TELOS CORP 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, we are exposed to a variety of financial risks, such as interest rate risk, foreign currency translation risk, and counterparty risk, which can affect our operations and profitability. Our cash and cash equivalents include highly liquid investments that have a maturity of three months or less at the date of purchase, and would not be significantly affected by increases or decreases in interest rates, mainly due to the short-term nature of these instruments. The majority of our business is transacted in U.S. dollars, and the impact of the foreign currency fluctuation as we report for our foreign subsidiary upon translation of its financials into U.S. dollars was insignificant. Further, we do not enter into financial instruments for trading or hedging purposes. 38 Table of Contents Item 8. Consolidated Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Telos Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Telos Corporation and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive loss, of changes in stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s 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 generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the 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. 39 Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition As described in Note 3 to the consolidated financial statements, the Company’s total revenue was $164.8 million for the year ended December 31, 2025. Revenue is recognized under a variety of contract types, including time and materials, firm-fixed price, firm fixed price level of effort, and cost-plus fixed fee contract types. Revenue is recognized using a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation, including costs incurred, labor hours expended, and, for firm-fixed price stand ready obligations, time-elapsed measures. The majority of revenue is recognized over time, as control is transferred continuously to customers who receive and consume the services performed by the Company. For performance obligations in which control does not continuously transfer to the customer, the Company recognizes revenue at the point in time in which the customer obtains control of the transferred product or service. The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to the Company’s revenue recognition. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process. These procedures also included, among others, (i) testing a sample of revenue recognized by obtaining and inspecting source documents, such as invoices, customer purchase orders, customer sales agreements, cost support, shipping documents, evidence of performance, customer acceptance support, and payment receipts from customers and (ii) confirming a sample of outstanding customer invoice balances as of December 31, 2025 and, for confirmations not returned, obtaining and inspecting source documents, such as invoices, customer purchase orders, customer sales agreements, shipping documents, and subsequent cash receipts. /s/ PricewaterhouseCoopers LLP Washington, District of Columbia March 16, 2026 We have served as the Company's auditor since 2022. 40 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2025 2024 (in thousands, except per share amounts) Revenue – services $ 136,544 $ 103,581 Revenue – products 28,261 4,691 Total revenue 164,805 108,272 Cost of sales – services (excluding impairment loss, depreciation and amortization) 74,791 59,271 Cost of sales – products (excluding impairment loss, depreciation and amortization) 20,817 2,835 Impairment loss on intangible assets — 5,333 Depreciation and amortization 8,180 6,404 Total cost of sales 103,788 73,843 Gross profit 61,017 34,429 Operating expenses: Research and development expenses 7,057 8,442 Selling, general and administrative expenses 78,925 75,487 Goodwill impairment 14,916 — Impairment loss on intangible assets — 6,373 Total operating expenses 100,898 90,302 Operating loss ( 39,881 ) ( 55,873 ) Other income 3,225 4,023 Interest expense ( 553 ) ( 644 ) Loss before income taxes ( 37,209 ) ( 52,494 ) Benefit from (provision for) income taxes 663 ( 26 ) Net loss $ ( 36,546 ) $ ( 52,520 ) Net loss per share: Basic $ ( 0.50 ) $ ( 0.73 ) Diluted $ ( 0.50 ) $ ( 0.73 ) Weighted-average shares outstanding: Basic 72,878 71,850 Diluted 72,878 71,850 See accompanying notes to consolidated financial statements. 41 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Year Ended December 31, 2025 2024 (in thousands) Net loss $ ( 36,546 ) $ ( 52,520 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ( 2 ) ( 8 ) Actuarial gain (loss) on pension liability adjustment 35 ( 61 ) Other comprehensive income (loss) 33 ( 69 ) Comprehensive loss $ ( 36,513 ) $ ( 52,589 ) See accompanying notes to consolidated financial statements. 42 Table of Contents TELOS CORPORATION CONSOLIDATED BALANCE SHEETS As of December 31, 2025 2024 (in thousands, except per share amount and share data) Assets: Cash and cash equivalents $ 53,180 $ 54,578 Accounts receivable, net 17,000 19,172 Prepaid expenses 10,565 15,092 Deferred program expenses 10,006 — Other current assets 3,662 2,576 Total current assets 94,413 91,418 Property and equipment, net 3,071 4,283 Finance lease right-of-use assets, net 4,170 5,391 Operating lease right-of-use assets 410 622 Goodwill 3,006 17,922 Intangible assets, net 30,281 30,410 Other assets 4,513 8,189 Total assets $ 139,864 $ 158,235 Liabilities and Stockholders' Equity: Liabilities: Accounts payable $ 4,087 $ 1,153 Accrued liabilities 6,900 4,449 Accrued compensation and benefits 12,309 7,608 Contract liabilities – current portion 11,223 6,838 Finance lease obligations – current portion 2,033 1,877 Operating lease obligations – current portion 232 210 Total current liabilities 36,784 22,135 Contract liabilities – non-current portion 1,124 — Finance lease obligations – non-current portion 5,608 7,641 Operating lease obligations – non-current portion 186 418 Deferred income taxes 53 813 Other liabilities 159 91 Total liabilities 43,914 31,098 Commitments and contingencies Stockholders' equity: Common stock, $ 0.001 par value, 250,000,000 shares authorized, 72,773,272 shares and 72,514,652 shares issued and outstanding as of December 31, 2025 and 2024, respectively 111 111 Additional paid-in capital 459,828 454,502 Accumulated other comprehensive loss ( 96 ) ( 129 ) Accumulated deficit ( 363,893 ) ( 327,347 ) Total stockholders' equity 95,950 127,137 Total liabilities and stockholders' equity $ 139,864 $ 158,235 See accompanying notes to consolidated financial statements. 43 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2025 2024 (in thousands) Cash flows from operating activities: Net loss $ ( 36,546 ) $ ( 52,520 ) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Stock-based compensation 30,150 21,411 Depreciation and amortization 11,451 11,867 Goodwill impairment 14,916 — Provision for (recovery from) doubtful accounts, net 2 ( 20 ) Benefit from deferred income taxes ( 760 ) — Loss (gain) on disposal of fixed assets 15 ( 9 ) Unrealized gain on fair value adjustment of investment ( 750 ) — Amortization of debt issuance costs 70 70 Provision for inventory obsolescence 418 108 Impairment loss on intangible assets — 11,706 Changes in other operating assets and liabilities: Accounts receivable 2,170 11,272 Prepaid expenses, deferred program expenses, other current assets and other assets ( 472 ) ( 11,926 ) Accounts payable 2,724 ( 7,121 ) Accrued compensation and benefits 650 ( 7,395 ) Contract liabilities 5,510 110 Accrued liabilities and other liabilities 634 ( 3,491 ) Net cash provided by (used in) operating activities 30,182 ( 25,938 ) Cash flows from investing activities: Capitalized software development costs ( 8,176 ) ( 11,505 ) Purchases of property and equipment, net ( 739 ) ( 2,252 ) Purchase of investment — ( 3,000 ) Net cash used in investing activities ( 8,915 ) ( 16,757 ) Cash flows from financing activities: Payments under finance lease obligations ( 1,877 ) ( 1,730 ) Payment of tax withholding related to net share settlement of equity awards ( 7,254 ) ( 457 ) Proceeds from exercise of stock options 108 203 Repurchase of common stock ( 13,627 ) — Payments for debt issuance costs ( 14 ) — Net cash used in financing activities ( 22,664 ) ( 1,984 ) Net change in cash, cash equivalents, and restricted cash ( 1,397 ) ( 44,679 ) Cash, cash equivalents and restricted cash, beginning of period 54,717 99,396 Cash, cash equivalents and restricted cash, end of period $ 53,320 $ 54,717 See accompanying notes to consolidated financial statements. 44 Table of Contents TELOS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Common Stock Additional Paid–in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Shares Amount (in thousands) Balance December 31, 2023 70,240 $ 109 $ 433,781 $ ( 60 ) $ ( 274,827 ) $ 159,003 Net loss — — — ( 52,520 ) ( 52,520 ) Foreign currency translation loss — — — ( 8 ) — ( 8 ) Actuarial loss on pension liability adjustment — — — ( 61 ) — ( 61 ) Stock-based compensation — — 19,359 — — 19,359 Restricted stock unit award vested, net of shares withheld to cover tax withholding 1,792 2 ( 459 ) — — ( 457 ) Issuance of common stock upon exercise of stock options 113 — 203 — — 203 Issuance of common stock for 401K match 370 — 1,618 — — 1,618 Balance December 31, 2024 72,515 111 454,502 ( 129 ) ( 327,347 ) 127,137 Net loss — — — — ( 36,546 ) ( 36,546 ) Foreign currency translation loss — — — ( 2 ) — ( 2 ) Actuarial gain on pension liability adjustment — — — 35 — 35 Stock-based compensation — — 24,036 — — 24,036 Restricted stock unit award vested, net of shares withheld to cover tax withholding 2,578 2 ( 7,256 ) — — ( 7,254 ) Issuance of common stock upon exercise of stock options 60 — 108 — — 108 Repurchase of common stock ( 3,108 ) ( 3 ) ( 13,624 ) — — ( 13,627 ) Issuance of common stock for 401K match 728 1 2,062 — — 2,063 Balance December 31, 2025 72,773 $ 111 $ 459,828 $ ( 96 ) $ ( 363,893 ) $ 95,950 See accompanying notes to consolidated financial statements. 45 Table of Contents TELOS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Telos Corporation, together with its subsidiaries (collectively, the "Company," "we," "our," or "Telos"), a Maryland corporation, is a leading provider of cyber, cloud and enterprise security solutions for the world's most security-conscious organizations. We own all of the issued and outstanding shares of Xacta Corporation and ubIQuity.com, inc. (a holding company for Xacta Corporation), and Teloworks, Inc. ("Teloworks"), and 100 % ownership interest in Telos Identity Management Solutions, LLC ("Telos ID"). On March 13, 2024, the Board of Directors unanimously approved the dissolution of Telos APAC Pte. Ltd. ("Telos APAC"), a pre-operating foreign subsidiary, pursuant to a plan of complete liquidation and dissolution. Telos APAC was dissolved on October 7, 2024. The dissolution of this subsidiary did not have a material impact on the Company's business, results of operations and financial condition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principle of Consolidation The accompanying consolidated financial statements include the accounts of Telos and its subsidiaries (see Note 1 – Organization ), all of whose issued and outstanding share capital is wholly owned directly and indirectly by the Telos Corporation. All intercompany transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Basis of Comparison Certain prior-period amounts have been reclassified to the current period presentation. In the current year, we reclassified "Accrued liabilities" as a separate line item on the consolidated balance sheets from "Accounts payable" and "Other current liabilities". In addition, we reclassified "Inventories, net," and presented them as part of "Other current assets" on the consolidated balance sheets. Use of Estimates The preparation of these consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual results could differ from those estimates. We base our estimates on historical experience, currently available information, and various other assumptions that we believe are reasonable under the circumstances. Management evaluates these estimates and assumptions on an ongoing basis, including, but not limited to, those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, income taxes including valuation allowance, certain assumptions related to stock-based compensation, fair value measurements, valuation and impairment of intangible assets and goodwill, useful lives and realizability of long-lived assets, restructuring expense accruals and contingencies. Actual results could differ from those estimates. The impact of changes in estimates is recorded in the period in which they become known. Concentrations Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. In consideration that a large amount of our working capital and total assets are held in cash and cash equivalents, we are exposed to credit risk in the event of default by the financial institutions to the extent of the amounts held in excess of federal insurance limits. Due to the financial strength and high credit quality of the financial institutions where the accounts are held, we do not believe that this credit risk makes it reasonably possible that a near-term severe impact risk of loss will occur. The Company's receivables are primarily due from the U.S. federal government, or from prime contractors to whom we are subcontractors and the end customer is the U.S. federal government, and are generally considered collectable from the perspective of the customer's ability to pay. We believe that the credit risk associated with our receivables is limited due to the creditworthiness of our customers. We maintain an allowance for estimated potential credit losses. 