TSS, Inc. (TSSI)

CIK: 0001320760. SIC: 8742 Services-Management Consulting Services. Latest 10-K as of: 2026-03-18.

SIC breadcrumb: Services > SIC Major Group 87 > SIC 8742 Services-Management Consulting Services

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1320760. Latest filing source: 0001654954-26-002342.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-18. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001320760.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-07. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001320760.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001654954-26-004534.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high. Filing date: 2026-05-07. Report date: 2026-03-31.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Result of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of TSS, Inc. and its subsidiaries (collectively “we”, “us”, “our”, “TSS” or the “Company”). The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the condensed consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q and the consolidated financial statements and notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2025 included in our 2025 Annual Report on Form 10-K. This report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve risks and uncertainties. Our expectations with respect to future results of operations that may be embodied in oral and written forward-looking statements, including any forward-looking statements that may be included in this report, are subject to risks and uncertainties that must be considered when evaluating the likelihood of our realization of such expectations. Our actual results could differ materially. The words “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar phrases as they relate to us are intended to identify such forward-looking statements. In addition, please see the “Risk Factors” in Part 1, Item 1A of our 2025 Annual Report on Form 10-K for a discussion of items that may affect our future results. 

Overview

We provide 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. We provide a single source solution for enabling technologies in data centers, operations centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services consist of technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT procurement services. 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 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 recent years, these enterprises have shifted their investment priorities towards AI and accelerated computing infrastructure initiatives. 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. Ensuring adequate power and thermal management systems are implemented to support these new technologies while meeting increasingly stringent sustainability requirements is critical to a successful deployment. TSS exists to assist these operators in achieving these benefits over the life cycle of their IT investments.

Over the last ten years, we have optimized our business by providing world-class integration services to our customer base. 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 will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM (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.

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, most of our systems integration revenues reflect only the services we provide, and the consigned components are not reflected in our statement of operations or on our balance sheet. 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.

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. To support this level of production, and to be able to provide increased volumes over our prior facility, we moved our headquarters and production facility to a new location in May 2025. Through March 31, 2026, we have invested approximately $40 million in improvements to that leased facility, primarily to significantly increase the available electrical power and related cooling capabilities for both air-cooled and direct liquid cooled computer racks. 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 December 2025, we signed an amendment to the long-term agreement whereby both parties agreed to extend the term of the agreement for an additional two years beyond its original multi-year term, with automatic one-year renewals if not earlier terminated, and to provide pricing updates to account for increased power consumption and capital expenditures beyond the original expectations. 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. 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, the other party would be relieved of any further obligation. Funding sources for the build-out costs at the new facility include approximately $6.8 million contributed by our landlord, $25 million from two related bank term loans, and cash on hand. In December 2025, we repaid the second $5 million bank loan, and our current loan balance reflects the remaining balance on only the original $20 million loan.

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Customers continue to value our ability to procure 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 procurement services revenues will reflect only our fees earned in the transaction (“net deals”). 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.

Revenues consist of fees earned from the planning, design and project management for mission-critical facilities and information infrastructures, as well as fees earned from providing maintenance services for these facilities. We also earn revenues from providing system configuration and integration services, as well as procurement services, to IT equipment vendors. We began integration services on AI racks in June 2024 and have continued that activity to date. Currently we derive substantially all our revenue from the U.S. market.

We contract with our customers with various contract types: service and maintenance, time and material, and guaranteed maximum price contracts, all of which are fixed-price exclusive of time and material contracts. 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.

Most of our revenue is generated based on services provided either by our employees or subcontractors. To a lesser degree, the revenue we earn includes reimbursable travel and other costs to support the project. 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. 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. One of our customers reimbursed us for the majority of those investments. Prior to December 2025, we were amortizing that reimbursement into service integration revenues over the expected useful life of three years; the same period over which we were depreciating the related fixed assets. As the production of AI racks has now fully moved to our Georgetown facility and we no longer expect to utilize the assets installed in our Round Rock facility to support AI rack integration, we accelerated the revenue recognition and depreciation of those assets in the fourth quarter of 2025.

