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What changed in TSS, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of TSS, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+364 added−264 removedSource: 10-K (2025-04-15) vs 10-K (2024-03-29)

Top changes in TSS, Inc.'s 2024 10-K

364 paragraphs added · 264 removed · 196 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe will continue to invest in our integration processes and technology to achieve additional cost efficiencies and enhance our existing capabilities. We are expanding to a hybrid integration model which allows us to generate revenues from within our facility and externally at customer locations.
Biggest changeWe are expanding to a hybrid integration model which allows us to generate revenues from within our facility and externally at customer locations. This allows more flexibility to support our customers’ requirements while continuing to enhance our cost-effectiveness. - Expand our ability to drive demand with direct selling resources and to co-sell with our customers and partners.
Project managers supervise work by project team members, including subcontracted parties, including all aspects of the following: architecture and construction, electric power systems, heat rejection and cooling, energy management, and controls, cooling tower systems, security systems, voice, data and network cabling, fire and life safety systems, and process piping and plumbing systems.
Project managers supervise work by project team members, including subcontracted parties, and all aspects of the following: architecture and construction, electric power systems, heat rejection and cooling, energy management, and controls, cooling tower systems, security systems, voice, data and network cabling, fire and life safety systems, and process piping and plumbing systems.
These procurement services enable highly customizable solutions for our OEM and end-user customers and enable us to expand our revenues and profits and our customer base. We recognize our procurement services revenue upon completion of the procurement activity.
These procurement services enable highly customizable solutions for our OEM and end-user customers and enable us to expand our revenues, profits and customer base. We recognize our procurement services revenue upon completion of the procurement activity.
The system maintains all site documentation for repairs and maintenance performed on each critical piece of equipment covered under our services. The information is useful to our customers in assessing operational efficiency and causes of failure and enables them to make critical decisions on repair or replacement strategies based on the operating history of the monitored systems.
The system maintains all site documentation for repairs and maintenance performed on each critical piece of equipment covered under our services. Such information is useful to our customers in assessing operational efficiency and causes of failure and enables them to make critical decisions on repair or replacement strategies based on the operating history of the monitored systems.
We also seek to enhance our name recognition using improved web marketing, trade shows, technical seminars, direct mailings, and social media. 3 Our headcount in sales and marketing has been very selective and targeted to align the skill sets with our evolving service offerings, leverage partner relationships and increase the consultative capability of our sales organization.
We also seek to enhance our name recognition using improved web marketing, trade shows, technical seminars, direct mailings, and social media. Our headcount in sales and marketing has been very selective and targeted to align the skill sets with our evolving service offerings, leverage partner relationships and increase the consultative capability of our sales organization.
Service Offerings We have developed a unique set of solution offerings where we provide a range of services that enable our customers and partners to efficiently plan, develop, build, deploy, and maintain their IT hardware and software solutions.
Service Offerings We have developed a unique set of solution offerings to provide a range of services that enable our customers and partners to efficiently plan, develop, build, deploy, and maintain their IT hardware and software solutions.
We also offer our customers strategic procurement services whereby we procure third-party hardware, software, and services on their behalf. Our configuration and integration service businesses integrate these components to deliver a complete system to our customers.
We also offer our customers strategic procurement services whereby we procure third-party hardware, software and services on their behalf. Our configuration and integration service businesses often integrate these components to deliver a complete system to our customers.
In some cases, we also act as an agent and arrange for the purchase of third-party hardware, software, or services that are to be provided to our customers by another party. However, we have no control over the goods or services before they are transferred to the customer. In these instances, we are acting as an agent in the transaction.
In some cases, we act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party. However, we have no control of the goods or services before they are transferred to the customer. In these instances, we are acting as an agent in the transaction.
Our mission-critical facilities experience and our personnel skills position us as trusted advisors to our customers and allow us to work on new opportunities as our customers grow or as their facilities mature and as partners introduce us to new client opportunities. We also intend to increase our efforts at establishing direct selling and business relationships within the market.
Our mission-critical facilities experience and our skilled personnel position us as trusted advisors to our customers and allow us to work on new opportunities as our customers grow or as their facilities mature and as partners introduce us to new client opportunities. We also intend to increase our efforts at establishing direct selling and business relationships within the market.
These solutions begin with strategies for the care of information technology assets that are housed in the facility or modular data centers, including power, cooling, and heat rejection, as well as disaster recovery backup systems.
These solutions begin with strategies for the care of information technology assets that are housed in the facility or modular data centers including power, cooling and heat management, as well as disaster recovery backup systems.
Copies of these filings, including amendments to such filings are available, free of charge, on our website, www.totalsitesolutions.com , as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
Copies of these filings, including amendments to such filings are available, free of charge, on our website, www.tssiusa.com , as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
To accomplish this, we intend to continue our close collaboration with our OEM partner to assist them in identifying demand for our services and design new services that allow them to meet new customer requirements and leverage innovations and technical developments.
To accomplish this, we will continue our close collaboration with our OEM partner to assist them in identifying demand for our services and design new services that allow them to meet new customer requirements and leverage innovations and technical developments.
We support a broad range of enterprise customers who utilize our services to deploy solutions in their own data centers, in modular data centers (MDC), in colocation facilities or at the edge of the network.
We support a broad range of enterprise customers who utilize our services to deploy solutions in their own data centers, in modular data centers (MDCs), in colocation facilities or at the edge of the network.
Our facilities maintenance service contracts can be tailored to customer requirements and typically span one to three years in duration with cancellation clauses for nonperformance and are typically billed annually in advance.
Our facilities maintenance service contracts can be tailored to customer requirements and typically span one to three years in duration, renewable annually thereafter, with cancellation clauses for nonperformance and are typically billed annually in advance.
This market remains highly competitive and is subject to constant evolution as new computing technologies or applications drive continued demand for more computing and storage capacity. In 2023 these enterprises shifted their investment priorities towards artificial intelligence (AI) and accelerated computing infrastructure initiatives.
This market remains highly competitive and is subject to constant evolution as new computing technologies or applications drive continued demand for more advanced computing and storage capacity. In 2023, these enterprises shifted their investment priorities towards AI and accelerated computing infrastructure initiatives.
As computing technologies evolve, and as we currently see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our rack and systems integration businesses to support these new products.
As computing technologies evolve, and as we see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our rack and systems integration business to support these new products.
We consider our relationship with our employees to be very satisfactory. 4 Available Information We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements relating to our annual stockholders’ meeting with the Securities and Exchange Commission (“SEC”).
We consider our relationship with our employees to be very satisfactory. Available Information We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements relating to our annual stockholders’ meeting with the Securities and Exchange Commission ("SEC”).
As we expand our configuration services business, we expect this will help us establish alliances with new hardware and software providers who operate in the IT infrastructure market. Competition The mission-critical information technology solutions market is large, fragmented, and highly competitive.
As we expand our configuration services business, we expect this will help us establish alliances with new hardware and software providers who operate in the IT infrastructure market. 4 Table of Contents Competition The mission-critical information technology solutions market is large, fragmented, and highly competitive.
The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 5
The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 5 Table of Contents
These procurement activities allow us to develop relationships with new hardware, software, and professional service providers and allow us to generate higher margins on integration projects by broadening our revenue and customer base.
These procurement services allow us to develop relationships with new hardware, software and professional service providers and allow us to generate higher profits on integration projects by broadening our revenue and customer base.
Typical facilities management services include overall management of the post-construction facility maintenance program, and on-site staffing of technical engineering positions ( e.g., electricians, HVAC mechanics, control technicians, and voice/data technicians). Increasingly, data centers are being constructed in a modular format, whereby information technology, power, and other related assets are deployed in pre-integrated solutions.
Typical facilities management services include overall management of the post-construction facility maintenance program and on-site staffing of technical engineering positions ( e.g., electricians, HVAC mechanics, control technicians, and voice/data technicians). Some data centers are constructed in a modular format, whereby information technology, power, cooling, air filtration, uninterruptible power supplies and other related assets are deployed in pre-integrated solutions.
In addition, we provide 24x7 network operations support from our Round Rock, Texas facility which has the capability of remotely monitoring our data center service contract customers’ facilities for systems operations and emergency events that could lead to outages. Temperature levels, humidity, electrical connectivity, power usage, and fire alarm conditions are among the items monitored.
In addition, we provide 24x7 network operations support by remotely monitoring our data center service contract customers’ facilities for systems operations and emergency events that could lead to outages. Temperature levels, humidity, electrical connectivity, power usage, and fire alarm conditions are among the items monitored.
In addition, this installation portion of a project has the largest number of outside influences that can impact project goals and objectives, such as weather, non-performance of subcontractors, equipment deliveries, unexpected project changes from the owner, and influence from local authorities and utility providers.
In addition, this installation portion of a project has the largest number of outside influences that can impact project goals and objectives, such as weather, non-performance of subcontractors, equipment deliveries, unexpected project changes from the owner and influence from local authorities and utility providers. Therefore, management experience, skill, and mission focus are critical during the project installation period.
In some cases, we arrange for the purchase of third-party hardware, software, or professional services that are to be provided directly to our customers by another party, and we have no control of the goods before they are transferred to the customer.
In some cases, in the performance of procurement services, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party. However, we have no control of the goods or services before they are transferred to the customer.
Most of the components used in our systems integration business are consigned to us by our original equipment manufacturer (OEM) or their end-user customers, thus our revenues reflect only the services we perform, and the consigned components are not reflected in our balance sheet.
Most of the components used in our systems integration business are consigned to us by our largest OEM customer or its end-user customers. Thus, our revenues reflect only the services we perform, and the consigned components are not reflected in our income statement or on our balance sheet.
Sales and Marketing A key part of our selling strategy is entering into master service agreements with multiple partners and co-selling our range of services to our partners’ end-user customers, leveraging their customer relationships and broadening the scope of potential customers for us. Our go-to-market approach formerly relied on business generated by one major OEM customer.
Sales and Marketing A key part of our selling strategy is entering into master service agreements with multiple partners and co-selling our range of services to our partners’ end-user customers, leveraging their customer relationships and broadening the scope of potential customers for us.
