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Item 1. Business

2021-03-25 compared with 2020-04-13 · 634 added, 288 removed, 29 unchanged (97% of the section changed)

Telos Corporation, together with its subsidiaries (the “Company” or “Telos” or “We”) is an information

technology leader focused on designing and providing advanced technologies to deliver solutions that empower and protect the world’s most demanding enterprises.

We empower our customers with cyber, cloud, and enterprise security solutions and

We protect vital assets that include the critical operational and tactical systems of our customers so that they can safely conduct their global missions.

Our customer base consists primarily of military, intelligence and civilian agencies

of the federal government and NATO allies around the world.

We generate approximately 82.7% of our revenues by delivering these solutions at a fixed price to our

This focus on fixed price delivery has enabled us to significantly reduce life cycle costs for our customers.

We have been able to achieve this by investing in intellectual property development so that we can use automation, when

While we were incorporated in 1971, we liquidated and/or sold our original businesses and refocused on

delivering secure solutions beginning in 1997.

Our Company includes Telos Corporation, Xacta Corporation, Teloworks, Inc., Telos APAC Pte.

Ltd., and a 50% interest in Telos Identity Management Solutions, LLC (“Telos ID”).

We were incorporated in Maryland, our headquarters are located at 19886 Ashburn Road, Ashburn, VA

20147, and our telephone number is (703) 724-3800.

Our website is www.telos.com.

Our mission is to protect critical information assets with solutions and services for cyber, cloud,

and enterprise security.

We believe that our customer focus is the foundation of our success to date.

We also believe that this

focus is critical for the creation of long-term value.

How We Provide Value to Our Customers

We serve our customers by developing solutions that are quickly and efficiently deployed so that our

customers have the assurance that they can safely conduct their vital missions around the world.

Some of the key benefits we offer our customers include:

Protecting and Securing

Whether we are guarding access to systems, networks, communications, or people, our solutions work to protect what is most important to today’s security-conscious enterprises.

Achieving Regulatory

From embedding the latest security standards in our cyber risk management software, to complying with network security requirements on a particular military base, our solutions give our customers confidence in their ability to

meet established security framework and standards.

Ensuring the Reliability

of Operations .

Our testing is comprehensive, assuring our customers of a dependable product when delivered.

Our support is worldwide, extending from helpdesk resources for government agencies and our commercial customers throughout the

country to field support overseas.

Leveraging Customers’

Existing Infrastructure .

Our pre-deployment assessment of our customers’ environments, ranging from secure network site surveys to evaluations of physical security access, assures our customers of the technical and operational compatibility

of our solutions.

Market-driven, Customer-responsive Offerings

Our solution development philosophy involves responding to proven market demand with rapid development and continuous

innovation in an effort to meet and anticipate our customers’ dynamic and evolving requirements.

Consider some of the challenges that face security-conscious organizations today:

Organizations depend on

information and operational technologies.

Organizations depend on increasingly complex information and operational technologies, including mobile and wireless applications, cloud-based resources, industrial IoT, ICS, SCADA, and others.

and applications are hosted on-premises, in the cloud, and in hybrid environments.

Further, the growing integration of information and communications technology (ICT) and operational technology (OT) offers greater control over operational systems but

also expands the overall attack surface of the enterprise.

Organizations are

accelerating their move to the cloud.

The most salient aspect of today’s technology environment is the cloud.

Enterprises are dramatically accelerating the move of applications, storage, and ICT/OT infrastructure to hosted environments.

Having gained more experience with the cloud and with greater confidence in its security, more organizations are taking advantage of the rapid application development, greater flexibility, and strategic agility the cloud offers.

Organizations work across

and beyond the enterprise.

Enterprises are no longer defined by or confined by real estate, geography, or personnel rolls.

Information and

applications are now accessible in the cloud.

Telos Corporation, together with its subsidiaries (the “Company” or “Telos” or “We”), offers

technologically advanced, software-based security solutions that empower and protect the world’s most security-conscious organizations against rapidly evolving, sophisticated and pervasive threats.

Our portfolio of security products, services and

expertise empower our customers with capabilities to reach new markets, serve their stakeholders more effectively, and successfully defend the nation or their enterprise.

We protect our customers’ people, information, and digital assets so they can

pursue their corporate goals and conduct their global missions with confidence in their security and privacy.

Our customer base consists of the U.S.

federal government, large commercial businesses, state and local

governments, as well as international customers.

Our federal government customers include the Department of Defense (“DoD”), the Central Intelligence Agency (“CIA”) and multiple other agencies within the Intelligence Community (“IC”), and multiple

civilian agencies, including the Department of Homeland Security (“DHS”), the U.S.

Department of State (“DoS”), and the Federal Bureau of Investigation (“FBI”).

Our commercial customers include Fortune 500 enterprises such as Amazon.com, Inc.,

Citigroup Inc., Microsoft Corporation, and Salesforce.com, Inc.

We have conducted business with over 350 customers in each of the last three years.

For the year ended December 31, 2020, approximately 50% of our revenue was derived from sole source

contracts or contracts for which we had limited competition.

Our customers are highly targeted by cyber attackers and require continuous real-time insights to make informed decisions about how to effectively balance the constraints of security risk

with the freedom to act and decide in the best interests of the organization and the greater good of the public.

Our advanced security solutions help protect and ensure confidence in the information that is vital to the world’s most important

commercial and governmental organizations, national security, and mission success for the warfighter.

Our revenue growth trajectory began to accelerate in 2018 as we increased our investment into new products and

Our security solutions are the product of the investment of approximately 3,000 man-years developing our intellectual property and highly sophisticated software technology.

These investments helped us expand with commercial customers, as

well as win additional contracts within the military and the IC.

Revenue grew from $107.7 million in 2017 to $138.0 million in 2018 and to $159.2 million in 2019 and to $179.9 million in 2020, representing annual growth rates of 28.1%, 15.4%, and

13.0%, respectively.

Once our security solutions are imbedded in our customers’ technology infrastructure, these customer relationships often expand and lead to us providing additional security solutions.

As a consequence, we believe that our

customer turnover is low and, based on historical experience, approximately 85% of our revenue is recurring, as discussed further below.

We develop our annual budgeted revenue by estimating for the upcoming year our continuing business from existing

customers and active contracts.

We consider backlog, both funded and unfunded (as explained below), other expected annual renewals, and expansion planned by our current customers.

In the context of our current customer portfolio, we view “recurring

revenue” as revenue that occurs often and repeatedly.

In each of the last three years, recurring revenue has exceeded 85% of our annual revenue.

Our total budgeted revenue is the combination of recurring revenue and a forecast of new business.

Total backlog, a component of recurring revenue, consists of the aggregate contract revenues remaining to be earned by

us at a given time over the life of our contracts, whether funded or unfunded.

Funded backlog consists of the aggregate contract revenues remaining to be earned at a given time, which, in the case of U.S.

government contracts, means that they have

been funded by the procuring agency.

Unfunded backlog is the difference between total backlog and funded backlog and includes potential revenues that may be earned if customers exercise delivery orders and/or renewal options to continue these

Based on historical experience, we generally assume option year renewals to be exercised.

Most of our customers fund contracts on a basis of one year or less and, as a result, funded backlog is generally expected to be earned within one

year from any point in time, whereas unfunded backlog is expected to be earned over a longer period.

On November 19, 2020, we completed our initial public offering of shares of our common stock.

We issued 17.2 million

shares of our common stock at a price of $17.00 per share, generating net proceeds of approximately $272.7 million.

We used approximately $108.9 million of the net proceeds in connection with the conversion of our outstanding shares of Exchangeable

Redeemable Preferred Stock into the right to receive cash and shares of our common stock, $30.0 million to fund our acquisition of the outstanding Class B Units of Telos ID, and $21.0 million to repay our outstanding senior term loan and subordinated

We intend to use the remaining net proceeds for general corporate purposes.

We also may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies.

We do not, however, have agreements,

commitments, or plans for any specific acquisitions at this time.

The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors.

Cyber, Cloud, and Enterprise Security

Our mission is to protect our customers’ people, systems, and vital information assets with offerings

for cybersecurity, cloud security, and enterprise security.

In the current global environment, our mission is more critical than ever.

The emergence of each new information and communications technology (“ICT”) introduces new vulnerabilities, as

security is still too often overlooked in solution development.

Networks and applications meant to enhance productivity and profitability often jeopardize an organization due to poor planning, misconfiguration, or an unknown gap in security.

Ransomware, insider threats, cybercrime, and advanced persistent threats continue to menace public and private enterprises across all industries.

Cybersecurity, cloud security, and enterprise security of the modern organization share much in common,

yet also call for a diverse range of skills, capabilities, and experience in order to meet the requirements of security-conscious customers.