Our maintenance and integration services traditionally earn higher margins and maintenance contracts typically renew annually, providing consistency and predictability of revenues. We focus our design and project management services on smaller jobs typically connected with addition or retrofit activities to obtain better margins and a more predictable pattern of earnings than are typically seen when such efforts are concentrated in fewer high-value contracts for the construction of new data centers, which would otherwise require greater levels of working capital and tend to yield lower margins. We have also focused on providing maintenance services for MDC applications as this market has expa

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-03-18. Report date: 2025-12-31.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains statements that are forward-looking. These statements are based on expectations and assumptions that are subject to risks and uncertainties. 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.

In this section, we discuss the results of our operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.

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. We provide a single source solution for enabling technologies in data centers, operations centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services consist of technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT procurement services. 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 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 recent years, these enterprises have shifted their investment priorities towards AI and accelerated computing infrastructure initiatives. 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. Ensuring adequate power and thermal management systems are implemented to support these new technologies while meeting increasingly stringent sustainability requirements is critical to a successful deployment. TSS exists to assist these operators in achieving these benefits over the life cycle of their IT investments.

Over the last ten years, we have optimized our business by providing world-class integration services to our customer base. 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 will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM (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.

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. 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.

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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. To support this level of production, and to be able to provide increased volumes over our prior facility, we moved our headquarters and production facility to a new location in May 2025. Through December 31, 2025, we have invested approximately $40 million in improvements to that leased facility, primarily to significantly increase the available electrical power and related cooling capabilities for both air-cooled and direct liquid cooled computer racks. This is greater than the $20 million - $25 million we initially expected to invest in the facility, primarily in response to requests from our primary customer to increase the available power and cooling capabilities beyond the initial scope. 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 December 2025, we signed an amendment to the long-term agreement whereby both parties agreed to extend the term of the agreement for an additional two years beyond its original multi-year term, with automatic one-year renewals if not earlier terminated, and to provide pricing updates to account for increased power consumption and capital expenditures. 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. 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, the other party would be relieved of any further obligation. Funding sources for the build-out costs at the new facility include approximately $6.8 million contributed by our landlord, $25 million from two related bank term loans, and cash on hand. We borrowed the final $5 million under the term loan in the third quarter of 2025 and we received the $6.8 million of tenant improvement funds from our landlord in the fourth quarter of 2025. Those funds reimbursed us for capital expenditures we had previously funded using cash on hand. We paid down $5 million of our outstanding debt using previously restricted cash which was released in December 2025 pursuant to our debt agreement.

The volume of our strategic procurement services grew substantially in the year ended December 31, 2025 compared to the prior year. 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”). 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.

Our total revenues in 2025 were $245.7 million, a $97.6 million or 66% increase from our 2024 revenues of $148.1 million, with the majority of this increase coming from $80.0 million (68%) growth in our procurement business and $17.7 million (78%) growth in our systems integration businesses. The systems integration business growth was driven primarily by the significant increase in rack integration of AI-enabled computer racks. These increases were partially offset by a $0.1 million (1%) decrease in revenue from the facilities management segment, primarily due to a decrease in maintenance revenues largely offset by an increase in discrete projects.

The 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

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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 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. 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. If we experience periodic lulls in demand or if our customer has extended periods of inability to secure parts, we have agreed to seek opportunities to scale back a portion of our direct labor and temporary employees used in this activity, primarily in positions that can be refilled and retrained fairly quickly as demand or supply chain issues are resolved, and to in turn reduce the variable fees charged to our customer under this agreement. 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. 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. While gross profits in the systems integration business grew by 30%, the margins realized in that line of business decreased from 42% in 2024 to 31% in 2025. Margins in the facilities management segment remained robust and relatively constant at 60% in 2025 compared to 62% in 2024.

The 66% growth in total revenues, combined with the slight decrease in blended gross margins, translated to a 45% increase in gross profit from 2024 to 2025. Net of an increase in operating costs, primarily administrative costs, operating income increased by $0.6 million, or 10%. Due to our continued positive earnings, we determined it was more likely than not that we would be able to utilize our deferred tax assets and released almost all of the previously recognized valuation allowance. This release drove the $7.6 million income tax benefit, and in combination with our increased operating income and $1.1 million increase in interest income, contributed to a total growth in net income in 2025 of 153%. Net income for the year ended December 31, 2025 was $15.1 million compared to $6.0 million net income in the prior year. In prior periods, we reported our bank factoring fees in the “interest expense” caption on our income statements. In the current period, we began reporting bank factoring fees separately as a deduction when computing operating income, and interest expense now reflects only the interest expense related to our bank debt.

