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What changed in TSS, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of TSS, Inc.'s 2024 and 2025 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 2025 report.

+336 added−355 removedSource: 10-K (2026-03-18) vs 10-K (2025-04-15)

Top changes in TSS, Inc.'s 2025 10-K

336 paragraphs added · 355 removed · 195 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

42 edited+12 added−10 removed31 unchanged
Biggest changeSystems 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.
Biggest changeOur solutions involve many aspects of the life cycle of both traditional and MDCs and their related assets which are described in more detail below. Systems Integration Services: To assist our customers with IT equipment deployment in their data centers, we provide what we call "systems integration” services.
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.
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 our 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.
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.
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 relies on expertise in information technology hardware systems, energy consumption, real estate matters, and facilities planning and operation from this primary demand source.
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.
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 change in volume of procurement transactions in relation to the volume of the remainder of our business.
Modular data centers may have lower overall cost of delivery, lower energy consumption, and shorter deployment schedules compared to traditional data centers. Our on-site maintenance services provide additional project revenue for us and position us for involvement in any new facility planning, design, and construction initiatives that the customer undertakes.
MDCs may have lower overall cost of delivery, lower energy consumption, and shorter deployment schedules compared to traditional data centers. Our on-site maintenance services provide additional project revenue for us and position us for involvement in any new facility planning, design, and construction initiatives that the customer undertakes.
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.
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 but have no control of the goods or services before they are transferred to the customer.
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.
Enterprise and data center operators are facing immense pressure to rapidly integrate and deploy the latest generative, inferencing and agentic 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 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.
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 systems integration business and capabilities to support these new products.
We believe we can expand our services portfolio penetration within these new, as well as existing customers. - Maintain intense customer focus: We intend to strengthen and deepen our customer relationships. We believe that continued focus on cost-effective systems integration, deployment, and ongoing life-cycle management is important, and will help to increase our net sales, operating performance, and market share.
We believe we can expand our services portfolio penetration with new as well as existing customers. - Maintain intense customer focus: We intend to strengthen and deepen our customer relationships. We believe that continued focus on cost-effective systems integration, deployment, and ongoing life-cycle management is important, and will help to increase our net sales, operating performance, and market share.
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.
We also offer procurement services whereby we procure third-party hardware, software and services on their behalf. Our configuration and integration services businesses often integrate these components to deliver a complete system to our customers.
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.
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 resellers and divisions of large information technology service and equipment providers.
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.
The majority of our sales are currently made to or through strategic alignment with a global Fortune 100 information technology 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.
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.
Our strategy includes increasing the number of customers and MDCs under contract so that we can increase the amount of recurring revenues from ongoing design, maintenance, and support contracts.
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
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. 8 Table of Contents
Our ability to be involved in sales engagements earlier in the cycle and with end-users will allow us to positively impact demand and provide greater visibility into the integration schedules and future pipeline. This impacts our ability to better manage personnel schedules and ultimately optimize our production capacity.
Our ability to be involved in sales engagements earlier in the cycle and with end-users allows us to positively impact demand and provide greater visibility into the integration schedules and future pipeline. This impacts our ability to better manage personnel schedules and ultimately optimize our production capacity.
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.
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.
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.
We deliver complex solutions to 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.
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.
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 recent years, these enterprises have shifted their investment priorities towards AI and accelerated computing infrastructure initiatives.
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.
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 provide, and the consigned components are not reflected in our statement of operations or on our balance sheet.
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.
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. 4 Table of Contents Recent Developments In October 2024, we signed a long-term agreement with our largest customer to provide systems integration services for AI-enabled computer racks at an expected minimum monthly volume.
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.
This increased 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 continue to rapidly increase. We will continue to invest in our integration processes and technology to achieve additional cost efficiencies and enhance our existing capabilities.
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.
Employees On December 31, 2025, we had 286 full-time employees plus approximately 64 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.
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.
To support this level of production and to be able to provide increased volumes over our existing facility, we moved our headquarters and production facility to a new location in 2025 and completed capital expenditures of approximately $40 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.
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.
We rely on several large relationships and one US-based OEM (original equipment manufacturer) strategic customer to win contracts and to provide business to us under a Master Relationship Agreement. A material decline in volume from, or loss of this OEM customer would have a material effect on our results. Our operational focus is to ensure this does not occur.
Over the last ten years we have focused our business on providing world-class integration services to our customer base.
Over the last ten years, we have optimized our business by providing world-class integration services to our customer base.
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 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.
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.
Item 1. Business Company Overview TSS, Inc. ("TSS”, the "Company”, "we”, "us” or "our”) provides a comprehensive suite of services for the integration of complex Artificial Intelligence (AI) technologies, planning, design, deployment, maintenance and refresh of end-user and enterprise systems, including the mission-critical facilities in which they are housed.
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.
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.
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.
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 MDCs remain operational and functional.
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.
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, we have no control of the goods before they are transferred to the customer, and we do not transform the product in any way.
Strategy Our goal is to profitably grow our existing businesses and to identify expanded service offerings to further our value add to our customers as we become a recognized leader in the life-cycle management of complex IT solutions.
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. 7 Table of Contents Strategy Our goal is to profitably grow our existing businesses and to identify expanded service offerings to further our value-add to our customers as we become a recognized leader in the life-cycle management of complex IT solutions.
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.
We have invested over $40 million in our new, larger integration facility in Georgetown, Texas that has significantly increased the available electrical power, cooling capabilities, and the number of testing / validation stations.
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.
Beginning in 2024, our systems integration services have been enhanced to include integration of AI enabled data center server racks. TSS was incorporated in Delaware in December 2004.
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.
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. 5 Table of Contents Facilities Management Services: While we do not manufacture the individual components that go into modular data centers (‘MDC’), we ensure all systems and equipment are correctly installed, integrate and test the computer racks in the MDC and test the entire MDC before deploying it to a customer site.
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.
These solutions begin with strategies for the care of information technology assets that are housed in the facility or MDCs including power, cooling and heat management, as well as disaster recovery backup systems. 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.
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.
We have disaggregated the Facilities Management Services into two separate service offerings: 1- Equipment sales, deployment and other services: 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.
Strategic 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 used in our integration services as we integrate these components to deliver a completed system to our customers.
Ultimately, we started working with IT vendors to help them in the design and integration of their IT equipment into MDCs, which typically leads to ongoing maintenance contracts as these modular systems deploy. 6 Table of Contents 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.
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.
The integration of this equipment at both a rack-level or facility or MDC level is performed to our customers’ 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.
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.
Thus, the gross margin percentage for this business can be significantly different, even if the gross profit dollars are the same, depending on this mix of gross and net deals.
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.
In some cases, because of diverse requirements, we collaborate with these and other competitors for projects.
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.