46 Table of Contents Cash, Cash Equivalents and Restricted Cash We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Restricted cash represents funds that are held in our money market account but precluded from use of general business needs through contractual requirements. We report our restricted cash balance within "Other assets" on the consolidated balance sheets, see Note 8 – Other Balance Sheet Components . Contract Balances The timing of revenue recognition may differ from the timing of billing and cash receipts from customers. Amounts are invoiced as work progresses, either at periodic intervals or upon achievement of contractual milestones. We record a contract asset when revenue is recognized prior to invoicing, or a contract liability when cash is received in advance or when milestone payments from customers exceed revenue earned to date. A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract liabilities include deferred revenue, customer advances and billings in excess of revenue. Contract assets and liabilities are recorded net on a contract-by-contract basis and are classified based on the contract's operating cycle at the end of each reporting period. Accounts Receivable Accounts receivable includes the following: Billed Receivables : Billed receivables are balances where an invoice has been prepared and issued and is collectible under standard contract terms. Where we anticipate that an invoice will be issued within a short period of time and where the funds are considered collectible within standard contract terms, we include this balance as billed accounts receivable. Unbilled Receivables : Unbilled receivables are balances that have not yet been billed due to timing, most commonly just a month delayed from the timing of revenue recognition and the actual bill being presented to the customer. The Company has fulfilled all requirements in order to bill the customer and collect the funds. Contract Assets: Contract assets are receivables for which the right to consideration is conditional upon factors other than the passage of time. The timing of these billings is generally driven by contractual terms, which may have billing milestones that are different from revenue recognition milestones. Both billed and unbilled balances are recorded at their face amount less an allowance for credit losses over the contractual payment terms of the receivable. Collectability of these amounts is periodically reviewed based upon management's knowledge and analysis of available information as of the balance sheet date, including any specific circumstances related to overdue balances, length of time that the receivable has been outstanding, historical bad debts and aging trends, and other general and contract specific factors. The allowance for credit losses is adjusted based on such evaluation. Accounts receivable balances are written off against the allowance when management deems the balances uncollectible. Our contract asset balance is recorded at the net amount expected to be billed for services performed once the objective criteria laid out by the contract has been met. Inventories Inventories are valued at the lower of cost or net realizable value, where cost is determined using the weighted-average method. The value of inventory is adjusted for damaged, obsolete, excess and slowing-moving inventory. Net realizable value of inventory is estimated based on the historical obsolescence experience and planned usage. If events or changes in circumstances indicate that the use of the inventories have diminished through obsolescence, damage, deterioration or other causes, a loss is recognized in the period in which it occurs. Inventories are substantially comprised of finished goods purchased for customers, such as off-the-shelf hardware and software, and component computer parts used in connection with system integration services that we perform. Deferred Program Expenses Deferred program expenses include direct contract costs identifiable with or allocable to a specific contract. These costs are capitalized as deferred program expenses when the costs are expected to be recovered over a period of time. These costs are amortized using the straight-line method over the expected contract period of performance or recognized upon delivery of the performance obligation. If the contract period of performance is beyond twelve months, we classify the cost as long-term and is included within "Other assets" on the consolidated balance sheets. 47 Table of Contents Business Combinations We evaluate acquisitions to determine whether it is a business combination or an asset acquisition and accounted for under U.S. GAAP using the acquisition method in accordance with ASC 805, Business Combinations . The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities, if any, is recorded as goodwill. The accounting for business combinations requires management to make judgments and estimates of the fair value of assets acquired, including the identification and valuation of intangible assets, as well as liabilities and contingencies assumed. Such judgments and estimates directly impact the amount of goodwill recognized in connection with an acquisition. Estimating the fair value of acquired assets and assumed liabilities, including intangibles, requires judgment about expected future cash flows, weighted-average cost of capital, discount rates and expected long-term growth rates. No business combinations occurred during the years ended December 31, 2025, and 2024. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation of furniture and equipment has been provided over the estimated useful lives of the respective assets (ranging from three to five years ) using the straight-line method. Leasehold improvements are amortized over the shorter of their useful life or the remaining terms of the lease. Repairs and maintenance costs are expensed as incurred. Major renewals and improvements are capitalized and depreciated over their estimated useful lives. Upon sale or retirement of property and equipment, the costs and related accumulated depreciation and amortization are eliminated from the accounts and any gain or loss on such disposition is reflected in the consolidated statements of operations. For the years ended December 31, 2025, and 2024, such amounts are negligible. Goodwill Goodwill is recorded for the difference between the aggregate consideration paid for an acquisition and the fair value of net tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for potential impairment at the reporting unit level on an annual basis, and more frequently if events or circumstances indicate that the carrying value of the reporting unit may not be recoverable, in accordance with ASC 350. Our policy is to perform our annual goodwill impairment evaluation as of December 31 each year. During fiscal year 2025, and 2024, we have two reporting units, respectively, for the purpose of testing goodwill for impairment. Goodwill is evaluated for impairment either under a qualitative assessment option or a quantitative approach, which depends on the facts and circumstances of a reporting unit. We may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If an impairment indicator exists based on the qualitative assessment, we perform the quantitative goodwill impairment test. When performing a quantitative impairment test, we calculate the estimated fair value of the reporting unit and compare the results with its respective carrying value, including goodwill. If the estimated fair value is determined to be less than the carrying value, we recognize an impairment loss equal to the difference between the reporting unit's fair value and the reporting unit's carrying value, up to the amount of goodwill associated with the reporting unit. The evaluation is based on the estimation of the fair values at the reporting unit level in comparison to the reporting unit's net asset-carrying values. The Company uses industry-accepted valuation models and set criteria that are reviewed and approved by management. We used the income approach (i.e., discounted cash flow ("DCF") method) to determine the estimated fair value. In the application of the income approach, the estimated fair value of the reporting unit is determined using a DCF analysis, which requires management's judgment with respect to forecasted revenue streams and operating margins, capital expenditures and the selection and use of an appropriate discount rate commensurate with the risk inherent in each of our reporting unit's current business model. We utilize the weighted average cost of capital as derived by certain assumptions specific to our facts and circumstances as the discount rate. Estimating the fair value involves the use of assumptions and significant judgments that are based on a number of factors, including actual operating results. A relatively small change in the underlying assumptions may cause a change in the results of the impairment assessment in future periods and, as such, could result in goodwill impairment. The Company's goodwill is amortized and deducted over a 15 -year period for tax purposes. See Note 6 – Goodwill for additional information. 48 Table of Contents Intangible Assets Intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives, which is generally over periods ranging from two to eight years. Impairment of Long-Lived Assets The Company evaluates its long-lived assets, including property and equipment, for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. If such evaluation indicates that the carrying amount of the asset exceeds its estimated future undiscounted cash flows or its estimated fair value, an impairment loss is recognized to reduce the asset's carrying amount to its estimated fair value. Considerable management judgment is necessary to estimate its fair value. Accordingly, actual results could differ from such estimates. No events have been identified that caused an evaluation of the recoverability of long-lived assets. In addition to the recoverability assessment, the Company routinely reviews the remaining lives of its long-lived assets. Any reduction in the useful life assumptions will result in increased depreciation or amortization expense in the period when such determinations are made, as well as in subsequent periods. There are no changes in the estimated useful lives of long-lived assets for the periods presented. Software Development Costs We account for development costs of software in accordance with ASC Topic 985-20 ("ASC 985-20"), "Software – Costs of Software to be Sold, Leased, or Marketed" and ASC Topic 350-40 ("ASC 350-40") "Internal Use Software," depending on the intended use of the software being developed. Under ASC 985-20, all costs of developing software prior to establishing its technological feasibility are research and development costs and are expensed as incurred. Once technological feasibility has been established, subsequent costs should be capitalized until the software begins to be marketed or is released to customers, after which the capitalized costs should be amortized and reviewed for impairment. Under ASC 350-40, we capitalize certain software development costs when the preliminary project stage is completed and the software has entered the application development stage. Once substantial testing is complete and the software is ready to be used, capitalization of costs ceases. Capitalized software development costs are amortized on a straight-line basis over the remaining estimated economic life of the software, ranging from two to five years , beginning when the asset is ready for its intended use. If the estimate of useful economic life is changed, the remaining carrying amount of the asset is amortized prospectively over the revised remaining economic life. ASC 350-40 also requires hosting arrangements that are service contracts to follow the guidance for internal-use software to determine which implementation costs can be capitalized. In accordance with ASC 350-40, (i) capitalized implementation costs are classified in the same balance sheet line item as the amounts prepaid for the related hosting arrangement, (ii) amortization of capitalized implementation costs is presented in the same income statement line item as the service fees for the related hosting arrangement, and (iii) cash flows related to capitalized implementation costs are presented within the same category of cash flow activity as the cash flow for the related hosting arrangements (i.e. operating activity). As of December 31, 2025, and 2024, the net carrying value of the capitalized implementation costs related to hosting arrangements that were incurred during the application development stage aggregated to $ 0.1 million and $ 0.2 million, respectively. These costs are related primarily to the implementation of a new enterprise resource planning system. The Company begins amortizing the capitalized implementation costs after all substantial testing is complete and ready for its intended use, and amortized over the expected term of the arrangement on a straight-line basis. Leases We determine if an arrangement is a lease and we account for leases in accordance with ASC Topic 842, "Leases." We entered into contractual arrangements primarily for the use of real estate facilities and certain other equipment. We determine the classification of the lease under these arrangements, if any, at inception based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether we have a right to direct the use of the asset. Leased property meeting certain criteria is capitalized at the present value of the related minimum lease payments. Amortization of a finance lease ROU asset is computed using the straight-line method over the lesser of the lease term or the useful life of the related asset. 