Note 1 – Significant Accounting Policies
Description of Business
TSS, Inc. (‘‘TSS’’,
the ‘‘Company’’, ‘‘we’’, ‘‘us’’ or ‘‘our’’)
provides comprehensive services for the planning, design, construction and maintenance of mission-critical facilities and information
infrastructure as well as systems integration services related to this infrastructure. 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 Round Rock, Texas, and we also have facilities in Dulles, Virginia, Columbia, Maryland and Los Altos,
California.
The accompanying consolidated balance sheet
as of December 31, 2015, 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 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 10-K for the year ended December 31, 2015.
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, declining current ratio, and stockholders’
deficit may, in themselves, cause uncertainty about our ability to continue to operate our business as a going concern and meet
our obligations as they come due. In December 2015, we restructured the repayment terms of our notes payable held by Mr. Gallagher,
a director and our Chief Technical Officer, to defer repayment of a large portion of this obligation to 2017, further reducing
short term liquidity requirements on our business. During 2014 and 2015, we also adjusted our overhead structure to reduce our level
of overhead as business conditions and our revenue mix changed. We believe that there are further adjustments that could be made
to our business if we are 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 or significantly affect our level of liquidity, which may require us to take measures
to reduce our operating costs or obtain funding 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 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
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 estimated 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 would suffer. The loss of or a significant reduction in orders from this customer or the failure to provide
adequate products or services to them would significantly reduce our revenue. 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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-based IT OEM
|
|
|
49
|
%
|
|
|
40
|
%
|
|
|
35
|
%
|
|
|
47
|
%
|
US-based data center company
|
|
|
6
|
%
|
|
|
20
|
%
|
|
|
24
|
%
|
|
|
9
|
%
|
No other customers represented more than
10% of our revenues for any periods presented. A US-based IT OEM customer represented 18% and 6% of our accounts receivable at
June 30, 2016 and December 31, 2015, respectively. A US-based retail customer represented 6% and 13% of our accounts receivable
at June 30, 2016 and December 31, 2015, respectively. A US-based IT services company represented 15% of our accounts receivable
at June 30, 2016. No other customer represented more than 10% of our accounts receivable at June 30, 2016 or at December 31, 2015.
Recently Issued Accounting Pronouncements
In April 2015,
the FASB issued ASU No. 2015-03, Interest –
Imputation of Interest (Subtopic 835-30): Simplifying The Presentation
of Debt Issuance Costs
(“ASU 2015-03”). This ASU requires that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability,
consistent with debt discounts. ASU 2-15-03 is effective for financial statements issued for fiscal years beginning after
December 15, 2015 and interim periods within those fiscal years. This ASU was effective for us for our fiscal year beginning
January 1, 2016. The adoption of ASU 2015-03 did not have a material impact on our consolidated financial statements but did
require us to reclassify certain balances in our December 31, 2015 consolidated financial statements.
In February 2016, the
FASB issued ASU No. 2016-02,
“Leases (Topic 842)”
(“ASU 2016-02”). 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 2016-02 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 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that
reporting period, and requires a modified retrospective adoption, with early adoption permitted. We are currently evaluating the
future impact of ASU2016-02 on our consolidated financial statements.
