Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Description of Business [Policy Text Block]

Description of Business

TSS, Inc. (‘‘TSS’’, the ‘‘Company’’, ‘‘we’’, ‘‘us’’ or ‘‘our’’) provides a comprehensive suite of services for the planning, design, deployment, maintenance, refresh and take-back of end-user and enterprise systems, including the mission-critical facilities they are housed in. We provide a single source solution for enabling technologies in data centers, operations centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services consist of technology consulting, design and engineering, project management, systems integration, systems installation and facilities management. Our corporate offices are in Round Rock, Texas, and we also have an office in Dulles, Virginia.

The accompanying consolidated balance sheet as of

December 31, 2017,

which has been derived from audited consolidated financial statements, and the unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 consolidated financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations, changes in stockholders’ equity (deficit) and cash flows. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

The accompanying 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 its assets and discharge its liabilities in the normal course of business. Our history of operating losses, negative working capital, and our stockholders’ deficiency cause substantial doubt 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, while we believe that we have adequate plans to address these issues, there is still substantial doubt about our ability continue as a going concern. Our operating results have improved since

2016

and we achieved operating and net income in

2017

and during the

first

two

quarters of

2018.

During

2016

and

2017

we sold certain parts of our business and discontinued several other services. These actions, along with cost reductions made at that time, provided additional capital for our business, lowered our total operating costs, improved our operating profits, and allowed us to focus our business activities on systems integration and modular data center build and maintenance activities. We also obtained additional debt financing during

2017

and restructured our existing long-term debt to help us improve our liquidity and manage our working capital. We have now eliminated our stockholder’s deficit, and believe that with our improved operating results, we are on the path to removing the uncertainty regarding our ability to continue to operate our business as a going concern. We believe that there are further adjustments that could be made to our business if we were required to do so.

Our business plans and our assumptions around the adequacy of our liquidity are based on estimates regarding expected revenues and future costs and our ability to secure additional 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 in

2018

or significantly affect our level of liquidity, which

may

require us to take measures to reduce our operating costs or obtain funding 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 consolidated financial statements do

not

include any adjustments that might result from the Company

not

being able to continue as a going concern.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

January 1, 2018,

we adopted Accounting Standards Update

2014

, Revenue from Contracts with Customers

(ASU

2014

), using the modified retrospective method. Adoption of ASU

2014

did

not

have a material impact on our consolidated financial position or results of operations.

We recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Revenue Recognition, Sales of Services [Policy Text Block]

Maintenance services

We generate maintenance services revenues from fees that provide our customers with as-needed maintenance and repair services on modular data centers during the contract term. Our contracts are typically

one

year in duration, are billed annually in advance, and are non-cancellable. As a result, we record deferred revenue (a contract liability) and recognize revenue from these services on a ratable basis over the contract term. We can mitigate our exposure to credit losses by discontinuing services in the event of non-payment, however our history of non-payments and bad debt expense has been insignificant.

Integration

ervices

We generate integration services revenues from fees that provide our customers with customized system and rack-level integration services. We recognize revenue upon shipment to the customer of the completed systems as this is when we have completed our services and when the customer obtains control of the promised goods. We typically extend credit terms to our integration customers based on their credit worthiness and generally do

not

receive advance payments. As such, we record accounts receivable at the time of shipment, when our right to the consideration becomes unconditional. Accounts receivable from our integration customers are typically due within

days of invoicing. An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ credit worthiness. As of

June 30, 2018

and

December 31, 2017,

our allowance for doubtful accounts was

$8,000.

Revenue Recognition, Sales of Goods [Policy Text Block]

Equipment

ales

We generate revenues under fixed price contracts from the sale of data center and related ancillary equipment to customers in the United States. We recognize revenue when the product is shipped to the customer as that is when the customer obtains control of the promised goods. Typically, we do

not

receive advance payments for equipment sales, however if we do, we record the advance payment as deferred revenue. Normally we record accounts receivable at the time of shipment, when our right to the consideration has become unconditional. Accounts receivable from our equipment sales are typically due within

days of invoicing.

