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Item 1. Financial Statements

2026-05-11 compared with 2025-11-10 · 228 added, 328 removed, 324 unchanged (63% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands, except per share amounts)

2 unchanged sentences

Total revenue 47,742 30,616

Cost of sales – services (excluding impairment loss, depreciation and amortization) 22,906 12,689 55,002 45,681

Cost of sales – products (excluding impairment loss, depreciation and amortization) 5,636 1,128 12,792 2,268

Impairment loss on intangible assets — 5,333 — 5,333

Cost of sales – services (excluding depreciation and amortization) 23,239 15,491

Cost of sales – products (excluding depreciation and amortization) 4,532 1,440

Depreciation and amortization 2,596 1,503

4 unchanged sentences

Selling, general and administrative expenses 14,563 19,633

Impairment loss on intangible assets — 6,373 — 6,373

Total operating expenses 15,920 21,204

Operating loss ( 2,468 ) ( 28,864 ) ( 21,373 ) ( 45,946 )

Operating income (loss) 1,455 ( 9,022 )

Other income 697 561

Interest expense ( 111 ) ( 147 )

Loss before income taxes ( 2,093 ) ( 28,038 ) ( 20,172 ) ( 43,139 )

Provision for income taxes ( 21 ) ( 17 ) ( 63 ) ( 51 )

Net loss $ ( 2,114 ) $ ( 28,055 ) $ ( 20,235 ) $ ( 43,190 )

Net loss per share:

Income (loss) before income taxes 2,041 ( 8,608 )

(Provision for) benefit from income taxes ( 18 ) 4

Net income (loss) $ 2,023 $ ( 8,604 )

Net income (loss) per share:

Basic $ 0.03 $ ( 0.12 )

Diluted $ 0.03 $ ( 0.12 )

Weighted-average shares outstanding:

Weighted-average number of shares outstanding:

Basic 73,822 72,715

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TELOS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

Net loss $ ( 2,114 ) $ ( 28,055 ) $ ( 20,235 ) $ ( 43,190 )

Net income (loss) $ 2,023 $ ( 8,604 )

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments ( 8 ) 80

Actuarial gain (loss) on pension liability adjustment — — 8 ( 30 )

Other comprehensive income (loss) 1 22 84 ( 64 )

Comprehensive loss $ ( 2,113 ) $ ( 28,033 ) $ ( 20,151 ) $ ( 43,254 )

Actuarial gain on pension liability adjustment — 8

Comprehensive income (loss) $ 2,015 $ ( 8,516 )

See accompanying notes to the unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(in thousands, except per share amount and share data)

1 unchanged sentence

Accounts receivable, net 16,425 17,000

Inventories, net 3,378 1,783

Prepaid expenses 10,963 10,565

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Accrued compensation and benefits 7,363 12,309

Contract liabilities 13,732 6,838

Contract liabilities – current portion 18,096 11,223

Finance lease obligations – current portion 2,072 2,033

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Total current liabilities 36,982 36,784

Contract liabilities – non-current portion 951 1,124

Finance lease obligations – non-current portion 5,078 5,608

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Stockholders’ equity:

Common stock, $ 0.001 par value, 250,000,000 shares authorized, 72,220,048 shares and 72,514,652 shares issued and outstanding as of September 30, 2025, and December 31, 2024, respectively

Common stock, $ 0.001 par value, 250,000,000 shares authorized, 74,819,175 shares and 72,773,272 shares issued and outstanding as of March 31, 2026, and December 31, 2025, respectively

Additional paid-in capital 458,392 459,828

6 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30, 2025 September 30, 2024

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

Cash flows from operating activities:

Net loss $ ( 20,235 ) $ ( 43,190 )

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

Net income (loss) $ 2,023 $ ( 8,604 )

Adjustments to reconcile net income (loss) to cash flows from operations:

Stock-based compensation 2,971 7,048

Depreciation and amortization 3,429 2,336

Loss on disposal of fixed assets 51 —

Amortization of debt issuance costs 8 17

Deferred income tax provision 41 37

Loss (gain) on disposal of fixed assets 1 ( 13 )

Provision for (benefit from) deferred income tax 2 ( 4 )

Provision for (recovery from) doubtful accounts 1 ( 5 )

Impairment loss on intangible assets — 11,706

Changes in other operating assets and liabilities:

Accounts receivable 575 427

Inventories 1,081 14

Prepaid expenses, deferred program expenses, other current assets, other assets 701 ( 10,049 )

Prepaid expenses, deferred program expenses, other current assets and other assets ( 3,749 ) 3,016

Accounts payable ( 1,564 ) ( 88 )

2 unchanged sentences

Accrued liabilities and other liabilities ( 1,257 ) 1,681

Net cash provided by (used in) operating activities 22,202 ( 15,420 )

Net cash provided by operating activities 8,656 6,106

Cash flows from investing activities:

Capitalized software development costs ( 2,132 ) ( 2,214 )

Purchases of property and equipment, net ( 709 ) ( 381 )