Note 2 – Supplemental Balance
Sheet Information
Receivables
Contract and other receivables consist of
the following (in ‘000’s):
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Contract and other receivables
|
|
$
|
2,493
|
|
|
$
|
7,016
|
|
Allowance for doubtful accounts
|
|
|
(7
|
)
|
|
|
(19
|
)
|
|
|
$
|
2,486
|
|
|
$
|
6,997
|
|
Inventory
We state inventories
at the lower of cost or market, using the first-in-first-out-method (in ‘000’s):
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
65
|
|
|
$
|
68
|
|
less: Reserve
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Inventories, net
|
|
$
|
63
|
|
|
$
|
66
|
|
Goodwill and Intangible Assets
Goodwill and Intangible Assets consist of
the following (in ‘000’s):
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
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
|
|
|
$
|
(282
|
)
|
|
$
|
906
|
|
|
$
|
(237
|
)
|
Acquired software
|
|
$
|
234
|
|
|
$
|
(145
|
)
|
|
$
|
234
|
|
|
$
|
(122
|
)
|
We recognized amortization expense
related to intangibles of approximately $34,000 in each of the three-month periods ended June 30, 2016 and 2015,
respectively. We recognized amortization expense related to intangibles of approximately $69,000 and $70,000 for the
six-month periods ended June 30, 2016 and 2015, 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. We
performed a quantitative analysis of our goodwill and intangibles at December 31, 2015 as part of our annual testing for impairment.
We used a combination of valuation methodologies including income and market-based valuation methods, with increased weighting
on the income-based approaches and subject company stock-price methods as we felt these options more accurately captured the operations
of our reporting units. Although there were events and circumstances in existence at December 31, 2015 that suggest substantial
doubt about our ability to continue as a going concern, the valuation results indicated that the fair value of our reporting units
was substantially greater than the carrying value, including goodwill, for each of our reporting units. Thus we concluded that
there was no impairment at December 31, 2015 for our goodwill and other long-lived intangible assets. There were no identified
triggering events or circumstances that occurred during the three or six-month periods ended June 30, 2016 that would have required
an interim impairment analysis of our goodwill and other long-lived intangible assets.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses
consisted of the following (in $’000):
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Accounts payable
|
|
$
|
4,011
|
|
|
$
|
5,202
|
|
Accounts payable retainage
|
|
|
316
|
|
|
|
264
|
|
Accrued expenses
|
|
|
1,217
|
|
|
|
1,560
|
|
Compensation, benefits & related taxes
|
|
|
575
|
|
|
|
473
|
|
Other accrued expenses
|
|
|
58
|
|
|
|
109
|
|
Total accounts payable and accrued expenses
|
|
$
|
6,177
|
|
|
$
|
7,608
|
|
Note 3 – Long term borrowings
Long-term borrowings consisted of the following (in $’000)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Convertible notes payable
|
|
$
|
400
|
|
|
$
|
550
|
|
Less unamortized discount
|
|
|
(7
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Notes Payable due Feb. 2020
|
|
|
945
|
|
|
|
945
|
|
Less unamortized discount and debt issuance costs
|
|
|
(121
|
)
|
|
|
(161
|
)
|
|
|
|
1,217
|
|
|
|
1,323
|
|
Current portion of long-term borrowing
|
|
|
(293
|
)
|
|
|
(287
|
)
|
Non-current portion of long-term borrowing
|
|
$
|
924
|
|
|
$
|
1,036
|
|
We currently
have outstanding convertible notes payable to Gerard J. Gallagher, a director and Chief Technical Officer of the Company. As of
June 30, 2016 there was an aggregate principal balance outstanding under the note of $400,000.
In December
2015, we amended the terms of the notes payable to revise the future payment schedule and to extend the maturity date of the promissory
note from January 1, 2016 to July 1, 2017. Under the amended payment schedule, the Company will make monthly principal payments
of $25,000 to Mr. Gallagher for a fourteen-month period beginning January 1, 2016 and ending on February 1, 2017. The Company will
also make an additional principal payment of $100,000 on or before March 1, 2017. The remaining outstanding balance is due on July
1, 2017. The Company will continue to make monthly interest payments. The interest rate was also increased to an annual rate of
5% per annum effective January 1, 2016.
In connection
with the amendment to the note payable to Mr. Gallagher in December 2015, the Company and Mr. Gallagher entered into a warrant
granting Mr. Gallagher the right to purchase up to 100,000 shares of the Company’s common stock. The warrant is exercisable
for a period of up to five years from December 21, 2016 with an exercise price of $0.15 per share. The exercise price and number
of shares of common stock issuable upon exercise of the warrant will be subject to adjustment in the event of any stock split,
reverse stock split, recapitalization, reorganization or similar transactions. The fair value of the warrant has been recorded
as a discount against the balance of the note payable, and will be amortized to interest expense over the remaining term of the
notes payable.