Therefore, management experience, skill, and mission focus are critical during the project installation period. 2 Maintenance and management: We provide a comprehensive maintenance and service offering designed to ensure that the multiple systems critical to sustaining online applications in enterprise data centers and modular data centers remain operational and functional.
Maintenance and management: We provide a comprehensive maintenance and service offering designed to ensure that the multiple systems critical to sustaining online applications in enterprise data centers and modular data centers remain operational and functional.
Employees On December 31, 2023, we had 81 full-time employees. Our future success will depend on our continued ability to attract, retain, and motivate qualified personnel. We are not a party to any collective bargaining agreement, and we have not experienced any strikes or work stoppages.
Employees On December 31, 2024, we had 161 full-time employees plus approximately 43 temporary workers utilized primarily in our rack integration services. Our future success will depend on our continued ability to attract, retain, and motivate qualified personnel. We are not a party to any collective bargaining agreement, and we have not experienced any strikes or work stoppages.
In addition, we provide warehousing of high-value equipment such as servers, switches, and other information technology hardware that are generally provided on a consignment basis to us by our OEM and end-user customers.
This approach also allows for greater quality control as it is performed and supervised in our ISO-certified facility. We also provide warehousing of high-value equipment such as servers, switches, and other information technology hardware that are generally provided on a consignment basis to us by our OEM and end-user customers.
Enterprises and data center operators face immense pressure to integrate and deploy the latest AI equipment and graphic processing units (GPUs). They must adopt these next-generation servers and custom rack-scale architectures to compete in the market successfully and quickly.
Enterprise and data center operators are facing immense pressure to rapidly integrate and deploy the latest generative AI equipment and GPUs (Graphics Processing Units) and will need to adapt these next-generation servers and custom rack-scale architectures to quickly and successfully compete in the market.
We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM customer to win contracts and to provide business to us under “Master Service Agreements”.
We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources.
We also provide second-touch configuration services for our OEM and end-user customers, such as adding software, hardware, or other features to end-user devices, bundling such devices with peripherals, pre-loading customer-determined application software, tagging, asset capture, and other fulfillment services. We have added two new service offerings to assist customers with the ongoing management of their IT systems.
We also provide second-touch configuration services for our OEM and end-user customers, such as adding software, hardware, or other features to end-user devices, bundling such devices with peripherals, pre-loading customer-determined application software, tagging, asset capture, and other fulfillment services. Our services include solutions for edge devices, and client and infrastructure technologies.
Our service contracts take different forms including fixed-price equipment maintenance with an optional comprehensive warranty to fix failures in key components such as uninterruptible power supplies or batteries, ticket-based service provided at contracted rates in a master service agreement, comprehensive facility services agreements that include on-site staffing, scheduled equipment maintenance and nontechnical facility services, and direct job-specific contracts for additional moves, add, refresh, refurbishment and change work within a facility.
Our service contracts take different forms including fixed-price equipment maintenance with an optional comprehensive warranty to fix failures in key components such as uninterruptible power supplies or batteries, ticket-based service provided at contracted rates in a master service agreement, comprehensive facility services agreements that include on-site staffing, scheduled equipment maintenance and nontechnical facility services, and direct job-specific contracts for additional moves, additions, refreshes, refurbishments and change work within a facility. 3 Table of Contents As computer density increases and data centers evolve into the use of modular form factors, we found that we could leverage our facilities' maintenance experience and infrastructure by offering maintenance services for modules being deployed into new data centers.
We respect competition in the information technology services sector, and we embrace what we need to do to compete and win to continue to increase in the future.
In some cases, because of diverse requirements, we collaborate with these and other competitors for projects. We respect competition in the information technology services sector, and we embrace what we need to do to compete and win to continue to increase in the future.
This allows more flexibility to support our customers’ requirements while continuing to enhance our cost-effectiveness. - Pursue selective strategic partnerships and acquisitions: As part of our strategy to expand our service offerings and to maximize our market opportunities, we may partner with or acquire technologies, services, or product lines to accelerate our growth and to enhance our portfolio.
Additionally, we will continue to expand our sales force and field service technicians and add additional technical expertise. - Pursue selective strategic partnerships and acquisitions: As part of our strategy to expand our service offerings and to maximize our market opportunities, we may partner with or acquire technologies, services, or product lines to accelerate our growth and to enhance our portfolio.
These offerings also include post-commissioning support for ongoing operations. Our strategy is to increase the number of customers and modular data centers under contract so that we can increase the amount of recurring revenues from ongoing design, maintenance, and support contracts.
Our strategy includes increasing the number of customers and MDC’s under contract so that we can increase the amount of recurring revenues from ongoing design, maintenance, and support contracts.
Deployment: In connection with the deployment of a solution within a customer’s existing data center, modular data center or related equipment requirements, our capabilities include project management, value engineering and design management, bid negotiation support, subcontractor pre-qualification, and selection, long-lead equipment procurement, issuance of equipment and construction contracts, and refinement and management of project budgets and schedules.
We anticipate enterprises may increase their evaluation of MDC’s as they seek ways to efficiently deploy AI enabled servers in their own environments without requiring the expense of building out data centers. 2 Table of Contents Deployment: In connection with the deployment of a solution within a customer’s existing data center, MDC or related equipment requirements, our capabilities include project management, value engineering and design management, bid negotiation support, subcontractor pre-qualification, and selection, long-lead equipment procurement, issuance of equipment and construction contracts, and refinement and management of project budgets and schedules.
The integration of this equipment at both a rack-level or facility or modular data center level is performed to our customer specifications and test criteria and may include imaging of software onto the hardware as well. We are generally not responsible for the performance of the related IT equipment in the field.
These services include custom configuration of a broad scope of information technology products including client products, enterprise products, clusters, and modular containers. The integration of this equipment at both a rack-level or facility or modular data center level is performed to our customers’ specifications and test criteria and may include imaging of software onto the hardware as well.
We have gained traction by providing complex AI solutions utilizing GPU and advanced thermal management technology. We often compete against channel re-sellers and divisions of large information technology service and equipment providers. In some cases, because of diverse requirements, we collaborate with these and other competitors for projects.
We have gained market traction by providing complex AI solutions utilizing GPU and advanced thermal management technology and our largest customer highly values our flexibility, partnership and ability to execute on our commitments. We often compete against channel re-sellers and divisions of large information technology service and equipment providers.
Additionally, we will continue to expand our sales force and field service technicians and add additional technical expertise. - Continue to deliver operational excellence and cost competitiveness and enhance our manufacturing capability. A key element of our success is our ability to leverage and optimize our systems integration facility.
At a high level, the strategy we intend to use to accomplish this goal includes: - Continue to deliver operational excellence and cost competitiveness to enhance our manufacturing capability: A key element of our success is our ability to leverage and optimize our systems integration facility.
Our operating expenses are not exclusively aligned to each service offering, as shared resources such as sales, marketing, and general and administrative expenses support all services.
Our operating expenses are not exclusively aligned to each service offering, as shared resources such as sales, marketing, and general and administrative expenses support all services. Our solutions involve many aspects of the life cycle of both traditional and modular data centers and their related assets which are described in more detail below.
This marketing approach allowed the end–user customer to contract for comprehensive facilities services or to contract separately for each project phase such as integration or fulfillment services. Our updated go-to-market strategy is designed to capitalize on our investment in direct selling personnel and leveraging our OEM partner’s capabilities at the same time.
This marketing approach allowed the end–user customer to contract for comprehensive facilities services or to contract separately for each project phase such as integration or fulfillment services.
Our services include rack and systems integration, configuration services, data center and modular data center facility management integration, deployment and maintenance services, strategic procurement services, project management and technology consulting, and design and engineering services. TSS was incorporated in Delaware in December 2004. Our headquarters and our systems integration and configuration services facility are located in Round Rock, Texas.
Our systems integration services have recently been enhanced to include integration of Artificial Intelligence (AI) enabled data center server racks. TSS was incorporated in Delaware in December 2004. Our corporate offices and our integration facility are located in Round Rock, Texas.
Our solutions involve all aspects of the life cycle of both traditional and modular data centers and their related assets which are described in more detail below. 1 Systems Integration Services: To assist our customers with ITequipment deployment in their data centers we provide what we call “systems integration” services.
Systems Integration Services: To assist our customers with IT equipment deployment in their data centers, we provide what we call "systems integration” services. We provide integrated technology services and software tools designed to accelerate the assembly and delivery of complex information technology solutions.
While this business was and remains valued, it has been difficult to forecast resulting in inconsistent and fluctuating quarterly results. This approach relied on expertise in information technology hardware systems, energy consumption, real estate matters, and facilities planning and operation from this primary demand source.
Our go-to-market approach relies primarily on business generated by or through a global Fortune 100 OEM customer with whom we have strategically aligned ourselves. This approach relied on expertise in information technology hardware systems, energy consumption, real estate matters, and facilities planning and operation from this primary demand source.
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Item 1. Business Company Overview TSS, Inc. provides a broad and specialized range of integration technology services that enable enterprises and users to successfully implement, operate, and maintain their Information Technology systems. As a provider of technology services built on a platform of experienced program management, we have expertise in delivering complex, end-to-end IT technology solutions cost-effectively.
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Item 1. Business Company Overview TSS, Inc. 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 in which they are housed.
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These IT solutions can be deployed in various physical settings such as data centers, co-location facilities, server rooms, modular or edge-based solutions, security operations, and communications facilities.
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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 procurement services.
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The loss of this customer could have a material negative effect on our results. Our operational focus is to ensure this doesn’t happen.
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We rely on several large relationships and one US-based OEM (original equipment manufacturer) customer to win contracts and to provide business to us under a Master Relationship Agreement. The loss of or material decline in volume of business from this OEM customer would have a material effect on our results.
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We provide integrated technology services and software tools designed to accelerate the assembly and delivery of complex information technology solutions. These services include custom configuration of a broad scope of information technology products including client products, enterprise products, clusters, and modular containers.
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In these instances, we are acting as an agent in the transaction.
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These include services to move or relocate equipment between locations, and specialized cabling solutions to link or integrate rack-level products and customer cabling and labeling services.