This marketing approach allows the end–user customer to contract for comprehensive facilities services or to contract separately for each project phase such as integration or fulfillment services. We continue to expand on our go-to-market strategy to also capitalize on our investment in direct selling personnel and leveraging our OEM partner’s capabilities at the same time.
Our design services continue to evolve to support changing data center requirements including installation and maintenance of systems deployed on the edge. Ultimately, we started working with IT vendors to help them in the design and integration of their IT equipment into modular data centers, which typically leads to ongoing maintenance contracts as these modular systems deploy.
Our design services continue to evolve to support changing data center requirements including installation and maintenance of systems deployed on the edge.
Removed
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.
Added
In the second quarter of 2025 we relocated our corporate offices and primary integration facility from Round Rock, Texas to Georgetown, Texas and continued to operate a secondary integration facility in our Round Rock facility for approximately one additional quarter before all operations were migrated to our new facility in Georgetown.
Removed
We are generally not responsible for the performance of the related IT equipment in the field.
Added
In December 2025, we signed an amendment to the long-term agreement whereby both parties agreed to update the pricing in the agreement to account for increased power demands and capital expenditures beyond those contemplated in the original agreement, update the pricing to reflect current rack configurations, and to extend the term of the agreement by an additional two years, with automatic one-year renewals if neither party terminates the agreement at least 180 days prior to that date.
Removed
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.
Added
The volume of our strategic procurement services grew substantially during 2024 and 2025 compared to prior years. Customers value our ability to source disparate hardware, software and services and provide a single-source solution for their IT needs.
Removed
In our history, we have integrated over 500 MDC’s and currently continue to maintain over 200 such MDC’s.
Added
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”).
Removed
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.
Added
If the procurement activities include integration services or other value-add work beyond just the procurement activity, the transaction is recorded at its gross value (“gross deals”), and revenue and costs are allocated to the procurement and systems integration segments based on the value created in each and the effort or cost involved to fulfill the contracts.
Removed
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.
Added
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.
Removed
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.
Added
In our history, we have integrated over 500 MDCs and currently continue to maintain over 100 of such MDCs. We anticipate enterprises may increase their evaluation of MDCs as they seek ways to efficiently deploy AI-enabled servers in their own environments without requiring the expense of building or retro-fitting data centers to accommodate AI racks.
Removed
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.
Added
As compute 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.
Removed
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.
Added
We recognize our procurement services revenues upon completion of the procurement activity or delivery of the completed product depending on the performance obligation.
Removed
All reports that we file with the SEC are available to read and copy at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Added
For any procurement activities in which we transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of revenues for any costs we incur to procure the related goods (“gross deals”).
Added
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 to which we expect to be entitled after paying the other party for the goods or services provided to the customer (“net deals”).
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The majority of our procurement services and systems integration activities are likewise delivered in conjunction with or for this same large OEM.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

37 edited+35 added−38 removed25 unchanged
Biggest changeA 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.
Biggest changeTechnology 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. We moved to a new building in 2025, primarily to secure access to the electrical power needed to perform our AI rack integration services.
We could experience a reduction in our revenue, profitability and liquidity if our customers cancel a significant number of contracts, we fail to win a significant number of our existing contracts upon re-bid, or we complete the required work under a significant number of our non-recurring projects and cannot replace them with similar projects.
We could experience a reduction in our revenue, profitability and liquidity if our customers cancel a significant number of contracts, if we fail to win a significant number of our existing contracts upon re-bid, or if we complete the required work under a significant number of our non-recurring projects and cannot replace them with similar projects.
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.
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.
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.
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 countries.
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.
Supply chain challenges could 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 contract performance may involve subcontracts with other companies upon which we rely to perform all or a portion of the work we are obligated to deliver to our customers.
Our contract performance may involve subcontracts with other companies upon which we rely to perform all or a portion of the work we are obliged to deliver to our customers.
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.
While those payments are required, per the terms 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.
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.
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.
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.
The supply chain disruptions could also directly impact 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.
The applicable customers may not approve or contest these change orders, and we cannot assure you that these claims will be approved in whole, in part or at all. If these claims are not approved, our results of operations could be adversely impacted.
The applicable customers may not approve or may contest these change orders, and we cannot provide assurance that these claims will be approved in whole, in part or at all. If these claims are not approved, our results of operations could be adversely impacted.
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.
A material breach of our long-term 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.
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.
Although our long-term AI rack integration agreement signed in 2024 and subsequently amended in 2025 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.
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.
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 fulfill our obligations under the long-term AI rack integration agreement with our largest OEM partner.
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.
Our long-term agreement, and subsequent amendment, 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.
Under some of our maintenance contracts we provide limited warranties for the continued performance of equipment, including batteries and actuators used in modular data centers.
Under some of our maintenance contracts, we provide limited warranties for the continued performance of equipment, including batteries and actuators used in MDCs.
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.
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. These larger competitors have an infrastructure and support greater than ours.
Due to our fixed storage capacity, holding customer-owned inventory for longer periods has negatively impacted our ability to perform other services and added cost and risk, including custodial risk, into our integration business.
Due to our fixed storage capacity, holding customer-owned inventory for longer periods could negatively impact our ability to perform other services and add cost and risk, including custodial risk, into our integration business.
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.
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. A significant driver of the growth in our revenue and earnings is our AI rack integration services.
In addition to delaying our services, this has also resulted in us having to hold onto greater quantities of customer inventory for longer time periods while we wait for the missing components to be delivered.
In addition to delaying our services, this could also result in us having to hold onto greater quantities of customer inventory for longer periods while we wait for the delayed components to be delivered.
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.
While we believe we relocated 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 currently.
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.
From 2023 to 2025, we had a number of planned changes to our executive leadership team, and we experienced increased wage pressure and challenges in hiring other staff in the Austin, Texas market. We have had to pay higher wages, and elected to improve our health and welfare plans to attract new employees and retain our existing employees.
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.
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.
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.
While our history suggests that customers may 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.
Revenues from this OEM customer comprised 99% and 96% of our total revenues in the years ended December 31, 2024 and 2023, respectively.
We derive a substantial majority of our revenues from a single OEM customer. Revenues from this customer comprised approximately 99%, 99% and 96% of our total revenues for the years ended December 31, 2025, 2024 and 2023, respectively.
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.
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.
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.
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.
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.
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, which could have a material negative impact on our profitability and liquidity. 12 Table of Contents 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.
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.
As a company with a small workforce, we are particularly susceptible to negative impacts if critical and experienced personnel leave. As a result, we continue to invest 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.
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.
Most of our contracts may be canceled on short notice, so our revenue and potential profits are not guaranteed. Other than our long-term AI rack integration agreement which was signed in 2024 and amended and extended in 2025, most of our contracts are cancelable on short notice by the customer either at its convenience or upon our default.
We believe that our future success will be dependent upon retaining the services of our key personnel, developing their successors and certain internal processes to reduce our reliance on specific individuals, and on properly managing the transition of key roles when they occur. As a small company, we are particularly susceptible to negative impacts if critical and experienced personnel leave.