Purchase of investment — ( 3,000 )

Purchases of property and equipment ( 145 ) ( 123 )

Net cash used in investing activities ( 2,277 ) ( 2,337 )

2 unchanged sentences

Payment of tax withholding related to net share settlement of equity awards ( 6,619 ) ( 104 )

Proceeds from exercise of stock options 108 149

Repurchases of common stock ( 2,198 ) —

Payments for debt issuance costs ( 21 ) —

Net cash used in financing activities ( 9,329 ) ( 556 )

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(in thousands)

Balance at June 30, 2025 72,442 $ 111 $ 463,816 $ ( 46 ) $ ( 345,468 ) $ 118,413

Net loss — — — — ( 2,114 ) ( 2,114 )

Foreign currency translation gain — — — 1 — 1

Restricted stock unit awards vested, net of shares withheld to cover tax withholding 302 1 ( 538 ) — — ( 537 )

Stock-based compensation — — 7,441 — — 7,441

Issuance of common stock upon exercise of stock options 60 — 108 — — 108

Repurchases of common stock ( 584 ) ( 1 ) ( 3,636 ) — — ( 3,637 )

Balance at September 30, 2025 72,220 $ 111 $ 467,191 $ ( 45 ) $ ( 347,582 ) $ 119,675

Balance at June 30, 2024 72,223 $ 111 $ 439,146 $ ( 146 ) $ ( 289,962 ) $ 149,149

Net loss — — — — ( 28,055 ) ( 28,055 )

Foreign currency translation gain — — — 22 — 22

Restricted stock unit awards vested, net of shares withheld to cover tax withholding 132 — ( 28 ) — — ( 28 )

Stock-based compensation — — 8,350 — — 8,350

Issuance of common stock upon exercise of stock options 25 — 45 — — 45

Balance at September 30, 2024 72,380 $ 111 $ 447,513 $ ( 124 ) $ ( 318,017 ) $ 129,483

Common Stock Additional Paid-in

Capital Accumulated

Other Comprehensive Loss Accumulated Deficit Total Stockholders’

Shares Amount

(in thousands)

Balance at December 31, 2025 72,773 $ 111 $ 459,828 $ ( 96 ) $ ( 363,893 ) $ 95,950

Net loss — — — — ( 20,235 ) ( 20,235 )

Foreign currency translation gain — — — 76 — 76

Actuarial gain on pension liability adjustment — — — 8 — 8

Net income — — — — 2,023 2,023

Foreign currency translation loss — — — ( 8 ) — ( 8 )

Repurchase of common stock ( 517 ) — ( 2,198 ) — — ( 2,198 )

Restricted stock unit awards vested, net of shares withheld to cover tax withholding 1,444 1 ( 5,401 ) — — ( 5,400 )

Stock-based compensation — — 1,738 — — 1,738

Issuance of common stock upon exercise of stock options 60 — 108 — — 108

Repurchases of common stock ( 2,072 ) ( 2 ) ( 7,637 ) — — ( 7,639 )

Issuance of common stock for annual incentive plan ("AIP") payment, net of shares withheld to cover tax withholding 706 1 2,766 — — 2,767

Issuance of common stock for 401K match 413 — 1,659 — — 1,659

Balance at September 30, 2025 72,220 $ 111 $ 467,191 $ ( 45 ) $ ( 347,582 ) $ 119,675

Balance at March 31, 2026 74,819 $ 113 $ 458,392 $ ( 104 ) $ ( 361,870 ) $ 96,531

Balance at December 31, 2024 72,515 $ 111 $ 454,502 $ ( 129 ) $ ( 327,347 ) $ 127,137

Net loss — — — — ( 8,604 ) ( 8,604 )

Foreign currency translation loss — — — ( 34 ) — ( 34 )

Actuarial loss on pension liability adjustment — — — ( 30 ) — ( 30 )

Foreign currency translation gain — — — 80 — 80

Actuarial gain on pension liability adjustment — — — 8 — 8

Restricted stock unit awards vested, net of shares withheld to cover tax withholding 76 — ( 104 ) — — ( 104 )

Stock-based compensation — — 5,534 — — 5,534

Issuance of common stock upon exercise of stock options 83 — 149 — — 149

Issuance of common stock for 401K match 728 1 2,062 — — 2,063

Balance at September 30, 2024 72,380 $ 111 $ 447,513 $ ( 124 ) $ ( 318,017 ) $ 129,483

Balance at March 31, 2025 73,319 $ 112 $ 461,994 $ ( 41 ) $ ( 335,951 ) $ 126,114

See accompanying notes to the unaudited consolidated financial statements.

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The accompanying unaudited 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 Telos Corporation.

All intercompany transactions and balances have been eliminated in consolidation.

All intercompany transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.

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The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2025, included in our Annual Report on Form 10-K for the fiscal year then ended.

We continue to follow the accounting policies set forth in those financial statements.

Reclassification

Certain prior-period amounts have been reclassified to conform to the current period presentation.