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These procurement services allow us to develop relationships with new hardware, software and professional service providers and allow us to generate higher profits on integration projects by broadening our revenue and customer base. 1 Table of Contents Recent Developments In October 2024, we signed a multi-year agreement with our largest customer to provide systems integration services for AI-enabled computer racks at an expected minimum monthly volume.
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Facilities Services: Consulting: During the initial phase of a data center project, we provide project development-related services that typically include establishing project goals and a preliminary budget and schedules, setting technical parameters and requirements, and determining project team members and the overall requirements of the team.
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To support this level of production and to be able to provide increased volumes over our existing facility, we are moving our headquarters and production facility to a new location in 2025 and anticipate capital expenditures of approximately $25 million to $30 million for improvements to that facility, primarily to significantly increase the available electrical power and related cooling capabilities for both air-cooled and direct liquid cooled (“DLC”) computer racks.
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Design and engineering consulting services typically include critical power and mechanical load calculations, mechanical design and engineering, high and medium voltage electrical design and engineering, communications and security systems design and engineering, physical vulnerability assessments, force protection design and bomb blast analyses, fire protection system design and engineering, facility systems equipment selection and facility commissioning and testing.
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While there may be some variability in the number of racks built in any given period, we believe the structure of the agreement provides reasonable assurance to us that, absent our material breach of the agreement, the fees we earn from this arrangement will consistently be sufficient to cover projected fixed and variable costs directly related to the performance of our obligations under the agreement.
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As computer density increases and data centers evolve into the use of modular form factors, we found that we could leverage our facilities' maintenance experience and infrastructure by offering maintenance services for modules being deployed into new data centers. The number of modular units under our service contracts has continued to expand.
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The agreement may also be terminated for convenience by either party with 180 days’ written notice.
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In these instances, we are acting as an agent in the transaction and recognize revenue as the amount of any fee or commission that we expect to be entitled to after paying the other party for the goods or services provided to the customer.
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If the other party terminates the agreement for convenience, it would no longer be committed to minimum volumes, however it would remain obligated to pay us amounts that we believe would be sufficient to cover the related facility costs and debt service costs related to capital expenditures incurred to support our obligations under this agreement, or to directly assume the responsibility for such items.
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At a high level, the strategy we intend to use to accomplish this goal include: - Expand our ability to drive demand with direct and selling resources and to co-sell with our customers and partners.
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We are generally not responsible for the performance of the related IT equipment in the field.
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While we have the ability to do onsite rack integration and occasionally do so, we believe one of our competitive advantages is doing rack integration in our own centralized rack integration facility, where we have greater scalability and staff can specialize in individual parts of the integration process rather than needing to be a generalist in all phases of rack integration as is generally needed for onsite rack integration performed in clients’ data centers.
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Many, but not all of these configuration services originate from our strategic procurement activities and are delivered as a holistic solution to customers seeking bundled services for procurement and configuration.
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Facilities Management Services: Consulting: While we do not manufacture the individual components that go into modular data centers, we ensure all systems are correctly installed, integrate and test the computer racks in the MDC and test the entire MDC before deploying it to a customer site.
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In our history, we have integrated over 500 MDC’s and currently continue to maintain over 200 such MDC’s.
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In procurement transactions where we do not take possession of the goods being sold (“net deals”), we record as revenue on our financial statements only the agent fee we earn for facilitating the transaction.
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For procurement services in which we take possession of and perform work to somehow transform the goods prior to shipping them to our OEM customer’s end users (“gross deals”), we record as revenue the gross value of the sale and record costs of sales for the amount we spend to acquire the goods that we transform.
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Thus, the gross margin percentage for this business can be significantly different, even if the gross profit dollars are the same, depending on whether we record the gross procurement transaction when we handle the products or record only our agent fee when merely arranging the sale in a net procurement transaction.
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This, in turn, can have a material impact on the gross margin percentage for the consolidated company, particularly in periods in which we experience a large volume of procurement transactions in relation to the volume of the remainder of our business.
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The majority of our sales are currently made to or through strategic alignment with a global Fortune 100 computer technologies company with a significant presence near our headquarters and integration facility. Through them, we provide facility management services to other major technology, software, banking and cloud service providers.
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While we continue to embrace working closely with that strategic OEM, our updated go-to-market strategy is designed to also capitalize on our investment in direct selling personnel and leveraging our OEM partner’s capabilities at the same time.
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We are currently investing between $25 million and $30 million in our new, larger integration facility in Georgetown, Texas that will significantly increase the available electrical power, cooling capabilities, and the number of testing / validation stations.
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This increases the capacity to integrate both air-cooled and direct liquid cooled racks, particularly in the AI market space for which power and thermal management demands are increasing rapidly. We will continue to invest in our integration processes and technology to achieve additional cost efficiencies and enhance our existing capabilities.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe believe that our future success will depend in large part on our continued ability to attract and retain highly skilled, knowledgeable, sophisticated and qualified managerial, professional, and technical personnel. Our business involves the development of tailored solutions for customers, a process that relies heavily upon the expertise and services of employees.
Biggest changeWe may be unable to hire and retain sufficiently qualified personnel, and the loss of any of our key executive officers may adversely affect our business. We believe that our future success will depend in large part on our continued ability to attract and retain highly skilled, knowledgeable, sophisticated and qualified managerial, professional, and technical personnel.
If our customers do not approve these change orders, our results of operations could be adversely impacted. We typically submit change orders under some of our contracts for payment of work performed beyond the initial contractual requirements.
If our customers do not approve these change orders, the results of operations could be adversely impacted. We typically submit change orders under some of our contracts for payment of work performed beyond the initial contractual requirements.
Our profitability is therefore dependent upon our ability to estimate accurately the costs associated with our services.
Our profitability is therefore dependent upon our ability to accurately estimate the costs associated with our services.
We estimate the anticipated failure or replacement rate of this equipment, but if a customer location experienced a failure rate of equipment greater than we anticipated, we would incur higher equipment replacement costs and incur a loss on that maintenance contract, and potentially this could have a material negative impact on our profitability and liquidity.
We estimate the anticipated failure or replacement rate of this equipment, but if a customer location experienced a failure rate of equipment greater than we anticipated, we would incur higher equipment replacement costs and incur a loss on that maintenance contract, and this could potentially have a material negative impact on our profitability and liquidity.
If we choose, or are required, to pay our subcontractors for work performed for customers who fail to pay, or delay paying us for the related work, we could experience a decrease in profitability and liquidity.
If we choose, or are required, to pay our subcontractors for work performed for customers who fail to pay us, or delay paying us for the related work, we could experience a decrease in profitability and liquidity.
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. 8 We warranty customer equipment against failure in some of our fixed price contracts, and a major equipment failure could have a material impact on our financial performance .
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. We warranty customer equipment against failure in some of our fixed price contracts, and a major equipment failure could have a material impact on our financial performance .
The supply chain disruptions have also directly impacted vendors and other third parties from whom we procure goods and services for our reseller and procurement business, causing delays in completing procurement services for our customers. This has the potential to materially harm our operating results by delaying recognition of revenue.
The supply chain disruptions have also directly impacted vendors and other third parties from whom we procure goods and services for our procurement business, causing delays in completing procurement services for our customers. This has the potential to materially harm our operating results by delaying recognition of revenue.
We are also trying to stay ahead of emerging trends in the IT market space such as liquid-cooled product offerings, AI computing, immersion technology and edge-based solutions so that we can develop service offerings to leverage growth opportunities for these new markets.
We are also trying to stay ahead of emerging trends in the IT market space such as direct-liquid-cooled product offerings, AI computing, immersion technology and edge-based solutions so that we can develop service offerings to leverage growth opportunities for these new markets.
As they near the end of their useful life, customers can either perform maintenance to extend the MDCs' lifespan or terminate maintenance contracts for those MDCs. If customers terminate their annual maintenance contracts, it could negatively impact our maintenance revenues and profitability unless they replace the units with new MDCs immediately.
As they near the end of their useful life, customers can either perform maintenance to extend the MDCs' lifespan or terminate maintenance contracts for those MDCs. If customers terminate their annual maintenance contracts, it could negatively impact our maintenance revenues and profitability unless they replace the units with new MDCs.
The occurrence of any of these events could harm our business or damage our brand and reputation, lead to the loss of customers and higher expenses, and possibly impede our present and future success in retaining and attracting new customers. 9 A successful assault on our infrastructure damage to our reputation and could adversely affect our financial condition.
The occurrence of any of these events could harm our business or damage our brand and reputation, lead to the loss of customers and higher expenses, and possibly impede our present and future success in retaining and attracting new customers. A successful assault on our infrastructure could damage our reputation and could adversely affect our financial condition.
We may choose, or be required, to pay our subcontractors even if our customers do not pay or delay paying us for the related services. We use subcontractors to perform many portions of our services and to manage workflow. In some cases, we pay our subcontractors before our customers pay us for the related services.
We may choose, or be required, to pay our subcontractors even if our customers do not pay or delay paying us for the related services. We use subcontractors to perform some portions of our services and to manage workflow. In some cases, we pay our subcontractors before our customers pay us for the related services.
Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our common stock. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders purchased their shares. Our insiders beneficially own a significant portion of our outstanding common stock.
Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which stockholders purchased their shares. Our insiders beneficially own a significant portion of our outstanding common stock.
Supply chain challenges have and will likely negatively affect our integration business by slowing the supply of parts needed to perform integration services, requiring us to hold greater quantities of inventory for longer periods and/or delaying completion of services for our customers.
Supply chain challenges have negatively affect our integration business by slowing the supply of parts needed to perform integration services, requiring us to hold greater quantities of inventory for longer periods and/or delaying completion of services for our customers.
Our efforts to align costs with sales and gross margin volume have reduced our level of overhead, but there can be no guarantee that we will be successful in sustaining or increasing profitability in 2024 or beyond.
Our efforts to align costs with sales and gross margin volume have reduced our level of overhead, but there can be no guarantee that we will be successful in sustaining or increasing profitability in 2025 or beyond.
We may not accurately estimate the costs associated with services provided under fixed-price contracts, which could impair our financial performance. Approximately 90% 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.
We may not accurately estimate the costs associated with services provided under fixed-price contracts, which could impair our financial performance. The majority 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.
