TSS, Inc.
For the period ended Dec 31, 2025. Filed Mar 18, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 18, 2026
TSSI$7.10+6.0%Stored close · as of Nov 9, 2026
What changed in Risk Factors?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-04-15.
0001654954-25-004295
Item 1A. Risk FactorsCurrent report: 10-K
Period ended 2025-12-31; filed 2026-03-18.
0001654954-26-002342
Item 1A. Risk FactorsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 49 previous paragraphs and 55 current paragraphs.
16 unchanged; 16 reworded; 23 added; 17 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 0 previous and 0 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (23)
Current report
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.
Current report
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. 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.
Current report
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. 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.
Current report
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. 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.
Current report
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.
Current report
A prolonged U.S. federal government shutdown could materially and adversely affect our business and operations
Current report
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. 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. 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.
Current report
The ongoing refinement and integration of our ERP system could disrupt operations and adversely affect our internal control over financial reporting.
Current report
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. Modifications, upgrades, system integrations or changes in business processes may introduce errors, system downtime, or data inconsistencies.
Current report
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. 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.
Current report
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. Any material disruption or control failure associated with our ERP system could materially and adversely affect our business, financial condition and results of operations.
Current report
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.
Current report
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.
Current report
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. 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.
Current report
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. 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.
Current report
A cybersecurity incident, including one affecting our third-party service providers, could materially disrupt our operations, expose us to liability and subject us to mandatory public disclosure under SEC rules.
Current report
Our operations depend on the availability, integrity and security of our information technology systems and those of our third-party vendors. We face ongoing threats from ransomware, data exfiltration, business email compromise, insider threats and other sophisticated attacks. Because we integrate high-value AI-enabled hardware and maintain operational data relating to customers, we may be an attractive target for threat actors.
Current report
A significant cybersecurity incident could disrupt warehouse and integration operations, delay customer deliveries, impair billing and collections, or result in unauthorized access to confidential or proprietary information. Such an incident could expose us to contractual claims, indemnification obligations, litigation, regulatory inquiries, remediation costs and reputational harm. Disruptions affecting our ERP or financial systems could also impair our ability to timely process transactions or prepare financial reports.
Current report
In addition, under SEC rules, a cybersecurity incident determined to be material would require prompt public disclosure, which could increase volatility in the trading price of our common stock and heighten scrutiny from customers, regulators and investors. Although we maintain cybersecurity risk management processes, no system can eliminate all risks, and any material cybersecurity incident could materially and adversely affect our business, financial condition and results of operations.
Current report
We have identified a material weakness in our internal control over financial reporting. Our failure to establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements, our failure to meet our reporting obligations and cause investors to lose confidence in our reported financial information.
Current report
In connection with the preparation of our financial statements for the year ended December 31, 2024, and as discussed in Item 9A – “Controls and Procedures,” we identified a material weakness in our controls relating to the ineffective design of certain management review controls across the Company’s financial statements, leading to adjustments that were and could have been material to our 2024 consolidated financial statements. Due to the fact that our internal controls over financial reporting did not identify, prevent or detect these risks of material misstatements, we determined this indicated a material weakness in our internal controls over financial reporting at that date. We believe the root causes of the control deficiencies are primarily a number of manual processes in our closing process, combined with challenges in properly segregating duties due to the relatively small size of our accounting department, additional controls needed, and user access for certain information technology systems that support the Company’s financial reporting process.
Current report
While we have enacted a number of control enhancements to remediate this material weakness, we have not yet fully remediated all deficiencies that led to the conclusion that we had a material weakness. As a result, we continue to conclude that this material weakness remains at December 31, 2025.
Current report
Furthermore, we cannot provide any assurances that we have identified all material weaknesses. In the future, it is possible that additional material weaknesses or significant deficiencies may be identified that we may be unable to remediate timely. If we fail to maintain effective systems, controls and procedures, including disclosure controls and procedures and internal controls over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations and prevent fraud could be adversely impacted. While we have plans to remediate this material weakness, failure to achieve this goal effectively or in a timely manner could adversely impact our ability to maintain an effective internal control environment and our financial results.
