Note

– Significant Accounting Policies

Description of Business

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

The accompanying consolidated balance sheet as of

December 31, 2019,

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

-K for the year ended

December 31, 2019.

Revenue Recognition

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

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

Maintenance Services

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

one

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

Integration Services

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

not

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

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

March 31, 2020,

and

December 31, 2019,

our allowance for doubtful accounts was

$8,000

Equipment Sales

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

not

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

days of invoicing.

Deployment and

Other Services

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

not

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

third

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

Reseller Services

We generate revenues from fees we charge our customers to procure

third

-party hardware, software and professional services on their behalf that are then used in our integration services as we integrate these components to deliver a completed system to our customer. We recognize our reseller services revenue upon completion of the procurement activity. In some cases, we arrange for the purchase of

third

-party hardware, software or professional services that are resold directly to the original equipment manufacturer (OEM) and other customers, and in these instances, we act as an agent in the transaction and recognize revenue as the amount of any fee or commissions that we expect to be entitled to. Accounts receivable from our reseller activities are typically due within

days of invoicing.

Judgments

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

Sales Taxes

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

Shipping and Handling Costs

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

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

’000’s,

unaudited):

	Three Months Ended March 31 ,
	20 20		201 9
FACILITIES:
Maintenance revenues	$	992	$	1,056
Equipment sales		137		97
Deployment and other services		970		1,737
Total facilities revenues	$	2,099	$	2,890

SYSTEMS INTEGRATION:
Integration services	$	1,725	$	1,770
Reseller services		6,773		-
Total Systems Integration revenues	$	8,498	$	1,770
TOTAL REVENUES	$	10,597	$	4,660

Remaining Performance Obligations

Remaining performance obligations include deferred revenue and amounts we expect to receive for goods and services that have

not

yet been delivered or provided under existing, non-cancellable contracts. For contracts that have an original duration of

one

year or less, we have elected the practical expedient applicable to such contracts and we do

not

disclose the transaction price for remaining performance obligations at the end of each reporting period and when we expect to recognize this revenue. As of

March 31, 2020,

deferred revenue of

$2,199,000

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

one

year. The remaining

$113,000

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

one

and

three

years.

Concentration of Credit Risk

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

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

	Three Months Ended March 31,
	2020			2019

US-based IT OEM		94	%		92	%

other customers represented more than

10%

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

64%

and

96%

of our trade accounts receivable at

March 31, 2020

and

December 31, 2019,

respectively. Additionally, a US-based IT systems integrator represented

10%

of our accounts receivable at

March 31, 2020.

other customer represented more than

10%

of our accounts receivable at

March 31, 2020

or at

December 31, 2019.

Recent Accounting Pronouncements

February 2017,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU

2017

04,

Intangibles – Goodwill and Other (topic

350

): Simplifying the Test for

Goodwill Impairment

(“ASAU

2017

04”

). The amendments in this ASU simplify how all entities assess goodwill for impairment by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit’s “implied” goodwill. Specifically, the amendments in ASU

2017

eliminates Step

from the goodwill impairment test. As amended, the goodwill impairment test will consist of

one

step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. If fair value exceeds the carrying value,

impairment should be recorded. An entity

may

still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than

not

that goodwill is impaired. ASU

2017

eliminates the requirement to perform a qualitative assessment for any reporting unit with

zero

or negative carrying amount. For any reporting units with a

zero

or negative carrying amount, ASU

2017

adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included. ASU

2017

was effective for the Company for annual reporting periods beginning after

December 15, 2019,

including any interim impairment tests within those annual periods . We adopted ASU

2017

effective on

January 1, 2020

and adoption had

impact on our consolidated financial statements. We will perform future goodwill impairment tests according to ASU

2017

04.