At times, we experience higher levels of attrition, increasing compensation costs, and more intense competition for talent. We believe that our future success will be dependent upon retaining the services of our key personnel, developing their successors and certain internal processes to reduce our reliance on specific individuals, and on properly managing the transition of key roles when they occur.
Our competitors may develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to our services, and we may not be able to maintain or enhance our competitive position. Our size often prevents us from bidding on larger, more profitable projects, which significantly reduces our growth opportunities.
Accordingly, we continue to experience some price pressure as some companies are willing to take on projects at lower margins. Our competitors may develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to our services, and we may not be able to maintain or enhance our competitive position.
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.
Supply chain challenges on global production and distribution could cause 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.
Although our customers currently outsource a significant portion of these services to us and our competitors, we can offer no assurance that our existing or prospective customers will continue to outsource specialty contracting services to us in the future. Most of our contracts may be canceled on short notice, so our revenue and potential profits are not guaranteed.
Our size occasionally prevents us from bidding on larger, more profitable projects, which reduces our growth opportunities. Although our customers currently outsource a significant portion of these services to us and our competitors, we can offer no assurance that our existing or prospective customers will continue to outsource specialty contracting services to us in the future.
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.
In extreme cases, a subcontractor’s performance deficiency could result in the customer terminating the contract with us due to our default. 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.
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 attract, retain and motivate employees or manage a succession of key roles may inhibit our ability to maintain or expand our business operations.
Our failure to attract and retain qualified personnel could increase our costs of performing our contractual obligations, reduce our ability to efficiently satisfy our customers’ needs, limit our ability to win new business and constrain our future growth.
Our failure to attract and retain qualified personnel could increase the cost of fulfilling our contractual obligations, reduce our ability to efficiently satisfy our customers’ needs, limit our ability to win new business and constrain our future growth. 10 Table of Contents Changes in labor market conditions are causing increases in our labor costs, and if we are unable to adequately recover these costs from our customers, our business will be negatively impacted.
We believe the most significant of these risks and uncertainties are as follows: We derive a significant portion of our revenues from one customer. We currently derive and believe that we will continue to derive in the near term a significant portion of our revenues from one OEM customer.
We believe the most significant of these risks and uncertainties are as follows: Our revenues are highly concentrated with a single OEM customer, and our business, financial condition and results of operations would be materially and adversely affected if we are unable to maintain or expand that relationship or successfully diversify our customer base.
Removed
We provide a range of different services and generate revenue from multiple business units and divisions of this OEM customer.
Added
Although we provide services across multiple business units and divisions of this OEM and have entered into a long-term AI rack integration agreement that includes minimum monthly payments, our overall financial performance remains highly dependent on the continuation and scope of this relationship.
Removed
To the extent that any significant business unit or division of this OEM customer uses less of our services or terminates its relationship with us, or this OEM reorganizes its business units and divisions in such a way that directly impacts the level of business with us, our revenues would decline significantly, which would have a material adverse effect on our financial condition and the results of our operations.
Added
Any reduction, delay or termination of purchases by this customer, whether due to changes in its business strategy, demand for its products, supply chain constraints, regulatory developments, pricing pressure, internal reorganization, competitive dynamics, financial condition or otherwise, could result in a material decline in our revenues, profitability and cash flows.
Removed
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
Because our cost structure includes fixed facility costs, labor and debt service obligations associated with our integration facility, a reduction in volume from this customer could have a disproportionate negative effect on our operating results.
Removed
Changes in labor market conditions are causing increases in our labor costs, and if we are unable to adequately recover these costs from our customers, our business will be negatively impacted. At times, we experience higher levels of attrition, increasing compensation costs, and more intense competition for talent.
Added
In addition, while we are actively pursuing diversification of our customer base through expanded procurement services, AI rack integration for additional OEMs, value-added resellers, systems integrators and MDC providers, there can be no assurance that these efforts will be successful or that new customers will generate revenues at levels sufficient to offset any decline from our primary OEM customer.
Removed
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.
Added
The timing, scale and profitability of diversification initiatives are uncertain and may require additional investment in personnel, facilities, working capital or infrastructure before generating meaningful returns. Given the magnitude of our customer concentration, even a relatively modest change in purchasing patterns by our primary OEM customer could materially and adversely affect our business, financial condition and results of operations.
Removed
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.
Added
The city has indicated they will be able to continue to increase the available power over time.
Removed
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.
Added
Future increases in power requirements could also require us to make incremental capital investments in our facility to continue to scale with the power and cooling requirements. 9 Table of Contents Our revenues and profitability could be materially and negatively affected by U.S. imposed tariffs.
Removed
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.
Added
A prolonged U.S. federal government shutdown could materially and adversely affect our business and operations As a significant portion of our procurement business is related to U.S. federal government purchases, a prolonged temporary shutdown of the U.S. federal government could materially impact our revenues and cash flows from our procurement segment.
Removed
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.
Added
A prolonged shutdown, including the furlough of U.S. government employees, may disrupt our ability to complete existing procurement orders and obtain future business. In addition, periodic U.S. federal government shutdowns may adversely affect the broader U.S. economy, investor confidence, and capital markets.
Removed
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.
Added
Such conditions could negatively impact the liquidity or trading volume of our securities, which in turn could have a material adverse effect on our business, results of operations, and stock price.
Removed
Revenues from our largest customer comprised 99% and 96% of our total revenues in the years ended December 31, 2024 and 2023, respectively.
Added
The ongoing refinement and integration of our ERP system could disrupt operations and adversely affect our internal control over financial reporting. Our ERP platform is central to managing inventory, tracking AI rack integration workflows, processing procurement transactions and generating financial reports. We continue to enhance the system to support higher transaction volumes, new service offerings and expanded operational complexity.
Removed
We are continuing our efforts to add new revenue streams such as our strategic procurement services that we began offering in 2019, as well as targeting other vendors in the data center infrastructure market, including Value Added Resellers and systems integrators who have the need for IT integration services.
Added
Modifications, upgrades, system integrations or changes in business processes may introduce errors, system downtime, or data inconsistencies. If our ERP system fails to operate as intended, we could experience delays in fulfilling customer orders, inaccuracies in inventory balances, or delays in billing and collections.
Removed
We are also targeting other vendors in the modular data center market to leverage our expertise and capabilities in this marketplace.
Added
In addition, weaknesses in system configuration, user access management, change management controls or data interfaces could impair the effectiveness of our disclosure controls and internal control over financial reporting.
Removed
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.
Added
As our business grows and our financial reporting requirements increase, including potential auditor attestation of ICFR, deficiencies in our ERP control environment could result in increased audit scrutiny, remediation costs, reporting delays or identification of control deficiencies.
Removed
While we believe our efforts will allow us to broaden our customer base and reduce our customer concentration, there can be no guarantee that we will be successful at these endeavors, or of the time that it will take for these efforts to be successful.