In February
2015 we entered into a multiple advance term loan agreement and related agreements with MHW SPV II, LLC (‘‘MHW’’),
an entity affiliated with the Chairman of our Board of Directors, for a loan in the maximum amount of $2 million. We borrowed $945,000
under the terms of this loan agreement on February 3, 2015 and executed a promissory note to evidence this loan and the terms of
repayment.
The loan requires
interest-only payments made monthly, beginning March 1, 2015, and bears annual interest at a fixed rate of 12%. The loan has a
maturity date of February 3, 2020. We are able to prepay the loan at any time, subject to a prepayment fee of (a) 4% of the amount
prepaid if the prepayment is made prior to February 3, 2016, (b) 2% of the amount prepaid if the prepayment is made between February
4, 2016 and February 3, 2017, and (c) 1% of the amount prepaid if the prepayment is made between February 4, 2017 and February
3, 2018.
The obligations
under the loan are secured by substantially all of our assets pursuant to the terms of a security agreement. In connection with
the receivables financing agreement described below, MHW executed a subordination agreement to evidence their agreement that their
security interest is subordinated to the security interest of RTS Financial Services, Inc. in all of the Company’s present
and future accounts receivable and all proceeds thereof.
In conjunction
with entering into the loan agreement, the Company and MHW also entered into a warrant granting MHW the right to purchase up to
1,115,827 shares of the Company’s common stock. The warrant is exercisable for a period of five years from February 3, 2015
at an exercise price of $0.50 for the first 472,500 shares, $1.00 for the next 425,250 shares and $1.30 for the final 218,077 shares.
The exercise price and number of shares of common stock issuable on exercise of the warrant will be subject to adjustment in the
event of any stock split, reverse stock split, recapitalization, reorganization or similar transaction. The fair value of the warrant
was approximately $204,000. Using the relative-fair value allocation method, the debt proceeds were allocated between the debt
value and the fair value of the warrant, resulting in a recognition of a discount on the loan of approximately $168,000 and a corresponding
increase to additional paid in capital. This discount will be amortized using the effective interest rate method over the term
of the loan. $8,000 was amortized in each of the three-month periods ended June 30, 2016 and 2015, respectively, and $17,000 was
amortized during each of the six-month periods ended June 30, 2016 and 2015, respectively.
Peter H. Woodward,
the Chairman of our Board of Directors, is a principal of MHW Capital Management LLC, which is the investment manager of MHW. MHW
Capital Management LLC is entitled to a performance-related fee equal to 10% of any appreciation in the valuation of the common
stock in excess of the applicable strike price under the warrant issued to MHW.
Note 4 - Receivables Financing Liability
In May 2016 we entered into a
receivables factoring agreement with RTS Financial Service, Inc. (“RTS”). Under the terms of this agreement, we
may offer for sale, and RTS in its sole discretion may purchase our eligible receivables (the “Purchased
Accounts”). Upon purchase RTS becomes the absolute owner of the Purchased Accounts, which are payable directly to RTS,
subject to certain repurchase obligations by us.
RTS’s fee for each Purchased Account
is computed on a daily basis until the amount of the Purchased Account is paid to RTS, and such fee equals the amount of the Purchased
Account multiplied by the sum of the prime rate then in effect plus 7%, divided by 360. RTS will pay us 80% of the amount of the
Purchased Accounts upon purchase and the balance (less fees) is paid to us upon collection of the Purchased Account by RTS.
Our obligations under the factoring
agreement are secured by all present and future accounts receivable (provided, however that accounts for one customer are
excluded) and all chattel paper, instruments, general intangibles, securities, contract rights, insurance, proceeds, property rights
and interests associated therewith, as well as all equipment, inventory and deposit accounts of the Company.