Decades of experience in developing, orchestrating, and delivering solutions across these three domains gives

us the vision and the confidence to provide solutions that empower and protect the enterprise at an integrated, holistic level.

Our experience in addressing challenges in one area of an enterprise helps us meet requirements in others.

We understand

that a range of complementary capabilities may be needed to solve a single challenge, and we also recognize when a single solution might address multiple challenges.

Our security solutions span across the following domains:

• Cybersecurity – We help our customers ensure the ongoing

security, integrity, and compliance of their on-premises and related cloud-based systems, reducing threats and vulnerabilities in order to foil cyber adversaries before they can attack.

Our consultants assess our customers’ security environments

and design, engineer, and operate the systems they need to strengthen their cybersecurity posture.

• Cloud Security – The cloud as an organizational resource

is more than two decades old, yet the needs of cloud users are constantly changing.

Telos offers the specialized skills and experience needed to help our customers plan, engineer, and execute secure cloud migration strategies and then assure

ongoing management and security in keeping with the leading standards for cloud-based systems and workloads.

• Enterprise Security – Securing the enterprise means

protecting the essential and timeless elements common to every organization:

its people and processes, its supply chain and inventories, its finances and facilities, and its information and communications.

As ICT and operational technology (“OT”)

have become part of the organizational make-up, we have offered solutions that ensure personnel can work securely and productively across and beyond the enterprise.

Our market includes organizations in business across industry verticals, government, and the military.

We believe that digital transformation is a reality for these organizations and that the ICT systems they depend on for their success and security are subject to unprecedented levels of stress, threat, and attack.

Market-disrupting technologies, a

global pandemic, and economic uncertainty make it difficult for customers to plan for business expansion, develop new programs in service to the public, or prepare military forces for the nation’s defense.

Public and private enterprises alike face

the following dynamic challenges that threaten their security:

dependence on information and operational technologies .

Organizations are increasingly dependent on technology, including mobile and wireless applications, cloud-based resources, industrial internet of things (“IoT”), industrial control systems (“ICS”), supervisory control and data

acquisition (“SCADA”), and others.

transformation and accelerating migration to the cloud .

Enterprises and government agencies are accelerating the migration of applications, storage, and ICT/OT infrastructure to hosted and cloud environments.

More organizations – including highly security-conscious agencies within the

government and commercial entities – are gaining comfort and confidence in the cloud, taking advantage of the rapid application development, greater flexibility, and strategic agility that the cloud offers.

work across and beyond the enterprise .

Organizations

are no longer defined by or confined by real estate, geography, or personnel rosters.

Information and applications are now accessible in the cloud.

Mobile devices free personnel to work wherever their mission takes them.

Employees, contractors, and partners collaborate in the physical and digital domains, trusting that they can rely on the integrity

and trustworthiness of their people and their systems.

The networked nature of enterprise technologies and the ability to work outside the organizational perimeter lead to

greater vulnerabilities, increased risk, and the constant threat of attack.

The cloud in particular adds new complexities due to the shared responsibility of cloud security and the need to manage and maintain the compliance of cloud-based resources.

All of which means that organizations need to understand and manage cyber risk and reduce their attack surface in order to protect their ICT and OT systems and the people who use them.

Solutions for Cyber, Cloud, and Enterprise Security

In response to these trends, Telos offers solutions that secure cyberspace, the cloud environment, and the people and

operations of the enterprise.

These three facets of the modern organization share much in common, yet also call for a diverse range of skills, capabilities, and experience in order to meet the requirements of security-conscious customers.

Telos’ decades-long resume of providing a broad spectrum of technology and security solutions uniquely qualifies us to meet

our customers’ needs in these three areas.

Our experience in addressing challenges in one operation of the enterprise informs our work in meeting requirements in others.

We understand that a range of complementary capabilities may be needed to solve

a single challenge, and we also recognize when a single solution might address multiple challenges.

Our substantive expertise in developing, orchestrating, and delivering solutions across these areas gives us the vision and

the confidence to provide solutions that empower and protect the enterprise at an integrated, holistic level.

Our capabilities in these areas include:

Cybersecurity – Today’s

enterprises need to understand and manage their cyber risk and reduce their cyber attack surfaces.

Telos helps our customers assure the ongoing security, integrity, and compliance of their on-premises and cloud-based systems and to reduce

threats and vulnerabilities to foil cyber adversaries before they can attack.

Our consultants assess our customers’ security environments and design, engineer, and operate the systems they need to strengthen their cybersecurity posture.