In addition, we provide services under certain master service agreements. If these agreements are terminated, we would be unable to provide ongoing services to those customers. We submit change orders to our customers for work we perform beyond the scope of some of our contracts.
In addition, we provide services under certain master service agreements. If these agreements are terminated, we would be unable to provide ongoing services to those customers. 9 Table of Contents We submit change orders to our customers for work we perform beyond the scope of some of our contracts.
Our inability to attract, retain and motivate employees or manage succession of key roles may inhibit or ability to maintain or expand our business operations. We have a history of operating losses, and we may experience net losses in the future.
Our inability to attract, retain and motivate employees or manage a succession of key roles may inhibit our ability to maintain or expand our business operations. 7 Table of Contents We have a history of operating losses, and we may experience net losses in the future.
Since the COVID 19 pandemic began in 2020, due to its impact on global production and distribution we have experienced ongoing impacts from shortages of components needed to complete integration and procurement services, delaying our ability to recognize revenue for these projects and negatively impacting our profitability.
Since the COVID 19 pandemic began in 2020, due to its impact on global production and distribution we have experienced periodic impacts from shortages of components needed to complete integration and procurement services, delaying our ability to recognize revenue for these projects and negatively impacting our profitability and cash flows.
Any software failure or corruption, including cyber-based attacks or network security breaches, could lead to the dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, customers and end-user customers, could threaten our ability to provide services to our customers, generate negative publicity about us, result in litigation and increased legal liability or costs or lead to government inquiry or oversight.
Any software failure or corruption, including cyber-based attacks or network security breaches, could lead to the dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, customers and end-user customers, could threaten our ability to provide services to our customers, generate negative publicity about us, erode our customers’ confidence in our ability to handle their technology assets, result in litigation and increased legal liability or costs or lead to government inquiry or oversight.
Although we recorded operating income in 2023 and 2022 and net income in 2023, we had a net loss in 2022 and we recorded operating and net losses in both 2021 and 2020. We have a history of recurring net annual losses in prior years and at December 31, 2023 we had an accumulated deficit of approximately $66.3 million.
Although we recorded improved operating income in 2022-2024 and net income in 2023 and 2024, we had a net loss in 2022, and we recorded operating and net losses in both 2021 and 2020. We have a history of recurring net annual losses in prior years and on December 31, 2024, we had an accumulated deficit of approximately $60.3 million.
Future sales of common stock by these insiders may adversely affect the market price of our common stock. Our officers, directors or their affiliates beneficially own approximately 6.9 million shares of common stock or approximately 30% of our outstanding common shares as of March 28, 2024.
Future sales of common stock by these insiders may adversely affect the market price of our common stock. Our officers, directors and their affiliates beneficially own approximately 7.0 million shares of common stock or approximately 28% of our outstanding common shares as of March 30, 2025.
As we introduce a new ERP system to perform these functions including our financial reporting and accounting functions, any challenges in the implementation of the system, changes to processes or errors in functionality where such systems fail to adequately perform as designed, could adversely affect our business and harm our operating results.
As we introduce a new ERP system to perform these functions for our warehouse, integration and other operations functions, any challenges in the implementation of the system, changes to processes or errors in functionality where such systems fail to adequately perform as designed, could adversely affect our business and harm our operating results.
We have had to pay higher wages to attract new employees and retain our existing employees. If our total compensation programs, employment benefits, and overall workplace culture are not viewed as competitive and inclusive, our ability to attract, retain and motivate employees could be compromised.
If our total compensation programs, employment benefits, and overall workplace culture are not viewed as competitive, our ability to attract, retain and motivate employees could be compromised.
The uncertainty of a rapidly changing marketplace and ongoing global supply challenges have created a volatile and challenging business climate, which may continue to negatively impact our customers and their spending and investment decisions. We may not be able to generate the level of revenue necessary to achieve and maintain sustainable profitability.
The uncertainty of a rapidly changing marketplace and ongoing global supply challenges have created a volatile and challenging business climate, which may continue to negatively impact our customers and their spending and investment decisions.
Revenues from this OEM customer comprised 96% of our total revenues for each of the years ended December 31, 2023 and 2022.
Revenues from this OEM customer comprised 99% and 96% of our total revenues in the years ended December 31, 2024 and 2023, respectively.
Any failure to maintain and grow our revenue volumes would adversely affect our business, financial condition and operating results. 6 We are attempting to diversify our customer base but there is no guarantee that we will be successful in doing so.
We may not be able to generate the level of revenue necessary to achieve and maintain sustainable profitability and a failure to maintain and grow our revenue volumes would adversely affect our business, financial condition and operating results. We are attempting to diversify our customer base but there is no guarantee that we will be successful in doing so.
We believe that changes we have made to the business in recent years, including the addition of procurement and reseller services and changes to our operating cost structure have improved our operating results and allowed us to achieve multiple profitable quarters in each of the last several years, but we do have a history of fluctuating operating results.
We believe that changes we have made to the business in recent years, including the addition of procurement services, changes to our operating cost structure, and the new multi-year AI rack building agreement have significantly improved our operating results and allowed us to achieve multiple profitable quarters in each of the last several years.
We have been able to structure our procurement activities in such a way as to minimize their overall impact on our liquidity by using trade creditors as the primary way to finance these activities.
We have been able to structure our procurement activities in such a way as to minimize their overall impact on our liquidity by using trade creditors as the primary way to finance these activities and the business has minimal costs in periods of low volume partially mitigating financial risk.
We have recently increased the prices we charge for our integration services to recover these higher costs. To the extent that we are unable to promptly pass higher labor costs on to our customers, our business will be negatively impacted.
To the extent that we are unable to promptly pass higher labor costs on to our customers, our business will be negatively impacted.
Our inability to find and engage appropriate subcontractors or a failure by one or more of our subcontractors to satisfactorily deliver on a timely basis the agreed-upon supplies and/or perform the agreed-upon services may materially and adversely affect our ability to perform our obligations as a prime contractor.
Our inability to find and engage appropriate subcontractors or a failure by one or more of our subcontractors to satisfactorily deliver on a timely basis the agreed-upon supplies and/or perform the agreed-upon services may materially and adversely affect our ability to perform our obligations as a prime contractor. 10 Table of Contents In extreme cases, a subcontractor’s performance deficiency could result in the customer terminating the contract for default with us.
We often compete against divisions of large information technology consulting and integration companies, including several large domestic companies that may have financial, technical and marketing resources that exceed our own.
The mission-critical information technology industry in which we operate is highly competitive and continues to become more competitive. We often compete against divisions of large information technology consulting and integration companies, including several large domestic companies that may have financial, technical and marketing resources that exceed our own.
Accordingly, our employees are one of our most valuable resources. Competition for skilled personnel is intense in our industry. Recruiting and training these personnel require substantial resources particularly when seeking qualified staff in remote locations where a number of our customers operate their data centers.
Recruiting and training these personnel requires substantial resources particularly when seeking qualified staff in remote locations where a number of our customers operate their data centers.
Most of our contracts are cancelable on short notice by the customer either at its convenience or upon our default.
Other than our multi-year AI rack integration agreement signed in 2024, most of our contracts are cancelable on short notice by the customer either at its convenience or upon our default.
In addition, the perception that such sales might occur may cause the market price of our common stock to decline. Future issuances or sales of our common stock could have an adverse effect on the market price of our common stock. Our shares are thinly traded and may not be readily marketable.
In addition, the perception that such sales might occur may cause the market price of our common stock to decline. Future issuances or sales of our common stock could have an adverse effect on the market price of our common stock. Item 1B. Unresolved Staff Comments. Not applicable. 11 Table of Contents
We store and transmit our own as well as customer information and data, including individual data of and about their end-user customers. Maintaining the security and availability of our services, network and internal IT systems and the security of information we hold is a critical issue for us and our customers.
Maintaining the security and availability of our services, network and internal IT systems and the security of information we hold is a critical issue for us and our customers.
Reduced demand for our services or the loss of a significant customer or end-user could adversely affect our results of operations, cash flows and liquidity. We may be unable to hire and retain sufficient qualified personnel, and the loss of any of our key executive officers may adversely affect our business.
Reduced demand for our services or the loss of a significant customer or end-user could adversely affect the results of operations, cash flows and liquidity.
We do not yet have a history of stable and ongoing contracts with customers for our procurement services and, as a result, we have experienced material fluctuations in our quarterly revenues from these services, which has had a material impact on our quarterly and annual revenues and profits.
Due to the nature of our procurement business, we have experienced material fluctuations in our quarterly revenues from these services, which has had a material impact on our quarterly and annual revenues and profits.
While our history suggests that customers will replace MDCs with new modules subject to annual maintenance contracts, the time period between these two events could result in a decrease in our maintenance and overall revenue in our facilities business. 7 We have substantial amounts of goodwill, and changes in future business conditions could cause these assets to become impaired, requiring substantial write-downs that would adversely affect our operating results.
While our history suggests that customers will replace MDCs with new modules subject to annual maintenance contracts, the time period between these two events could result in a decrease in our maintenance and overall revenue in our facilities management business. We operate in a highly competitive industry, which could reduce our growth opportunities, revenue and operating results.
We began to use this new enterprise system as our system of record with effect from October 1, 2022. We are still working to deploy the system across all of our business units and integrate it into our financial reporting systems.
For financial reporting purposes, we began to use this new enterprise system as our system of record with effect from October 1, 2022.
Hiring and retaining qualified executives and other employees is therefore critical to our business. During 2022 and 2023 we had a number of changes to our executive leadership team, and we experienced increased wage pressure and challenges in hiring people in the Austin, Texas market.
From 2022 to 2024, we had a number of planned changes to our executive leadership team, and we experienced increased wage pressure and challenges in hiring people in the Austin, Texas market. We have had to pay higher wages to attract new employees and retain our existing employees.
In extreme cases, a subcontractor’s performance deficiency could result in the customer terminating the contract for default with us. A default termination could expose us to liability for excess costs of procurement by the customer and have a material adverse effect on our ability to compete for future contracts and task orders.