49 Table of Contents In accordance with ASC 842, we recorded operating lease ROU assets, which represent our right to use an underlying asset for the lease term, and operating lease liabilities, which represent our obligation to make lease payments. Our operating leases are generally for equipment and office spaces. The amount of operating lease liabilities due within 12 months are recorded in other current liabilities, with the remaining operating lease liabilities recorded as non-current liabilities in our consolidated balance sheets based on their contractual due dates. The operating lease ROU assets and liabilities are recognized as of the lease commencement date at the present value of the lease payments over the lease term. On lease arrangements where leases include options to extend the term of the lease, we include the impact of the options on the lease term, when we are reasonably certain that we will exercise such options. Most of our leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate on all operating leases. Some of our operating leases contain lease and non-lease components, which we account for as a single component. Operating lease expense is recognized as rent expense on a straight-line basis over the lease term, and recorded within our consolidated statement of operations. The related lease payments on short-term lease arrangements (leases of one year or less) are recognized as expense on a straight-line basis over the lease term. ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets. ROU assets are assessed for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and the carrying amount of the assets exceeds its estimated fair value. Fair Value Measurements U.S. GAAP provides a framework for measuring fair value and expands disclosures about fair value measurements. The framework requires the valuation of investments using a three-tiered approach. The statement requires fair value measurement to be classified and disclosed in one of the following categories: • Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities; • Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or • Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). This hierarchy requires the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Except for the fair value of investment, the fair value of certain non-derivative financial instruments, including receivables, accounts payable and other accrued liabilities, approximates the carrying value due to the short-term nature of these instruments. See Note 8 – Other Balance Sheet Components for further details on investment. Accrued Liabilities Accrued liabilities represents incurred expenses but not yet invoiced or paid by the Company. These include, but not limited to, accruals related to projects, fees, taxes, employee benefits, restructuring expenses, and other services. Research and Development Research and development expenses consist primarily of employee-related expenses (such as salaries, taxes, benefits and stock-based compensation), allocated overhead costs and outside services costs related to the development and improvement of the Company's software. Research and development costs are generally expensed as incurred, except for costs incurred in connection with the development of software that qualify for capitalization as described in our software development costs policy. Amortization of capitalized software development costs, not charged under cost of sales, is also reported as part of research and development expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses include general and administrative expenses, as well as direct and indirect sales and marketing expenses. These costs consist primarily of compensation and benefits (including incentive-based compensation), advertising, facilities, and certain types of depreciation and amortization. Advertising Costs Advertising costs are expensed and included in selling, general and administrative expenses when incurred. Advertising expenses were $ 0.5 million and $ 0.7 million for the years ended December 31, 2025, and 2024, respectively. 50 Table of Contents Income Taxes We account for income taxes in accordance with ASC 740, "Income Taxes." Under ASC 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences and income tax credits. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates that are applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized for differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Any change in tax rates on deferred tax assets and liabilities is recognized in net income in the period in which the tax rate change is enacted. We record a valuation allowance that reduces deferred tax assets when it is "more likely than not" that deferred tax assets will not be realized. We follow the provisions of ASC 740 related to accounting for uncertainty in income taxes. The accounting estimates related to liabilities for uncertain tax positions require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If we determine it is more likely than not that a tax position will be sustained based on its technical merits, we record the impact of the position in our consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. We are also required to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to our unrecognized tax benefits will occur during the next 12 months. On July 4, 2025, the OBBBA was enacted into law, including significant amendments to the Internal Revenue Code. The OBBBA imposes various changes to U.S. federal income tax regulations, such as restoring bonus depreciation, and removing the requirement to capitalize and amortize domestic research and development expenditures. The OBBBA also included certain modifications to the Inflation Reduction Act of 2022, including the repeal or acceleration of the sunsetting of certain tax credits and the elimination of certain penalties for violations of certain regulatory credit programs. The legislation has multiple effective dates, with certain provisions effective in 2025 and other implemented through 2027. The enactment of these provisions did not have a material impact on our audited consolidated financial statements. Stock-Based Compensation The Company grants stock-based compensation awards under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the "2016 LTIP"). Our 2016 LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock and dividend equivalent rights to our senior executives, directors, employees, and other eligible service providers. The stock options granted under the 2016 LTIP expire no more than 10 years after the date of grant. The Company has granted stock options, restricted stock units with time-based vesting ("RSUs"), and restricted stock units with performance-based vesting ("PSUs"). Awards granted under the 2016 LTIP vest over the periods determined by the Board of Directors or the Compensation Committee of the Board of Directors, which has the discretion to establish the terms, conditions and criteria of the various awards. • RSUs vest in installments over a period of up to three years from the date of grant. The grant date fair value per share is equal to the closing stock price on the date of grant. • PSUs vest upon the achievement of a defined performance target, or market conditions for the Company's common stock, or certain operational milestones over a prescribed period. The fair value per share of these PSUs is equal to the closing stock price on the date of the grant, or the fair value of the award on the grant date as determined through an independent valuation for PSUs with market conditions. For the Company's stock-based compensation awards subject to market conditions, the grant date fair value per share is based on a Monte Carlo simulation method. The Company estimates the fair value of stock options on the date of the grant using an option pricing model. The option pricing model takes into consideration the current share price of the underlying common stock, exercise price of the option, expected term, risk-free interest rate and the volatility of share price. These considerations directly affect the amount of compensation expense that will ultimately be recognized. 51 Table of Contents The stock-based compensation expense for an award is recognized ratably over the requisite service period, which is generally the vesting period during which an employee is required to provide service in exchange for an award. Stock-based compensation expense for awards with performance conditions is estimated at each reporting date using management's expectation of the probable achievement of the specified performance targets and recognized over the requisite service period for each tranche on a graded-vesting basis. If such performance conditions are not or are no longer considered probable, no compensation expense for these awards is recognized, and any previously recognized expense is reversed. If the performance condition is achieved prior to the completion of the requisite service period, any unrecognized compensation expense will be recognized in the period the performance condition is achieved. Compensation expense for PSUs with market conditions is recognized based on the grant date fair value calculated over the derived service period as determined through the Monte Carlo simulation model, or sooner if the market condition is achieved. Previously recognized expense for awards with market conditions will never be reversed subsequent to completion of the derived service period even if the market conditions are never achieved. We recognize forfeitures of stock-based compensation awards as they occur. Stock-based compensation expense is recognized as part of the cost of sales and operating expenses in our consolidated statements of operations. The Company records stock-based compensation related to accrued compensation in which it intends to settle in shares of the Company's common stock. However, it is the Company's discretion whether this compensation will ultimately be paid in stock or cash, as it has the right to dictate the form of these payments up until the date they are paid. Net (Loss) Earnings per Share Basic net (loss) earnings per share is computed by dividing the net (loss) earnings by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net (loss) earnings per share is computed by dividing the net (loss) earnings by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of unvested restricted common stock. Other Comprehensive (Loss) Income For one of our wholly-owned subsidiaries, the functional currency is the local currency. For this subsidiary, the translation of its foreign currency into U.S. dollars is performed for assets and liabilities using current foreign currency exchange rates in effect at the balance sheet date and for revenue and expense accounts using average foreign currency exchange rate during the periods presented. Translation gains and losses are included in stockholders' equity as a component of accumulated other comprehensive (loss) income. Restructuring Expenses The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. The Company accounts for ongoing benefit arrangements, such as those documented by employment agreements, in accordance with ASC 712 ("ASC 712"), "Compensation – Nonretirement Postemployment Benefits." Under ASC 712, liabilities for postemployment benefits are recorded at the time of obligations are probable of being incurred and can be reasonably estimated. When applicable, the Company records such costs into operating expenses . From time to time, the Company initiates restructuring activities to execute management's strategy and optimize its cost structure. Restructuring activities may include streamlining its workforce or realignment of resources to support its business strategies and enhance operational efficiency. 