Cloud Security – The cloud

as an organizational resource is more than two decades old, yet the needs of cloud users are constantly changing.

Telos offers the specialized skills and experience needed to help our customers plan, engineer, and execute secure cloud

migration strategies and then assure ongoing management and security in keeping with the leading standards for cloud-based systems and workloads.

Enterprise Security –

Securing the enterprise means protecting the essential and timeless elements common to every organization:

Its people and processes, its supply chain and inventories, its finances and facilities, its information and communications.

and OT systems have become part of the organizational DNA, Telos has led with offerings that ensure personnel can work securely and productively across and beyond the enterprise.

Selected Examples of How We Accomplish Our Mission

We protect the systems of our customers through the development and delivery of our Xacta software

Xacta is the premier solution for continuous assessment and authorization, and is used throughout the Department of Defense (“DoD”), intelligence communities and civilian government, as well as by commercial businesses.

We have performed

thousands of certifications and our product has been adopted by numerous enterprises as their solution of choice for risk management and ongoing compliance.

Our success in this area is exemplified by our work with Amazon Web Services (AWS) in

compliance automation for the intelligence community’s highly secure C2S cloud region.

Xacta is eliminating up to six weeks of manual effort with each compliance regulation update and increasing efficiencies in completing Authorizations to Operate

(ATOs), in some cases up to 90 percent faster.

We streamline and automate the process of selecting, applying, and monitoring security controls for

cloud-based systems and applications so that security-conscious organizations can migrate their workloads to the cloud faster and more efficiently.

Our solutions make it easier to automate compliance and generate associated documentation,

streamlining our customers’ ability to demonstrate that they meet the relevant security standards in their respective industries.

We also provide a full complement of enterprise cloud services, including engineering, migration, security, and managed

We offer Telos Ghost, a cybersecurity solution that gives organizations an anonymous way to do

business, connect with global resources, and conduct research online.

Telos Ghost eliminates cyber attack surfaces by obfuscating and encrypting data, masking user identity and location, and hiding network resources.

It is useful for intelligence

gathering, cyber threat protection, securing critical infrastructure, and protecting communications and applications.

We protect and extend the wireless networks of our customers with secure mobility solutions that

reduce their exposure to risk and assure they can safely communicate across the enterprise and around the world.

Our solutions help customers securely connect to any information source, using any device, over any wireless medium, providing access to

real-time information that is secure, accurate, and reliable.

We protect and enhance the communications of our customers through the development and delivery of our

Telos Automated Message Handling System (“AMHS”), which has been adopted by the DoD to carry all official message traffic and is implemented throughout all branches of the military, the intelligence community, and other critical civilian agencies.

AMHS is also used by U.S.

Central Command to meet its critical organization and communications requirements in the CENTCOM Theater of Operations including Iraq and Afghanistan.

Through an exclusive subcontractor relationship with our subsidiary Telos ID, we

assess, design, and deliver identity and access solutions to protect national security assets, people, and facilities.

Among these programs is the leading TSA-designated aviation channeling (DAC) service for the U.S.

aviation industry, serving over

90 commercial airports, airlines, and general aviation customers.

Telos ID aviation partners are expanding use of DAC services to include Rap Back and our recently introduced offering, iSFV, a Secure Flight Vetting service.

Telos ID also supports the

premier federal identity application, which has issued over 46,000,000 smart card based secure credentials for active duty uniformed service personnel, Selected Reserve, DoD civilian employees, and eligible contractor personnel.

Additionally, we

provide near real-time data collection on personnel movement and location information for operating forces, government civil servants, and government contractors in specified operational theaters.

This system has captured over 636,000,000 scans by

more than 3,000,000 U.S.

Government, U.S.

Military and company contractor personnel since its inception.

Telos ID also provides nationwide identity verification, fingerprinting and photo services across the nation in support of the 2020 Census, and

was recently awarded a 10-year contract to provide enrollment services in support of the TSA Precheck™ Expansion Program and anticipates launching services under this program in the fall of 2020.

We would not be able to design, deliver, install, and support any of our solutions without our

They are a vital element of our success.

We provide competitive pay and benefits and a work environment that promotes employee retention.

The Technology Behind Our Solutions

We employ development and production methodologies such as Agile and ISO 9001 to ensure

predictability, repeatability, and quality.

Techniques such as continuous integration are employed to accelerate the solution development and testing process while at the same time reducing cost and improving quality.

We believe such

techniques are critical for providing our customers with a high quality user experience.

Architecture:

The nature of our customers’ missions requires our solutions to be highly secure and scalable.

Aside from architecting our solutions with these core objectives in mind, we also employ open standards and technologies that afford a high degree of flexibility and interoperability needed to support web-based and netcentric operations.

Intellectual Property

We invest in the creation of intellectual property and employ various forms of legal intellectual property protection

mechanisms including the use of copyright, trademark, patent, and trade secret laws in North America and other jurisdictions.

We have intellectual property reviews as an integral part of our development process in order to identify intellectual

property as early as possible in the development process so the appropriate form of protection can be obtained.

We also vigorously control access to intellectual property via physical and logical protection mechanisms.

All of our employees sign

agreements that govern intellectual property ownership and confidentiality.

We also enter into intellectual property, confidentiality and non-disclosure agreements with partners and other third parties.

Patents, Copyright, Trademarks, Trade Secrets and Licenses

We have made it a practice of obtaining patent, copyright and/or trademark protection on our products, processes and marks

where possible.

We own a number of patents and copyrights, which we believe to be of material importance to the Company.

Our patents and copyrights extend for varying

periods of time based on the date of application or registration.

Generally, registered copyright protection continues for a term of at least 70 years.

Trademark and service mark protection for registered marks generally continues for as long as the

marks are used.

We treat a portion of our intellectual property as trade secrets and implement appropriate strategies to protect those assets.

Telos, Telos Ghost, and Xacta are trademarks of Telos Corporation.

contractors, and partners collaborate in the physical and digital domains, trusting that they can rely on the integrity and trustworthiness of their people and their systems.

technology environment due to COVID-19.

The COVID-19 pandemic has accelerated the growth of the remote workforce and thus, cyber risk.

Existing technologies

for mobility are being stretched to the limit, and enterprises are facing dramatic growth in cyber-attack risk as a result of personnel and systems that are still adjusting to an increasing number of workers accessing systems remotely.

Ransomware, phishing attempts, and inadequate virtual private networks (“VPNs”) all contribute to a significant increase in threats and vulnerabilities.

The networked nature of enterprise technologies and the ability to work outside the organizational

perimeter result in increased risk and the constant threat of attack.

In particular, the cloud adds new complexities due to the shared responsibility of cloud security and the need to manage and maintain the compliance of cloud-based resources.

Our solutions across a wide variety of use cases are designed to address our customers’ proliferating

need to understand and address cybersecurity risk, reduce the organizational attack surface, enhance enterprise mobility, expand adoption of cloud computing, and manage and protect identities in an increasingly dynamic and intensifying threat

By addressing the breadth of our customers’ complex and evolving needs, we believe that our total addressable market in 2021 for the security services and products that we provide is over $80 billion.

Our Offerings

We refer to our cyber and cloud applications as Security Solutions, which includes Information Assurance

/ Xacta®, Secure Communications, and Telos ID.

We refer to our offerings for enterprise security as Secure Networks.

Security Solutions

Assurance / Xacta:

a premier platform for enterprise cyber risk management and security compliance automation, delivering security awareness for systems in the cloud, on-premises, and in hybrid and multi-cloud environments.

delivers automated cyber risk and compliance management solutions to large commercial and government enterprises.

Across the U.S.

federal government, Xacta is the de facto commercial cyber risk and compliance management solution.

Secure Communications:

a virtual obfuscation network-as-a-service with encryption and managed attribution capabilities to ensure the safety and privacy of people, information, and resources on the network.

Telos Ghost seeks to eliminate cyber-attack

surfaces by obfuscating and encrypting data, masking user identity and location, and hiding network resources.

It provides the additional layers of security and privacy needed for intelligence gathering, cyber threat protection, securing

critical infrastructure, and protecting communications and applications when operations, property, and even lives can be jeopardized by a single error in security.

Automated Message Handling System (“AMHS”):

web-based organizational message distribution and management for mission-critical communications;

the recognized gold standard for organizational messaging in the U.S.

AMHS is used by military field operatives for critical communications on the battlefield and is the only web-based solution for assured messaging and directory services using the Defense Information System Agency’s (“DISA”) Organizational

Messaging Service and its specialized communications protocols.

Identity Trust and Digital Services through IDTrust360® – an enterprise-class digital identity risk platform for extending software-as-a-service (“SaaS”) and custom digital identity services that mitigate threats through the integration of

advanced technologies that fuse biometrics, credentials, and other identity-centric data used to continuously monitor trust.