We ended 2025 with $85.5 million of cash on hand, an increase of $62.3 million from the balance at the end of 2024. This increase was driven by the $34.9 million of cash flow from operations during 2025, $9.8 million of net financing obtained from debt proceeds less payments made during the year, and $55.3 million from our public offering of common stock completed in August 2025. The increase in cash flow from operations was tied to the $15.1 million of net income, combined with timing differences on receipts from customers net of payments to vendors specifically in relation to an elevated level of procurement activity ongoing at year-end. 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.

Critical Accounting Policies and Estimates

We consider an accounting policy to be critical if:

·

the accounting estimate requires us to make assumptions about matters that are highly uncertain or require the use of judgment at the time we make that estimate; and

·

changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we could have reasonably used instead in the current period would have a material impact on our financial condition or results of operations.

Management has reviewed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed these disclosures. In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in these and other items could still have a material impact upon our financial statements.

Revenue Recognition

We recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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.

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Maintenance services

We generate maintenance services revenues from fees that provide our customers with as-needed maintenance and repair services on MDCs during the contract term. 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. 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 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.

Pursuant to a long-term agreement signed in 2024 and subsequent amendment signed in December 2025 and effective November 1, 2025, we also recognize revenue monthly at contractually based amounts for certain billable fixed and facility costs and trained staffing levels to support the weekly quantity of AI-enabled racks, with staffing fees reduced for any under-staffing. 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.

The amendment to this agreement signed in December 2025 adjusted pricing primarily to compensate us for the incremental capital investments and power costs that we incurred to meet the customer’s needs and extended the agreement by an additional two years past what was already a multi-year term, and automatic one year renewals after that unless either party elects to terminate it at the end of the initial term.

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. 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. In 2025, we were successful in collecting the $7,000 that was reserved in 2024, resulting in the removal of that reserve.

Equipment sales

We generate revenues under fixed price contracts from the sale of data center and related ancillary equipment or materials to customers in the United States. We recognize revenue when the product is shipped to the customer as that is when the customer obtains control of the promised goods and when we have completed our contractual obligations. 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.

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. 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 record accounts receivable at the time of completion when our right to consideration becomes unconditional. In an effort to further diversify our revenue streams, we offered the service of project-managing the movement of data center equipment in portions of 2024 and 2025. During 2025, we ceased offering this service as it proved to not meet our profit expectations.

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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. We recognize our procurement services revenues upon completion of the procurement activity or delivery of the completed product depending on the performance obligation. 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 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. 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”). 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. 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. 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. 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.

Remaining Performance Obligations and Deferred Revenue

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. For contracts that have an original duration of one year or less, we have elected the practical expedient applicable to such contracts and we do not disclose the transaction price for remaining performance obligations at the end of each reporting period and when we expect to recognize this revenue. As of December 31, 2025, total remaining performance obligations and deferred revenue, were $129 million. 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. This amount excludes variable consideration and is expected to be recognized ratably over the term of a long-term agreement.

Contract liabilities consisting of deferred revenues were $3,384,000 on December 31, 2024, and $3,370,000 on December 31, 2023. Substantially all of the recorded deferred revenues at December 31, 2024 and December 31, 2023 had been earned and recorded as revenues in the one year periods following those dates.

Depreciation of production-related fixed assets

Depreciation of fixed assets that are related specifically to revenue-generating activities is reported as a separate component of cost of revenues. As these amounts were immaterial in prior years, these costs were excluded from cost of revenues and included in Depreciation and Amortization in prior year presentations.

Intangible Assets

We recorded goodwill and intangible assets with definite lives, including customer relationships and acquired software, in conjunction with the acquisition of various businesses. 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. The recorded goodwill is allocated to the reporting unit to which the underlying transaction relates. 

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U. S. GAAP requires us to perform an impairment test of goodwill on an annual basis or whenever events or circumstances make it more likely than not that impairment of goodwill may have occurred. As part of the annual impairment test, we 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. If the carrying value exceeds the reporting unit’s fair value, we would recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. 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. 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. 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. On December 31, 2025, and 2024, the carrying value of goodwill was $0.8 million.

In any period with a reported value of intangible assets with definite lives, our policy is to review those intangible assets 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.  Our recorded intangible assets with definite lives were fully amortized at December 31, 2025 and 2024; accordingly, no such impairment review was necessary during 2024 or 2025. 

Allowance for Credit Losses

We estimate an allowance for credit losses based on factors related to the specific credit risk of each customer. Historically our credit losses have been minimal. We perform credit evaluations of new customers and may require prepayments or use of bank instruments such as trade letters of credit to mitigate credit risk. 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.

Stock Based Compensation

We account for stock-based compensation using a fair-value based recognition method. 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. 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 develop our estimates based on historical data and market information that can change significantly over time. A small change in estimates can have a relatively large change in the estimated valuation.

We use the Black-Scholes option valuation model to value employee stock option awards that are not performance-based awards. We estimate stock price volatility based upon our historical volatility. Estimated option life and forfeiture rate assumptions are derived from historical data. For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award. For stock-based compensation awards with graded vesting, we recognize compensation expense using the straight-line amortization method. 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. The cost basis of our inventory is reduced for any products that are considered excess or obsolete based on assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which could have a material adverse effect on the results of our operations.

Income Taxes

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets that are not more likely than not to be realized. We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. In completing our assessment of realizability of our deferred tax assets, we consider our history of income (loss) measured at pre-tax income (loss) adjusted for permanent book-tax differences on a jurisdictional basis, volatility in actual earnings, excess tax benefits related to stock-based compensation in recent prior years, and impacts of the timing of reversal of existing temporary differences. We also rely on our assessment of the Company’s projected future results of business operations, including uncertainty in future operating results relative to historical results, volatility in the market price of our common stock and its performance over time, variable macroeconomic conditions impacting our ability to forecast future taxable income, and changes in business that may affect the existence and magnitude of future taxable income. Our valuation allowance assessment is based on our best estimate of future results considering all available information.

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We are required to file income tax returns in the U.S. which requires us to interpret the applicable tax laws and regulations. Such returns are subject to audit by the various federal and state taxing authorities, who may disagree with respect to our tax positions. We believe that our consideration is adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. We review and update our estimates in light of changing facts and circumstances, such as the closing of a tax audit, the lapse of a statute of limitations or a change in estimate. To the extent that the final tax outcome of these matters differs from our expectations, such differences may impact income tax expense in the period in which such determination is made.

Results of Operations

In this section, we discuss the results of our operations for the year ended December 31, 2025 (the “current year” or “2025”) compared to the year ended December 31, 2024 (the “prior year” or “2024”). For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.

Revenue

Revenues consist of fees earned from the planning, design and project management for mission-critical facilities and information infrastructures, as well as fees earned from providing maintenance services for these facilities. We also earn revenues from providing system configuration and integration services, as well as procurement services, to IT equipment vendors. We began integration services on AI racks in June 2024 and have continued that activity to date. Currently we derive substantially all our revenue from the U.S. market.

We contract with our customers with various contract types: service and maintenance, time and material, and guaranteed maximum price contracts, all of which are fixed-price exclusive of time and material contracts. 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.

Most of our revenue is generated based on services provided either by our employees or subcontractors. To a lesser degree, the revenue we earn includes reimbursable travel and other costs to support the project. 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. 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. One of our customers reimbursed us for the majority of those investments. Prior to December 2025, we were amortizing that reimbursement into service integration revenues over the expected useful life of three years; the same period over which we were depreciating the related fixed assets. As the production of AI racks has now fully moved to our Georgetown facility and we no longer expect to utilize the assets installed in our Round Rock facility, we accelerated the revenue recognition and depreciation of those assets in the fourth quarter of 2025. The acceleration of recognition of the reimbursement amounted to approximately $0.8 million which is included in the 2025 systems integration revenues; the acceleration of depreciation of these assets amounted to $0.7 million, and is reported on the face of our income statement as “loss on sale or disposal of assets.” Our Round Rock facility is currently idle, as we seek additional business to utilize the space or to sublease the space if not used in our operations.

Our maintenance and integration services traditionally earn higher margins and maintenance contracts typically renew annually, providing consistency and predictability of revenues. We focus our design and project management services on smaller jobs typically connected with addition or retrofit activities to obtain better margins and a more predictable pattern of earnings than are typically seen when such efforts are concentrated in fewer high-value contracts for the construction of new data centers, which would otherwise require greater levels of working capital and tend to yield lower margins. 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.