2022 Restructuring Plan In the fourth quarter of 2022, the Company committed to a restructuring plan to streamline its workforce and spending to better align its cost structure with its volume of business ("2022 restructuring"). The 2022 restructuring plan reduced the Company's workforce, with a majority of the affected employees separating from the business in early 2023. The actions under the 2022 restructuring plan were substantially completed in fiscal year 2023, and were fully paid in the third quarter of 2024. Total restructuring expenses incurred under the 2022 restructuring plan were $ 3.9 million. 2024 Restructuring Plan In the third quarter of 2024, the Company undertook another restructuring action in an effort to optimize its strategic priorities and cost structure ("2024 restructuring"). As part of the 2024 restructuring plan, the Company decided to discontinue the development and/or sale of selected solutions or parts of solutions, which resulted in the impairment of capitalized software assets and a reduction in workforce. The cumulative amount of incurred severance and benefit costs related to the 2024 restructuring plan was $ 1.3 million, of which $ 0.2 million was allocated to the Security Solutions segment and $ 0.1 million was allocated to the Secure Networks segment. The 2024 restructuring actions were substantially completed in fiscal year 2024, and were fully paid in early fiscal year 2025. 52 Table of Contents In addition, as a result of the Company's decision to abandon the development or sale of selected solutions in the third quarter of 2024, the Company wrote off $ 6.4 million of its previously capitalized software assets. This was reported as an impairment loss on intangible assets under operating expenses on the consolidated statement of operations. 2025 Restructuring Plan In the fourth quarter of 2025, the Company committed to another restructuring plan as part of its efforts to streamline operations and to align people, roles and projects to our strategic priorities ("2025 restructuring"). The 2025 restructuring plan resulted in a workforce reduction and certain inventory write-offs. During the year-ended December 31, 2025, the Company recorded approximately $ 1.5 million of restructuring related charges, the majority of which relates to employee severance and benefit charges. Of this amount, $ 0.4 million was allocated to the Security Solutions segment and $ 0.1 million was allocated to the Secure Networks segment. Table 2.1: Summary of Restructuring Expenses and Impairment Loss Statements of Operations For the Year Ended December 31, 2025 2024 (in thousands) Severance and related benefit costs Cost of sales $ 444 $ 341 Other related costs (1) Cost of sales 50 — Severance and related benefit costs R&D, SG&A 1,007 929 Total restructuring expenses 1,501 1,270 Impairment of intangible assets (2) Impairment loss on intangible assets — 6,373 Total restructuring expenses and impairment loss $ 1,501 $ 7,643 (1) Other related costs consist of a non-cash inventory write-off related to the implementation of the 2025 restructuring plan. (2) The recoverability evaluation of intangible assets in 2024 resulted in an $ 11.7 million impairment loss, of which $ 5.3 million was recorded under cost of sales for the discontinued parts of certain solutions, and $ 6.4 million was recorded under operating expenses as a result of the restructuring plan (see Note 7 - Intangible Assets, Net ). At each reporting date, the Company evaluates its restructuring expense accrual to determine if the liabilities reported are still appropriate. Any changes in the estimated costs of executing the approved restructuring plan are reflected in the Company's consolidated statements of operations. Table 2.2: Summary of Changes in Restructuring Expenses Accrual For the Year Ended December 31, 2025 2024 (in thousands) Severance and related benefit costs (1) : Balance at beginning of year $ 37 $ 400 Expenses, excluding non-cash costs 1,451 1,270 Cash payments ( 37 ) ( 1,633 ) Balance at end of year $ 1,451 $ 37 (1) Restructuring expenses accrual is reported as part of "Accrued liabilities" in the Company's consolidated balance sheets, see Note 8 - Other Balance Sheet Components for further details. Recent Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosure," which requires public entities, on an annual basis, (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income/(loss) by the applicable statutory income tax rate). This ASU was effective, for public entities, for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the enhanced income taxes disclosure requirement in December 2025, on a retrospective basis (see Note 14 – Income Taxes ). The adoption of this standard only affected our disclosures, with no impact on our consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statement of operations, as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application. All public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are in the process of assessing the impact of the adoption of this ASU on our consolidated financial statements. 53 Table of Contents In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivables and Contract Assets.” This standard provides simplified guidance on measuring credit losses for accounts receivable and contract assets. The update introduces a practical expedient and an accounting policy election to ease the process. All entities can elect the practical expedient to assume that the current economic conditions at the balance sheet date will remain constant through the life of the current receivables and contract assets. Entities that elect the practical expedient and the accounting policy election should apply the amendments in this ASU prospectively. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements. In September 2025, the FASB issued ASU 2025-06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting of Internal-Use Software." This standard provides a simplified, consistent way to track expenses related to software developed for internal use. The amendments in this standard removed all references to project stages; instead, a company can capitalize software costs once both conditions are met: the entity's management has authorized and committed to funding the project, and it is probable that the project will be completed and the software will be used as intended. The amendments will be effective for annual reporting periods, including interim periods within those years, beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements. In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements," which was intended to improve the navigability of the guidance in ASC 270 and clarify when it applies. Public entities are required to adopt the guidance for interim reporting periods within annual reporting period beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements. In December 2025, the FASB issued ASU 2025-12, "Codification Improvement." This ASU includes a number of improvements that span a wide range of topics, which includes amendments on the following provisions, among other things, (1) clarify diluted EPS calculation when a loss from continuing operation exists; (2) revising the calculation of the reference amount for beneficial interests to prevent double counting credit losses; (3) clarify the permissible methods to account for treasury stock retirements; and (4) clarify the guidance for transfers of receivables from contracts with customers. The standard will be effective for annual reporting periods beginning after December 31, 2026, and interim reporting periods within those annual reporting periods, which early adoption permitted. We are currently assessing the impact of adopting this ASU on our consolidated financial statements. From time to time, new accounting standards are issued by the FASB or other standard-setting bodies and are adopted by the Company as of the specified accounting date. Unless otherwise discussed, the Company believes that issued standards not yet effective will not have a material effect on the Company's consolidated financial statements. 3. REVENUE RECOGNITION We recognize revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers." The unit of account in ASC 606 is a performance obligation, which is a promise in a contract with a customer to transfer a good or service to the customer. Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms. Our contracts may have a single performance obligation or multiple performance obligations. When there are multiple performance obligations within a contract, we allocate the transaction price, net of any discounts, to each performance obligation based on the standalone selling price of the product or service underlying each performance obligation. Our contracts with the U.S. federal government are generally subject to the Federal Acquisition Regulation ("FAR") and the price is typically based on estimated or actual costs plus a reasonable profit margin. As such, the standalone selling price of products or services in our contracts with the U.S. federal government is typically equal to the selling price stated in the contract. For non-U.S. federal government contracts with multiple performance obligations, the standalone selling price is the observable price of a good or service when the Company sells that good or service separately in similar circumstances and to similar customers. Contracts are routinely and often modified to account for changes in contract requirements, specifications, quantities, or price. Depending on the nature of the modification, we determine whether to account for the modification as an adjustment to the existing contract or as a new contract. Generally, modifications are not distinct from the existing contract due to the significant interrelatedness of the performance obligations and are therefore accounted for as an adjustment to the existing contract, and recognized as a cumulative adjustment to revenue (as either an increase or reduction of revenue) based on the modification's effect on progress toward completion of a performance obligation. If contract modifications add distinct goods or services and increases the contract value by an amount that reflects the standalone selling price, those modifications are accounted for as separate contracts. 