This reclassification relates to presenting "Accrued liabilities" as a separate line item on the unaudited consolidated balance sheets from "Accounts payable" and "Other current liabilities."

We have continued to follow the accounting policies set forth in those financial statements.

Use of Estimates

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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 those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, valuation allowance for deferred tax assets, income taxes, certain assumptions related to stock-based compensation, impairment of intangible assets and goodwill, restructuring expenses accruals, and contingencies.

Actual results could differ from these estimates.

Management evaluates these estimates and assumptions on an ongoing basis, including those relating to revenue recognition on cost estimation on certain contracts, allowance for credit losses, inventory obsolescence, valuation allowance for deferred tax assets, income taxes, certain assumptions related to share-based compensation, valuation of intangible assets and goodwill, restructuring expenses 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.

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 unaudited consolidated balance sheets.

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, and other services.

Restructuring Expenses

As previously disclosed, 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.

Further, 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 2024 restructuring actions were substantially completed in fiscal year 2024 and were fully paid in early fiscal year 2025.

As disclosed in the Company's recent Annual Report on Form 10-K for the year ended December 31, 2025, in the fourth quarter of 2025, the Company committed to a 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 reduced the Company's workforce, with a portion of the affected employees separating from the business during the current quarter and the remainder expected to separate by the third quarter of 2026.

The Company continues to evaluate the 2025 restructuring plan and may incur incremental restructuring charges through the remainder of 2026 to the extent such charges are determined to be probable and estimable.

The Company incurred $ 1.5 million in cumulative restructuring expenses related to the 2025 restructuring plan.

During the three and nine months ended September 30, 2024, the Company incurred approximately $ 1.4 million of expenses related to the 2022 and 2024 restructuring plans, which were recorded as costs of sales, research and development expenses, and selling, general and administrative expenses on the unaudited consolidated statements of operations.

The restructuring expenses included in cost of sales were allocated to the Security Solutions and Secure Networks segments, totaling $ 0.3 million and $ 0.1 million, respectively.

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 unaudited consolidated statement of operations.

See Note 8 – Intangible Assets, Net for further details.

At each reporting date, the Company evaluated its restructuring expense accrual to determine whether the liabilities reported remain appropriate.

Any changes in the estimated costs of executing the approved restructuring plans are reflected in the Company's unaudited consolidated statement of operations.

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 unaudited consolidated statement of operations.

Summary of Changes in Restructuring Expenses Accrual

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Cash payments ( 380 )

Balance at September 30, 2025 $ —

(1) Restructuring expenses accrual is included within "Accrued liabilities" on the Company's unaudited consolidated balance sheets (see Note 9 - Other Balance Sheet Components for further details).

The Company did not have any restructuring activities or additional impairment charges related to the restructuring plan during the three and nine months ended September 30, 2025.

The period for which tax years are open, 2021 to 2024, has not been extended beyond the applicable statute of limitations.

In September 2024, we were advised by the Internal Revenue Service ("IRS") of 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.

On July 4, 2025, the One Big Beautiful Bill Act (“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 others implemented through 2027.

The enactment of these provisions did not have a material impact on our unaudited consolidated financial statements.

Balance at March 31, 2026 $ 1,071

(1) Restructuring-related liabilities are reported as part of "Accrued liabilities" in the Company's unaudited consolidated balance sheets, see Note 8 - Other Balance Sheet Components for further details.

Recent Accounting Pronouncements

The Company adopted all applicable standards effective as of December 31, 2025, within these unaudited consolidated financial statements, with no material impact as a result of the adoption.

In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU No.

2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosure," which requires public entities, on an annual basis, (1) to disclosure specific categories in the rate reconciliation, and (2) to 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 will be effective, for public entities, for the fiscal year beginning after December 15, 2024, with early adoption permitted.

We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220):

Disaggregation of Income Statement Expenses." This standard requires additional disclosure of certain amounts included in the expense captions presented on the statements of operations, as well as disclosures about selling expenses.

This ASU is effective on a prospective basis, with the option for retrospective application.

All public 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 currently assessing the impact of adopting this ASU on our unaudited 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 unaudited consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326):

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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 elects 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 of this ASU on our unaudited consolidated financial statements.

Entities that elect the practical expedient and the accounting policy election should apply the amendments in this ASU prospectively.

The ASU was effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted.

We adopted the standard in the first quarter of 2026 and the adoption did not have a material impact on our unaudited consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

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We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In addition, 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.

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 unaudited 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 earnings per share ("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, with early adoption permitted.

We are currently assessing the impact of adopting this ASU on our unaudited consolidated financial statements.

In addition, from time to time, new accounting standards are issued by the Financial Accounting Standards Board 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 its financial statements.

REVENUE RECOGNITION

We account for 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.

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 from transfers to customers over time accounted for 77 % and 74 % of our revenue for the three and nine months ended September 30, 2025, respectively, and 78 % and 81 % of our revenue for the three and nine months ended September 30, 2024, respectively.