Total revenues in 2025 increased 66% to $245.7 million. 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.

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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. 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. This 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 under the terms of this agreement, our customer could terminate the agreement if we were to materially breach the agreement, leaving us with the financial obligations of the facility 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 our customer’s material breach of the agreement, they would be relieved of any further obligation. If the customer were to terminate the agreement for convenience, they would continue to be obligated to pay us for the monthly fixed charge, but would no longer have any minimum volume commitments, as discussed below.

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. To mitigate the impact of demand fluctuations and supply-chain issues on our growing AI-enabled rack integration business, our primary customer has committed to pay us for maintaining staffing levels to support an agreed minimum weekly quantity of racks. 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. We contractually agreed to use commercially reasonable efforts to mitigate our customer’s costs for under-utilized staff, including during periods of extended lulls in demand or supply chain issues experienced by our customer. While any reduction in available staff reduces the revenues to which we are entitled under this agreement, we believe our long-term partnership with our customer is strengthened as we help them mitigate a portion of the costs for which they are responsible. 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. These supply chain disruptions periodically cause delays in the timing of systems integration revenue for us as we await delivery of required components, and our vendors and partners expect these supply-chain issues to continue for at least the next several quarters, though they appear to be improving in general. It is not yet known the extent to which tariffs currently threatened or imposed by the United States may or may not impact these supply chain issues.

To meet our customers’ evolving requirements for more powerful AI racks and greater cooling capabilities, we invested more in our facility than initially estimated and have increased the electrical power now available in our facility, which substantially increased minimum monthly charges from the local utility provider. From May through December 2025, we were charged a total of approximately $1.5 million of fixed power costs regardless of power actually consumed, plus variable charges for actual power consumption, and are currently incurring monthly fixed power charges of approximately $192,000, plus variable rates for power consumed. We made these additional capital and power investments during the current year with the expectation that they will help us generate greater revenues by increasing volume in future periods.

Among other things, the recent amendment to our long-term agreement allowed us to collect approximately $1.0 million of additional revenues in the fourth quarter of 2025 related to power and infrastructure costs we incurred primarily in the second and third quarters of 2025, but to which we did not previously have a contractual right, so such revenue recognition was deferred until the amendment was signed in December 2025.

Our procurement services involve us procuring third-party hardware, software and services on our customers’ behalf, some of which are then used in our integration services as we integrate those components to deliver a completed system to our customer. Because we are receiving these goods and transforming them, we recognize revenue for the gross value of these transactions and offsetting cost of sales for the components we purchase to fulfill the requests. We refer to these as “gross deals.” In some cases, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party and we have no control of the goods or services before they are transferred to the customer. In these instances, we are acting as an agent in the transaction and recognize revenue for only the amount of any fee or commission that we expect to be entitled to after paying the other party for the goods or services provided to the customer. 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.

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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. As much of our procurement business is ultimately related to federal government buying, we believe this can contribute to some seasonality of these revenues. As the federal government budget ends on September 30 each year, we believe this may generally lead to an increase in procurement revenues in the quarter ending September 30 each year and again in the quarter ending December 31 as federal agencies receive their budgets for the new year. However, we cannot accurately predict when other large procurement activity will occur, such as large purchases from our customers’ enterprise clients. Periodic government shutdowns also impact procurement activity. While the military continues to operate during periods of government shutdown, the placement of purchase orders often requires approval by civilian employees of the federal government who do not continue to work during shutdowns. We do not believe this causes a material loss of sales, but rather decreases our ability to predict when such revenues might be realized.

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.

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. We review these non-GAAP figures not as a substitute for the GAAP figures, but to help in our internal analysis of the underlying economics of each transaction as we do not believe the GAAP figures are as useful for that purpose as are the non-GAAP measures. We believe presentation of the gross value of procurement revenues is also helpful in forecasting and analyzing bank factoring costs of the related receivables, as the factoring fee is calculated based on the gross value of the transactions.

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. Under net deals we record only our agent fee as revenues, and as the total mix of deals has shifted more towards gross deals, the recorded revenue increased 68% from $117.5 million in 2024 to $197.5 million in 2025. Gross profit recognized on all procurement transactions increased 94% from $7.8 million to $15.2 million. These gross profit figures are exclusive of any related bank factoring charges.