54 Table of Contents The majority of our revenue is recognized over time, as control is periodically transferred to our customers, who receive and consume benefits as we perform. Revenue transferred to customers over time accounted for 72.0 % and 81.3 % of our revenue for the years ended December 31, 2025, and 2024, respectively. For performance obligations in which control does not periodically transfer to the customer, we recognize revenue at the point in time in which each performance obligation is fully satisfied. This coincides with the point in time the customer obtains control of the transferred product or service, which typically occurs upon customer acceptance or receipt of the product or service, given that we maintain control of the product or service until that point. Revenue transferred to customers at a point in time accounted for 28.0 % and 18.7 % of our revenue for the years ended December 31, 2025, and 2024, respectively. The change in revenue mix for the year ended December 31, 2025, as compared to the prior year, was primarily driven by an increase in product sales volume from a successful ramp-up of a significant program. We perform under various types of contract types, including time and materials, firm-fixed-price, firm-fixed-price level of effort, and cost-plus fixed-fee contract types, which may include variable consideration. Revenue is recognized using a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation; including cost incurred, labor hours expended, and time-elapsed measures for our fixed-price stand ready obligations. For certain contracts, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in our contracts with U.S. federal government customers whereby the customer may terminate a contract for convenience and then pay for costs incurred plus a profit, at which time the customer would take control of any work in process. For non-U.S. federal government contracts where we perform as a subcontractor and our order includes similar FAR provisions as the prime contractor's order from the U.S. federal government, continuous transfer of control is likewise supported by such provisions. For other non-U.S. federal government customers, continuous transfer of control to such customers is also supported due to general terms in our contracts and rights to recover damages, which would include, among other potential damages, the right to payment for our work performed to date plus a reasonable profit. Orders for the sale of software licenses may contain multiple performance obligations, such as maintenance, training, or consulting services, which are typically delivered over time, consistent with the transfer of control disclosed above for the provision of services. When an order contains multiple performance obligations, we allocate the transaction price to the performance obligations based on the standalone selling price of the product or service underlying each performance obligation. The standalone selling price represents the amount we would sell the product or service to a customer on a standalone basis. For certain performance obligations where we are not primarily responsible for fulfilling the promise to provide the goods or services to the customer, do not have inventory risk and have limited discretion in establishing the price for the goods or services, we recognize revenue on a net basis. Contract Estimates Due to the transfer of control over time, revenue is recognized based on progress towards completion of the performance obligation. The selection of the method to measure progress toward completion requires judgment and is based on the nature of the performance obligations. We generally use the cost-to-cost measure of progress on a proportional performance basis for our long-term contracts because it best depicts the transfer of control to the customer, which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation, which includes both the actual costs already incurred and the estimated costs to complete. Revenues are recorded proportionally as costs are incurred. Due to the nature of the work required to be performed on certain of our performance obligations, the estimation of costs at completion is complex, subject to many variables and requires significant judgment. Contract estimates are based on various assumptions, including labor and subcontractor costs, materials and other direct costs and the complexity of the work to be performed. A significant change in one or more of these estimates could affect the profitability of our contracts. We review and update our contract-related estimates regularly and recognize adjustments in estimated profit on contracts on a cumulative catch-up basis, which may result in an adjustment increasing or decreasing revenue to date on a contract in a particular period that the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. Our contracts may include various types of variable consideration and may include estimated amounts in the transaction price, based on all of the information available to us, and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when any uncertainty associated with the variable consideration is resolved. We evaluate and include these estimated amounts of variable consideration in the transaction price and as performance on these contracts is complete, we adjust our revenue when deemed necessary. No revenue adjustment was recorded during the year ended December 31, 2025. An immaterial revenue adjustment was recorded during fiscal year ended December 31, 2024. 55 Table of Contents We provide for anticipated losses on contracts during the period when the loss is determined by recording an expense for the total expected costs that exceeds the total estimated revenue for a performance obligation. We recorded an immaterial contract loss during the year ended December 31, 2025. No contract loss was recorded during the year ended December 31, 2024. Historically, most of our contracts do not include award or incentive fees. For incentive fees, we would include such fees in the transaction price to the extent we could reasonably estimate the amount of the fee. With limited historical experience, we have not included any revenue related to incentive fees in our estimated transaction prices. We may include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. We consider the contractual/legal basis for the claim (in particular FAR provisions), the facts and circumstances around any additional costs incurred, the reasonableness of those costs and the objective evidence available to support such claims. For our contracts that have an original duration of one year or less, we use the practical expedient applicable to such contracts and do not consider the time value of money. We capitalize sales commissions related to proprietary software and related services that are directly tied to sales. We do not elect the practical expedient to expense as incurred the incremental costs of obtaining a contract if the amortization period would have been one year or less. For the sales commissions that are capitalized, we amortize the asset over the expected customer life, which is based on recent and historical data. Disaggregated Revenues In addition to our segment reporting, as further discussed in Note 1 6 – Segment Information , we disaggregate our revenue by customer and contract types. We treat sales to U.S. customers as sales within the U.S. regardless of where the services are performed. Substantially all of our revenues are generated from U.S. customers, while international customers are de minimis; as such the financial information by geographic location is not presented. Table 3.1: Revenue by Customer Type For the Year Ended December 31, 2025 2024 Amount % Amount % (dollars in thousands) Federal government $ 150,038 91.0 % $ 94,951 87.7 % State & local government, and commercial 14,767 9.0 % 13,321 12.3 % Total revenue $ 164,805 $ 108,272 Table 3.2: Revenue by Contract Type For the Year Ended December 31, 2025 2024 Amount % Amount % (dollars in thousands) Firm fixed-price $ 120,811 73.3 % $ 81,541 75.3 % Time-and-materials 35,861 21.8 % 15,839 14.6 % Cost plus fixed-fee 8,133 4.9 % 10,892 10.1 % Total revenue $ 164,805 $ 108,272 A majority of the Company's revenue was derived under prime contracts and subcontracts with agencies and departments of the U.S. federal government. No other customer accounted for 10% or more of the Company's revenue during fiscal years ended December 31, 2025, and 2024. Table 3.3: Revenue Concentrations Greater than 10% of Total Revenue For the Year Ended December 31, 2025 2024 (in thousands) Federal government: Security Solutions segment $ 134,839 $ 63,495 Secure Networks segment 15,199 31,456 Total $ 150,038 $ 94,951 56 Table of Contents Table 3.4: Contract Balances As of December 31, Balance Sheet Presentation 2025 2024 (in thousands) Billed account receivables (1) Accounts receivable, net $ 9,375 $ 10,014 Unbilled account receivables Accounts receivable, net 6,962 5,412 Contract assets Accounts receivable, net 663 3,746 Contract liabilities – current Contract liabilities – current portion 11,223 6,838 Contract liabilities – non-current Contract liabilities – non-current portion 1,124 — (1) Net of allowance for credit losses. The changes in the Company's contract assets and contract liabilities during the current period were primarily the result of the timing differences between the Company's performance, invoicing and customer payments. Revenue recognized for the years ended December 31, 2025, and 2024, which was included in the contract liabilities balance at December 31, 2024, and 2023, was $ 5.5 million and $ 5.9 million, respectively. As of December 31, 2025, we had approximately $ 68.8 million of remaining performance obligations, which we also refer to as funded backlog. We expect to recognize approximately 98.0 % of our remaining performance obligations over the next 12 months, and the balance thereafter. 4. ACCOUNTS RECEIVABLE, NET Table 4.1: Details of Accounts Receivable, Net As of December 31, 2025 2024 (in thousands) Billed accounts receivables $ 9,416 $ 10,070 Unbilled accounts receivable 6,962 5,412 Contract assets 663 3,746 Allowance for credit losses ( 41 ) ( 56 ) Accounts receivable, net $ 17,000 $ 19,172 Because our primary customer base includes agencies of the U.S. federal government, we have a concentration of credit risk associated with our accounts receivable, as 85.4 % and 87.8 % of our billed and unbilled accounts receivable, as of December 31, 2025, and 2024, respectively, were with U.S. federal government customers. While we acknowledge the potentially material and adverse risk of such a significant concentration of credit risk, our past experience of collecting substantially all of such receivables provides us with an informed basis that such risk, if any, is manageable. We perform ongoing credit evaluations of all of our customers and generally do not require collateral or other guarantees from our customers. We maintain allowances for potential losses. Table 4.2: Allowance for Credit Losses Activities Balance Beginning of Year Provision for (Recovery from) Credit Losses (1) Write-Offs (2) Balance End of Year (in thousands) For the Year Ended December 31, 2025 $ 56 $ 2 $ ( 17 ) $ 41 For the Year Ended December 31, 2024 283 ( 20 ) ( 207 ) 56 (1) Current year account receivable reserves for expected credit losses and subsequent recoveries, net (2) Accounts receivable written-off On July 15, 2016, we entered into an accounts receivable purchase agreement (the "Factoring Agreement") with a third party (the "Factor") on a non-recourse basis. This agreement was terminated on December 10, 2025. There were no accounts receivable sold during 2025 and 2024, respectively. 57 Table of Contents On March 10, 2026, we entered into a new Factoring Agreement with the same Factor. Under the agreement, we may offer eligible accounts receivable arising from our U.S. government prime contracts or subcontracts for sale (collectively, the "Purchased Receivables") to the Factor, and the Factor may purchase such receivables at its sole discretion. The total amount of Purchased Receivables is subject to a maximum limit of $ 10.0 million of outstanding Purchased Receivables at any given time. This new Factoring Agreement has an initial term expiring on March 10, 2027 and automatically renews annually thereafter unless terminated in writing by the parties. 5. PROPERTY AND EQUIPMENT, NET Table 5.1: Details of Property and Equipment, Net As of December 31, 2025 As of December 31, 2024 Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value (in thousands) Furniture and equipment $ 17,275 $ ( 14,727 ) $ 2,548 $ 17,239 $ ( 13,617 ) $ 3,622 Leasehold improvement 3,419 ( 2,896 ) 523 3,396 ( 2,735 ) 661 Total $ 20,694 $ ( 17,623 ) $ 3,071 $ 20,635 $ ( 16,352 ) $ 4,283 Table 5.2: Depreciation and Amortization Expense For the year ended December 31, 2025 2024 (in thousands) Depreciation and amortization $ 1,731 $ 1,646 6. GOODWILL, NET As discussed in Note 16 – Segment Information , we reported two operating and reportable segments: Security Solutions and Secure Networks. The two operating and reportable segments represent the reporting units for purposes of testing goodwill. The following table reflects changes in the carrying amount of goodwill during the period by reportable segments. Table 6.1: Changes in the Carrying Amount of Goodwill by Reportable Segments Security Solutions Secure Networks Total (in thousands) Balance at December 31, 2024 $ 3,006 $ 14,916 $ 17,922 Impairment losses — ( 14,916 ) ( 14,916 ) Balance at December 31, 2025 $ 3,006 $ — $ 3,006 Table 6.2: Details of Goodwill, Net As of December 31, 2025 2024 (in thousands) Gross $ 17,922 $ 17,922 Accumulated impairment losses ( 14,916 ) — Goodwill, net $ 3,006 $ 17,922 The net assets attributable to the reporting units are determined based upon the estimated assets and liabilities attributable to the reporting units in deriving its free cash flows. For fiscal year 2025, we performed a qualitative assessment of our reporting units and identified that it is more likely than not that the estimated fair value of our Security Solutions reporting unit exceeded its carrying value. Based on the initial qualitative assessment of our Secure Networks reporting unit, we determined that it is not more likely than not that the fair value of this reporting unit exceeds its carrying value, and therefore we performed a quantitative impairment test. In the most recent annual impairment test, the fair value of the Secure Networks reporting unit was estimated using the result of the income approach. The income approach applied requires significant judgments, including estimation of future discounted cash flows, which is dependent on internally-developed forecasts of revenue and profitability of the existing backlog, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. 