Removed paragraphs (17)
Previous report
We derive a significant portion of our revenues from one customer.
Previous report
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 provide a range of different services and generate revenue from multiple business units and divisions of this OEM customer. 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. Revenues from this OEM customer comprised 99% and 96% of our total revenues in the years ended December 31, 2024 and 2023, respectively.
Previous report
We have a history of operating losses, and we may experience net losses in the future.
Previous report
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. 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. 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. The uncertainty of a rapidly changing marketplace and ongoing global supply challenges have created a volatile and challenging business climate, which may continue to negatively impact our customers and their spending and investment decisions. We may not be able to generate the level of revenue necessary to achieve and maintain sustainable profitability and a failure to maintain and grow our revenue volumes would adversely affect our business, financial condition and operating results.
Previous report
We are attempting to diversify our customer base but there is no guarantee that we will be successful in doing so.
Previous report
Revenues from our largest customer comprised 99% and 96% of our total revenues in the years ended December 31, 2024 and 2023, respectively. 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. We are also targeting other vendors in the modular data center market to leverage our expertise and capabilities in this marketplace. 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. 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.
Previous report
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.
Previous report
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. 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. 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. For financial reporting purposes, we began to use this new enterprise system as our system of record with effect from October 1, 2022. 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.
Previous report
The level of our procurement business may fluctuate significantly on a quarterly basis, requiring additional working capital to grow.
Previous report
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. We have been able to structure our procurement activities in such a way as to minimize their overall impact on our liquidity by using trade creditors as the primary way to finance these activities and the business has minimal costs in periods of low volume partially mitigating financial risk. However, depending on the size of potential procurement and reseller contracts, we may be required to procure material amounts of hardware, software, and professional services from other third parties and there can be no guarantee that our existing sources of liquidity or available trade finance will be sufficient to enable us to finance these transactions.
Previous report
Security breaches and attacks on our computer systems could lead to significant costs and disruptions that could harm our business, financial results and reputation.
Previous report
We are reliant upon a number of third-party and internally developed software programs to operate our business. We store and transmit our own as well as customer information and data, including individual data of and about their end-user customers. Maintaining the security and availability of our services, network and internal IT systems and the security of information we hold is a critical issue for us and our customers. Any software failure or corruption, including cyber-based attacks or network security breaches, could lead to the dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, customers and end-user customers, could threaten our ability to provide services to our customers, generate negative publicity about us, erode our customers’ confidence in our ability to handle their technology assets, result in litigation and increased legal liability or costs or lead to government inquiry or oversight. The occurrence of any of these events could harm our business or damage our brand and reputation, lead to the loss of customers and higher expenses, and possibly impede our present and future success in retaining and attracting new customers.
Previous report
A successful assault on our infrastructure could damage our reputation and could adversely affect our financial condition. Similar security risks exist with respect to our business partners and the third-party vendors we rely on for aspects of our information technology infrastructure, support services and administrative functions. As a result, we are subject to the risk that the activities of our business partners and third-party vendors may adversely affect our business even if an attack or breach does not directly impact our systems.
Previous report
Because we do not currently intend to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.
Previous report
We have never declared or paid any cash dividends on our common stock. 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. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors and will depend on factors our board of directors deems relevant, including, among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facility and other financing arrangements. Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which stockholders purchased their shares.
Previous report
Our insiders beneficially own a significant portion of our outstanding common stock. Future sales of common stock by these insiders may adversely affect the market price of our common stock.
Previous report
Our officers, directors and their affiliates beneficially own approximately 7.0 million shares of common stock or approximately 28% of our outstanding common shares as of March 30, 2025. Stock sales by our directors and officers are subject to compliance with our Code of Conduct and the preapproval process from the Chief Financial Officer. Sales of a substantial number of these shares in the public market could decrease the market price of our common stock. In addition, the perception that such sales might occur may cause the market price of our common stock to decline. Future issuances or sales of our common stock could have an adverse effect on the market price of our common stock.
Reworded paragraphs (16)
Previous wording
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.
Current wording
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.
Previous wording
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. 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. 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. Likewise, if we were to terminate the agreement other than due to the other party’s material breach of the agreement, they would be relieved of any further obligation. Either of these events would represent a material adverse effect on our results of operations, financial condition and cash flows.