All of our business groups earn services revenue 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, which may include variable consideration.

For performance obligations in which control does not periodically transfer to the customer, we recognize revenue at the point in time when each performance obligation is fully satisfied.

The majority of our revenue is recognized over time, as control is transferred continuously to our customers, who receive and consume benefits as we perform.

Revenue transferred to customers over time accounted for 71 % and 79 % of our revenue for the three months ended March 31, 2026, and 2025, respectively.

For performance obligations in which control does not continuously transfer to the customer, we recognize revenue when each performance obligation is fully satisfied.

This coincides with the point in time the customer obtains control of the 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 from transfers to customers at a point in time accounted for 23 % and 26 % of our revenue for the three and nine months ended September 30, 2025, respectively, and 22 % and 19 % of our revenue for the three and nine months ended September 30, 2024, respectively.

The change in revenue mix for the nine months ended September 30, 2025, as compared to the prior periods, was primarily driven by an increase in product sales volume from a successful ramp-up of a significant program.

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 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.

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.

Revenue transferred to customers at a point in time accounted for 29 % and 21 % of our revenue for the three months ended March 31, 2026, and 2025, respectively.

The change in revenue mix for the three months ended March 31, 2026, as compared to the prior period, was primarily driven by an increase in product sales volume from a successful ramp-up of a significant program.

Our contracts may include various types of variable considerations 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 adjustments were recorded during the three and nine months ended September 30, 2025, and 2024.

No revenue adjustments were recorded during the three months ended March 31, 2026, and 2025.

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 exceed the total estimated revenue for a performance obligation.

No contract loss was recorded during the three months ended September 30, 2025, and 2024.

We recorded an immaterial contract loss during the nine months ended September 30, 2025, and 2024.

No contract loss was recorded during the three months ended March 31, 2026.

We recorded an immaterial contract loss during the three months ended March 31, 2025.

Disaggregated Revenues

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We treat sales to U.S.

customers as sales within the United States, regardless of where the services are performed.

customers as sales within the U.S.

regardless of where the services are performed.

Substantially most of our revenues are generated from U.S.

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Revenue by Customer Type

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

Amount % Amount % Amount % Amount %

For the Three Months Ended

March 31, 2026 March 31, 2025

Amount % Amount %

(dollars in thousands)

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Revenue by Contract Type

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

Amount % Amount % Amount % Amount %

For the Three Months Ended

March 31, 2026 March 31, 2025

Amount % Amount %

(dollars in thousands)

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federal government.

No other customer accounted for 10% or more of the Company's revenue during the three and nine months ended September 30, 2025, and 2024.

No other customer accounted for 10% or more of the Company's revenue during the three months ended March 31, 2026, and 2025.

Revenue Concentration Greater than 10% of Total Revenue

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

(in thousands)

For the Three Months Ended

March 31, 2026 March 31, 2025

Federal government:

Security Solutions $ 42,333 $ 15,168 $ 94,017 $ 45,040

Secure Networks 4,963 5,439 13,251 27,006

Security Solutions segment $ 42,432 $ 22,652

Secure Networks segment 1,772 4,649

Total $ 44,204 $ 27,301

Contract Balances

Balance Sheet Presentation September 30, 2025 December 31, 2024

Balance Sheet Presentation March 31, 2026 December 31, 2025

(in thousands)

Billed accounts receivable (1)

Billed accounts receivables (1)

Accounts receivable, net $ 9,968 $ 9,375

1 unchanged sentence

Contract assets Accounts receivable, net 454 663

Contract liabilities Contract liabilities 13,732 6,838

Contract liabilities – current Contract liabilities – current portion 18,096 11,223

Contract liabilities – non-current Contract liabilities – non-current portion 951 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 three and nine months ended September 30, 2025, which was included in the contract liabilities balance at December 31, 2024, was $ 1.2 million and $ 5.3 million, respectively.

Revenue recognized for the three and nine months ended September 30, 2024, which was included in the contract liabilities balance at December 31, 2023, was $ 1.2 million and $ 5.7 million, respectively.

As of September 30, 2025, we had approximately $ 65.5 million of remaining performance obligations, which we also refer to as funded backlog.

Revenue recognized for the three months ended March 31, 2026, and 2025, which was included in the contract liabilities balance at December 31, 2025, and 2024, was $ 4.8 million and $ 2.4 million, respectively.

As of March 31, 2026, we had approximately $ 61.9 million of remaining performance obligations, which we also refer to as funded backlog.

We expect to recognize approximately 98 % of our remaining performance obligations over the next 12 months, and the balance thereafter.

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Details of Accounts Receivable, Net

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(in thousands)

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Accounts receivable, net $ 16,425 $ 17,000

(1) Includes provision for credit losses, net of recoveries.

As 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 89 % and 88 % of our billed and unbilled accounts receivable as of September 30, 2025, and December 31, 2024, respectively, were with U.S.

(1) Includes recoveries from credit losses, net of provision.

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 88 % and 85 % of our billed and unbilled accounts receivable as of March 31, 2026, and December 31, 2025, respectively, were with U.S.

federal government customers.

1 unchanged sentence

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.

INVENTORIES, NET

Details of Inventories, Net

September 30, 2025 December 31, 2024

(in thousands)

Gross inventory $ 3,511 $ 1,916

Allowance for inventory obsolescence ( 133 ) ( 133 )

Inventories, net $ 3,378 $ 1,783

We maintain allowances for potential losses, where appropriate.

On March 10, 2026, we entered into a new Factoring Agreement with an unrelated third-party (the "Factor").

Under this Factoring Agreement, we may offer eligible accounts receivable arising from our U.S.

government prime contracts or subcontracts for sale (the "Purchased Receivables") to the Factor, and the Factor may purchase such receivables at its sole discretion, on a non-recourse basis.

These transactions are accounted for as a "true sale" as we have surrendered control over the receivables, and is not obligated to repay all or any portion of the advance amount if any portion of the accounts receivable is not paid by the customers due to an inability to pay.

The total amount of Purchased Receivables is subject to a maximum limit of $ 10.0 million of outstanding Purchased Receivables at any given time.

The initial term of the Factoring Agreement expires on March 10, 2027, and automatically renews annually thereafter unless terminated in writing by the parties.

There were no accounts receivables sold during the three months ended March 31, 2026.

PROPERTY AND EQUIPMENT, NET

Details of Property and Equipment, Net

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value Gross Carrying Amount Accumulated Depreciation and Amortization Net Carrying Value

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Depreciation and Amortization Expense

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

Depreciation and amortization expense $ 457 $ 445

The goodwill balance was $ 17.9 million as of September 30, 2025, and December 31, 2024, of which $ 3.0 million is allocated to the Security Solutions segment and $ 14.9 million is allocated to the Secure Networks segment.

The goodwill balance was $ 3.0 million as of March 31, 2026, and December 31, 2025, allocated to the Security Solutions segment.

Goodwill is subject to annual impairment tests and if triggering events are present in the interim before the annual tests, we will assess impairment.

If the financial performance of our Secure Networks reporting segment remains at the current level for a sustained period of time, and after considering other qualitative factors, there may be a triggering event indicating goodwill may be impaired in our Secure Networks reporting unit.

Accordingly, management may need to perform a quantitative impairment test over the Secure Networks reporting unit to determine if an impairment loss should be recorded which may have an adverse impact on our results of operations.

No impairment charges were recorded for the three and nine months ended September 30, 2025, and 2024.

No impairment charges were recorded for the three months ended March 31, 2026, and 2025 .

INTANGIBLE ASSETS, NET

Details of Intangible Assets, Net

September 30, 2025 December 31, 2024

March 31, 2026

December 31, 2025

Estimated Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

8 unchanged sentences

Total $ 58,033 $ ( 28,225 ) $ 29,808 $ 55,901 $ ( 25,620 ) $ 30,281

(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.

The Company evaluates its intangible assets for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.

During the third quarter of 2024, there were selected capitalized software projects for which the Company decided to discontinue the development and/or sale of all or a 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 and $ 6.4 million was recorded as "Impairment loss on intangible assets" under operating expenses in the Company's unaudited statement of operations for the three and nine months ended September 30, 2024.

For the three and nine months ended September 30, 2025, there were no impairment losses recorded on the Company's software development costs.

Likewise, no impairment losses were recorded on other intangible assets during the three and nine months ended September 30, 2025, and 2024.

(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 the balance sheet date, thus not yet amortized.

Amortization Expense

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

2 unchanged sentences

$ 2,492 $ 1,411

Software development costs – research and development — 588 — 2,286

Other intangible assets - general and administrative 113 113

2 unchanged sentences

OTHER BALANCE SHEET COMPONENTS

Details of Other Current Assets

March 31, 2026 December 31, 2025

(in thousands)

Inventories, net $ 2,890 $ 996

Deferred costs 791 887

Receivables - other — 529

Other — 1,250

Other current assets $ 3,681 $ 3,662

Details of Other Assets

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(in thousands)

4 unchanged sentences

Other assets $ 4,543 $ 4,513

(1) In March 2024, the Company made a $ 3.0 million investment in a privately held company via a simple agreement for future equity.

The Company elected to apply the fair value option on this investment.

The Company believes the fair value option best reflects the economics of the underlying transaction.

(1) In March 2024, we made a $ 3.0 million investment in a privately held company via a simple agreement for future equity ("SAFE").

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, the investment was remeasured to its fair value of $ 3.8 million.

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.

Changes in the fair value of this investment are recognized within "Other income" on the unaudited consolidated statements of operations, if any.

During the three and nine months ended September 30, 2025, and 2024, the Company did not recognize any changes in the fair value.

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 investment of the same issuer, with any gains or losses recorded within "other income" on the unaudited consolidated statement of operations.

We did not note any changes in the fair value during the three months ended March 31, 2026, and 2025.

Details of Accrued Liabilities

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(in thousands)

2 unchanged sentences

Other 1,222 1,160

Other current liabilities $ 7,140 $ 4,449

Accrued liabilities $ 6,614 $ 6,900

REVOLVING CREDIT FACILITY

On December 30, 2022, 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., as administrative agent for the Lenders (in such capacity, the "Agent").

The Credit Agreement provides 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").

("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 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.

Until December 30, 2025, borrowings under the Credit Agreement accrued 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.

or (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.

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Upon five , three , or one day's prior notice, as applicable, we may prepay any portion or the entire amount of the Loan.

We also paid 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.

1 unchanged sentence

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 September 30, 2025.

We were in compliance with all covenants as of March 31, 2026.

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 modified the Credit Agreement to, among other modifications, (a) established 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) established the Revolving Commitment under the Credit Agreement at $ 15.0 million with an expansion feature of up to $ 15.0 million of additional credit capacity, (c) extended the Revolving Credit Maturity Date to December 30, 2026, and (d) required the Company and its subsidiaries to maintain at least $ 5.0 million 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.

STOCK-BASED COMPENSATION

The Company grants stock-based compensation awards under the Amended and Restated 2016 Omnibus Long-Term Incentive Plan (the "2016 LTIP").

We have 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.

The RSUs granted to eligible employees and non-employees generally vest in installments over a period of up to three years .

PSUs will 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.

On May 8, 2025, the Company's stockholders approved an amendment to the 2016 LTIP that increased the number of shares available for issuance under the 2016 LTIP by an additional 4,900,000 shares.

As of September 30, 2025, approximately 1.6 million shares of our common stock were available for future grants 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 unaudited consolidated statements of operations, net of adjustments.

There were no income tax benefits recognized on the stock-based compensation expense for the three and nine months ended September 30, 2025, and 2024.

Details of Stock Compensation Expense by Category

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

On May 7, 2026, the Company's stockholders approved Amendment No.

2 to the Amended and Restated 2016 Omnibus Long-Term Incentive Plan ("2016 LTIP") that increased the number of shares available for issuance under the 2016 LTIP by an additional 5,380,000 shares.

As of March 31, 2026, approximately 0.5 million shares of our common stock were available for future grants under the 2016 LTIP.

There were no income tax benefits recognized on the share-based compensation expense (as reflected on the table below) for the three months ended March 31, 2026, and 2025.

Details of Stock Compensation Expense by Statements of Operations Line Item

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

4 unchanged sentences

Restricted Stock

Restricted Stock Unit Activity

Restricted Stock Activity

Service-Based Performance-Based Total Shares Weighted-Average Grant Date Fair Value

2 unchanged sentences

Vested ( 991,756 ) ( 2,420,691 ) ( 3,412,447 ) 3.42

Forfeited, cancelled, or expired ( 110,916 ) ( 154,649 ) ( 265,565 ) 3.43

Unvested outstanding units as of September 30, 2025 2,161,836 13,192,553 15,354,389 $ 3.24

On February 20, 2025, the Company amended certain previously granted PSUs that could settle in up to 2,462,445 shares of its common stock and would only vest if the Company achieves certain financial performance targets for fiscal year 2025.

The amendment eliminated one of the financial performance targets.

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.

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 current 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 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 expenses for these awards are recognized over the derived service period as determined through the Monte Carlo simulation model (as defined below).

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.

Our key assumptions include a performance period of 1.56 years, an expected volatility of 97.5 %, and a risk-free rate of 3.9 %.

The fair value for these stock price market condition PSUs at the grant date ranges between $ 1.17 – $ 1.51 , and the derived service period ranges between 0.8 – 0.94 years.

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 September 30, 2025, and 2024, the intrinsic value of the RSUs and PSUs outstanding, exercisable, and vested or expected to vest was $ 105.0 million and $ 45.8 million, respectively.

There was approximately $ 17.8 million of total compensation costs related to stock-based awards not yet recognized as of September 30, 2025, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.5 years.

Forfeited ( 27,255 ) — ( 27,255 ) 3.70

Unvested outstanding units as of March 31, 2026 2,155,581 8,441,163 10,596,744 $ 3.27

As of March 31, 2026, and 2025, the intrinsic value of the restricted stock units with time-base vesting ("RSUs") and restricted stock units with performance-based vesting ("PSUs") outstanding, exercisable, and vested or expected to vest was $ 44.4 million and $ 29.5 million, respectively.

There were approximately $ 6.8 million of total compensation costs related to stock-based awards not yet recognized as of March 31, 2026, which is expected to be recognized on a straight-line basis over a weighted-average remaining vesting period of 0.4 years.

Stock Options

2 unchanged sentences

Outstanding option balance as of December 31, 2025 227,000 $ 1.80 7.4 $ 749,100

Granted — — 0.0 —

Exercised — — 0.0 —

Forfeited, cancelled, or expired — — 0.0 —

Outstanding option balance as of September 30, 2025 227,000 $ 1.80 7.6 $ 1,144,080

Exercisable stock options as of September 30, 2025 227,000 $ 1.80 7.6 $ 1,144,080

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 September 30, 2025.

The fair value of the stock options, including the stock options granted to directors, is expensed on a straight-line basis over the vesting period of one year , as the annual stockholders meeting is expected to occur at the same approximate time each year.

As of September 30, 2025, there were no unrecognized compensation costs related to non-vested stock options.

Outstanding option balance as of March 31, 2026 227,000 $ 1.80 7.1 $ 542,530

Exercisable stock option as of March 31, 2026 227,000 $ 1.80 7.1 $ 542,530

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 March 31, 2026, there were no unrecognized compensation costs related to non-vested stock options.

SHARE REPURCHASES

On May 24, 2022, the Company announced that the Board of Directors approved a share repurchase program ("SRP") authorizing the Company to repurchase up to $ 50.0 million of its common stock.

On May 24, 2022, the Company announced that the Board of Directors ("Board") approved a new share repurchase program ("SRP") authorizing the Company to repurchase up to $ 50.0 million of its common stock.

On March 12, 2026, the Board further authorized the Company to repurchase up to an additional $ 25.0 million of its common stock under its existing repurchase program.

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 September 30, 2025, there was approximately $ 31.1 million of the authorization remaining for future common stock repurchases under the SRP.

Share Repurchase Activity

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

As of March 31, 2026, there was approximately $ 47.9 million of the authorization remaining for future common stock repurchases under the SRP.

Share Repurchase Program Activity

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands, except per share and share data)

Amounts paid for shares repurchased (1)

$ 3,637 $ — $ 7,639 $ —

Number of shares repurchased 517,136 —

Average per share price paid (1)

$ 6.23 $ — $ 3.69 $ —

(1) Includes commission paid for repurchases on the open market.

(1) Includes commissions paid for repurchases on the open market.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Details of Changes in the Components of Accumulated Other Comprehensive Loss

Details of Changes in Accumulated Other Comprehensive Loss by Category

Foreign currency translation adjustment Pension liability adjustment Total

1 unchanged sentence

Balance as of December 31, 2025 $ ( 177 ) $ 81 $ ( 96 )

Other comprehensive income before reclassification, net of tax 76 8 84

Balance as of September 30, 2025 $ ( 99 ) $ 54 $ ( 45 )

LOSS PER SHARE

For the period of net loss, potentially dilutive securities are not included in the calculation of diluted net earnings (loss) per share, because to do so would be anti-dilutive.

Potentially Dilutive Securities

For the Three Months Ended For the Nine Months Ended

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

Other comprehensive loss before reclassification, net of tax ( 8 ) — ( 8 )

Balance as of March 31, 2026 $ ( 185 ) $ 81 $ ( 104 )

EARNINGS (LOSS) PER SHARE

Basic EPS is computed by dividing net income (loss) by the basic weighted-average number of common shares outstanding for the period.

Diluted EPS is calculated to give effect to all potentially dilutive common stock equivalents that were outstanding during the reporting period.

The dilutive effects of outstanding common stock equivalents are determined using the treasury-stock and if-converted method, only in periods in which such effect would have been dilutive for the period.

Weighted-Average Number of Shares Outstanding – Earnings per Share

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

Weighted-average number of shares – unvested RSUs, PSUs and stock options 2,972 524 2,073 869

For the three and nine months ended September 30, 2025, and 2024, the outstanding PSUs aggregating to 8,565,699 and 10,710,226 shares, respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon certain conditions that were not satisfied by the end of the period.

Further, an additional 2,206,163 of outstanding PSUs were excluded in the computation of potentially dilutive securities above because they were antidilutive for the nine months ended September 30, 2025.

Basic weighted-average number of shares outstanding 73,822 72,715

Dilutive effect of unvested restricted stock units and stock options 3,793 —

Diluted weighted-average number of shares outstanding 77,615 72,715

For a period of net loss, potentially dilutive securities are not included in the calculation of diluted net earnings (loss) per share, because to do so would be anti-dilutive.

For the three months ended March 31, 2025, the diluted earnings per share calculation excludes 627,612 of potentially dilutive securities that were anti-dilutive.

For the three months ended March 31, 2026, and 2025, outstanding PSUs aggregating 6,235,000 and 10,604,187 , respectively, have been excluded from the calculation of potentially dilutive securities above because the issuance of shares is contingent upon the satisfaction of certain conditions, which were not satisfied by the end of the period.

SEGMENT INFORMATION

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We measure each segment's profitability based on gross profit.

Our Chief Executive Officer, as the chief operating decision maker ("CODM"), 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.

Results of Operations by Business Segment (Quarter)

The Chief Executive Officer ("CEO"), whom we identified as the chief operating decision maker ("CODM"), evaluates the segment's performance based on metrics, such as segment revenue and gross profit, to align with our strategies and objectives, and provide a framework for the timely and rational allocation of resources between the segments.

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 the three months ended March 31, 2026, and 2025.

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.

Results of Operations by Business Segment

For the Three Months Ended

September 30, 2025 September 30, 2024

Security Solutions Secure Networks Total Security Solutions Secure Networks Total

(in thousands)

Revenues $ 46,478 $ 4,966 $ 51,444 $ 18,332 $ 5,451 $ 23,783

Cost of Sales

Depreciation and amortization (1)

2,354 2 2,356 1,488 2 1,490

Impairment loss on intangible assets (1)

— — — 5,333 — 5,333

Stock-based compensation expense (1)

142 12 154 117 ( 2 ) 115

Other segment items (2)

24,696 3,692 28,388 9,084 4,618 13,702

Total cost of sales 27,192 3,706 30,898 16,022 4,618 20,640

Gross profit $ 19,286 $ 1,260 20,546 $ 2,310 $ 833 3,143

Operating expenses

Research and development expenses 1,899 2,409

Selling, general and administrative expenses 21,115 23,225

Impairment loss on intangible assets — 6,373

Total operating expenses 23,014 32,007

Operating loss ( 2,468 ) ( 28,864 )

Other income 511 983

Interest expense ( 136 ) ( 157 )

Loss before income taxes ( 2,093 ) ( 28,038 )

Provision for income taxes ( 21 ) ( 17 )

Net loss $ ( 2,114 ) $ ( 28,055 )

Results of Operations by Business Segment (Year-to-Date)

For the Nine Months Ended

September 30, 2025 September 30, 2024

March 31, 2026 March 31, 2025

Security Solutions Secure Networks Total Security Solutions Secure Networks Total

4 unchanged sentences

2,593 3 2,596 1,501 2 1,503

Impairment loss on intangible assets (1)

— — — 5,333 — 5,333

Stock-based compensation expense (1)

7 unchanged sentences

Selling, general and administrative expenses 14,563 19,633

Impairment loss on intangible assets — 6,373

Total operating expenses 15,920 21,204

Operating loss ( 21,373 ) ( 45,946 )

Operating income (loss) 1,455 ( 9,022 )

Other income 697 561

Interest expense ( 111 ) ( 147 )

Loss before income taxes ( 20,172 ) ( 43,139 )

Provision for income taxes ( 63 ) ( 51 )

Net loss $ ( 20,235 ) $ ( 43,190 )

(1) The significant segment expense categories and amounts align with the segment-level information regularly provided to the CODM.

Income (loss) before income taxes 2,041 ( 8,608 )

(Provision for) benefit from income taxes ( 18 ) 4

Net income (loss) $ 2,023 $ ( 8,604 )

(1) The significant segment expense categories and amounts align with the segment-level information regularly provided by 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 the three and nine months ended September 30, 2025, and 2024.

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.

COMMITMENTS AND CONTINGENCIES

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 business or its unaudited consolidated financial statements as of September 30, 2025.

Other - Government Contracts

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.

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.

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.

SUPPLEMENTAL CASH FLOW INFORMATION

Details of Cash, Cash Equivalents, and Restricted Cash

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(in thousands)

4 unchanged sentences

Supplemental Cash Flow Information

For the Nine Months Ended

September 30, 2025 September 30, 2024

For the Three Months Ended

March 31, 2026 March 31, 2025

(in thousands)

1 unchanged sentence

Interest $ 109 $ 129

Income taxes 39 100

Non-cash investing and financing activities:

Issuance of common stock for 401(k) match $ 2,063 $ 1,619

Capital expenditure activity in accounts payable and other accrued liabilities $ 54 $ 288

Operating lease ROU assets obtained in exchange for operating lease liabilities — 626

Issuance of common stock for 401K match 1,659 2,063

Issuance of common stock for AIP payment 3,987 —

COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

Legal Proceedings

These legal proceedings typically seek various remedies, including claims for monetary damages in varying amounts or unspecified amounts.

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 any such known matters will not have a material adverse effect on the Company's business or its unaudited consolidated financial statements as of March 31, 2026.

Other - Government Contracts

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.

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.

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 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 may also be audited or investigated.

Subsequent Events

On April 29, 2026, the Company announced that John Wood, the President, CEO and Chairman of the Board, was taking a medical leave of absence.

Effective April 28, 2026, Mark Griffin, Executive Vice President, Security Solutions, Mark Bendza, Executive Vice President and Chief Financial Officer, and Hutch Robbins, Executive Vice President and General Counsel (under the oversight of and reporting to the Company’s Board) have assumed the responsibilities of the Chief Executive Officer on an interim basis.

Fred Schaufeld has been appointed by the Board of Directors to serve as its Chairman on an interim basis effective immediately.

The Board and executive leadership team are working closely to ensure continuity of the Company’s operations during Mr.

Wood’s absence.

The Company does not anticipate material disruption to its operations.

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

What changed 10-Q

Item 1. Financial Statements