RTS may require us to repurchase a Purchased
Account if we breach any warranty or otherwise violate or default on any of our obligations under the factoring agreement or if
the Purchased Account is not paid in full on or before the payment due date of such Purchased Account or within 120 days after
the invoice date of such Purchased Account.
The agreement has an initial term
of 12 months and automatically renews for successive 12-month renewal periods unless terminated pursuant to the terms of the agreement.
We may terminate the agreement at the end of the initial term upon 60 days’ notice and payment of an early termination
fee to RTS in the amount of $10,000. We may also terminate the agreement at any time during the first 24 months upon 30 days’
notice and payment of an early termination fee based on the average monthly amount purchased during the term of the agreement.
RTS may terminate the agreement upon 90 days’ notice to us or immediately upon the occurrence of certain events.
In connection with entering into the factoring
agreement with RTS, we terminated our Business Financing Agreement with Bridge Bank. We received an initial funding amount of $668,000
under the factoring agreement which was used to repay our outstanding obligations to Bridge Bank. No early termination or prepayment
penalties were incurred by us in connection with the termination of the Bridge Bank facility.
Note 5 – Net Loss Per-Share
Basic and diluted (loss) earnings per share
are based on the weighted average number of shares of common stock and potential common stock outstanding during the period. Potential
common stock, for the purposes of determining diluted earnings per share, includes the effects of dilutive unvested restricted
stock, options to purchase common stock and convertible securities. The effect of such potential common stock is computed using
the treasury stock method or the if-converted method, as applicable.
The following table presents a reconciliation
of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations.
The table below represents the numerator and shares represent the denominator (in thousands except per share amounts).
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(169
|
)
|
|
$
|
(1,218
|
)
|
|
$
|
(1,336
|
)
|
|
$
|
(1,620
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
|
|
15,665
|
|
|
|
15,665
|
|
|
|
15,662
|
|
|
|
15,474
|
|
Dilutive effect of employee stock options and restricted stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted-average shares for diluted net loss per share
|
|
|
15,665
|
|
|
|
15,665
|
|
|
|
15,662
|
|
|
|
15,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.10
|
)
|
For the three-month
periods ended June 30, 2016 and 2015, potentially dilutive shares of 3,496,000 and 4,421,000 were excluded from the calculation
of dilutive shares because their effect would have been anti-dilutive due to the net loss reported in each period. For the six-month
periods ended June 30, 2016 and 2015, potentially dilutive shares of 3,496,000 and 4,421,000 were excluded from the calculation
of dilutive shares because their effect would have been anti-dilutive due to the net loss reported in each period
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. This lease expires on January
31, 2017 and contains two options to extend the lease for an additional six months. Rents paid under this agreement were $69,000
for each of the three -month periods ended June 30, 2016 and 2015 respectively and $138,000 for each of the six-month periods ended
June 30, 2016 and 2015, respectively.
We have $400,000 principal outstanding at
June 30, 2016 in convertible notes payable to Mr. Gallagher, net of remaining discount of $7,000. The notes bear interest at 5%
per annum and are subordinated to our borrowings to MHW and to RTS under our receivables financing agreement. Per the terms of
the notes, we paid interest of $5,000 and $7,000 during the three month periods ended June 30, 2016 and 2015, respectively. We
repaid principal against the Notes of $75,000 in each of the three -month periods ended June 30, 2016 and 2015, respectively. For
the six-month periods ended June 30, 2016 and 2015, we paid interest of $12,000 and $14,000 respectively. We repaid principal against
the notes of $150,000 in each of the six-month periods ended June 30, 2016 and 2015.