58 Table of Contents As a result of our fiscal year 2025 quantitative assessment of our Secure Networks reporting unit, we estimated that its carrying value exceeded its fair value. The goodwill impairment was primarily driven by the continued contraction of Secure Networks' backlog in 2025. Accordingly, we recorded a non-cash goodwill impairment of $ 14.9 million, representing a full goodwill impairment for Secure Networks. The impairment charge on goodwill was recorded on our consolidated statements of operations for the year ended December 31, 2025. For fiscal year 2024, we performed a qualitative assessment of our reporting units and identified that it is more likely than not that the estimated fair value of the reporting units exceeded their carrying value and thus, we did not proceed to the quantitative impairment test. Based on the results of our annual impairment test of goodwill performed, the estimated fair value of our respective reporting units exceeded their respective carrying value, and no impairment charges were taken during the year ended December 31, 2024. 7. INTANGIBLE ASSETS, NET Table 7.1: Details of Intangible Assets, Net Estimated useful life As of December 31, 2025 As of December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value (in thousands) Acquired technology 8 years $ 3,630 $ ( 2,004 ) $ 1,626 $ 3,630 $ ( 1,550 ) $ 2,080 Customer relationships 3 years 40 ( 40 ) — 40 ( 40 ) — Software development costs 2 - 5 years 43,411 ( 23,576 ) 19,835 27,366 ( 15,761 ) 11,605 Subtotal 47,081 ( 25,620 ) 21,461 31,036 ( 17,351 ) 13,685 In-process software development costs (1) 8,820 — 8,820 16,725 — 16,725 Total $ 55,901 $ ( 25,620 ) $ 30,281 $ 47,761 $ ( 17,351 ) $ 30,410 (1) In-process software development costs are costs for software that is not yet available for its intended use or general release to customers as of balance sheet date, thus not yet amortized. In 2024, there were selected capital software projects for which the Company decided to discontinue the development and/or sale of all or part of certain solutions and certain projects that the Company ceased use before the end of its useful life. As a result of the Company's decision to abandon the associated software, the Company wrote off $ 11.7 million of the previously capitalized software costs, of which $ 5.3 million was recorded as "Impairment loss on intangible assets" under cost of sales within the Security Solutions segment, and $ 6.4 million was recorded as "Impairment loss on intangible assets" under operating expenses in the Company's consolidated statements of operations during the fiscal year ended December 31, 2024. No similar impairment charge was recorded on software development costs during the fiscal year ended December 31, 2025. The Company did not recognize any impairment charges on other intangible assets for the periods presented. Table 7.2: Amortization Expense For the year ended December 31, 2025 2024 (in thousands) Amortization expense related to: Software development costs - cost of sales (1) $ 7,814 $ 6,015 Software development costs - research and development — 2,286 Other intangible assets - general and administrative 454 461 Total $ 8,268 $ 8,762 (1) Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed are charged under cost of sales on the consolidated statements of operations. 59 Table of Contents Table 7.3: Estimated Future Amortization Expense of Intangible Assets, Net As of December 31, 2025 (in thousands) Year Ending December 31, 2026 $ 9,277 Year Ending December 31, 2027 6,669 Year Ending December 31, 2028 3,208 Year Ending December 31, 2029 1,793 Year Ending December 31, 2030 514 Thereafter — Total (1) $ 21,461 (1) This does not include amortization of in-process software development costs, as estimation of the timing of future amortization expenses would be impractical. Actual amortization expense in future periods could differ from these estimates as a result of impairments, future releases, future acquisitions, divestitures, and other factors. 8. OTHER BALANCE SHEET COMPONENTS Table 8.1: Details of Other Current Assets As of December 31, 2025 2024 (in thousands) Inventories, net $ 996 $ 1,783 Deferred costs 887 573 Receivables - other 529 210 Other 1,250 10 Other current assets $ 3,662 $ 2,576 Table 8.2: Details of Other Assets As of December 31, 2025 2024 (in thousands) Investment (1) $ 3,750 $ 3,000 Prepaid expenses and deferred commission – long-term portion 537 4,975 Restricted cash 140 139 Other 86 75 Other assets $ 4,513 $ 8,189 (1) In March 2024, the Company made a $ 3.0 million investment in a privately-held company via a simple agreement for future equity ("SAFE"). During fiscal year 2024, the Company elected to apply the fair value option ("FVO") for its SAFE investment, as the Company believes the FVO best reflects the economics of the underlying transaction. In October 2025, the Company's SAFE investment was settled into 8,964,262 shares of Series A common stock at a settlement price of $ 0.42 per share, based on the valuation cap in the original agreement, resulting in 3.8 % ownership with no significant influence over the privately-held company. Upon settlement of the SAFE in fiscal year 2025, the investment was remeasured to its fair value of $ 3.8 million, and a fair value adjustment of $ 0.8 million was recorded within "Other income" on the consolidated statements of operations. Effective October 2025, the SAFE investment was settled into equitable shares of the privately-held company's common stock. The investment does not have a readily determinable fair value and the Company elected the measurement alternative to value its investment. The fair value of this investment was based on non-marketable observable inputs, which represent Level 3 measurement within the fair value hierarchy. The investment was carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments of the same issuer, with any gains or losses recorded within "Other income" on the consolidated statements of operations. Table 8.3: Details of Accrued Liabilities As of December 31, 2025 2024 (in thousands) Accrued project expenses $ 4,289 $ 3,238 Restructuring expenses accrual 1,451 37 Other 1,160 1,174 Accrued liabilities $ 6,900 $ 4,449 60 Table of Contents 9. REVOLVING CREDIT FACILITY On December 30, 2022 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement"), by and among the Company, as borrower, Xacta Corporation, ubIQuity.com,inc, Teloworks, Inc., and Telos Identity Management Solutions, LLC, as guarantors, the lenders party thereto (the "Lenders"), and JPMorgan Chase Bank N.A. ("JPMorgan Chase"), as administrative agent for the Lenders (in such capacity, the "Agent"). The Credit Agreement provided for a $ 30.0 million senior secured revolving credit facility with a maturity date of December 30, 2025, with the option of issuing letters of credit thereunder with a sub-limit of $ 5.0 million, and with an uncommitted expansion feature of up to $ 30.0 million of additional revolver capacity (the "Loan"). The Loan is subject to acceleration in the event of customary events of default. The Company has not drawn any amount under the Loan. Borrowings under the Credit Agreement will accrue interest, at our option, at one of three variable rates, plus a specified margin. We can elect to borrow at (i) the Alternative Base Rate, plus 0.9 %; (ii) Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR"), plus 1.9 %; and (iii) Adjusted Term SOFR, plus 1.9 %, as such capitalized terms are defined and calculated in the Credit Agreement. The Company may elect to convert borrowings from one type of borrowing to another type per the terms of the Credit Agreement. After the occurrence and during the continuance of any event of default, the interest rate may increase by an additional 2.0 %. We are obligated to pay accrued interest (i) with respect to amounts accruing interest based on the Alternative Base Rate, each calendar quarter and on the maturity date, (ii) with respect to amounts accruing interest based on Adjusted Daily Simple SOFR, on each one month anniversary of the borrowing and on the maturity date, and (iii) with respect to amounts accruing interest based on Adjusted Term SOFR, at the end of the period specified per the Credit Agreement and on the maturity date. Upon five , three , or one days' prior notice, as applicable, we may prepay any portion or the entire amount of the Loan. We paid and could pay costs and customary fees, including a closing fee, commitment fees and letter of credit participation fee, if any, payable to the Agent and Lenders, as applicable, in connection with the Loan. The Loan under the Credit Agreement is collateralized by substantially all of the Company's assets, including the Company's pledge of its domestic and material foreign subsidiary equity interests. The Loan has various covenants that may, among other things, affect our ability to create, incur, assume or suffer any indebtedness, merge into or consolidate with another entity, acquire entity interests, sell or transfer certain assets, enter into certain arrangements (such as sale and leaseback and swap agreements) or restrictive agreements, pay dividends and make certain restricted payments, and amend material documents related to any subordinated indebtedness and corporate agreements. The Credit Agreement also requires certain financial covenants to maintain a Senior Leverage Ratio on the last day of any fiscal quarter, no greater than 3 to 1. We were in compliance with all covenants as of December 31, 2025. The occurrence of an event of default under the Credit Agreement could result in the Loan and other obligations becoming immediately due and payable and allow the Lenders to exercise all rights and remedies available to them under the Credit Agreement. On April 12, 2023, the Credit Agreement was amended to exclude from collateral the (i) amount collectible from a third party related to an Accounts Receivable Purchase Agreement and (ii) receivables generated by the Company from the sale of goods supplied to this third party in an amount not to exceed $ 25.0 million. On December 30, 2025, the Company entered into a Second Amendment to Credit Agreement (the “Second Amendment”) with JPMorgan Chase. The Second Amendment modifies the Credit Agreement to, among other modifications, (a) establish the Applicable Rate for borrowings under the revolving credit facility at 1.25 % for ABR Loans and 2.25 % for Term Benchmark/RFR Loans, with a commitment fee rate of 0.25 %, (b) establish the Revolving Commitment under the Credit Agreement at $ 15,000,000 with an expansion feature of up to $ 15,000,000 of additional credit capacity, (c) extend the Revolving Credit Maturity Date to December 30, 2026, and (d) require the Company and its subsidiaries to maintain at least $ 5,000,000 of unrestricted cash and Permitted Investments with JPMorgan Chase at all times. Except as modified by the Second Amendment, the terms and conditions of the Credit Agreement remain in full force and effect. 10. STOCKHOLDERS' EQUITY Capital Stock Our authorized capital stock consists of 250,000,000 shares of common stock, $ 0.001 par value per share, and 10,000,000 shares of preferred stock, $ 0.01 par value per share. As of December 31, 2025, and 2024, there were 72,773,272 and 72,514,652 shares of common stock issued and outstanding, respectively. There were no shares of preferred stock issued and outstanding on either date. 61 Table of Contents Shares Repurchases On May 24, 2022, the Company announced that the Board of Directors approved a new share repurchase program ("SRP") authorizing the Company to repurchase up to $ 50.0 million of its common stock. Pursuant to this authorization, the Company may repurchase shares of its common stock on a discretionary basis from time to time through open market purchases. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time. As of December 31, 2025, there was $ 25.1 million of the authorization remaining for future common stock repurchases under the SRP. Table 10.1: Share Repurchase Program Activity For the Year Ended December 31, 2025 2024 (in thousands, except per share and share data) Amounts paid for shares repurchased (1) $ 13,627 $ — Number of shares repurchased 3,108,497 — Average per share price paid (1) $ 4.38 $ — (1) Includes commission paid for repurchases on the open market Accumulated Other Comprehensive Loss Table 10.2: Details of Changes in Accumulated Other Comprehensive Loss by Category Foreign currency translation adjustment Pension liability adjustment Total (in thousands) Balance as of December 31, 2023 $ ( 167 ) $ 107 $ ( 60 ) Other comprehensive loss, net of tax ( 8 ) ( 61 ) ( 69 ) Balance as of December 31, 2024 ( 175 ) 46 ( 129 ) Other comprehensive loss, net of tax ( 2 ) 35 33 Balance as of December 31, 2025 $ ( 177 ) $ 81 $ ( 96 ) 11. STOCK-BASED COMPENSATION On May 21, 2024, the Company authorized an additional 8,500,000 shares to be available under the Amended and Restated 2016 LTIP ("2016 LTIP"). Further, on May 8, 2025, the Company's stockholders approved an amendment to the 2016 LTIP that increased the number of shares available for issuance by an additional 4,900,000 shares. As of December 31, 2025, approximately 1.5 million shares of our common stock remain available for future issuance under the 2016 LTIP. Stock-based compensation expense recognized for restricted stock units and stock options granted to employees and non-employees is included in the consolidated statements of operations, net of adjustments. There were no income tax benefits recognized on the stock-based compensation expense for these periods. Table 11.1: Details of Stock Compensation Expense by Category For the Year Ended December 31, 2025 2024 (in thousands) Cost of sales - services $ 652 $ 828 Research and development 1,238 ( 121 ) General and administrative (1) 28,260 20,704 Total $ 30,150 $ 21,411 (1) No stock-based compensation expense related to stock options was recorded for the year ended December 31, 2025, while $ 0.1 million was recorded for the year ended December 31, 2024. 62 Table of Contents Restricted Stock Table 11.2: Restricted Stock Unit Activity Service-Based RSU Performance-Based RSU Total Weighted-Average Grant Date Fair Value Unvested outstanding units as of December 31, 2024 1,952,103 10,683,230 12,635,333 $ 3.52 Granted 1,237,265 3,381,163 4,618,428 3.48 Vested ( 895,616 ) ( 3,047,890 ) ( 3,943,506 ) 3.52 Forfeited, cancelled, or expired ( 110,916 ) ( 154,649 ) ( 265,565 ) 3.43 Unvested outstanding units as of December 31, 2025 2,182,836 10,861,854 13,044,690 $ 3.49 On February 20, 2025, the Company modified certain previously granted PSUs with financial performance targets for fiscal year 2025. The modification eliminated one of the financial performance targets. As a result, an incremental stock-based compensation expense of $ 2.0 million is recognized over the remaining vesting period. On May 14, 2025, the Company granted PSUs to a certain employee that could settle in up to (i) 65,000 shares of its common stock that will vest only if the Company achieves a certain operational milestone prior to January 1, 2027; and (ii) 50,000 shares of its common stock and will vest only if the Company achieves certain financial performance targets for fiscal year 2025. On June 11, 2025, the Company granted PSUs containing stock price market conditions to certain employees that could settle in up to 1,060,000 shares of its common stock. These PSUs will vest, in whole or in part, only if the Company's closing common stock price remains at or above certain specified stock prices for 50 consecutive days prior to January 1, 2027. For the awards subject to stock price market conditions, the Monte Carlo approach uses a class of computational algorithms that rely on repeated random sampling to compute their results. This approach allows the calculation of the value of such PSUs based on a large number of possible stock price path scenarios. The risk-free rate is based on a zero-coupon yield from the Treasury Constant Maturities yield curve at the time of grant over the performance period. Table 11.3: PSUs with Stock Price Market Condition Fair Value and Assumptions For the Year Ended December 31, 2025 2024 (in thousands) Performance period (in years) 1.56 2.59 Expected volatility 97.5 % 83.9 % Risk-free rate 3.9 % 4.70 % Expected derived service period (in years) 0.80 - 0.94 0.63 - 1.31 Grant date fair value $ 1.17 - $ 1.51 $ 2.62 - $ 3.75 On June 11, 2025, the Company also granted to certain executives PSUs that were market conditions dependent on total shareholder return ("TSR"), that could settle in up to 2,206,163 shares of its common stock. The vesting criteria for these awards are based on the Company's TSR performance relative to the TSR performance of the Company's compensation peer group as of the grant date over the three-year performance period, June 1, 2025, through May 31, 2028, and conditioned upon neutral or positive free cash flow (i.e. cash flows from operating activities less capital expenditure) at the end of each fiscal year 2025, 2026, and 2027. The final payout of these PSUs will vary between 0 % to 200 % of the target number of PSUs granted, depending on the TSR performance and meeting the free cash flow requirements. For the awards subject to TSR market conditions, the Monte Carlo simulation simulates a distribution of stock prices for the Company and its current compensation peer group throughout the remaining performance period based on certain assumptions of stock price performance. Monte Carlo valuations of relative TSR PSUs depend on two sets of prices: realized performance and simulated performance. Our key assumptions include a performance period of 2.97 years, an expected volatility of 114.7 %, and a risk-free rate of 3.8 %. The fair value for these relative TSR market condition PSUs at the grant date was $ 4.82 . As of December 31, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $ 66.5 million and $ 43.2 million, respectively. There was approximately $ 8.7 million of total compensation costs related to stock-based awards not yet recognized as of December 31, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.2 years. 63 Table of Contents Stock Options Table 11.4: Stock Option Activity Stock Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding option balance as of December 31, 2024 287,000 $ 1.80 8.4 $ 464,940 Granted — — Exercised ( 60,000 ) 1.80 Forfeited, cancelled, or expired — — Outstanding option balance as of December 31, 2025 227,000 $ 1.80 7.4 $ 749,100 Exercisable stock option as of December 31, 2025 227,000 $ 1.80 7.4 $ 749,100 The Company uses the Black-Scholes option pricing model to calculate the estimated fair value of stock options on the date of grant. Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant. The following weighted-average assumptions are used in the Black-Scholes valuation model to estimate the fair value of stock option awards, as granted. • Expected term of the option – For options granted to employees and directors, the Company estimates the term over which option holders are expected to hold their stock option by using the "simplified method" in accordance with Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payments , and SAB No. 110, Simplified Method for Plain Vanilla Share Options , to calculate the expected term of stock options determined to be "plain vanilla." The Company's stock option exercise history does not provide a reasonable basis to compute the expected term for stock options. Under this approach, the expected term is presumed to be a midpoint between the vesting date and the contractual end of the stock option grant. For options granted to non-employees, the Company elected to use the contractual term as the expected term. • Risk-free interest rate – Based on the daily yield curve rates for U.S. Treasury obligations with terms that approximate the expected term of the stock options. • Expected volatility – Due to the absence of the Company's historical price volatility for the expected contractual term of the stock options, the Company utilized the historical price volatility of a peer group. • Expected dividend yield – The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield. Our key assumptions used to calculate the fair value of the stock options granted in fiscal year 2023 include an expected term ranging from 5.5 to 10 years, expected volatility between 30.7 % - 35.1 %, and a risk-free rate of 3.5 %. The weighted-average fair value of the underlying stock options at the grant date was $ 1.06 . There were no new stock options granted in fiscal years 2025, and 2024. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the quoted closing price of the Company's common stock as of December 31, 2025. The fair value of the stock options is expensed on a straight-line basis over the vesting period of one year , including the stock options granted to directors, as the next annual stockholders meeting is expected to occur at the same approximate time each year. As of December 31, 2025, there were no unrecognized compensation costs related to non-vested stock options. 12. LEASES We lease office space facilities and equipment under non-cancelable operating and finance leases with various expiration dates, some of which contain renewal options. The Company's lease portfolio is comprised of two major classes. The lease of the Ashburn facility is accounted for as a finance lease. Under this lease agreement, the basic rent increases by a fixed 2.5 % escalation annually, expiring on May 28, 2029. The other office spaces and equipment leased are accounted for as operating leases. 64 Table of Contents Table 12.1: Details of Lease Costs For the Year Ended December 31, 2025 2024 (in thousands) Operating lease cost $ 248 $ 277 Short-term lease cost (1) 57 53 Finance lease cost Amortization of finance lease assets 1,221 1,221 Interest on finance lease liabilities 437 527 Total finance lease cost 1,658 1,748 Total lease costs $ 1,963 $ 2,078 (1) Leases that have terms of 12 months or less. Table 12.2: Future Minimum Lease Payments Operating Leases Finance Leases (in thousands) Year Ending December 31, 2026 $ 252 $ 2,372 Year Ending December 31, 2027 166 2,431 Year Ending December 31, 2028 26 2,492 Year Ending December 31, 2029 — 1,049 Year Ending December 31, 2030 — — Total minimum lease payments 444 8,344 Less: Imputed interest ( 26 ) ( 703 ) Total lease obligations 418 7,641 Less: Current portion of lease obligations ( 232 ) ( 2,033 ) Long-term lease obligations $ 186 $ 5,608 Table 12.3: Weighted-Average Remaining Lease Terms and Discount Rates For the Year Ended December 31, 2025 2024 Weighted average remaining lease term (in years): Finance leases 3.3 years 4.3 years Operating leases 1.8 years 2.8 years Weighted average discount rate: Finance leases 5.04 % 5.04 % Operating leases 6.24 % 6.04 % Table 12.4: Supplemental Cash Flow Information Related to Leases For the Year Ended December 31, 2025 2024 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows related to operating leases $ 245 $ 275 Operating cash flows related to finance leases 437 527 Financing cash flows related to finance leases 1,877 1,730 13. EMPLOYEE BENEFIT PLAN Telos sponsors a defined contribution employee savings plan (the "Plan") under which substantially all full-time employees are eligible to participate. As of December 31, 2025, the Plan held 1,932,890 shares of Telos common stock. We matched 50 % of the employee contribution to the Plan up to 8 % of such employee's eligible compensation on a pay period basis. Effective September 1, 2023, Telos-contributed matching funds to a two -year vesting schedule: 20 % vesting after one year of service, and fully vesting after the completion of two years of service. Telos intends to fund the employer matching contribution in Telos stock, but will have the discretion to fund the match in cash or a combination of stock and cash. The Telos employer matching contribution is funded in the first quarter of the subsequent year. 65 Table of Contents Our total contributions to the Plan for 2025 and 2024 was $ 2.0 million and $ 2.1 million, respectively. 14. INCOME TAXES Table 14.1: Loss Before Income Tax For the Year Ended December 31, 2025 2024 (in thousands) Loss from continuing operations before income taxes: Domestic $ ( 37,302 ) $ ( 52,573 ) Foreign 93 79 Total loss before income taxes $ ( 37,209 ) $ ( 52,494 ) Table 14.2: Components of (Benefit from) Provision for Income Taxes For the Year Ended December 31, 2025 2024 (in thousands) Current provision Federal $ — $ — State 85 21 Foreign 12 5 Total current 97 26 Deferred tax expense Federal ( 560 ) 46 State ( 200 ) ( 46 ) Total deferred ( 760 ) — (Benefit from) provision for income taxes $ ( 663 ) $ 26 Table 14.3: Reconciliation of Statutory Income Tax Expense to Actual Income Tax Expense For the Year Ended December 31, 2025 2024 Amount Rate Amount Rate (dollars in thousands) U.S. federal statutory rate $ ( 7,814 ) 21.0 % $ ( 11,024 ) 21.0 % State income taxes, net of federal income tax benefit (1) ( 90 ) — % ( 25 ) — % Change in valuation allowance for deferred tax assets 7,775 ( 21.0 ) % 9,855 ( 18.7 ) % Foreign tax effect Philippines ( 8 ) — % ( 10 ) — % Tax credits: R&D credit ( 26 ) — % ( 1,200 ) 2.2 % Nontaxable or nondeductible items: Other permanent differences ( 90 ) — % 82 ( 0.1 ) % Stock-based compensation ( 1,603 ) 4.0 % 298 ( 0.5 ) % Section 162(m) limitation - covered employees 1,020 ( 2.0 ) % 1,711 ( 3.3 ) % Changes in unrecognized tax benefits: Uncertain tax positions 6 — % 300 ( 0.6 ) % Other adjustments: Cumulative deferred adjustments 44 — % 48 ( 0.1 ) % Provision to return adjustments 123 — % ( 9 ) — % Effective tax rate $ ( 663 ) 2.0 % $ 26 ( 0.1 ) % (1) State income taxes in Texas made up the majority (greater than 50%) of the tax effect in this category. 