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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. As mentioned previously, the procurement business can fluctuate widely from quarter to quarter, and the recorded revenues can fluctuate even more widely if there is a substantial shift between gross and net deals, even if the underlying economics between the two are relatively similar.

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. Our consolidated gross margin was 13% for the year ended December 31, 2025 compared to 15% for 2024. Gross margins for 2025 were 8% for the procurement business, 31% for the system integration business, and 60% for the facility 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.

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. Until we either sublease or find another productive use for our Round Rock facility, we will bear facility rent and related costs at two facilities. The annual cost of rent and related triple-net costs at the Round Rock facility approximate $1.4 million.

Since we earn higher profits when using our own labor, we expect gross margins to improve when our labor mix increases relative to the use of subcontracted labor or third-party labor. 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. In addition, we can face turnover and 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. 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.

A large portion of our revenue is derived from fixed price contracts. Under these contracts, we set the price of our services and assume the risk that the costs associated with our performance may be greater than we anticipated. Our profitability is therefore dependent upon our ability to accurately estimate the costs associated with our services. These costs may be affected by a variety of factors such as lower than anticipated productivity, conditions at the work sites differing materially from what was anticipated at the time we bid on the contract and higher than expected costs of materials and labor. 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. Following the significant capital investments recently made in our new Georgetown, Texas integration facility, we began in the current year reporting as a component of cost of revenues the depreciation related to revenue-generating activities. That depreciation classified as cost of revenue amounted to $2.7 million in the current year, with zero reported in the prior year.

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. As a percentage of gross profit, SG&A fees increased from 59% in 2024 to 64% in 2025, primarily due to higher non-cash equity-based compensation in the current year. 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.

Depreciation and Amortization Outside of Cost of Revenues

Depreciation and amortization not allocated to cost of revenues increased from $0.6 million in 2024 to $1.1 million in 2025 in line with the overall growth in the business and the larger Georgetown facility now fully operational.

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Bank Factoring Fees

Bank factoring fees increased from $2.7 million in the prior year period to $3.7 million in 2025. As a percentage of recorded revenues, factoring fees improved from 1.8% in 2024 to 1.5% in 2025. However, the basis on which we are charged factoring fees is the gross billings factored, which includes the amount of procurement revenues “netted” out for GAAP-basis procurement revenues, as presented in the table in the Non-GAAP Revenue, Gross Profit and Gross Margins section above. Calculated as a percentage of those gross billings on which we are charged, our bank factoring fees improved from 1.4% in 2024 to 1.1% in 2025. That is due primarily to lower prevailing interest rates in 2025 on which the charges are based, combined with a negotiated one-time $0.3 million reduction of 2025 fees for a bank system issue not expected to recur. During 2025, the bank that factors these receivables encountered a system issue that delayed certain payments to us. In an effort to maintain a good relationship with us, the bank agreed to waive $0.3 million of the factoring fees to which it was otherwise entitled. Excluding the benefit of that negotiated one-time credit which we do not expect to recur in future periods, factoring fees improved from 1.5% of factored billings in 2024 to 1.2% in 2025.

Loss on Sale or Disposal of Assets

As discussed above, we were reimbursed in 2024 approximately $1.7 million to enable our Round Rock facility to integrate AI computer racks for our largest OEM customer, and were amortizing that reimbursement into our systems integration revenues over the estimated three-year useful life of the assets. We were also deprecating the related fixed assets over that same three-year estimated useful life. At December 31, 2025 and following the move to our new integration facility, we determined it is no longer likely we will perform any integration activities in our Round Rock facility, and accordingly that there was no remaining utility to the majority of the reimbursed assets. Therefore, the remaining $0.7 million net book value of the fixed assets was charged as a “loss on sale or disposal of assets” at December 31, 2025. In the same period, we also accelerated recognition of approximately $0.8 million of the related reimbursement which is included in the 2025 systems integration revenues. We do not currently expect any similar loss on sale or disposal or acceleration of reimbursement recognition in future periods. Our Round Rock facility is currently idle, as we seek additional business to utilize the space or to sublease the space if not otherwise used in our operations.