We have $945,000 principal outstanding at
June 30, 2016 in promissory notes payable to MHW, net of remaining discount of $120,000. Per the terms of the notes, we paid interest
of $ 28,000 during each of the three-month periods ended June 30, 2016 and 2015, respectively. We paid interest of $57,000 and
$46,000 during the six-month periods ended June 30, 2016 and 2015, respectively. Peter H. Woodward, the Chairman of our Board of
Directors, is a principal of MHW Capital Management, LLC which is the investment manager of MHW. MHW Capital Management LLC is
entitled to a performance-related fee equal to 10% of any appreciation in the valuation of the common stock in excess of the applicable
strike price under the warrant issued to MHW.
Note
7 - Segment Reporting
Segment
information reported in the tables below represents the operating segments of the Company organized in a manner consistent
with which separate information is available and for which segment results are evaluated regularly by our Chief
Executive Officer, the chief operating decision-maker in assessing performance and allocating resources. Our activities are
organized into two major segments: facilities and systems integration. Our facilities unit is involved in the design, project
management and maintenance of data center and mission-critical business operations. Our systems integration unit integrates
IT equipment for OEM vendors and customers to be used inside data center environments, including modular data centers. All of
our revenues are derived from the U.S. market. Segment operating results reflect earnings before stock-based compensation,
acquisition related expenses, other expenses, net, and provision for income taxes.
Revenue and
operating results by reportable segment reconciled to reportable net loss for the three and six-month periods ended June 30, 2016
and 2015 and other segment-related information is as follows (in thousands):
|
|
Three Month Periods
|
|
|
Six Month Periods
|
|
|
|
ended June 30,
|
|
|
ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities construction and maintenance
|
|
$
|
5,269
|
|
|
$
|
4,849
|
|
|
$
|
12,002
|
|
|
$
|
9,655
|
|
System integration services
|
|
|
1,760
|
|
|
|
998
|
|
|
|
2,702
|
|
|
|
3,464
|
|
Total revenues
|
|
$
|
7,029
|
|
|
$
|
5,847
|
|
|
$
|
14,704
|
|
|
$
|
13,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities construction and maintenance
|
|
$
|
1,148
|
|
|
$
|
812
|
|
|
$
|
1,806
|
|
|
$
|
1,806
|
|
System integration services
|
|
|
165
|
|
|
|
(202
|
)
|
|
|
(63
|
)
|
|
|
343
|
|
Other consolidated activities
|
|
|
(1,373
|
)
|
|
|
(1,741
|
)
|
|
|
(2,897
|
)
|
|
|
(3,610
|
)
|
Consolidated loss from operations
|
|
$
|
(60
|
)
|
|
$
|
(1,131
|
)
|
|
$
|
(1,154
|
)
|
|
$
|
(1,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System integration services expense
|
|
$
|
91
|
|
|
$
|
73
|
|
|
$
|
178
|
|
|
$
|
138
|
|
Other consolidated activities
|
|
|
18
|
|
|
|
22
|
|
|
|
37
|
|
|
|
43
|
|
Consolidated depreciation expense
|
|
$
|
109
|
|
|
$
|
95
|
|
|
$
|
215
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities construction and maintenance
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
System integration services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other consolidated activities
|
|
|
111
|
|
|
|
87
|
|
|
|
191
|
|
|
|
159
|
|
Consolidated interest expense
|
|
$
|
111
|
|
|
$
|
87
|
|
|
$
|
191
|
|
|
$
|
159
|
|
|
|
June 30,
|
|
|
Dec. 31,
|
|
|
|
2016
|
|
|
2015
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Facilities
|
|
$
|
4,816
|
|
|
$
|
9,443
|
|
System
integration services
|
|
|
1,780
|
|
|
|
2,222
|
|
Other consolidated activities
|
|
|
985
|
|
|
|
1,329
|
|
Total assets
|
|
$
|
7,581
|
|
|
$
|
12,994
|
|
Other consolidated
activities relates to operating costs not specifically attributable to each business segment including sales, marketing, executive
and administrative support functions including activities such as finance, human resources and IT.