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Item 9A. Controls and Procedures

2024-03-15 compared with 2023-03-16 · 74 added, 77 removed, 79 unchanged (66% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.

Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company's reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of December 31, 2022 due to a material weakness identified and described below.

In light of the material weakness described below, management performed additional analysis and other procedures to ensure that our interim and annual consolidated financial statements were prepared in accordance with U.S.

Accordingly, management believes that the consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented, in accordance with U.S.

Our management, with the participation of our principal executive officer (our Chairman and Chief Executive Officer) and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2023.

Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that:

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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the guidelines established in the "Internal Control—Integrated Framework" (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on its assessment, management concluded that the Company's internal control over financial reporting was ineffective as of December 31, 2022 due to a material weakness in our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

The Company did not design and maintain effective controls over the assessment of the accounting for forfeitures of non-standard equity awards.

This material weakness resulted in immaterial errors to stock compensation expense for the interim periods ended March 31, 2022, June 30, 2022, and September 30, 2022.

These immaterial errors also resulted in a revision to previously issued quarterly financial statements for each of these periods.

Additionally, this material weakness could result in misstatements of the aforementioned account balances or disclosures that would result in a material misstatement to the Company's annual or interim consolidated financial statements that would not be prevented or detected.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, which has audited our consolidated financial statements, has also audited the effectiveness of our internal control over financial reporting as of December 31, 2022, and has issued an adverse opinion on the effectiveness of our internal control over financial reporting, as stated in their report, which is included in Item 8 of this Annual Report on Form 10-K.

Remediation of Material Weakness existing as of December 31, 2022

Our management has executed a plan to remediate the material weakness described above.

This plan includes the enhancement of existing processes and controls over the accounting for the forfeiture of non-standard equity awards.

The material weakness will be considered remediated when management concludes that, through testing, the applicable remedial controls are operating effectively.

Remediation of Previously Disclosed Material Weakness

We previously identified and disclosed in our 2021 Annual Report, as well as in our Quarterly Report on Form 10-Q filed for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022 certain material weaknesses in our control environment whereby the Company did not have adequate controls to sufficiently mitigate risks of material misstatement associated with the control environment and monitoring activities to prevent or detect material misstatements to the consolidated financial statements, information technology general controls, and certain business processes.

As of December 31, 2022, management has completed our remediation efforts of these material weaknesses.

Our remediation efforts included the following:

The Company hired additional experienced accounting personnel and implemented training of new and existing personnel on proper execution of designed control procedures;

The Company has enhanced processes, and designed and implemented internal controls around revenue recognition, software development costs, stock-based compensation, business combination, and financial close and reporting;

The Company has enhanced user access provisioning and monitoring controls to enforce appropriate system access and segregation of duties.

Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our management has assessed in its evaluation the effectiveness of our internal control over financial reporting as of December 31, 2023, and has concluded that our internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited our consolidated financial statements and our internal control over financial reporting, and the firm’s report on our internal control over financial reporting are included in Item 8 of this Annual Report on Form 10-K.

Although our management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, because of inherent limitations, our management does not expect that our internal controls over financial reporting will prevent or detect all errors and all fraud.

Also, projections of any evaluation of effectiveness in such assessment to future periods are subject to the risk that controls may be inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022, management identified a material weakness as of that date.

The material weakness identified as of December 31, 2022 was related to ineffective design and maintenance of controls over the assessment of the accounting for forfeiture of non-standard equity awards.

In response to the material weakness, we implemented changes to our internal control over financial reporting, which consisted primarily of enhancement of existing processes and controls over the accounting for the forfeiture of non-standard equity awards.

We have completed documentation of these corrective actions and, based on the evidence obtained in validating the design and operating effectiveness of the implemented control, we have concluded that the previously disclosed material weakness has been remediated as of March 31, 2023.

Changes in Internal Control over Financial Reporting

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Other Information

(b) During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers and Corporate Governance

Information required by this item regarding executive officers, directors and nominees for directors, including information with respect to our audit committee and audit committee financial expert, and the compliance of certain reporting persons with Section 16(a) of the Securities Exchange Act of 1934, as amended, will be included under Election of Directors, Biographical Information Concerning the Company's Executive Officers, Section 16(a) Beneficial Ownership Reporting Compliance, Corporate Governance, Independence of Directors, Board of Directors Nomination Process, Role in Risk Oversight, Meetings of the Board of Directors and Committees of the Board of Directors, as well as Audit Committee, Management Development and Compensation Committee, and Nominating and Corporate Governance Committee, in the Proxy Statement and is incorporated herein by reference.

Information required by this item regarding executive officers, directors and nominees for directors, including information with respect to our audit committee and audit committee financial expert, will be included under Election of Directors, Biographical Information Concerning the Company's Executive Officers, Corporate Governance, Independence of Directors, Board of Directors Nomination Process, Role in Risk Oversight, Meetings of the Board of Directors and Committees of the Board of Directors, as well as Audit Committee, Management Development and Compensation Committee, and Nominating and Corporate Governance Committee, in the Proxy Statement and is incorporated herein by reference.