A default termination could expose us to liability for excess costs of procurement by the customer and have a material adverse effect on our ability to compete for future contracts and task orders. Security breaches and attacks on our computer systems could lead to significant costs and disruptions that could harm our business, financial results and reputation.
After the sale of certain components of our business in 2018 and 2017, our customer concentration increased and revenue from our three largest customers comprised 99% of our total revenues for each of the years ended December 31, 2023 and 2022.
Revenues from our largest customer comprised 99% and 96% of our total revenues in the years ended December 31, 2024 and 2023, respectively.
Our procurement services business is still evolving, and the level of this business may fluctuate significantly on a quarterly basis, requiring additional working capital in order to grow. We began providing procurement services to our customers in 2019.
In 2025, we expect to deploy the system across all of our business units and integrate it into our financial reporting systems, which is part of the same ERP system. 8 Table of Contents The level of our procurement business may fluctuate significantly on a quarterly basis, requiring additional working capital to grow.
Security breaches and attacks on our computer systems could lead to significant costs and disruptions that could harm our business, financial results and reputation. We are reliant upon a number of third-party and internally developed software programs to operate our business.
We are reliant upon a number of third-party and internally developed software programs to operate our business. We store and transmit our own as well as customer information and data, including individual data of and about their end-user customers.
Removed
We have substantial amounts of goodwill resulting from prior acquisitions of businesses. Under generally accepted accounting principles, we do not amortize goodwill and intangible assets acquired in a purchase business combination that are determined to have indefinite useful lives, but instead review them annually (or more frequently if impairment indicators arise) for impairment.
Added
A material breach of our multi-year rack integration agreement, or our choice to terminate the agreement for any reason other than the other party’s material breach of the agreement, could significantly reduce certain minimum payments from our primary OEM partner.
Removed
To the extent we determine that such assets have been impaired, we will write-down their carrying value on our consolidated balance sheet and book an impairment charge in our consolidated statement of operations. At December 31, 2023 and 2022, we conducted such analyses that resulted in no impairment.
Added
We have incurred notable financial commitments related to a new lease on a larger integration facility and the debt to finance capital expenditures in that facility needed to fulfil our obligations under the multi-year AI rack integration agreement with our largest OEM partner.
Removed
The net carrying value of goodwill totaled $0.8 million at December 31, 2023 and 2022, respectively. We operate in a highly competitive industry, which could reduce our growth opportunities, revenue and operating results. The mission-critical information technology industry in which we operate is highly competitive and continues to become more competitive.
Added
Our multi-year agreement calls for certain minimum monthly payments to us, which we believe will be sufficient to cover the majority of the costs for the facility and debt service payments tied to the build-out of that factory for which we are responsible.
Removed
Our shares are not widely traded, and daily trading volume is generally very low compared with most publicly traded companies. As a result, you may not be able to readily resell your shares in the company. Our common stock may be characterized as a “ penny stock ” under applicable SEC regulations.
Added
While those payments are required, per the terms of the multi-year term of the agreement, our customer could terminate the agreement if we were to materially breach the agreement, leaving us with the financial obligations of the lease and debt service regardless of whether we had revenues sufficient to cover those costs.
Removed
Our common stock may be characterized as “penny stock” under SEC regulations. As such, broker-dealers dealing in our common stock may be subject to the disclosure rules for transactions involving penny stocks, which generally require that, prior to a purchase, the broker-dealer determine if purchasing the common stock is suitable for the applicable purchaser.
Added
Likewise, if we were to terminate the agreement other than due to the other party’s material breach of the agreement, they would be relieved of any further obligation. Either of these events would represent a material adverse effect on our results of operations, financial condition and cash flows.
Removed
The broker-dealer must also obtain the written consent of the applicable purchasers to purchase the common stock and disclose the best bid and offer prices available for the common stock and the price at which the broker-dealer last purchased or sold the common stock.
Added
Future power demands of AI-enabled computer racks is unknown and our ability to continue to earn revenues from AI rack integration services is highly dependent on our access to an acceptable amount of electrical power and related computer cooling capabilities.
Removed
These additional burdens imposed upon broker-dealers may discourage them from effecting transactions in our common stock, which could make it difficult for an investor to sell his, her or its shares at any given time. Item 1B. Unresolved Staff Comments. Not applicable.
Added
A significant driver of our recently improved financial results is our AI rack integration services and the revenues and earnings driven by those services. Technology for AI computers continues to advance, and currently each new generation typically consumes more electrical power than preceding generations, which in turn requires even more electrical power and additional cooling equipment.
Added
We recently signed a lease on a new building to which we plan to move all of our operations including our rack integration business, primarily to secure access to the electrical power needed to perform our AI rack integration services.
Added
While we believe we are relocating to a location where we can source additional power if and when needed due to the city building an electrical power substation very near our leased property, we have no guarantee that such additional power will be available or be allocated to us beyond the 15 Megawatts to which the city has contractually committed itself to provide by mid-2025, though the city has indicated they will be able to continue to increase the available power over time.
Added
If new generations of AI computer racks continue to consume more power than preceding generations, our failure to obtain access to additional power in a reasonable time frame, or the inability to secure additional chillers or other cooling capacity to cool the related racks would have a material, negative impact on our ability to meet our customers’ needs. 6 Table of Contents Our revenues and profitability could be materially and negatively affected by U.S. imposed tariffs.
Added
The United States has recently begun to implement material tariffs on some of the countries with which it has a great deal of international trade and has threatened tariffs on a variety of other counties.
Added
Many of the servers we integrate, other goods on which we provide configuration services and some products we procure for our customers have recently been made or assembled in countries subject to such tariffs.
Added
This introduces additional doubt as to whether our customers will be able to pass such costs onto their customers and as a result whether they can continue to sell such products at an acceptable profit. This, in turn, could materially and negatively affect our revenues, cash flows and financial position.
Added
Even if tariffs are ultimately lifted, temporary implementation of tariffs introduces doubt in the mind of buyers and causes disruptions in the supply chain that could introduce weeks or even months of delays in the ability to source parts and therefore similar delays in our ability to operate at full capacity, negatively impacting our earnings and financial position, and possibly even leading to cancelation of customer orders based on expected delays.
Added
Although our multi-year AI rack integration agreement signed in 2024 passes much of the risk for supply chain disruptions to our customer through the use of minimum quantity commitments as it relates to AI rack integration, we are still exposed to these issues in our procurement business, non-AI rack integration business and configuration services.
Added
Our business involves the development of tailored solutions for customers, a process that relies heavily upon the expertise and services of employees. Accordingly, our employees are one of our most valuable resources. Competition for skilled personnel is intense in our industry.
Added
As a result, we have invested in a Chief People Officer position and in Human Resources automation tools that help us manage through many of these challenges. Hiring and retaining qualified executives and other employees is therefore critical to our business.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial conditions. See “ Risk Factors - Security breaches and attacks on our computer systems could lead to significant costs and disruptions that could harm our business, financial results and reputation ” .
Biggest changeWe face certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial conditions.
This does not mean that we meet any particular technical standards, specifications, or requirements, but only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
This does not mean that we meet any technical standards, specifications, or requirements, but only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
At this time, we have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition.
Currently, we have not identified risks from known cybersecurity threats, including because of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition.
Our management is tasked with apprising TSS’s independent public accounting firm of matters and any relevant developments. 10 Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight responsibility for risks and incidents relating to cybersecurity threats, including compliance with disclosure requirements, cooperation with law enforcement, and related effects on financial and other risks.
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight responsibility for risks and incidents relating to cybersecurity threats, including compliance with disclosure requirements, cooperation with law enforcement, and related effects on financial and other risks.
We would consult with outside counsel as appropriate, including on materiality analysis and disclosure matters, and our senior management makes the final materiality determinations and disclosures and other compliance decisions.
We would consult with outside counsel as appropriate, including on materiality analysis and disclosure matters, and our senior management makes the final materiality determinations and disclosures and other compliance decisions. Our management is tasked with apprising TSS’ independent public accounting firm of matters and any relevant developments.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. We lease a production facility, warehouse and office space in Round Rock, Texas and in 2021 renewed a 7-year lease for this space. We believe that our current facilities are adequate for our operations and additional or replacement facilities would be available if necessary.
Biggest changeItem 2. Properties. We lease a 105,000 square foot production facility, warehouse and office space in Round Rock, Texas and in 2021 renewed a 7-year lease for this space. In December 2024, we signed a new 10-year lease for a 212,793 square foot light industrial space in Georgetown, Texas.
Added
We are in the process of building out the space to fit our needs, plan to begin production there in April 2025, and plan to completely move our operations, warehouse and office space to this new location by June or July 2025. We have not yet determined the future use of our existing facility in Round Rock, Texas.
Added
If we are unsuccessful in selling additional work to utilize that space, we believe we would be able to sublease it on attractive terms as our current cost per square foot is substantially below prevailing market rates. We believe that our current facilities are adequate for our operations and additional or replacement facilities would be available if necessary.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe believe that any potential 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.
Biggest changeWe believe that any potential 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 4. Mine Safety Disclosures Not applicable. 12 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides information as of December 31, 2023 with respect to shares of our common stock that may be issued under equity compensation plans: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 970,000 $ 0.12 3,351,708 Equity compensation plans not approved by security holders 1,700,000 0.60 None Total 2,670,000 $ 0.43 3,351,708 12 The following table provides information with respect to shares of our common stock that were acquired by the Company during the fourth quarter of 2023: Monthly Period During the Quarter Ended December 31, 2023 Total Shares Purchased Average Price paid per Share Total Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Amount of Shares Yet To Be Purchased Under Plans Oct. 1, 2023 - Oct. 31, 2023 - $ - - - Nov. 1, 2023 – Nov. 30, 2023 17,790 $ 0.39 Dec. 1, 2023 – Dec. 31, 2023 - $ - - - Total 17,790 $ 0.39 (a) All of these shares were acquired from associates to satisfy tax withholding or purchase price requirements upon the exercise of stock option grants.
Biggest changeThe following table provides information with respect to shares of our common stock that were acquired by the Company during the fourth quarter of 2024: Monthly Period During the Quarter Ended December 31, 2024 Total Shares Purchased Average Price paid per Share Total Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Amount of Shares Yet To Be Purchased Under Plans Oct. 1, 2024 - Oct. 31, 2024 40,973 $ 7.26 - - Nov. 1, 2024 – Nov. 30, 2024 406,442 $ 8.43 - - Dec. 1, 2024 – Dec. 31, 2024 988 $ 10.81 - - Total 448,403 $ 8.33 - - (a) All of these shares were acquired from associates to satisfy tax withholding or purchase price requirements upon the exercise of stock option grants or upon the vesting of restricted stock.
We did not pay dividends on our outstanding stock during the years ended December 31, 2023 and 2022. We currently intend to retain all future earnings, if any, for use in the operations and expansion of our business. As a result, we do not anticipate paying cash dividends in the foreseeable future.
We did not pay dividends on our outstanding stock during the years ended December 31, 2024, and 2023. We currently intend to retain all future earnings, if any, for use in the operations and expansion of our business. As a result, we do not anticipate paying cash dividends in the foreseeable future.
The following table sets forth the high and low bid prices for our common stock for each of the quarters of 2023 and 2022 as reported by the OTC Markets Group: 2023 2022 Low High Low High First Quarter $ 0.42 $ 0.59 $ 0.32 $ 0.52 Second Quarter 0.25 0.50 0.38 0.46 Third Quarter 0.27 0.44 0.41 0.71 Fourth Quarter 0.25 0.45 0.51 0.68 As of March 28, 2024, there were 84 stockholders of record of our common stock, although we believe there is a larger number of beneficial owners of our common stock.
The following table sets forth the high and low bid prices for our common stock for each of the quarters of 2024 and 2023 as reported by Nasdaq and the OTC Markets Group, as applicable: 2024 2023 Low High Low High First Quarter $ 0.24 $ 0.67 $ 0.42 $ 0.59 Second Quarter 0.48 2.59 0.25 0.50 Third Quarter 2.11 7.34 0.27 0.45 Fourth Quarter 5.04 12.99 0.25 0.45 As of March 30, 2025, there were 68 stockholders of record of our common stock, although we believe there is a larger number of beneficial owners of our common stock.
Our common stock is currently quoted on the OTCQB tier of OTC Markets Group, Inc. under the symbol “TSSI.” The OTCQB is a centralized quotation service that collects and publishes market-maker quotes for over-the-counter securities in real time.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Since November 2024, our common stock has been traded on the Nasdaq Capital Market under the symbol "TSSI.” Prior to that, our stock was traded on the OTCQB tier of the OTC Markets Group, Inc., a centralized quotation service that collects and publishes market-maker quotes for over-the-counter securities in real time.
Removed
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The market for our common stock is limited due to the relatively low trading volume of our common stock and lack of analyst coverage.
Removed
Over-the-counter market quotations, like those on the OTCQB, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIncome tax expense Due to a history of consolidated net operating losses, we have not recorded any income tax expenses, other than minimum or statutory costs. As of December 31, 2022, our accumulated net operating loss carry forward was $41 million. We anticipate that these loss carry-forwards may offset future taxable income that we may achieve and future tax liabilities.
Biggest changeWhile the factoring program costs us interest expense, interest earned on excess funds helps offset that cost. 24 Table of Contents Income tax expense Due to a history of consolidated net operating losses, we have not recorded any income tax expenses other than minimum or statutory costs, primarily the Texas Franchise Tax.
The cost of revenue as a percentage of revenue was 80% for the year ended December 31, 2023, compared to 71% for 2022. This increase is primarily due to the higher proportion of our total revenue that is from procurement services in 2023.
Cost of Revenue The cost of revenue as a percentage of revenue was 80% for the year ended December 31, 2023, compared to 71% for 2022. This increase is primarily due to the higher proportion of our total revenue that is from procurement services in 2023.
Our ability to maintain and to further improve gross profits will depend, in part, upon our ability to continue increasing sales of our higher-margin services including maintenance and integration services, improve our service margins by passing our higher operating costs on to our customers through increasing pricing, improving the operating efficiency of the integration business including utilization of our direct labor, and increasing the total revenues to a level that will allow us to increase and improve the utilization of our integration and service operations.
Our ability to maintain and further improve gross profits will depend, in part, upon our ability to continue increasing sales of our higher-margin services including maintenance and integration services, improve our service margins by passing our higher operating costs on to our customers through increasing pricing, improving the operating efficiency of the integration business including utilization of our direct labor, and increasing the total revenues to a level that will allow us to increase and improve the utilization of our integration and service operations.
Interest expense, net For the year ended December 31, 2023 we recorded interest expense, net of interest income, of $1,616,000. This compares to interest expense, net of interest income, of $931,000 for the year ended December 31, 2022.
Interest expense, net For 2023, we recorded net interest expense of $1,616,000. This compares to interest expense, net of interest income, of $931,000 for the year ended December 31, 2022.
If our future results do not meet expectations, management believes that 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.
If our future results do not meet our expectations, management believes that 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.
In these instances, we are acting as an agent in the transaction and recognize revenue as the amount of any fee or commission that we expect to be entitled to after paying the other party for the goods or services provided to the customer.
In these instances, we are acting as an agent in the transaction and recognize revenue for only the amount of any fee or commission that we expect to be entitled to after paying the other party for the goods or services provided to the customer.
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. Certain of our service and maintenance contracts provide comprehensive coverage of all of the customer’s equipment (generally excluding IT equipment) at a facility during the contract period.
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 generally generate higher profit margins, relative to their higher risk. Certain of our service and maintenance contracts provide comprehensive coverage of all the customers’ equipment (excluding IT equipment) at a facility during the contract period.
Operating income Because of the higher absolute gross profits, even with the higher level of selling, general and administrative expenses, we were able to improve our operating profit by $0.8 million or 91% from 2022 and record an operating income of $1,750,000 in 2023 compared to operating income of $914,000 that we recorded in 2022.
Operating income Because of the higher absolute gross profits, even with the higher level of selling, general and administrative expenses, we were able to improve our operating profit by $0.8 million or 91% from 2022 and recorded an operating income of $1,750,000 in 2023 compared to operating income of $914,000 in 2022.
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.
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 typically are one year in duration, are billed annually in advance, and are non-cancellable.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period.
ASU 2019-15 provides final guidance that allows entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets at amortized cost (except held-to-maturity securities) using the fair value option. The effective date and transition methodology are the same as in ASU 2016-13.
ASU 2019-15 provides guidance that allows entities to make an irrevocable one-time election upon adoption of the new credit loss standard to measure financial assets at amortized cost (except held-to-maturity securities) using the fair value option. The effective date and transition methodology are the same as in ASU 2016-13.
Changes in these and other items could still have a material impact on our financial statements. 15 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.
Changes in these and other items could still have a material impact upon our financial statements. 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.
ASU 20203-07 improves reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision-maker, and included within each reported measure of segment profit (referred to as the “significant expense principle”).
ASU 2023-07 improves reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision-maker and included within each reported measure of segment profit (referred to as the "significant expense principle”).
This market remains highly competitive and is subject to constant evolution as new computing technologies or applications drive continued demand for more computing and storage capacity. In 2023 these enterprises shifted their investment priorities towards artificial intelligence (AI) and accelerated computing infrastructure initiatives.
This market remains highly competitive and is subject to constant evolution as new computing technologies or applications drive continued demand for more advanced computing and storage capacity. In 2023, these enterprises shifted their investment priorities towards AI and accelerated computing infrastructure initiatives.
As computing technologies evolve, and as we currently see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our rack and systems integration businesses to support these new products.
As computing technologies evolve, and as we see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our rack and systems integration business to support these new products.
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, excluding depreciation of our manufacturing property and equipment, shipping costs, and the costs of support functions such as purchasing, logistics and quality assurance.
Cost of Revenue and Gross Margins 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 expenses, equipment and other costs associated with our test and integration facilities, excluding depreciation of our manufacturing property and equipment, shipping costs, and the costs of support functions such as purchasing, logistics and quality assurance.
We continue to focus on increasing our systems integration revenues through more consistent revenue streams that will better utilize the assets in that business, and through adding additional services such as procurement services and data center moves, to help drive volume through the facility.
We continue to focus on increasing our systems integration revenues through more consistent revenue streams that will better utilize our assets in that business, and through adding revenue streams such as procurement services to help drive volume through the integration facility.
In some cases, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customer by another party, and we have no control over the goods or services before they are transferred to the customer.
In some cases, in the performance of procurement services, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party. However, we have no control of the goods or services before they are transferred to the customer.
We had a substantial increase in the number of procurement transactions we completed in 2023 compared to 2022, including a large increase in agent-type transactions, that allowed us to increase revenues from procurement activities from $13.2 million in 2022 to $38.5 million in 2023.
We had a substantial increase in the number of procurement transactions we completed in 2023 compared to 2022, including a large increase in net deals, that allowed us to increase revenues from procurement activities from $13.2 million in 2022 to $38.5 million in 2023.
We record accounts receivable at the time of completion when our right to consideration becomes unconditional. Procurement 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 record accounts receivable at the time of completion when our right to consideration becomes unconditional. 17 Table of Contents Strategic Procurement services We generate revenues from fees we charge our customers to procure third-party hardware, software and professional services on their behalf, some of which are then used in our integration services as we integrate these components to deliver a completed system to our customer.
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 2024 and beyond or significantly affect our level of liquidity, which may require us to take other measures to reduce our operating costs in order to continue operating.
Further, our estimates may change, and future events or developments may also affect our estimates. Any of these factors may change our expectations of cash usage during 2025 and beyond or significantly affect our level of liquidity, which may require us to take other measures to raise funds or reduce our operating costs in order to continue operating.
However, due to timing, it is possible to see fluctuations on a quarterly and annual basis for procurement projects that are in progress at the end of a reporting period. We believe that we will have adequate trade credit available to use to continue financing our procurement activities as we grow this business during 2024 and beyond.
However, due to timing it is possible to see fluctuations on a quarterly or annual basis for procurement contracts in progress at the end of a particular reporting period. We believe that we will have adequate trade credit available to us to continue financing our procurement activities as we grow this business during 2025 and beyond.
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.
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 accurately estimate the costs associated with our services.
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.
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; and other fixed-price services including repair, design and project management services, or the moving of equipment to a different location.
In these instances, we are acting as an agent in the transaction and recognize revenue as the amount of any fee or commissions that we expect to be entitled to after paying the other party for the goods or services provided to the customer.
In these instances, we are acting as an agent in the transaction and recognize revenue on a net basis, recording only the amount of any fee or commissions that we expect to be entitled to after paying the other party for the goods or services provided to the customer (“net deals”).
Enterprises and data center operators are facing immense pressure to rapidly integrate and deploy the latest AI equipment and GPUs and will need to adopt these next-generation servers and custom rack-scale architectures to compete in the market successfully and quickly.
Enterprise and data center operators are facing immense pressure to rapidly integrate and deploy the latest generative AI equipment and GPUs (Graphics Processing Units) and will need to adapt these next-generation servers and custom rack-scale architectures to quickly and successfully compete in the market.
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.
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.
Selling, General and Administrative Expenses Selling, general and administrative expenses primarily consist 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.
Selling, General and Administrative (SG&A) Expenses Selling, general and administrative expenses consist primarily of compensation and related expenses, including sales commissions and other incentive compensation for our executive, administrative and sales and marketing personnel, as well as related travel, selling and marketing expenses, professional fees, facility costs, insurance and other corporate costs.
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. Our primary liquidity and capital requirements are to fund working capital from current operations.
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.
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. 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.
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. We monitor outstanding amounts to limit our credit exposure to individual accounts.
Results of Operations Comparison of 2023 to 2022 Revenue Revenue consists of fees earned from the planning, design and project management 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, including procurement services, to IT equipment vendors.
Revenue Revenues consist of fees earned from the planning, design and project management for mission-critical facilities and information infrastructures, as well as fees earned from providing maintenance services for these facilities. We also earn revenues from providing system configuration and integration services, as well as procurement services, to IT equipment vendors.
Currently we derive all our revenue from the U.S. market. We contract with our customers under five primary contract types: fixed-price service and maintenance contracts, time and material contracts, cost-plus-fee, guaranteed maximum price and fixed-price contracts.
Currently we derive substantially all our revenue from the U.S. market, with an immaterial amount derived from Canada in service of a U.S. based customer. We contract with our customers under five primary contract types: fixed-price service and maintenance contracts, time and material contracts, cost-plus-fee, guaranteed maximum price and fixed-price contracts.
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 program, and trade credit extended to us by our vendors, or under our revolving credit facilities with our bank.
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, trade credit extended to us by our vendors, and fund available under our construction loan.
We recognize our procurement 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 to be provided to our customers by another party and we have no control of the goods before they are transferred to the customer.
In some cases, we arrange for the purchase of third-party hardware, software or professional services that are to be provided directly to our customers by another party and we have no control of the goods before they are transferred to the customer and do not transform the product in any way.
Where customer requirements are clear, we prefer to enter comprehensive fixed-price arrangements or time-and-materials 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.
Where customer requirements are clear, we prefer to enter comprehensive fixed-price arrangements or time-and-materials arrangements rather than cost-plus-fee and guaranteed maximum price contracts. 20 Table of Contents Most of our revenue is generated based on services provided either by our employees or subcontractors.
For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award. For stock-based compensation awards with graded vesting, we recognize compensation expense using the straight-line amortization method.
Estimated option life and forfeiture rate assumptions are derived from historical data. For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award. For stock-based compensation awards with graded vesting, we recognize compensation expense using the straight-line amortization method.
A small change in estimates used can have a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock option awards that are not performance-based awards. We estimate stock price volatility based upon our historical volatility. Estimated option life and forfeiture rate assumptions are derived from historical data.
We develop our estimates based on historical data and market information that can change significantly over time. A small change in estimates can have a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock option awards that are not performance-based awards. We estimate stock price volatility based upon our historical volatility.
Goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and it is not amortized.
Goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and it is not amortized. The recorded goodwill is allocated to the reporting unit to which the underlying transaction relates.
Income tax expense Due to a history of consolidated net operating losses, we have not recorded any income tax expenses, other than minimum or statutory costs. As of December 31, 2023, our accumulated net operating loss carry-forward was $40 million. We anticipate that these loss carry-forwards may offset future taxable income that we may achieve and future tax liabilities.
Income tax expense Due to a history of consolidated net operating losses, we have not recorded any income tax expenses, other than minimum or statutory costs, primarily the Texas Franchise Tax. As of December 31, 2023, our accumulated net operating loss carry-forward was $40 million.
However, the timing and effect of these steps may not completely alleviate a material effect on liquidity. We may also require additional capital if we seek to introduce new lines of business or if we seek to acquire additional businesses as a way to increase the scale of our operations.
However, the timing and effect of these steps may not completely alleviate a material effect on liquidity. We may also require additional capital if we seek to introduce a new line of business or if we seek to acquire additional businesses, further expand our facility, or operate both facilities.
As the percentage of total revenue from procurement services increases, our gross profit margin will decrease as the cost of sales is higher for this revenue than our traditional integration and facilities revenues. Absent the impact from our procurement services, the gross profit margin on our traditional integration and facilities revenues was 36% in 2023 compared to 37% in 2022.
As the percentage of total revenue from procurement services increases, our gross profit margin will decrease as the cost of sales is higher for this revenue than our traditional integration and facilities management revenues.
As of December 31, 2023, current deferred revenue of $3,370,000 consists of $2,404,000 representing our remaining performance obligations for our maintenance contracts, all of which are expected to be recognized within one year, and $966,000 relating to procurement and integration services where we have yet to complete our services for our customers as of December 31, 2023, all of which are expected to be recognized within one year.
As of December 31, 2024, deferred revenue of $3,384,000 includes $1,476,000 of our remaining performance obligations for our maintenance contracts, all of which are expected to be recognized within one year, and $1,908,000 relates to procurement and integration services where we have yet to complete our services for our customers.
The increases in our inventory and receivables in 2023 compared to 2022 are also attributable to the timing of in-progress procurement projects. We have been able to structure our procurement activities in such a way as to minimize their overall impact on our liquidity by using trade creditors as the primary way to finance these activities.
Changes in our receivables, inventory, accounts payable and deferred revenues during 2024 are attributable primarily to the timing of procurement transactions. We have been able to structure our procurement activities in such a way as to minimize their overall impact on our liquidity by using trade creditors as the primary way to finance these activities.
This compares to a net loss of $1.3 million, or $(0.07) per share we recorded for the year ended December 31, 2021. 21 LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity at December 31, 2023 are our cash and cash equivalents on hand, funds available under our bank credit facility and projected cash flows from operating activities.
This compares to a net loss of $73,000, or $(0.00) per share we recorded for the year ended December 31, 2022. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity on December 31, 2024 are our cash and cash equivalents on hand, funds available under our construction loan and projected cash flows from operating activities.
Our headquarters and our systems integration and configuration services facility are located in Round Rock, Texas We support a broad range of enterprise customers who utilize our services to deploy solutions in their own data centers, in modular data centers (MDC), in colocation facilities or at the edge of the network.
We support a broad range of enterprise customers who utilize our services to deploy solutions in their own data centers, in modular data centers (MDCs), in colocation facilities or at the edge of the network.
The volume and timing of revenues from our procurement business has been unpredictable and subject to large fluctuations, especially on a quarterly basis. Most transactions are for discrete projects that do not recur, and the time to complete most projects is usually less than six months.
We refer to these as “net deals.” The volume and timing of revenues from our procurement business has been unpredictable and subject to large fluctuations, especially on a quarterly basis. Most transactions are for discrete projects that do not recur, and most jobs are completed within six months.
We typically extend credit terms to our integration customers based on their creditworthiness 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 30-105 days of invoicing.
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 30-105 days of invoicing.
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 30-45 days of invoicing.
Typically, we do not receive advance payments for equipment or material 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 and material sales are typically due within 30-45 days of invoicing.
The following table shows our revenues disaggregated by reportable segment and by product or service type (in $’000): Year ended December 31, 2023 2022 FACILITIES: Maintenance revenues $ 4,543 $ 3,668 Equipment sales 844 1,149 Deployment and other services 1,680 5,391 Total facilities revenues 7,067 10,208 SYSTEMS INTEGRATION: Integration services 8,817 7,186 Procurement services 38,515 13,243 Total systems integration revenues 47,332 20,429 TOTAL REVENUES $ 54,399 $ 30,637 Remaining Performance Obligations Remaining performance obligations include deferred revenues and amounts we expect to receive for goods and services that have not yet been delivered or provided under existing, non-cancellable contracts.
The following table presents our revenues disaggregated by reportable segment and by product or service type (in ’000’s): Year Ended December 31, 2024 2023 FACILITIES MANAGEMENT: Maintenance revenues $ 4,446 $ 4,543 Equipment sales 1,718 844 Deployment and other services 1,841 1,680 Total Facilities Management revenues $ 8,005 $ 7,067 SYSTEMS INTEGRATION: Integration services $ 22,620 $ 8,817 Total Systems Integration revenues $ 22,620 $ 8,817 PROCUREMENT: Procurement services $ 117,519 $ 38,515 Total Procurement revenues 117,519 38,515 TOTAL REVENUES $ 148,144 $ 54,399 18 Table of Contents 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.
We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM customer to win contracts and to provide business to us under “Master Service Agreements”.
We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources.
However, the impairment losses recognized cannot exceed the total amount of goodwill allocated to that reporting unit. If necessary, the fair value of a reporting unit will be determined using a discounted cash flow, which requires the use of estimates and assumptions. Significant assumptions that may be required include forecasted operating results, and the determination of an appropriate discount rate.
If necessary, the fair value of a reporting unit will be determined using a discounted cash flow, which requires the use of estimates and assumptions. Significant assumptions that may be required include forecasted operating results, and the determination of an appropriate discount rate. Actual results may differ from forecasted results, which may have a material impact on the conclusions reached.
These factors may be indicative of doubt regarding the Company’s ability to continue as a going concern. Management has evaluated the significance of these conditions in relation to its ability to meet its obligations.
Management has evaluated the significance of these conditions in relation to its ability to meet its ongoing obligations and whether it indicates doubt as to our ability to continue as a going concern.