Added
Any material disruption or control failure associated with our ERP system could materially and adversely affect our business, financial condition and results of operations. Our procurement business requires significant working capital and depends on vendor trade credit and a single factoring arrangement; any disruption, modification or timing mismatch could materially affect our liquidity and operating results.
Removed
We are partially through the implementation of a new enterprise resource IT system and have yet to fully deploy this new system across all of our business units. Any challenges, delays, difficulties, or errors during the implementation of this new system may negatively impact our business operation and harm our operating results.
Added
Our procurement activities require us, at times, to purchase substantial quantities of hardware, software and related services from third-party vendors in advance of receiving payment for those goods. The volume and timing of procurement transactions may fluctuate significantly based on customer demand and project schedules, which can materially increase our working capital requirements during periods of elevated activity.
Removed
We rely on computerized inventory and management systems to coordinate and manage the activities in our integration business, as well as to communicate inventory and shipment information to our vendors and customers.
Added
We finance these activities primarily through vendor trade credit and a receivables factoring arrangement. Our liquidity therefore depends on the continued availability and consistent operation of that factoring structure, as well as stable vendor payment terms.
Removed
Our ability to rapidly process incoming deliveries, track inventory through the integration process, and process shipments in a timely manner are essential to the operations of our integration business.
Added
If vendor credit terms are shortened, credit limits are reduced, advance rates or related fees are modified, eligibility requirements change, or the factoring arrangement is restricted or terminated, our short-term cash requirements could increase materially.
Removed
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.
Added
In addition, if shipment timing, customer acceptance procedures or billing cycles are delayed, we may be required to satisfy vendor obligations prior to receiving corresponding funds, creating temporary liquidity pressure.
Removed
For financial reporting purposes, we began to use this new enterprise system as our system of record with effect from October 1, 2022.
Added
If we are unable to maintain sufficient trade credit or continued access to our factoring arrangement on acceptable terms, we may need to deploy cash reserves, obtain alternative financing or limit procurement volumes, any of which could materially and adversely affect our revenues, liquidity and results of operations.
Removed
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.
Added
In 2024 and 2025, we have seen a general decrease in the number of MDCs for which we provide annual maintenance contracts, as more MDCs are being retired compared to the number of new MDCs being deployed.
Removed
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Audit Committee oversees management’s implementation of our cybersecurity risk management program, and it reports any findings and recommendations, as appropriate, to the full Board for consideration. Senior management regularly discusses cyber risks and trends and, should they arise, any material incidents with the Audit Committee. The Company’s IT department regularly uses specialist firms to independently test our cybersecurity controls.
Biggest changeThe Board of Directors oversees cybersecurity risk as part of its overall risk oversight responsibilities and has delegated primary oversight to the Audit Committee. The Audit Committee oversees management’s implementation of the Company’s cybersecurity risk management program and receives regular reports from senior management regarding cybersecurity risks, trends and, if applicable, material incidents.
Item 1C. Cybersecurity We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF).
Item 1C. Cybersecurity We have developed and implemented a cybersecurity risk management program designed to protect the confidentiality, integrity and availability of our critical systems and information. We design and assess our program using the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF) as a framework to help identify, assess and manage cybersecurity risks relevant to our business.
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.
As of the date of this report, we have not experienced a cybersecurity incident that has materially affected our operations, business strategy, results of operations or financial condition. However, cybersecurity threats are evolving and increasing in sophistication, and if realized, such risks could materially affect our operations, business strategy, results of operations or financial condition.
Removed
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.
Added
Our IT management team, in concert with our Chief Security Officer, is responsible for the day-to-day oversight of cybersecurity risk management. Management monitors privacy and security incidents across our systems and those of key third-party service providers and vendors. Significant incidents are reviewed by a cross-functional working group to determine whether escalation is appropriate.
Removed
As part of our cybersecurity risk management system, our IT management team tracks and logs privacy and security incidents across our OEM partners, Microsoft and Oracle and other IT system providers, our vendors, and other third-party service providers to remediate and resolve any such incidents.
Added
Incidents assessed as potentially material are promptly escalated to senior management for further evaluation. Senior management, in consultation with internal and external advisors as appropriate, is responsible for making materiality determinations and related disclosure and compliance decisions. Management would inform the Audit Committee and our independent registered public accounting firm of material cybersecurity incidents and related developments, as appropriate.
Removed
Any significant incidents are reviewed regularly by a cross-functional working group to determine whether further escalation is appropriate. Any incident assessed as potentially being or potentially becoming material is immediately escalated for further assessment and then reported to designated members of our senior management.
Added
We engage third-party specialists to periodically assess and test our cybersecurity controls. Management monitors the prevention, detection, mitigation and remediation of cybersecurity risks through internal reporting processes, threat intelligence, third-party assessments and security tools deployed within our IT environment.
Removed
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.
Removed
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.
Removed
The IT management team is informed about and monitors the prevention, detection, mitigation and remediation of cybersecurity risks and incidents through various means, which may include, among other things, briefings with security personnel, threat intelligence and other information obtained from government, public or private sources, including external consultants engaged by us, and alerts and reports produced by security tools deployed in our IT environment.
Removed
We 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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIf 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.
Biggest changeThis facility previously served as our headquarters and integration facility prior to our move to Georgetown, Texas in 2025, and is now idle. We are currently marketing it for sublease, while simultaneously proposing additional work to utilize that space. We believe that our current facilities are adequate for our operations and additional or replacement facilities would be available if necessary.
Removed
Item 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
Item 2. Properties. We lease a 212,793 square foot light industrial space in Georgetown, Texas, which serves as our corporate headquarters and integration facility. We began partial operations at this facility in May 2025 and fully migrated the remainder of our operations to this facility in August 2025.
Removed
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
The initial lease term runs through May 2035 and we have multiple renewal options on the lease. We lease a 96,766 square foot warehouse and office space in Round Rock, Texas, with a lease term expiring March 31, 2029. We have no renewal options on this lease.

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. Item 4. Mine Safety Disclosures Not applicable. 12 Table of Contents PART II
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. 14 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 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.
Biggest changeUnregistered Sales of Equity Securities and Use of Proceeds The following table provides information with respect to shares of our common stock that were acquired by the Company during the fourth quarter of 2025: Monthly Period During the Quarter Ended December 31, 2025 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, 2025 - Oct. 31, 2025 - $ - - - Nov. 1, 2025 – Nov. 30, 2025 - $ - - - Dec. 1, 2025 – Dec. 31, 2025 988 $ 9.46 - - Total 988 $ 9.46 - - (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.
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.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information 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.
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.
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.
Removed
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.
Added
Holders As of March 11, 2026, there were 69 stockholders of record of our common stock, although we believe there is a far larger number of beneficial owners of our common stock. Dividend Policy We did not pay dividends on our outstanding stock during the years ended December 31, 2025, 2024, and 2023.
