness owing by Borrower to Lender shall be referred to as the “Indebtedness” and the Business Financing
Agreement and any and all other documents executed by Borrower in favor of Lender shall be referred to as the “Existing Documents.”
| 2. | CONSENT TO
SALE OF SPECIFIC RECEIVABLES. |
Lender
hereby consents to Borrower’s sale of certain Receivables owed to Borrower from the Account Debtor Dell Inc. and its
various subsidiaries and affiliates (collectively, the “Dell Receivables”) to Citibank, N.A. or its branches,
subsidiaries and affiliates (“Citibank”), in accordance with the terms of that certain Supplier Agreement between
Citibank and Borrower (the “Citibank Agreement”); provided that (i) this consent does not extend to any other
consent to the sale of assets or Receivables, and (ii) this consent does not constitute a course of conduct consenting to
any other sale of assets or Receivables.
Lender’s
consent to the above mentioned sale of Dell Receivables is subject to satisfaction of the following conditions: (i) the consummation
of the sale of Dell Receivables is on substantially the terms and conditions set forth in the above mentioned Citibank Agreement,
a copy of which has been furnished to Lender, and (ii) the entire proceeds from the sale of the Dell Receivables are deposited
into Borrower’s cash collateral account maintained with Lender.
Upon
consummation of the sale of Dell Receivables, Lender shall automatically, without requirement of any further action, be deemed
to fully release its lien on and security interest in the Dell Receivables sold as described in and transferred pursuant to the
Citibank Agreement.
| 3. | DESCRIPTION
OF CHANGE IN TERMS. |
| A. | Modification(s)
to the Business Financing Agreement. |
| 1) | Paragraphs (i), (j) and (m) of
the defined term “Eligible Receivable” under Section 12.1, entitled “Definitions”,
are hereby amended in their entirety to read as follows: |
| (i) | The Account Debtor on the Receivable is not any of the following: (1) Dell Inc. or any of its various
subsidiaries and affiliates (collectively, “Dell”), (2) an employee, Affiliate, parent or subsidiary of Borrower, or
an entity which has common officers or directors with Borrower; (3) the U.S. government or any agency or department of the U.S.
government unless Borrower complies with
the procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C. §15) with respect to the Receivable, and the underlying
contract expressly provides that neither the U.S. government nor any agency or department thereof shall have the right of set-off
against Borrower; (4) any person or entity located in a foreign country other than Canada unless Lender approves of such international
account in Lender’s sole discretion, or (5) an Account Debtor as to which 35% or more of the aggregate dollar amount of all
outstanding Receivables owing from such Account Debtor have not been paid within 90 days from invoice date. |
| (j) | The Receivable is not in default (a Receivable will be considered in default if any of the following
occur: (i) the Receivable is not paid within 90 days from its invoice date; (ii) the Account Debtor obligated upon the Receivable
suspends business, makes a general assignment for the benefit of creditors, or fails to pay its debts generally as they come due;
or (iii) any petition is filed by or against the Account Debtor obligated upon the Receivable under any bankruptcy law or any other
law or laws for the relief of debtors. |
| (m) | The Receivable is not that portion of Receivables due from an Account Debtor which is in excess
of 35% of the applicable Borrower’s aggregate dollar amount of all outstanding Receivables. |
4. CONSISTENT
CHANGES. The Existing Documents are each hereby amended wherever necessary to reflect the changes described above.
5. INTENTIONALLY
OMITTED.
6. NO
DEFENSES OF BORROWER/GENERAL RELEASE. Borrower agrees that, as of this date, it has no defenses against the obligations
to pay any amounts under the Indebtedness. Each of Borrower and Guarantor (each, a “Releasing Party”) acknowledges
that Lender would not enter into this Business Financing Modification Agreement without Releasing Party’s assurance that
it has no claims against Lender or any of Lender’s
officers, directors, employees or agents.