As the percentage of revenues derived from procurement services increases, we would anticipate that cost of revenue as a percentage of sales will also increase, and result in lower gross profit margins.
As the percentage of revenues derived from procurement services increases, we would anticipate that cost of revenue as a percentage of sales will also increase, and result in lower gross profit margins. 25 Table of Contents Gross Profit Our gross profit margin for 2023 was 20% compared to a gross profit margin of 29% for the year ended December 31, 2022.
Among the provisions of ASU 2016-13 is a requirement that assets measured at amortized cost, which includes trade accounts receivable, be presented at the net amount expected to be collected.
The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets. Among the provisions of ASU 2016-13 is a requirement that assets measured at amortized cost, which includes trade accounts receivable, be presented at the net amount expected to be collected.
We may also require additional capital if we seek to acquire additional businesses to increase the scale of our operations, or if there is a sudden increase in the level of procurement services. There can be no assurance as to the Company’s ability to scale its business operations on terms upon which additional financing might be available.
We may also require additional capital if we seek to acquire additional businesses to increase the scale of our operations, or if there is a sudden increase in the level of procurement services.
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 to maximize our profitability. We have been concentrating our sales efforts towards maintenance and integration services where we have traditionally earned higher margins.
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 to maximize our profitability.
For the year ended December 31, 2023, our selling, general and administrative expenses of $8.9 million increased by $1.2 million, or 16%, compared to 2022.
Our gross profit margin is also likely to fluctuate based on the proportion of our total revenues that comes from our procurement activities. Selling, General and Administrative Expenses For the year ended December 31, 2023, our selling, general and administrative expenses of $8.9 million increased by $1.2 million, or 16%, compared to 2022.
The majority of this increase came from growth in our procurement and systems integration businesses, offset by a $3M decrease in our facilities revenues as the number of MDC deployments decreased compared to 2022. Our gross profits increased by $2 million or 23% compared to 2022, mainly due to the higher volumes of activity in our procurement and integration businesses.
The majority of this increase came from growth of $25.3 million in our procurement business and from growth of $1.6 million in our systems integration business, offset by a $3.1 million decrease in our facilities management revenues as the number of MDC deployments decreased compared to 2022.
An allowance for doubtful accounts is provided based on a periodic analysis of expected credit losses based on current estimates, which also includes a review of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customer’s creditworthiness.
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’ creditworthiness. As of December 31, 2024, and 2023, our allowance for doubtful accounts was $7,000.
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 Our gross profit margin for the year ended December 31, 2023 was 20% compared to a gross profit margin of 29% for the year ended December 31, 2022.
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.
Our configuration and integration service businesses integrate these components to deliver a complete system to our customers. In some cases, we also act as an agent and arrange for the purchase of third-party hardware, software, or services that are to be provided to our customers by another party.
We refer to these as “gross deals.” In some cases, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party and we have no control of the goods or services before they are transferred to the customer.
As we increase the level of procurement and reseller services in the future, we anticipate that our overall gross margin will decrease as the normal margins on reseller activities are lower than the margins from our traditional facilities and systems integration services. A large portion of our revenue is derived from fixed price contracts.
In periods when we increase the level of IT procurement services, we anticipate that our overall blended gross margin percentages will be lower in those periods, even as our gross profits increase, as the normal margins on procurement activities are lower than the margins from our traditional facilities and systems integration services.
As a result, management has concluded that there is not substantial doubt about the Company’s ability to continue as a going concern.
We believe that we will continue to be profitable on a quarterly and annual basis in 2025. As a result, management has concluded that there is no substantial doubt about the Company’s ability to continue as a going concern.
While these factors could lead to a higher ratio of cost of services to revenue, the ability to outsource these activities without carrying a higher level of fixed overhead allows us to increase income, broaden our revenue base and have a favorable return on invested capital.
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 ability to outsource these activities without carrying a higher level of fixed overhead improves our overall profitability by increasing income, broadening our revenue base and generating a favorable return on invested capital.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop our estimates based on historical data and market information that can change significantly over time.
Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized ratably over the requisite service period of the award. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates.
Historically we performed design, construction and project-management services in a concentrated number of high-value contracts for the construction of new data centers, but we have transitioned our business away from this market. We have also focused on providing maintenance services for modular data center applications as this market matures.
Comparison of 2023 to 2022 Revenue In 2023, we concentrated our sales efforts towards maintenance and integration services where we had traditionally earned higher margins. Historically we performed design, construction and project-management services in a concentrated number of high-value contracts for the construction of new data centers, but we transitioned our business away from this market.
However, because of uncertainty regarding our ability to use these carry forwards and the potential limitations due to ownership changes, we have established a valuation allowance for the full amount of our net deferred tax assets.
However, because of uncertainty at that point regarding our ability to use these carry forwards and the potential limitations due to ownership changes, we established a valuation allowance for the full amount of our net deferred tax assets. 26 Table of Contents Net income (loss) After net interest and income taxes, we recorded net income of $74,000, or $0.00 per share for the year ended December 31, 2023.
As we continue to bid and 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.
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 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.
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, if needed, borrowings under our bank credit facility.
Our primary sources of funds to meet our liquidity and capital requirements include cash on hand and funds generated from operations including the funds from our customer financing program, combined with the construction loan secured in December 2024 to finance the investment in our new facility.
This guidance was adopted by us in the fourth quarter of 2023 and did not have a material impact on our consolidated results of operation, cash flows, financial position or disclosure. In May 2019, FASB issued Accounting Standards Update ASU No. 2019-15, Financial Instruments – Credit Losses (Topic 326) , (“ASU 2019-15”).
We adopted this guidance effective January 1, 2023, and it did not have a material impact on our financial results of operations. 29 Table of Contents In May 2019, FASB issued Accounting Standards Update 2019-15, Financial Instruments – Credit Losses (Topic 326) , (AASU 2019-15”).
However, because of uncertainty regarding our ability to use these carry forwards and the potential limitations due to ownership changes, we have established a valuation allowance for the full amount of our net deferred tax assets.
As of December 31, 2024, our accumulated net operating loss carry-forward was $37 million. We anticipate that these loss carry-forwards may offset future taxable income and future tax liabilities. However, because of uncertainty regarding our ability to use these carry forwards, we have established a valuation allowance for the full amount of our net deferred tax assets.
Customers value our ability to source disparate hardware, software and services and provide a single-source solution for their IT needs. In some cases, we merely act as agents in these transactions, and so the reported revenues will be different and only reflect our fees earned in the transaction.
In some cases, we merely act as agents in these transactions, and so the reported revenues will reflect only our fees earned in the transaction (“net deals”).
If that fair value exceeds the carrying amount, no impairment charge is required to be recorded. If the carrying value exceeds the reporting unit’s fair value, an entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
If the carrying value exceeds the reporting unit’s fair value, we would 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 cannot exceed the total amount of goodwill allocated to that reporting unit.
As of December 31, 2023, the Company had an accumulated deficit of $66,311,000. Although we reported operating income in 2023 and 2022 and net income in 2023, we do have a history of annual operating and net losses which have been due, in part, to the effects of COVID-19 and subsequent supply chain constraints.
Although we reported a small net income of $0.1 million in 2023 and a significantly improved net income of $6.0 million in 2024, we do have a history of operating and net losses over the preceding several years which were due, in part, to the effects of COVID-19 and subsequent supply chain constraints.
Management believes that we will be able to generate sufficient cash flows and liquidity as described above, as we have been able to grow our revenues and order backlog and seen an improvement in supply chain constraints. We believe that we will continue to be profitable on a quarterly and annual basis in 2024 and beyond.
There can be no assurance as to the Company’s ability to continue to operate profitably or to scale its business operations on terms upon which additional financing might be available. 27 Table of Contents Management believes that we will be able to generate sufficient cash flows and liquidity as described above, as we have been able to grow our revenues and order backlog and seen an improvement in supply chain constraints, as well as a significant and sustained improvement in our earnings since June 2024.
The majority of this increase came from growth of $25.3 million in our procurement business and from growth of $1.6 million in our systems integration business, offset by a $3.1 million decrease in our facilities revenues as the number of MDC deployments decreased compared to 2022. 18 Our procurement business involves us procuring third-party hardware, software and services on our customers’ behalf that are then typically used in our integration services as we integrate those components to deliver a completed system to our customer.
Our procurement services involve us procuring third-party hardware, software and services on our customers’ behalf, some of which are then used in our integration services as we integrate those components to deliver a completed system to our customer.
As of December 31, 2023 and 2022, we had cash and cash equivalents of $11.8 million and $20.4 million, respectively. Significant uses of cash Operating activities: Cash used in operating activities was $8.3 million for the year ended December 31, 2023, compared to cash provided by operating activities of $14.7 million for the year ended December 31, 2022.
Significant sources and uses of cash Operating activities: Cash provided by operating activities was $15.3 million in 2024, compared to $8.3 million of cash used in operating activities in 2023.
We perform an impairment test of goodwill on an annual basis with a measurement date of December 31, or whenever events or circumstances make it more likely than not that impairment of goodwill may have occurred. Our goodwill impairment test involves comparing the fair value of a reporting unit with its carrying amount.
We perform an impairment test of goodwill annually as of December 31, 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 review for indicators of impairment as “Step Zero” of the annual impairment test as defined by U.S.
Net income (loss) After net interest and income taxes, we recorded net income of $74,000, or $0.00 per share for the year ended December 31, 2023. This compares to a net loss of $73,000, or $(0.00) per share we recorded for the year ended December 31, 2022.
Net Income After net interest expense and income taxes, we recorded a net income of $6.0 million, or $0.24 per diluted share for 2024, compared to a net income of $0.1 million, or $0.00 per diluted share in 2023.
Thus our revenues reflect only the services we perform, and the consigned components are not reflected in our income statement or on our balance sheet. We also offer our customers strategic procurement services whereby we procure third-party hardware, software, and services on their behalf.
Most of the components used in our systems integration business are consigned to us by our largest OEM customer or its end-user customers. Thus, our revenues reflect only the services we perform, and the consigned components are not reflected in our income statement or on our balance sheet.

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