Added
Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act.
Added
The following graph compares the cumulative total return on the Company’s Common Stock for the period from December 31, 2020 through December 31, 2025 with the total return over the same period on the Russell 2000 Index (“RUT”) and the Nasdaq US Small Cap Technology Index (“NASDAQNQUSS10”).
Added
The graph assumes that $100 was invested on December 31, 2020 in Common Stock of the Company and in each of the foregoing indices and assumes reinvestment of dividends, if any. The comparisons in the graph are based on historical data. 15 Table of Contents 16 Table of Contents Item 6. [RESERVED]

Item 7. Management's Discussion & Analysis

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

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Biggest changeThe 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.
Biggest changeThe following table presents our revenues disaggregated by reportable segment and by product or service type (in ’000’s): Year Ended December 31, 2025 2024 2023 FACILITIES MANAGEMENT: Maintenance revenues $ 3,906 $ 4,446 $ 4,543 Equipment sales, deployment and other services 4,000 3,559 2,524 Total Facilities Management revenues $ 7,906 $ 8,005 $ 7,067 SYSTEMS INTEGRATION: Integration services $ 40,337 $ 22,620 $ 8,817 Total Systems Integration revenues $ 40,337 $ 22,620 $ 8,817 PROCUREMENT: Procurement services $ 197,476 $ 117,519 $ 38,515 Total Procurement revenues 197,476 117,519 38,515 TOTAL REVENUES $ 245,719 $ 148,144 $ 54,399 The following table presents our revenues disaggregated by timing of revenue recognition (in ’000’s) Year Ended December 31, 2025 2024 2023 Revenues recognized at a point in time $ 227,577 $ 139,577 $ 49,856 Revenues recognized over time 18,142 8,567 4,543 TOTAL REVENUES $ 245,719 $ 148,144 $ 54,399 The following table presents our revenues disaggregated by contract type (in ’000’s) Year Ended December 31, 2025 2024 2023 Revenues recognized on time and materials contracts $ 4,000 $ 3,599 $ 2,524 Revenues recognized on fixed-price contracts 241,719 144,545 51,875 TOTAL REVENUES $ 245,719 $ 148,144 $ 54,399 18 Table of Contents Our gross profits increased by $10.0 million or 45% compared to 2024, mainly due to the higher volumes of activity in our procurement and systems integration businesses, including our AI rack integration activity, combined with margin expansion on our procurement activities.
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.
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, we have no control of the goods before they are transferred to the customer, and we do not transform the product in any way.
While there may be some variability in the number of racks built in any given period, we believe the structure of the agreement with our customer provides reasonable assurance to us that absent our material breach of the agreement or our termination of the agreement, the revenues we earn from this arrangement will consistently be sufficient to cover the aforementioned costs we expect to incur in fulfilling our obligations.
While there may be some variability in the number of racks built in any given period, we believe the structure of the agreement with our customer provides reasonable assurance to us that absent our material breach of the agreement or our termination of the agreement, the revenues we earn from this arrangement will be sufficient to cover the aforementioned costs we expect to incur in fulfilling our obligations.
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.
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, depreciation of our manufacturing property and equipment, shipping costs, and the costs of support functions such as purchasing, logistics and quality assurance.
The primary cause of the decrease in gross profit margin percentage was the increase in volume of our procurement business as a proportion of our total revenue, where we generally earn much lower margins on product purchase/resell services than we do with our traditional maintenance and integration services.
The primary cause of the decrease in blended gross profit margin percentage was the increase in volume of our procurement business as a proportion of our total revenue, where we generally earn much lower margins on product purchase/resell services than we do with our traditional maintenance and integration services.
To the extent we do not meet the minimum weekly volume due to our production down time or labor shortages in compared to agreed-upon levels, we will reduce the fee, billing only for the quantity of racks we actually configured or could have configured given the actual staffing levels.
To the extent we do not meet the minimum weekly volume due to our production down time or labor shortages compared to agreed-upon levels, we will reduce the fee, billing only for the quantity of racks we actually configured or could have configured given the actual staffing levels.
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.
In periods when we increase the level of IT procurement services, we anticipate that our overall blended gross margin percentages will be lower, 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.
Specifically, we believe the fees received under this agreement will be sufficient to cover all of our direct labor, labor training, power consumption and other variable costs, as well as indirect labor, rent and related facility costs for the portion of our factory allocated to this activity, debt service for the assets added to support this business, and other smaller fixed costs that we will incur to perform our obligations under this agreement.
Specifically, we believe the fees received under this agreement, and subsequent amendment, will be sufficient to cover all of our direct labor, labor training, power consumption and other variable costs, as well as indirect labor, rent and related facility costs for the portion of our factory allocated to this activity, debt service for the assets added to support this business, and other smaller fixed costs that we will incur to perform our obligations under this agreement.
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”).
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 to which we expect to be entitled after paying the other party for the goods or services provided to the customer (“net deals”).
If the procurement activities include integration services or other value-add work beyond just the procurement activity, the transactions is recorded at its gross value (“gross deals”), and revenue and costs are allocated to the procurement and systems integration segments based on the value created in each and the effort involved to fulfill the contracts.
If the procurement activities include integration services or other value-add work beyond just the procurement activity, the transaction is recorded at its gross value (“gross deals”), and revenue and costs are allocated to the procurement and systems integration segments based on the value created in each and the effort involved to fulfill the contracts.
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.
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 2026 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.
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.
Enterprise and data center operators are facing immense pressure to rapidly integrate and deploy the latest generative, inferencing and agentic 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 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.
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 systems integration business and capabilities to support these new products.
The periodic reduction of revenues has a muted impact on our overall results, as we also reduce our labor costs in line with the reduced revenues. 21 Table of Contents Our non-AI rack integration services, without such minimum commitments, may be impacted by periodic supply chain issues for certain components and lulls in demand.
The periodic reduction of revenues has a muted impact on our overall results, as we also reduce our labor costs in line with the reduced revenues. Our non-AI rack integration services, without such minimum commitments, may be impacted by periodic supply chain issues for certain components and lulls in demand.
In addition to the fixed monthly fees to which we are entitled under that agreement, we also receive payments that scale depending on the volume of AI racks integrated and for which we are prepared to integrate.
In addition to the fixed monthly fees to which we are entitled under that agreement, and subsequent amendment, we also receive payments that scale depending on the volume of AI racks integrated and for which we are prepared to integrate.
Accounts receivable from our procurement activities are typically due within 80 days of invoicing. The majority of the procurement activities generally involve us transforming the product, and as such the majority of these transactions are recorded as gross deals.
Accounts receivable from our procurement activities are typically due within 80 days of invoicing. The majority of the procurement activities generally involve us transforming the product, and as such most of these transactions are recorded gross.