Operating Income

Operating income was $6.3 million in 2025 compared to $5.8 million in 2024. While total operating costs grew 57% and gross profit grew 45%, operating income increased by 10%, or $0.6 million. The lesser growth in operating income was due in part to increased depreciation on the Georgetown facility and an impairment of assets held at the Round Rock facility that are no longer expected to be used.

The 66% growth in total revenues in 2025 compared to 2024, combined with the slight decrease in blended gross margins and $2.7 million of depreciation related to revenue-generation in 2025, drove a 45% increase in gross profit from 2024 to 2025. Net of an increase in operating costs, primarily administrative costs, combined with an increase in bank factoring fees on higher revenues and a loss on disposal of assets that was more than offset by incremental revenues, operating income increased by $0.6 million, or 10% for the full year.

Interest expense

In 2025, we recorded interest expense of $0.7 million related to the bank debt we incurred to finance a portion of the build-out of our new Georgetown facility. We had no such interest expense in 2024, as a smaller amount of debt was outstanding for only a single day in 2024 following signing of the construction loan on December 31, 2024 which converted into a term loan on July 5, 2025.

Interest income

Interest income increased from $0.6 million in 2024 to $1.7 million in 2025 primarily due to the larger cash balances held during the year. The larger cash balance held was driven by the $55.3 million net proceeds we realized from a public offering of our common stock in August 2025 combined with the growth in revenues in 2025. While we incurred additional bank factoring fees related to the increased revenues, the use of that factoring program also accelerates our collection of accounts receivable such that we typically receive payment from our largest customer (via the factoring program) 30-45 days before we are required to pay our vendors, providing us short-term use of incremental working capital on which we earn interest income.

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Other expense (income)

In the current period, we recorded $0.2 million of other income, compared to $0.2 million of other expense in 2024. As part of our move to Georgetown, Texas, we negotiated a one-time grant of $0.2 million from the local economic development committee tied to a variety of factors including the signing of a 10-year lease, adding a minimum amount of capital expenditures to that leased facility, and employing a certain number of individuals at a minimum compensation level. In the fourth quarter of 2025, the economic development committee verified our satisfaction of those obligations and paid us the one-time grant of $0.2 million, which was recorded as other income in the current year. We do not expect this credit to recur in future periods. However, in addition to the $0.2 million one-time grant, we also negotiated and were awarded certain tax incentives related to our move to Georgetown. For the next 10 years, the city agreed to reduce by 25% the real property taxes otherwise due on the capital improvements we made to the property, and to reduce buy 50% the taxes otherwise due on tangible personal property. We expect the benefit of these tax abatements will be reflected in future periods in our cost of revenues, where we currently record the majority of our property tax expenses.

Income tax expense

Due to a history of consolidated net operating losses, we had previously recorded a full valuation allowance against our deferred tax asset (“DTA”). The minimal income tax expense recorded in recent periods represented primarily Texas state franchise tax, with any federal taxes offset by a partial utilization of the DTA and related release of the offsetting valuation allowance. In light of our improved financial performance and expectation of continued generation of taxable income in future periods such that we now believe it is more likely than not that we will utilize the majority of our net DTA in future periods, we reversed in the quarter ended December 31, 2025 the majority of the valuation allowance we had previously recorded against our DTA. The small remaining valuation allowance relates primarily to DTAs for state taxes in states in which we no longer generate substantial revenues, such that we expect those state DTAs may expire before we are able to utilize them. Our current year income tax benefit of $7.6 million is comprised of a $7.9 million increase in the net recorded deferred tax asset driven by the release of the valuation allowance, partially offset by $0.3 million of income tax expense related to the current period operations. The tax expense related to current period operations is well below the federal 21% rate that might otherwise be expected primarily due to the immediate deduction allowed for much of the fixed asset additions in the current period as allowed under the “One Big Beautiful Bill Act” enacted in 2025.

Net Income

As a result of our increased operating income, improvements in net interest expense and other income, combined with the release of the valuation allowance on our DTA, net income for the year ended December 31, 2025 was $15.1 million, or $0.56 per diluted share compared to $6.0 million net income, or $0.24 per diluted share in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity on December 31, 2025 are our cash and cash equivalents on hand and projected cash flows from operating activities. In August 2025, we sold 3,450,000 shares under this shelf registration statement for a gross value of $55.7 million ($16.15 per share), resulting in net proceeds to the Company of $55.3 million after deducting $0.4 million of related issuance costs and substantially increasing our available liquidity and capital resources.