Revenue Recognition, Deployment and Other [Policy Text Block]

Deployment and

Other services

We generate revenues from fees we charge our customers for other services, including repairs or other services

not

covered under maintenance contracts, installation and servicing of equipment including modular data centers that we sold, and other fixed-price services including repair, design and project management services. In some cases, we arrange for a

third

party to perform warranty and servicing of equipment, and in these instances, we recognize revenue as the amount of any fees or commissions that we expect to be entitled to. Other services are typically invoiced upon completion of services or completion of milestones. We record accounts receivable at the time of completion when our right to consideration becomes unconditional.

Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations based on relative standalone selling prices.

Judgements [Policy Text Block]

Judgments

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

Revenue, Transaction Price Measurement, Tax Exclusion [Policy Text Block]

Sales taxes

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

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and handling costs

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

The following table shows our revenues disaggregated by reportable segment and by product or service type (in

$’000

	Three-months ended June 30,				Six-months ended June 30,
	2018		2017		2018		2017
FACILITIES:
Maintenance revenues	$	1,236	$	1,143	$	2,402	$	2,247
Equipment sales		492		654		1,127		792
Deployment and other services		1,439		933		3,017		2,178
	$	3,167	$	2,730	$	6,546	$	5,217

SYSTEMS INTEGRATION:
Integration services	$	2,200	$	1,468	$	3,670	$	3,370
TOTAL REVENUES	$	5,367	$	4,198	$	10,216	$	8,587

Revenue, Remaining Performance Obligation [Policy Text Block]

Remaining Performance Obligations

As part of our adoption of ASU

2014

09,

we have elected to use a practical expedient to exclude disclosure of transaction prices allocated to remaining performance obligations, and when we expect to recognize such revenue, for all periods prior to the date of initial application of the standard.

As of

June 30, 2018,

deferred revenue of

$3,406,000

represents our remaining performance obligations for our maintenance contracts, all of which are expected to be recognized within

one

year. The remaining

$150,000

of deferred revenue is our remaining performance obligations for other services, all of which is expected to be recognized between

one

and

two

years.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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 would materially suffer. The loss of or a significant reduction in orders from this customer or the failure to provide adequate products or services to it would significantly reduce our revenue.

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

	Three months ended June 30,							Six Months Ended June 30 ,
	2018			2017			201 8			201 7


US-based IT OEM		67	%		63	%		71	%		63	%
Global IT services company		2	%		11	%		4	%		6	%

other customers represented more than

10%

of our revenues for any periods presented. Our US-based IT OEM customer represented

24%

and

26%

of our accounts receivable at

June 30, 2018

and

December 31, 2017,

respectively. A US-based electronic equipment manufacturer represented

22%

of our accounts receivable at

December 31, 2017.

A US-based technology consulting company represented

15%

and

23%

of our accounts receivable at

June 30, 2018

and

December 31, 2017,

respectively. A US-based data center operator represented

15%

of our accounts receivable at

June 30, 2018.

other customer represented more than

10%

of our accounts receivable at

June 30, 2018

or at

December 31, 2017.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

February 2016,

the FASB issued ASU

No.

2016

02,

“Leases (Topic

842

)”

. Under ASU

2016

02,

an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU

2016

offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU

2016

is effective for annual reporting periods beginning after

December 15, 2018,

including interim periods within that reporting period. We are currently evaluating the future impact of ASU

2016

on our consolidated financial statements and while we do

not

anticipate this having a material impact on our results of operations, we anticipate recording lease-related assets and liabilities between

$2.5

million on our balance sheet upon adoption of the pronouncement.

May 2017,

the FASB issued ASU

No.

2017

09,

which amends the scope of modification accounting for share-based payment arrangements. The AU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC

718.

Specifically, an entity would

not

apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU

2017

will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after

December 15, 2017.

Adoption of this new guidance did

not

have a material impact on our consolidated financial statements.