Actual results could differ materially because of, among other reasons, factors discussed in Item 1A – Risk Factors and elsewhere in this Annual Report. The commentary should be read in conjunction with the consolidated financial statements and related notes and other statistical information included in this Annual Report. Overview TSS, Inc.
Actual results could differ materially because of, among other reasons, factors discussed in Item 1A – Risk Factors and elsewhere in this Annual Report. The commentary should be read in conjunction with the consolidated financial statements and related notes and other statistical information included in this Annual Report.
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.
Guaranteed maximum price contracts are typically lower risk arrangements and thus yield lower profit margins than time-and-materials 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.
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.
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 and equity-based compensation for our executive, administrative and sales and marketing personnel, as well as related travel, selling and marketing expenses, professional fees, facility costs, and insurance.
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.
We deliver complex solutions to 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.
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.
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 recent years, these enterprises have shifted their investment priorities towards AI and accelerated computing infrastructure initiatives.
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.
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 provide, and the consigned components are not reflected in our statement of operations or on our balance sheet.
However, our history of non-payments and bad debt expenses has been insignificant. 16 Table of Contents Integration services We generate integration services revenues by providing our customers with customized systems and rack-level integration services.
However, our history of non-payments and bad debt expenses has been insignificant. Integration services We generate integration services revenues by providing our customers with customized systems and rack-level integration services.
We believe this structure demonstrates our desire to help control the customer’s costs while protecting our financial results by reducing our fee to them only if our own internal labor costs also are reduced. Our gross profit margin as a percentage of sales decreased to 15% in 2024 from 20% in 2023.
We believe this structure demonstrates our desire to help control the customer’s costs while protecting our financial results by reducing our fee to them only if our own internal labor costs also are reduced. Our blended gross profit margin as a percentage of sales decreased to 13% in 2025 from 15% in 2024.
Related primarily to the lease for our new integration facility, our operating cash flows are also reflective of large increases in the lease right-of-use asset of $20.2 million, largely offset by an increase in operating lease liabilities of $20.2 million.
Related primarily to the lease for our new integration facility, our operating cash flows in 2024 also reflected large increases in the lease right-of-use asset of $20.2 million, largely offset by an increase in operating lease liabilities of $20.2 million.
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. Our operational focus is to ensure this doesn’t happen.
We rely on several large relationships and one US-based OEM (original equipment manufacturer) strategic customer to win contracts and to provide business to us under a Master Relationship Agreement. A material decline in volume from, or loss of this OEM customer would have a material effect on our results. Our operational focus is to ensure this does not occur.
In addition to earning revenue for completing AI rack integrations, our multi-year agreement includes weekly volume commitments as well as certain fixed fees, which we believe will be sufficient to cover our fixed and variable costs incurred in fulfilling our obligations under the agreement.
In addition to earning revenue for completing AI rack integrations, our long-term agreement includes weekly volume commitments as well as certain fixed fees for multiple years, which we believe will be sufficient to cover our fixed and variable costs incurred in fulfilling our obligations under the agreement.
Regardless of whether the transaction is recorded as a gross transaction or a net transaction, the interest we are charged through the factoring program is based on the gross value of the transaction. Judgments We consider several factors in determining that control transfers to the customer upon shipment of equipment or upon completion of our services.
Regardless of whether the transaction is recorded as a gross deal or a net deal, the factoring fees we are charged are based on the gross value of each transaction. Judgments We consider several factors in determining that control transfers to the customer upon shipment of equipment or upon completion of our services.
As of December 31, 2024, and 2023, we had cash and cash equivalents of $23.2 million and $11.8 million, respectively. Of the cash held at December 31, 2024, $5.0 million is held in a money market account as collateral against our outstanding bank debt, and therefore is not immediately accessible other than to use for repayment of the debt.
As of December 31, 2025, and 2024, we had cash and cash equivalents of $85.5 million and $23.2 million, respectively. Of the cash held at December 31, 2024, $5.0 million was held in a money market account as collateral against our outstanding bank debt and therefore was not immediately accessible other than to use for repayment of the debt.
This change in cash from operating activities was primarily attributable to the significant increase in contribution from the AI-rack integration services combined with the financial impacts of our procurement services and the large increase in procurement services near the end of 2024 for which we have already been paid under our factoring program but for which we have not yet had to pay our vendors.
The $15.3 million of cash flow from operating activities in 2024 was primarily attributable to the significant increase in contribution from the AI-rack integration services combined with the financial impacts of our procurement services and the large increase in procurement services near the end of 2024 for which we had already been paid under our factoring program but for which we had not yet paid our vendors.
We recognize our procurement services revenues upon completion of the procurement activity. For any procurement activities in which we somehow transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of sales for any costs we incur to procure the related goods (“gross deals”).
For any procurement activities in which we transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of revenues for any costs we incur to procure the related goods (“gross deals”).
In some cases, we arrange for a third party to perform warranty and servicing of equipment, and in these instances, we recognize revenue as the amount of any fees or commissions that we expect to be entitled to. Other services are typically invoiced upon completion of services or completion of milestones.
In some cases, we arrange for a third party to perform “break-fix” and servicing of equipment upon customer request, and in these instances, we recognize revenue as the amount of any fees or commissions to which we expect to be entitled. Other services are typically invoiced upon completion of services or completion of milestones.
We are financially responsible for all fixed and variable costs related to this activity, including debt service requirements related to the planned capital expenditures, direct and indirect labor related to this activity, and all facility and related costs for the portion of our facility allocated to this activity.
We are financially responsible for all fixed and variable costs related to this activity, including debt service requirements related to the capital expenditures, direct and indirect labor related to this activity, and all facility and related costs.
In dollar terms, our SG&A expenses increased by $4.3 million (48%) due to higher headcount and related compensation costs to support the growing scale of the organization combined with higher accruals for incentive compensation tied directly to the improvements in sales and earnings.
In dollar terms, our SG&A expenses increased by $7.4 million (64%) due to higher non-cash equity based compensation, headcount and related compensation costs to support the growing scale of the organization combined with higher accruals for incentive compensation tied directly to the improvements in sales and earnings.
In order to accelerate the time period in which we receive payment, we generally factor the procurement services receivables utilizing a program that we estimate has an effective annualized interest rate below the rate at which we could borrow funds.
To accelerate the time in which we receive payment and optimize our working capital, we generally factor the procurement services receivables utilizing a program that we estimate has an effective annualized interest rate below the rate at which we could borrow funds.
Over the last ten years we have focused our business on providing world-class integration services to our customer base.
Over the last ten years, we have optimized our business by providing world-class integration services to our customer base.
("TSS”, the "Company”, "we”, "us” or "our”) provides a comprehensive suite of services for the planning, design, deployment, maintenance, refresh and take-back of end-user and enterprise systems, including the mission-critical facilities in which they are housed.
("TSS”, the "Company”, "we”, "us” or "our”) provides a comprehensive suite of services for the integration of complex Artificial Intelligence (AI) technologies, planning, design, deployment, maintenance and refresh of end-user and enterprise systems, including the mission-critical facilities in which they are housed.