Executive Compensation

22 unchanged sentences

The exhibit listed in the Exhibit Index immediately below are filed as part of this Annual Report on Form 10-K, or are incorporated by reference herein.

Exhibit Number Description of Exhibit

Second Articles of Amendment and Restatement of Telos Corporation dated November 12, 2020 (Incorporated by reference to Exhibit 3.

2 filed with the Company ' s Current Report on Form 8-K report on November 16, 2020)

Third Amended and Restated Bylaws of Telos Corporation, effective as of March 23, 2021 (Incorporated by reference to Exhibit 3.2 filed with the Company's Annual R eport on Form 10-K for the year ended December 31, 2020)

Description of our Capital Stock (Incorporated by reference to Exhibit 4.13 filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2021)

# Credit Agreement, dated January 25, 2017, among Telos Corporation, Xacta Corporation, ubIQuity.com, i nc., Teloworks, Inc., Enlightenment Capital Solutions Fund II, L.P., and the lenders party thereto (Incorporated by reference to Exhibit 4.1 to the Company ' s Current Report on Form 8-K filed on January 31, 2017)

# First Amendment to Credit Agreement, effective as of February 23, 2017, among Telos Corporation, Xacta Corporation, ubIQuity.com, i nc., Teloworks, Inc., Enlightenment Capital Solutions Fund II, L.P., and the lenders party thereto (Incorporated by reference to Exhibit 4.2 filed with the Company ' s Form 10-K report for the year ended December 31, 2016)

# Second Amendment to Credit Agreement, dated April 18, 2017, among Telos Corporation, Xacta Corporation, ubIQuity.com, i nc., Teloworks, Inc., Enlightenment Capital Solutions Fund II, L.P., and the lenders party thereto (Incorporated by reference to Exhibit 4.1 filed with the Company ' s Current Report on Form 8-K on April 24, 2017)

# Third Amendment to Credit Agreement and Waiver, dated March 30, 2018, among Telos Corporation, Xacta Corporation, ubIQuity.com, Inc., Teloworks, Inc., Enlightenment Capital Solutions Fund II, L.P., and the lenders party thereto (Incorporated by reference to Exhibit 4.10 filed with the Company ' s Form 10-K report for the year ended December 31, 2017)

# Fourth Amendment to Credit Agreement and Waiver;

First Amendment to Fee Letter between Telos Corporation and Enlightenment Capital Solutions Fund II, L.P.

dated July 19, 2019 (Incorporated by reference to Exhibit 99.1 filed with the Company ' s Current Report on Form 8-K on July 23, 2019)

# Fifth Amendment to Credit Agreement and Second Amendment to Fee Letter between Telos Corporation and Enlightenment Capital Solutions Fund II, L.P.

dated March 26, 2020 (Incorporated by reference to Exhibit 99.1 filed with the Company ' s Current Report on Form 8-K on March 30, 2020)

* Forms of Indemnification Agreement between the Company and 16 of its directors and executive officers (Incorporated by reference to Exhibit 10.1 filed with the Company's Form 10-Q for the quarter ended March 31, 2021)

* Form of Employment Agreement between the Company and two of its executive officers (Incorporated by reference to Exhibit 10.5 filed with the Company ' s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012)

Incorporated by Reference Herein

Exhibit Number Description of Exhibit Form/ Schedule Date Filed Exhibit Number

Second Articles of Amendment and Restatement of Telos Corporation dated November 12, 2020

8-K November 16, 2020 3.2

Fourth Amended and Restated Bylaws of Telos Corporation, effective as of November 7, 2023

8-K November 9, 2023 3.1

Description of our Capital Stock

10-K March 28, 2022 4.13

* Forms of Indemnification Agreement between the Company and 16 of its directors and executive officers

10-Q May 17, 2021 10.1

* Employment Agreement, dated as of September 17, 2012, between the Company and Mark Griffin

10-K April 1, 2013 10.23

* Second Amended Employment Agreement, dated as of November 12, 2012, between the Company and John B.

Wood (Incorporated by reference to Exhibit 10.1 filed with the Company ' s Quarterly Report on Form 10- Q for the quarter ended September 30, 2012)

* Executive Employment Agreement between Mark Bendza and the Company, dated as of July 19, 2021 (Incorporated by reference to Exhibit 10.1 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021)

10-Q November 14, 2012 10.1

* Executive Employment Agreement between Mark Bendza and the Company, dated as of July 19, 2021

10-Q August 16, 2021 10.1

* Executive Employment Agreement between E.

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and the Company, dated as of February 1, 2022

* Amendment to Employment Agreement, dated as of November 12, 2012, between the Company and Brendan D.