Current wording
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 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. 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. Likewise, if we were to terminate the agreement other than due to the other party’s material breach of the agreement, they would be relieved of any further obligation. Either of these events would represent a material adverse effect on our results of operations, financial condition and cash flows.
Previous wording
A significant driver of our recently improved financial results is our AI rack integration services and the revenues and earnings driven by those services. Technology for AI computers continues to advance, and currently each new generation typically consumes more electrical power than preceding generations, which in turn requires even more electrical power and additional cooling equipment. 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. 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. 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.
Current wording
A significant driver of the growth in our revenue and earnings is our AI rack integration 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. We moved to a new building in 2025, primarily to secure access to the electrical power needed to perform our AI rack integration services. 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. The city has indicated they will be able to continue to increase the available power over time. 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. 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.
Previous wording
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. Many of the servers we integrate, other goods on which we provide configuration services and some products we procure for our customers have recently been made or assembled in countries subject to such tariffs. This introduces additional doubt as to whether our customers will be able to pass such costs onto their customers and as a result whether they can continue to sell such products at an acceptable profit. This, in turn, could materially and negatively affect our revenues, cash flows and financial position. Even if tariffs are ultimately lifted, temporary implementation of tariffs introduces doubt in the mind of buyers and causes disruptions in the supply chain that could introduce weeks or even months of delays in the ability to source parts and therefore similar delays in our ability to operate at full capacity, negatively impacting our earnings and financial position, and possibly even leading to cancelation of customer orders based on expected delays.
Current wording
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. Many of the servers we integrate, other goods on which we provide configuration services and some products we procure for our customers have recently been made or assembled in countries subject to such tariffs. This introduces additional doubt as to whether our customers will be able to pass such costs onto their customers and as a result whether they can continue to sell such products at an acceptable profit. This, in turn, could materially and negatively affect our revenues, cash flows and financial position. Even if tariffs are ultimately lifted, temporary implementation of tariffs introduces doubt in the mind of buyers and causes disruptions in the supply chain that could introduce weeks or even months of delays in the ability to source parts and therefore similar delays in our ability to operate at full capacity, negatively impacting our earnings and financial position, and possibly even leading to cancelation of customer orders based on expected delays.
Previous wording
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.
Current wording
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.
Previous wording
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. 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. 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. 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. This can also harm our liquidity position if we are forced to pay vendors for products and services before we have the ability to invoice and receive payment from our customers, which could also prevent us from performing additional procurement services for our customers or cause other liquidity concerns. 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.
Current wording
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. 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. 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. 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. This can also harm our liquidity position if we are forced to pay vendors for products and services before we have the ability to invoice and receive payment from our customers, which could also prevent us from performing additional procurement services for our customers or cause other liquidity concerns. 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.
Previous wording
We believe that our future success will depend in large part on our continued ability to attract and retain highly skilled, knowledgeable, sophisticated and qualified managerial, professional, and technical personnel. Our business involves the development of tailored solutions for customers, a process that relies heavily upon the expertise and services of employees. Accordingly, our employees are one of our most valuable resources. Competition for skilled personnel is intense in our industry. Recruiting and training these personnel requires substantial resources particularly when seeking qualified staff in remote locations where a number of our customers operate their data centers. 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.
Current wording
We believe that our future success will depend in large part on our continued ability to attract and retain highly skilled, knowledgeable, sophisticated and qualified managerial, professional, and technical personnel. Our business involves the development of tailored solutions for customers, a process that relies heavily upon the expertise and services of employees. Accordingly, our employees are one of our most valuable resources. Competition for skilled personnel is intense in our industry. Recruiting and training these personnel requires substantial resources particularly when seeking qualified staff in remote locations where a number of our customers operate their data centers. 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.
Previous wording
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. As a small company, we are particularly susceptible to negative impacts if critical and experienced personnel leave. 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. 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. If our total compensation programs, employment benefits, and overall workplace culture are not viewed as competitive, our ability to attract, retain and motivate employees could be compromised. To the extent we experience significant attrition or the loss of critical employees and are unable to replace employees in a timely manner, we could experience a loss of critical skills and reduced employee morale, potentially resulting in business disruptions or increased expenses to address any disruptions. 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.
Current wording
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. 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. 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 our total compensation programs, employment benefits, and overall workplace culture are not viewed as competitive, our ability to attract, retain and motivate employees could be compromised. To the extent we experience significant attrition or the loss of critical employees and are unable to replace employees in a timely manner, we could experience a loss of critical skills and reduced employee morale, potentially resulting in business disruptions or increased expenses to address any disruptions. 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.
Previous wording
Modular data centers (MDCs) typically have a lifespan of 6-10 years unless they are updated with new IT equipment. As they near the end of their useful life, customers can either perform maintenance to extend the MDCs' lifespan or terminate maintenance contracts for those MDCs. If customers terminate their annual maintenance contracts, it could negatively impact our maintenance revenues and profitability unless they replace the units with new MDCs. 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.
Current wording
Modular data centers (MDCs) typically have a lifespan of 6-10 years unless they are updated with new IT equipment. As they near the end of their useful life, customers can either perform maintenance to extend the MDCs' lifespan or terminate maintenance contracts for those MDCs. If customers terminate their annual maintenance contracts, it could negatively impact our maintenance revenues and profitability unless they replace the units with new MDCs. 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. 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. We anticipate a reversal of that trend, but there can be no assurance of such reversal, or the time frame in which it might occur.
Previous wording
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, and 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. Our size often prevents us from bidding on larger, more profitable projects, which significantly 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.
Current wording
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. 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. 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.
Previous wording
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. If one of our customers terminates a contract at its convenience, then we typically are able to recover only costs incurred or committed, settlement expenses and profit on work completed prior to termination, which could prevent us from recognizing all of our potential revenue and profit from that contract. If one of our customers terminates the contract due to our default, we could be liable for excess costs incurred by the customer in re-procuring services from another source, as well as other costs. Many of our contracts, including our service agreements, are periodically open to bid. We may not be the successful bidder on our existing contracts that are re-bid. We also provide a portion of our services on a non-recurring, project-by-project basis. 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. 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.
Current wording
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. If one of our customers terminates a contract at its convenience, then we typically are able to recover only costs incurred or committed, settlement expenses and profit on work completed prior to termination, which could prevent us from recognizing all of our potential revenue and profit from that contract. If one of our customers terminates the contract due to our default, we could be liable for excess costs incurred by the customer in re-procuring services from another source, as well as other costs. Many of our contracts, including our service agreements, are periodically open to bid. We may not be the successful bidder on our existing contracts that are re-bid. We also provide a portion of our services on a non-recurring, project-by-project basis. 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. 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.
Previous wording
We typically submit change orders under some of our contracts for payment of work performed beyond the initial contractual requirements. 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.
Current wording
We typically submit change orders under some of our contracts for payment of work performed beyond the initial contractual requirements. 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.
Previous wording
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. 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.
Current wording
Under some of our maintenance contracts, we provide limited warranties for the continued performance of equipment, including batteries and actuators used in MDCs. 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.
Previous wording
The mission-critical information technology industry is characterized by rapid technological change, intense competition and changing consumer and data center needs. We generate a significant portion of our revenues from customers in the mission-critical information technology industry. New technologies, or upgrades to existing technologies by customers, could reduce the need for our services and adversely affect our revenues and profitability. Improvements in existing technology may allow companies to improve their networks without physically upgrading them. 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.
Current wording
The mission-critical information technology industry is characterized by rapid technological change, intense competition and changing consumer and data center needs. We generate a significant portion of our revenues from customers in the mission-critical information technology industry. New technologies, or upgrades to existing technologies by customers, could reduce the need for our services and adversely affect our revenues and profitability. Improvements in existing technology may allow companies to improve their networks without physically upgrading them. 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.
Previous wording
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 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.
Current wording
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. 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.
Previous wording
In extreme cases, a subcontractor’s performance deficiency could result in the customer terminating the contract for default with us. A default termination could expose us to liability for excess costs of procurement by the customer and have a material adverse effect on our ability to compete for future contracts and task orders.
Current wording
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.