66 Table of Contents Table 14.4: Components of Deferred Tax Assets (Liabilities) As of December 31, 2025 2024 (in thousands) Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 10 $ 14 Allowance for inventory obsolescence and amortization 135 60 Accrued liabilities not currently deductible 1,299 763 Stock-based compensation 9,179 2,734 Accrued compensation 2,282 783 Lease liabilities 2,106 2,594 Goodwill 29,437 28,122 Capitalized research and development costs 10,446 10,116 Net operating loss carryforwards - federal 15,974 15,101 Net operating loss carryforwards - state 2,619 2,672 R&D tax credit 4,763 4,856 Amortization and depreciation 69 — Total gross deferred tax assets 78,319 67,815 Less valuation allowance ( 77,196 ) ( 67,117 ) Total deferred tax assets, net of valuation allowance 1,123 698 Deferred tax liabilities: Right-of-use assets ( 1,176 ) ( 1,510 ) Amortization and depreciation — ( 1 ) Total deferred tax liabilities ( 1,176 ) ( 1,511 ) Net deferred tax liabilities $ ( 53 ) $ ( 813 ) Table 14.5: Valuation Allowance Activity For the Year Ended December 31, 2025 2024 (in thousands) Balance at beginning of year $ 67,117 $ 54,999 Additions 10,079 12,118 Balance at end of year $ 77,196 $ 67,117 We establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income. We considered projected future taxable income, tax planning strategies, and reversal of taxable temporary differences in making this assessment. Based on available evidence, we have determined that a valuation allowance is required as of December 31, 2025, and 2024 against the net of our deferred tax assets and liabilities to the extent that only a deferred tax liability related to indefinite-lived goodwill remains on our consolidated balance sheets on December 31, 2025, and 2024. On December 31, 2025, for federal income tax purposes, there was approximately a $ 76.0 million net operating loss available to be carried forward to offset future taxable income. Approximately $ 10.6 million of these net operating loss carryforwards expire in 2037, the remaining will be carried forward indefinitely. As of December 31, 2025, there was approximately $ 6.1 million of R&D credit carryover which begins to expire in 2033. Certain tax attributes of the Company, including net operating losses and credits, would be subject to a limitation should an ownership change as defined under Section 382 of the Internal Revenue Code of 1986, as amended, occur. The limitations resulting from a change in ownership could affect the Company's ability to utilize its tax attributes. A study was completed in 2020 which confirmed that no limitation applies to the Company's tax attributes as of December 31, 2020. We believe that ownership activity since December 31, 2020, would not result in limitation sufficient to result in the expiration of unused attributes. 67 Table of Contents Under the provision of ASC 740, we determined that the unrecognized tax benefits as of December 31, 2025, and 2024 were approximately $ 1.5 million for both periods. As of December 31, 2025, and 2024, the tax benefits that, if recognized, would not impact the effective tax rate due to the Company's valuation allowance (as included in the balance of unrecognized tax benefits) were $ 1.5 million for both periods. We report interest and penalties as a component of income tax expense. There was no accrued interest and penalties related to the unrecognized tax benefits as of December 31, 2025, and 2024. We believe that the total amounts of unrecognized tax benefits will not significantly increase or decrease within the next 12 months. The period for which tax years are open with regards to unrecognized tax benefits, 2014 to 2025, has not been extended beyond the applicable statute of limitations. We file income tax returns in the U.S. federal jurisdiction and are subject to the continuous examination of our income tax returns by the Internal Revenue Service ("IRS") and other tax authorities. The applicable statute of limitations is no longer open for audit or examination for the years before 2022 for federal income taxes in the U.S. We were notified by the IRS in September 2024 regarding an audit of our 2021 federal income tax return. In April 2025, the IRS notified us that it had completed its examination of our 2021 federal income tax return with no changes to our reported tax. Table 14.6: Unrecognized Tax Benefit Activity For the Year Ended December 31, 2025 2024 (in thousands) Balance at beginning of year $ 1,515 $ 1,228 Increase (decrease) in prior year tax positions ( 56 ) 123 Increase related to current year tax positions 63 177 Decrease related to lapse of statutes — ( 13 ) Balance at end of year $ 1,522 $ 1,515 Table 14.7: Components of Income Taxes Paid (Net of Refunds Received) For the Year Ended December 31, 2025 2024 (in thousands) Federal $ — $ — State 30 55 Foreign 12 — Total $ 42 $ 55 Table 14.8: Net Income Tax Payments (Refund) by Jurisdiction To or Greater than 5% of Total Income Taxes Paid, Net For the Year Ended December 31, 2025 2024 (in thousands) Texas $ 30 $ 55 Philippines $ 12 $ — 15. LOSS PER SHARE For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net (loss)/earnings per share because to do so would be anti-dilutive. Table 15.1: Potentially Dilutive Securities For the Year Ended December 31, 2025 2024 (in thousands) Weighted-average number of shares – unvested RSUs, PSUs and stock options 4,253 834 As of December 31, 2025, and 2024, PSUs of 8,441,163 and 10,683,230 , respectively, have been excluded in the calculation of the potentially dilutive securities above because issuance of such shares are contingent upon the satisfaction of certain conditions which were not satisfied by the end of the reporting period or the shares were antidilutive. 68 Table of Contents 16. SEGMENT INFORMATION Operating segments are defined as components of the Company for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. We identified our CEO as the CODM. We operate our business in two reportable and operating segments: Security Solutions and Secure Networks. • Our Security Solutions segment is primarily focused on cybersecurity, cloud and identity solutions, and secure messaging through Xacta, Telos AMHS and Telos ID offerings. • Our Secure Networks segment provides secure networking architectures and solutions to our customers through secure mobility solutions, and network management and defense services. We measure each segment's profitability based on gross profit. Our CEO evaluates the segment's performance based on metrics, such as segment revenue and gross profit, that align with our strategies and objectives, and provide a framework for the timely and rational allocation of resources between the segments. Table 16: Results of Operations by Business Segment For the Year Ended December 31, 2025 2024 Security Solutions Secure Networks Total Security Solutions Secure Networks Total (in thousands) Revenues $ 149,600 $ 15,205 $ 164,805 $ 76,760 $ 31,512 $ 108,272 Cost of sales Depreciation and amortization (1) 8,173 7 8,180 6,396 8 6,404 Stock-based compensation expense (1) 594 58 652 667 161 828 Impairment loss on intangible assets (1) — — — 5,333 — 5,333 Other segment items (2) 83,274 11,682 94,956 36,685 24,593 61,278 Total cost of sales 92,041 11,747 103,788 49,081 24,762 73,843 Gross profit $ 57,559 $ 3,458 61,017 $ 27,679 $ 6,750 34,429 Operating expenses Research and development expenses 7,057 8,442 Selling, general and administrative expenses 78,925 75,487 Goodwill impairment 14,916 — Impairment loss on intangible assets — 6,373 Total operating expenses 100,898 90,302 Operating loss ( 39,881 ) ( 55,873 ) Other income 3,225 4,023 Interest expense ( 553 ) ( 644 ) Loss before income taxes ( 37,209 ) ( 52,494 ) Benefit from (provision for) income taxes 663 ( 26 ) Net loss $ ( 36,546 ) $ ( 52,520 ) (1) The significant segment expense categories and amounts align with the segment-level information regularly provided to the CODM. (2) Other segment items for each reportable segment include direct labor, direct subcontractor costs, direct materials and inventory, other direct non-labor costs, fringes, overhead, and facility costs. We account for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices, if any. There were no inter-segment sales and transfers during fiscal years 2025, and 2024. Interest income, interest expense, other income and expense items, and income taxes, as reported in the consolidated financial statements, are not part of the segment profitability measure and are primarily recorded at the corporate level. Management does not utilize total assets by segment to evaluate segment performance or allocate resources. As a result, assets are not tracked by segment, and therefore, total assets by segment are not disclosed. 69 Table of Contents 17. SUPPLEMENTAL CASH FLOW INFORMATION Table 17.1: Details of Cash, Cash Equivalent, and Restricted Cash As of December 31, 2025 2024 (in thousands) Cash and cash equivalents $ 53,180 $ 54,578 Restricted cash (1) 140 139 Cash, cash equivalents, and restricted cash $ 53,320 $ 54,717 (1) Restricted cash consists of a commercial money market account held as a deposit on the Ashburn lease and is recorded under "Other assets" on the Consolidated Balance Sheets. Table 17.2: Supplemental Cash Flow Information For the Year Ended December 31, 2025 2024 (in thousands) Cash paid during the year for: Interest $ 482 $ 563 Income taxes paid, net 42 55 Non-cash investing and financing activities: Issuance of common stock for 401K match $ 2,063 $ 1,619 Capital expenditure activity in accounts payable and other accrued liabilities 67 309 Operating lease ROU assets obtained in exchange for operating lease liabilities — 626 18. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS Legal Proceedings From time to time, the Company may be a party to litigation or claims arising in the ordinary course of business, including those relating to employment matters, relationships with clients and contractors, intellectual property disputes, and other business matters. These legal proceedings seek various remedies, including claims for monetary damages in varying amounts, none of which are considered material, or are unspecified as to amount. Although the outcome of any such matter is inherently uncertain and may be materially adverse, based on current information, management believes that the outcome of such known matters will not have a material adverse effect on the Company's financial condition and results of operations. Management does not believe that there is any litigation or claims that would have a material adverse effect on the business, or the consolidated financial statements of the Company as of December 31, 2025. Other - Government Contracts As a U.S. federal government contractor, we are subject to various audits and investigations by the U.S. federal government to determine whether our operations are being conducted in accordance with applicable regulatory requirements. U.S. federal government investigations of our operations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, suspension, proposed debarment, debarment from eligibility for future U.S. federal government contracting, or suspension of export privileges. Suspension or debarment could have a material adverse effect on us because of our dependence on contracts with the U.S. federal government. U.S. federal government investigations often take years to complete and many result in no adverse action against us. We also provide products and services to customers outside of the United States, which are subject to U.S. and foreign laws and regulations and foreign procurement policies and practices. Our compliance with local regulations or applicable U.S. federal government regulations also may be audited or investigated. Subsequent Events On March 12, 2026, the Company's Board of Directors authorized the Company to repurchase up to an additional $ 25.0 million of its common stock under its existing repurchase program previously authorized on May 24, 2022, which, together with the remaining available under the share repurchase program, will allow the Company to repurchase up to $ 50.1 million of its common stock in the aggregate going forward. 70 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.