Malloy (Incorporated by reference to Exhibit 10.4 filed with the Company ' s Form 10-Q report for the quarter ended September 30, 2012)

* Annual Incentive Plan for 2022 (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K on February 28, 2022)

* Telos Corporation 2016 Omnibus Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 filed with the Company ' s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)

10-K March 16, 2023 10.5

* Annual Incentive Plan for 2022

8-K February 28, 2022 99.1

* Annual Incentive Plan, as amended

8-K September 20, 2023 99.1

* Telos Corporation 2016 Omnibus Long-Term Incentive Plan

10-Q August 15, 2016 10.3

* Amendment No.

1 to the 2016 Omnibus Long-Term Incentive Plan (Incorporated by reference to Exhibit 4.4 filed with the Company ' s Form S-8 on January 25, 2021)

* Notice of Grant of Restricted Stock (Incorporated by reference to Exhibit 10.4 filed with the Company ' s Form 10-Q report for the quarter ended June 30, 2016)

* The Company’s Annual Cash Incentive Plan for 2021 (Incorporated by reference to Exhibit 99.2 filed with the Company ' s Current Report on Form 8-K on November 12, 2020)

* Form of Restricted Share Unit Award Notice and Restricted Share or Restricted Share Unit Agreement (Time-Based) (Incorporated by reference to Exhibit 99.1 filed with the Company ' s Current Report on Form 8-K on February 3, 2021)

* Form of Restricted Share Unit Award Notice and Restricted Share or Restricted Share Unit Agreement (Performance-Based) (Incorporated by reference to Exhibit 99.2 filed with the Company ' s Current Report on Form 8-K on February 3, 2021)

Credit Agreement between, among others, Telos Corporation and JP Morgan Chase Bank (Incorporated by reference to Exhibit 99.1 filed with the Company's Current Report on Form 8-K on January 5, 2023

# Membership Interest Purchase Agreement, dated October 5, 2020 (Incorporated by reference to Exhibit 99.1 filed with the Company ' s Current Report on Form 8-K on October 6, 2020)

1 to the 2016 Omnibus Long-Term Incentive Plan

S-8 January 25, 2021 4.4

* Amendment No.

2 to the Telos Corporation 2016 Omnibus Long-Term Incentive Plan

DEF 14A March 28, 2023 A

* Notice of Grant of Restricted Stock

10-Q August 15, 2016 10.4

* Form of Restricted Share Unit Award Notice and Restricted Share or Restricted Share Unit Agreement (Time-Based)

8-K February 3, 2021 99.1

* Form of Restricted Share Unit Award Notice and Restricted Share or Restricted Share Unit Agreement (Performance-Based)

8-K February 3, 2021 99.2

* Form of Telos Corporation Notice of Grant of Option

10-Q August 9, 2023 10.1

* Form of Telos Corporation Notice of Grant of Restricted Shares and/or Restricted Share Units (Time-based)

10-Q August 9, 2023 10.2

Credit Agreement between, among others, Telos Corporation and JP Morgan Chase Bank

8-K January 5, 2023 99.1

First Amendment to Credit Agreement between, among others, Telos Corporation and JP Morgan Chase Bank, dated April 12, 2023

10-Q May 10, 2023 10.1

* constitutes a management contract or compensatory plan or arrangement

+ filed herewith

furnished herewith

Incorporated by Reference Herein

Exhibit Number Description of Exhibit Form/ Schedule Date Filed Exhibit Number

+ List of subsidiaries of Telos Corporation

+ Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

+ Consent of BDO USA LLP, Independent Registered Public Accounting Firm

+ Power of Attorney

+ Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

1 unchanged sentence

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

+ Policy Relating to Recovery of Erroneously Awarded Compensation

101.INS + XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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* constitutes a management contract or compensatory plan or arrangement

# Schedules and similar attachments omitted pursuant to Item 601(a)(5) of Regulation S-K.

The Company agrees to furnish a copy of any omitted schedules to the Securities and Exchange Commission upon request.

+ filed herewith

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David Borland Director

/s/ Bonnie L.

Carroll * March 16, 2023

Carroll Director

/s/ Bonnie Carroll March 15, 2024

Bonnie Carroll Director

/s/ Fredrick D.

Shaufeld * March 16, 2023

Shaufeld Director

Schaufeld March 15, 2024

Schaufeld Director

Maluda March 15, 2024

Maluda, Major Gen., USAF (Ret) Director

/s/ Bradley W.

Jacobs * March 16, 2023

Jacobs Director

/s/ Derrick Dockery * March 16, 2023

Derrick Dockery Director

* The above-named directors of the Registrant sign this Annual Report on Form 10-K by John B.

Wood, their attorney-in-fact, pursuant to Powers of Attorney signed by the above-named directors, which Powers of Attorney are filed with this Annual Report on Form 10-K in Exhibit 24, in the capacities indicated and on the 16th day of March, 2023.

/s/ John B Wood

Attorney-in-Fact

/s/ Brad Jacobs March 15, 2024

Brad Jacobs Director

/s/ Derrick D.

Dockery March 15, 2024

Dockery Director

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures