TSS, Inc. Stock Compensation Disclosure

Note 8 – Share-Based Payments  

In June 2015, our stockholders approved our 2015 Omnibus Incentive Compensation Plan and reserved 2.5 million shares of our common stock for issuance to employees and directors through incentive stock options, non-qualified stock options or restricted shares. At our 2021 Annual Meeting of Stockholders our stockholders approved a further increase of 3.0 million shares of our common stock reserved for our 2015 plan. In June 2025, our stockholders approved a new 2025 Omnibus Incentive Compensation Plan (the “Plan”) and reserved a further 1.5 million shares of our common stock for issuance to employees and directors through incentive stock options, non-qualified stock options or restricted shares. On December 31, 2025, 1,492,090 shares remain available for issuance.

The Plan is administered by the compensation committee of our Board of Directors. Subject to the express provisions of the Plan, the compensation committee has the Board of Directors' authority to administer and interpret the Plan, including the discretion to determine the form of grant, exercise price, vesting schedule and any performance criteria, contractual life and the number of shares to be issued. We have historically issued restricted stock under the Plan; however, as further incentive to key employees, the Company also issued options to purchase shares of our common stock during the years ended December 31, 2025, 2024 and 2023.

Stock-based Compensation Expense

For the years ended December 31, 2025, 2024, and 2023, we recognized stock-based compensation of approximately $3,956,000, $1,235,000 and $581,000, respectively, which was included in selling, general and administrative expenses on the accompanying Consolidated Statements of Operations. 

As of December 31, 2025, the total unrecognized compensation cost related to unvested restricted stock and options to purchase common stock was approximately $4.6 million with a weighted average remaining vest life of 0.89 years.

Stock Options

Although we have historically issued restricted stock under the Plan, we also issued options to purchase shares of our common stock during the years ended December 31, 2025, 2024 and 2023. Option grants can have various vesting features but typically involve time-based vesting.

Fair Value Determination –We utilize a Black-Scholes-Merton model to value stock options vesting over time. We will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under these models.

Volatility -The expected volatility of the options granted was estimated based upon historical volatility of our share price through weekly observations of our trading history corresponding to the expected term for Black-Scholes-Merton model.

Expected Term -Given the lack of historical experience, the expected term of options granted to employees was determined utilizing a plain vanilla approach whereby minimum or median time to vest and the contractual term of 10 years are averaged.

Risk-free Interest Rate -The yield was determined based on U.S. Treasury rates corresponding to the expected term of the underlying grants.

Dividend Yield -The Black-Scholes-Merton valuation model requires an expected dividend yield as an input. We currently do not anticipate paying dividends; therefore, the yield was estimated at zero.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options on the date of grant and accounts for forfeitures as they occur. The following table summarizes weighted-average assumptions used in our calculations of fair value for stock-option grants for the years ended December 31, 2025 and 2024:

During the year ended December 31, 2025, we granted stock options to purchase 6,000 shares of common stock at a weighted-average exercise price of $17.79 per share, which reflected the 30-day weighted fair market value of the shares on date of grant. The weighted-average fair value of options granted during the year ended December 31, 2025, as determined under the Black-Scholes-Merton valuation model was $5.35.

During the year ended December 31, 2024, we granted stock options to purchase 770,000 shares of common stock at a weighted-average exercise price of $0.86 per share, which reflected the 30-day weighted fair market value of the shares on date of grant. The weighted-average fair value of options granted during the year ended December 31, 2024, as determined under the Black-Scholes-Merton valuation model was $0.57.

The following table includes information with respect to stock option activity and stock options outstanding for the year ended December 31, 2025: 

*Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market price).

The aggregate intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $1.3 million and $10.5 million respectively. There were no options exercised during the year ended December 31, 2023. 

The following table summarizes non-vested stock options for the years ended December 31, 2025: 

The following table includes information concerning stock options exercisable and stock options expected to vest on December 31, 2025: 

Restricted Stock

We have granted shares of restricted stock under the Plan. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. Restricted shares issued to employees typically vest over two or three years in equal installments on the anniversaries of the grant date, contingent upon employment with the Company on the vesting dates. Occasionally, we also require recipients to meet certain performance criteria in addition to the vesting time period. The related compensation expense is recognized over the service period and is based on the grant date fair value of the stock and the number of shares expected to vest. For performance-based restricted stock grants, expense recognition begins only once we determine it is probable that the performance criteria will be met.

The fair value of restricted stock awarded for the years ended December 31, 2025, 2024, and 2023 was $7,243,063, $1,539,525, and $598,770 respectively, and was calculated using the value of TSS’ common stock on the grant date. The value of awards is amortized over the vesting periods of the awards considering the effect of an estimated forfeiture rate of zero associated with termination behavior for the years ended December 31, 2025, 2024, and 2023 respectively.

The following table summarizes the restricted stock activity during the years ended December 31, 2025:

The weighted-average grant date fair value per restricted share granted in the years ended December 31, 2025, 2024 and 2023 was $14.33, $1.02 and $0.52, respectively.