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.
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.
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.
If necessary, the fair value of a reporting unit will be determined using a discounted cash flow analysis, 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.
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.
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.
We also focused on providing maintenance services for modular data center applications as this market matures. We continued 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 have also focused on providing maintenance services for MDC applications as this market has expanded. 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.
Although the margins are thin, efforts required to support the business are minimal, so any incremental activity remains additive to our net income and can lead to additional cross-sales of higher yielding integration services, so we continue to view this business as a growth vehicle.
These gross profit figures are exclusive of any related bank factoring charges. 25 Table of Contents Although the margins are thin, efforts required to support the business are minimal, so any incremental activity remains additive to our net income and can lead to additional cross-sales of higher yielding integration services, so we continue to view this business as a growth vehicle.
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.
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 MDCs; and other fixed-price services including repair, design and project management services.
Gross margins for 2024 were 7% for the procurement business, 42% for the system integration business, and 62% for the facility management activities. In 2023, gross margins were 14% for the procurement business, 19% for the systems integration business, and 57% for the facilities management activities.
In 2024, gross margins were 7% for the procurement business, 42% for the systems integration business, and 62% for the facilities management activities.
GAAP and if any exist, we compare the fair value of the reporting unit with its carrying amount. If that fair value exceeds the carrying amount, no impairment charge is required to be recorded.
As part of the annual impairment test, we review for indicators of impairment as “Step Zero” of the annual impairment test and if any exist, we compare the fair value of the reporting unit with its carrying amount. If that fair value exceeds the carrying amount, no impairment charge is required to be recorded.
The Company performed a quantitative analysis of our indefinite lived intangible assets on December 31, 2024, and 2023 and concluded there was no impairment. The valuation results indicated that the fair value of our reporting units was greater than the carrying value, including goodwill, for each of our reporting units.
The Company performed a qualitative analysis of our goodwill on December 31, 2025, and 2024 and concluded there was no impairment. The valuation results indicated that the fair value of our reporting units was greater than the carrying value for each of our reporting units. Thus, we concluded that there was no goodwill impairment on December 31, 2025, or 2024.
These inflows were somewhat offset by $4.5 million of cash used to repurchase shares from employees as a means for them to satisfy tax withholding requirements or pay the exercise price upon the vesting of restricted stock and exercise of stock options.
These inflows were somewhat offset by $32.7 million cash used in investing related primarily to the build-out of our new integration facility, and $4.9 million of cash used to repurchase shares from employees as a means for them to satisfy tax withholding requirements or pay the exercise price upon the vesting of restricted stock and exercise of stock options.
As a result, increases and decreases in that business have a smaller impact on our overall margins and profitability compared to increases in the facilities management or systems integration lines of business.
Due to the lighter effort required to execute procurement transactions, the gross margins are thinner in that line of business. As a result, increases and decreases in that business have a smaller impact on our overall margins and profitability compared to increases in the facilities management or systems integration lines of business.
These factors include that legal title transfers to the customer, we have a present right to payment, and the customer has assumed the risks and rewards of ownership at the time of shipment or completion of the services. Sales taxes Sales (and similar) taxes that are imposed on our sales and collected from customers are excluded from revenues.
These factors include that legal title transfers to the customer, we have a present right to payment, and the customer has assumed the risks and rewards of ownership at the time of shipment or completion of the services.
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.
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.
We hold excess funds in an interest-bearing account so that we can earn some interest income on the funds we receive immediately from the factoring program but do not have to pay to our vendors for 30-45 days on typical payment terms. As of December 31, 2024, the Company had an accumulated deficit of $60.3 million.
We hold excess funds in interest-bearing accounts so that we can earn some interest income on the funds we receive immediately from the factoring program but do not have to pay to our vendors for 30-45 days on typical payment terms.
Year ended December 31, 2024 Year ended December 31, 2023 Recognized revenue of all procurement deals - GAAP $ 117,519 $ 38,515 Materials costs incurred but excluded from both recorded revenues and costs (also known as “netting”) 51,534 84,638 Gross value of revenues including netting (non-GAAP) $ 169,053 $ 123,153 Recognized cost of goods for all procurement deals - GAAP $ 109,697 $ 33,256 Materials costs incurred but excluded from both recorded revenues and costs (also known as “netting”) 51,534 84,638 Gross value of costs of goods including netting (non-GAAP) $ 161,231 $ 117,894 The gross value of all procurement transactions increased 37% from 2023, from $123.2 million to $169.1 million in 2024.
Year Ended December 31, 2025 Year Ended December 31, 2024 Recognized revenue of all procurement deals - GAAP $ 197,476 $ 117,519 Materials costs incurred but excluded from both recorded revenues and costs (also known as “netting”) 81,213 51,534 Gross value of revenues including netting (non-GAAP) $ 278,689 $ 169,053 Recognized cost of goods for all procurement deals - GAAP $ 182,302 $ 109,697 Materials costs incurred but excluded from both recorded revenues and costs (also known as “netting”) 81,213 51,534 Gross value of costs of goods including netting (non-GAAP) $ 263,515 $ 161,231 The gross value of all procurement transactions increased 65% from 2024, from $169.1 million to $278.7 million in 2025.
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.
Our contract terms typically are one year in duration, are billed annually in advance, and are non-cancellable. As a result, we record deferred revenue (a contract liability) and recognize revenue from these services ratably over the contract term. We can mitigate our exposure to credit losses by discontinuing services in the event of non-payment.
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.
An allowance for credit losses is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ credit worthiness. As of December 31, 2025, we had no allowance for credit losses, compared to $7,000 recorded as of December 31, 2024.
We anticipate costs allocated to the system integration business to increase in 2025 due to our new, larger integration facility with greater rent and related expenses, paired with an increase in the fees we earn from our primary AI rack integration customer in recognition of our greater expense structure.
We anticipate costs to increase in 2026 due to having a full year of operations at our new, larger facility with greater rent and related expenses, paired with an increase in the fees we earn from our primary AI rack integration customer in recognition of our greater expense structure and the recently signed amendment to our AI rack integration agreement.
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 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.
For performance-based stock awards, if applicable, we may use third-party valuation specialists and a Monte-Carlo simulation model to ascertain the fair value of the award at grant date.
For performance-based stock awards, if applicable, we may use third-party valuation specialists and a Monte-Carlo simulation model to ascertain the fair value of the award at grant date. Inventory Valuation Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis and specific identification.
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 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.
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.
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.
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.
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 consideration becomes unconditional. Accounts receivable from our integration customers are typically due within 30-80 days of invoicing.
We have elected to use December 31 as our annual assessment date. As circumstances change that could affect the recoverability of the carrying amount of the assets during an interim period, we will evaluate our indefinite lived intangible assets for impairment.