Except for the obligations arising hereafter under this
Business Financing Modification Agreement, each Releasing Party releases Lender, and each of Lender’s and entity’s
officers, directors and employees from any known or unknown claims that Releasing Party now has against Lender of any nature,
including any claims that Releasing Party, its successors, counsel, and advisors may in the future discover they would have now
had if they had known facts not now known to them, whether founded in contract, in tort or pursuant to any other theory of liability,
including but not limited to any claims arising out of or related to the Agreement or the transactions contemplated thereby. Releasing
Party waives the provisions of California Civil Code section 1542, which states:
A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
The
provisions, waivers and releases set forth in this section are binding upon each Releasing Party and its shareholders, agents,
employees, assigns and successors in interest. The provisions, waivers and releases of this section shall inure to the benefit
of Lender and its agents, employees, officers,
directors, assigns and successors in interest. The provisions of
this section shall survive payment in full of
the Obligations, full performance of all the terms of this Business Financing Modification Agreement and the Agreement,
and/or Lender’s actions to exercise any remedy available under the Agreement or otherwise.
7. CONTINUING
VALIDITY. Borrower understands and agrees that in modifying the existing Indebtedness, Lender is relying upon Borrower’s
representations, warranties, and agreements, as set forth in the Existing Documents. Except as expressly modified pursuant to
this Business Financing Modification Agreement,
the terms of the Existing Documents remain
unchanged and in full force and effect.
Lender’s agreement to modifications to the existing Indebtedness pursuant to this Business Financing Modification
Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Business Financing
Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrower to retain
as liable parties all makers and endorsers of Existing Documents, unless
the party is expressly released by Lender
in writing. No maker, endorser,
or guarantor will be released by virtue of this Business Financing Modification Agreement. The terms of this paragraph apply not
only to this Business Financing Modification
Agreement, but also to any subsequent Business Financing modification agreements.
8. INTENTIONALLY
OMITTED.
9. NOTICE
OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT
MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
10. COUNTERSIGNATURE.
This Business Financing Modification Agreement shall become effective only when executed by Lender, Borrower, and Guarantors.
BORROWER: |
LENDER: |
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TSS, INC. |
BRIDGE BANK, NATIONAL ASSOCIATION |
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By: |
/s/ ANTHONY ANGELINI |
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By: |
/s/ Mila Kyriacon |
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Name: |
ANTHONY ANGELINI |
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Name: |
Mila Kyriacon |
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Title: |
CEO |
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Title: |
Relationship Manager |
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INNOVATIVE POWER SYSTEMS, INC. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
PRESIDENT |
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VTC, L.L.C |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
|
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|
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Title: |
CHAIRMAN |
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|
Guarantor
consents to the modifications to the Indebtedness pursuant to this Business Financing Modification Agreement, hereby ratifies the
provisions of the Guaranty and confirms
that all provisions of that document
are in full force and effect.
GUARANTOR: |
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TOTAL SITE SOLUTIONS ARIZONA, LLC |
|
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
|
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Title: |
MANGER |
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Date: October 3, 2014 |
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VORTECH, L.L.C |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
CHAIRMAN |
|
Date: October 3, 2014 |
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|
ALLETAG BUILDERS, INC. |
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By: |
/s/ ANTHONY ANGELINI |
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Name: |
ANTHONY ANGELINI |
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Title: |
PRESIDENT |
|
Date: October 3, 2014 |
Exhibit 31.1
CERTIFICATION BY PRINCIPAL EXECUTIVE
OFFICER
UNDER SECTION 302 OF THE SARBANES–OXLEY
ACT OF 2002
I, Anthony Angelini, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of TSS,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 13, 2014 |
By: |
/s/ Anthony Angelini |
|
|
Anthony Angelini |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION BY PRINCIPAL FINANCIAL
OFFICER
UNDER SECTION 302 OF THE SARBANES–OXLEY
ACT OF 2002
I, John K. Penver, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of TSS,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 13, 2014 |
By: |
/s/ John K. Penver |
|
|
John K. Penver |
|
|
Chief Financial Officer
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
AND FINANCIAL OFFICERS
UNDER SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2014 (the “Report”) of TSS, Inc. (the “Registrant”), as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony Angelini, President and Chief
Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
A signed original of this written statement
required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities
and Exchange Commission or its staff upon request.
Date: November 13, 2014 |
By: |
/s/ Anthony Angelini |
|
|
Anthony Angelini |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICERS
UNDER SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2014 (the “Report”) of TSS, Inc. (the “Registrant”), as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, John K. Penver, interim Chief Financial
Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
A signed original of this written statement
required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities
and Exchange Commission or its staff upon request.
Date: November 13, 2014 |
By: |
/s/ John K. Penver |
|
|
John K. Penver |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
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