As discussed above, we moved to a new facility in 2025 and invested approximately $40 million in capital expenditures to build out that facility, $32.7 million of which was added in 2025. We financed those investments with cash on hand and two related loans from Susser Bank, totaling $25 million. Of that total, $8.7 million was drawn down in 2024, with the remaining $16.3 million borrowed in 2025. In the fourth quarter of 2025, the bank approved us repaying approximately $5 million of the loan balance with previously held restricted cash. Following the initial construction period during which we were required to pay only accrued interest, in July 2025, the loan converted to a fully amortizing term loan with a maturity date roughly approximating the original term of the long-term AI rack integration agreement we signed with our OEM customer in 2024 prior to extending that agreement in 2025. 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. We generally factor our receivables from that customer through a bank factor, so that we are paid within 2-3 days of invoicing rather than needing to wait the full term to receive funds. We believe this is an efficient program, as we estimate the effective annualized interest rate to utilize that program is less than the rate at which we could borrow funds. 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.

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 restriction was released in 2025 and applied as a paydown of the outstanding balance of our debt.

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Significant sources and uses of cash

Operating activities:

Cash provided by operating activities was $34.9 million in 2025, compared to $15.3 million of cash provided by operating activities in 2024. This change in cash provided by operating activities is due in large part to the timing of large AI rack integration and procurement deals near the end of 2025 which were not completed and that resulted in a net change in deferred revenues of $10.5 million. The next largest contributor to the growth in 2025 cash flow from operations was the improved net income, net of the non-cash reversal of the valuation allowance on our deferred tax asset, and $6.8 million of tenant improvement funds received from our landlord in November 2025.

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. 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.

Despite the recent improvements in our earnings, financial position and liquidity, there can be no assurance as to the Company’s ability to continue to operate profitably or to scale its business operations on terms upon which additional financing might be available. 

Investing activities:

Investing activities consisted of $32.7 million in 2025 primarily for the buildout of our leased integration facility and headquarters in Georgetown, Texas.

Financing activities:

Financing activities provided a net cash inflow of $60.2 million in 2025 compared to a net inflow of $4.6 million in 2024. In August 2025, we sold 3,450,000 shares of our common stock, netting cash inflows of $55.3 million after transaction costs, significantly increasing funds available to invest in future expansion and growth opportunities. In addition, we also received loan proceeds of $16.3 million to finance a portion of our Georgetown facility build-out. These cash inflows were partially offset by $6.6 million of debt repayments and $4.9 million of cash used to repurchase treasury stock from employees who opted to net-settle the vesting of restricted stock to satisfy tax obligations and the exercise price and tax withholding obligations when exercising stock options in 2025.

Future uses of cash

Our business plans and our assumptions around the adequacy of our liquidity are based on estimates regarding future revenues and costs and our ability to secure sources of funding when needed. However, our revenues may not meet our expectations, or our costs may exceed our estimates. Further, our estimates may change, and future events or developments may also affect our estimates. Any of these factors may change our 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. Any action to reduce operating costs may negatively affect our range of products and services that we offer or our ability to deliver such products and services, which could materially impact our financial results depending on the level of cost reductions taken.

Our primary liquidity and capital requirements are to fund working capital from current operations and to service our debt including principal payments of $4.0 million scheduled in the coming twelve months plus related interest payments. We also raised additional funds during 2025 in a public offering of our common stock primarily to provide funds that we may invest to further grow or expand our service offerings through either organic and inorganic opportunities, or a combination of both. 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. We believe that if future results do not meet expectations, we can implement reductions in selling, general and administrative expenses to better achieve profitability and therefore improve cash flows, or that we could take further steps such as the issuance of new equity or debt. However, the timing and effect of these steps may not completely alleviate a material effect on liquidity. We may also require additional capital if we seek to introduce a new line of business or if we seek to acquire additional businesses, further expand our facility, or operate both facilities. While we have no immediate plans to do so and there are no assurances that we could issue equity or other securities on terms that are satisfactory to us, we could raise an additional $94.3 million under our currently effective shelf registration statement to fund further growth, acquisitions or other needs.

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Off-Balance Sheet Arrangements

As of December 31, 2025 and December 31, 2024, we had no off-balance sheet arrangements.

New Accounting Pronouncements

See Note 1, Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.