Actual results may differ from forecasted results, which may have a material impact on the conclusions reached. We have elected to use December 31 as our annual assessment date. As circumstances change that could affect the recoverability of the carrying amount of goodwill during an interim period, we will evaluate our goodwill for impairment.
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.
Beginning in 2024, our systems integration services have been enhanced to include integration of AI enabled data center server racks. TSS was incorporated in Delaware in December 2004.
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.
During 2025, we ceased offering this service as it proved to not meet our profit expectations. 20 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.
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations based on relative standalone selling prices.
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct.
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.
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. In prior years, our depreciation related to equipment and other fixed assets used in revenue-generating activities was minimal.
The following table presents the results of our procurement activities, both in terms of the gross value of the transactions, regardless of whether they were recorded as gross deals or net deals, along with the recorded values, to aid in an analysis of the underlying economics (in thousands, except percentages): Year ended December 31, 2024 Year ended December 31, 2023 Increase Percentage Increase Recognized Values (GAAP): Recognized value of all procurement deals $ 117,519 $ 38,515 $ 79,004 205 % Recognized cost of revenues 109,697 33,256 76,441 230 % Gross profit 7,822 5,259 2,563 49 % Gross margin based on recognized value of transactions 6.7 % 13.7 % Gross Values (Non-GAAP): Gross value of all procurement deals $ 169,053 $ 123,153 $ 45,900 37 % Cost of revenues 161,231 117,894 43,337 37 % Gross profit 7,822 5,259 2,563 49 % Gross margin based on gross value of transactions 4.6 % 4.3 % 22 Table of Contents The following table provides a reconciliation of the non-GAAP figures presented above to the most closely related GAAP figures presented.
Non-GAAP Revenue, Gross Profit and Gross Margins The following table presents the results of our procurement activities, both in terms of the gross value of the transactions, regardless of whether they were recorded as gross deals or net deals, along with the recorded values, to aid in analysis of the underlying economics (in thousands, except percentages): Year Ended December 31, 2025 Year Ended December 31, 2024 Increase Percentage Increase Recognized Values (GAAP): Recognized value of all procurement deals $ 197,476 $ 117,519 $ 79,957 68 % Recognized cost of revenues 182,302 109,697 72,605 66 % Gross profit 15,174 7,822 7,352 94 % Gross margin based on recognized value of transactions 7.7 % 6.7 % Gross Values (Non-GAAP): Gross value of all procurement deals $ 278,689 $ 169,053 $ 109,636 65 % Cost of revenues 263,515 161,231 102,284 63 % Gross profit 15,174 7,822 7,352 94 % Gross margin based on gross value of transactions 5.4 % 4.6 % The following table provides a reconciliation of the non-GAAP figures presented above to the most closely related GAAP figures presented.
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”).
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 reflect only our fees earned in the transaction (“net deals”).
The $13.8 million (157%) increase in systems integration revenues was due primarily to the growth in integration of AI-enabled computer racks, which began with significant volume in June 2024 and continued at similar volumes throughout the remainder of 2024.
Procurement revenues increased by $80.0 million (68%), and systems integration revenues increased by $17.7 million (78%), while facilities management revenues decreased by $0.1 million (1%) from 2024. 23 Table of Contents The $17.7 million (78%) increase in systems integration revenues was due primarily to the growth in integration of AI-enabled computer racks, which began with significant volume in June 2024 and continued at similar volumes throughout the remainder of 2025.
The fee for staffing is not variable consideration because the customer’s usage is known weekly and is not contingent on the occurrence of any future events or subject to any estimation. We typically extend credit terms to our integration customers based on their creditworthiness and generally do not receive advance payments.
The fee for staffing is based on defined services as transferred to the customer and is not variable consideration because the customer’s usage is known weekly and is not contingent on the occurrence of any future events or subject to any estimation.
We recognize revenue upon shipment to the customer of the completed systems as this is when we have completed our services and when the customer obtains control of the promised goods. In 2024, we signed a multi-year agreement to maintain a facility and trained staffing levels to integrate AI-enabled racks for a key customer.
We recognize revenue upon shipment to the customer of the completed systems as this is when we have completed our services and when the customer obtains control of the promised goods.
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.
Intangible assets with definite lives are amortized based on their estimated economic lives. 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.
We also review intangible assets with definite lives for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, a loss is recognized for the difference between the fair value and carrying value of the intangible asset.
If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, a loss is recognized for the difference between the fair value and carrying value of the intangible asset.
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 remaining performance obligations include: · $561,000 of deferred revenue for our maintenance contracts, all of which is expected to be recognized within one year; · $13,367,000 of deferred revenue for procurement and integration services where we have yet to complete our services for our customers, all of which are expected to be recognized within one year; and · $115,100,000 related to performance obligations which we expect to complete with durations greater than one year.
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.
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 turnover and hiring challenges in internally staffing larger contracts.
With the October signing of a multi-year agreement to continue integrating AI-enabled racks at similar volumes, we expect systems integration revenues to remain significantly above the historical trend for several years.
In December 2025, we amended the long-term agreement signed in 2024, to continue integrating AI-enabled racks at similar volumes, and expect systems integration revenues to remain significantly above the historical trend, or consistent with the past year for the foreseeable future.
The increase in procurement revenues, which was unusually large this year, was driven primarily by an increase in purchases from the federal government including several individually large sales, combined with a mix shift with a greater proportion of the revenues coming from gross deals, as opposed to net deals.
Most transactions are for discrete projects that do not recur, and most jobs are completed within six months. 24 Table of Contents The 68% increase in procurement revenues, from $117.5 million in 2024 to $197.5 million in 2025, was driven primarily by an increase in purchases from the federal government including several individually large sales, combined with a mix shift with a greater proportion of the revenues coming from gross deals, as opposed to net deals.
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.
For grants with performance requirements, expense recognition begins only once the achievement of the performance criteria is deemed probable. 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 anticipate receiving funds from our customer that offset the debt service for the full term of this debt and the majority of the costs to operate the new facility as most of that facility will be dedicated to that activity. We have not yet determined whether we will be able to secure additional business to utilize both facilities.
We anticipate receiving funds from our customer that offset the debt service for the full term of this debt and the majority of the costs to operate the new facility as most of that facility is dedicated to that activity. The majority of the Company’s receivables are from a single customer with 80-day payment terms.
In the quarter ended June 30, 2024, we invested approximately $1.7 million in our Round Rock facility to expand our capacity to integrate generative AI-enabled server racks, including both air cooled and direct-liquid cooled systems.
Occasionally, our revenues will reflect certain reimbursements received from customers for expanding our capacity, typically through capital expenditures, or for adding headcount to support specific customer requests. In 2024, we invested approximately $1.7 million in our Round Rock facility to expand our capacity to integrate generative AI-enabled server racks, including both air-cooled and direct-liquid cooled systems.
We also offer our customers 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.
We also offer procurement services whereby we procure third-party hardware, software and services on their behalf.

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