We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck ®

enrollment provider, Designated Aviation Channeling provider, FBI-approved Channeler, and the Financial Industry Regulatory Authority (“FINRA”) Electronic Fingerprint Submission provider.

We are the only commercial entity in our industry

designated as a Secure Flight Services provider for terrorist watchlist checks.

Secure Networks

solutions for business and government that enable remote work and minimize concern across and beyond the enterprise.

Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience

as well as highly desirable clearances and industry recognized certifications for network engineering, mobility, and security.

Management and Defense:

services for operating, administrating, and defending complex enterprise networks and defensive cyber operations.

Our diverse portfolio of capabilities addresses common and uncommon requirements in many

industries and disciplines, ranging from the military and government agencies to Fortune 500 companies.

Xacta Overview

Xacta delivers automated cyber risk and compliance management solutions to large commercial and

government enterprises.

Xacta is sold as a solution, which includes Xacta technology and Xacta subject matter experts (“SMEs”) to help with deployment, on-going support, and training to ensure rapid and long-term customer success.

Our solution-based

business model provides predictable, recurring, and growing revenue year-on-year.

Xacta disrupted the cyber risk and compliance management industry 20 years ago.

When it was first

introduced, Xacta represented a new way of doing business that challenged the inefficient labor-intensive business models of traditional consultants and government contractors who charge by the hour.

We have developed and evolved Xacta over the past two decades to make security risk and compliance

activities more efficient through workflow-based automation.

Many cyber risk and compliance management activities can be automated, which greatly reduces the need for inefficient Time and Materials (“T&M”) services.

More importantly, we believe

that certain critical capabilities like continuous monitoring are effectively impossible without automation.

Xacta is the de facto commercial cyber risk and compliance management solution across the U.S.

Noteworthy U.S.

government enterprise customers include DoD, multiple agencies within the IC (including the CIA), and civilian agencies such as DHS, DoS and the FBI.

Xacta cloud security is also being adopted by very large commercial

organizations like Amazon Web Services (“AWS”) and Microsoft Azure.

Across these government and commercial customers, we currently have hundreds of Xacta deployments used

to manage tens of thousands of mission critical/national security systems that are comprised of millions of critical information technology (“IT”) assets and cloud resources.

There are also more than 20,000 cyber security professionals who actively

use Xacta to manage cyber risk for a wide range of IT/information systems in warfighting, intelligence, business/financial, and healthcare applications.

In 2016, at the request of the CIA, we evolved Xacta from an on-premises cyber risk and compliance

management solution, used to manage traditional IT assets, to a solution that also manages cloud resources.

As a result, we believe that Xacta is unique in its ability to manage complex hybrid IT environments that span on-premises, cloud, and

Our cloud focus has attracted the attention of the largest cloud and cloud service providers in the world, many of which are now our partners and customers.

These partnerships have greatly increased our market opportunity, as many

organizations look to migrate to the cloud.

Security compliance remains a major inhibitor to cloud adoption.

Xacta addresses this issue by automating and accelerating security compliance activities allowing organizations to migrate to the cloud more

quickly and securely.

Recognizing these advantages, the two largest cloud providers in the world, AWS and Microsoft Azure,

have partnered with Telos to use Xacta to accelerate security compliance activities in their air-gapped and global sovereign cloud environments to help hundreds of thousands of regulated organizations address security risk and compliance much more

Our cloud focus has also resulted in significant partnerships with other cloud organizations, such as

Rackspace Technology, Inc., which are helping SaaS vendors address cloud compliance requirements, including the Federal Risk and Authorization Management Program (“FedRAMP”), which is required by the federal government for all SaaS solutions.

are thousands of potential SaaS applications needed by the federal government.

These organizations understand that Xacta’s ability to reduce the security compliance burden helps accelerate cloud adoption and generates cloud usage and revenue more

To this end, Xacta’s capabilities are viewed as a strategic advantage by these cloud-centric organizations.

Managing cyber risk is top-of-mind for many organizations today.

There is an increasing number of

security standards and regulations with which global organizations must comply.

The National Institute of Standards and Technology (“NIST”) is the source for many security standards that are being adopted globally.

Telos, using Xacta, has specialized

in supporting NIST-based standards for nearly 20 years.

We have been considered by a leading, third-party consultancy to be NIST-based cybersecurity domain experts.

Xacta’s Critical Capabilities

Xacta offers a number of critical and differentiated capabilities that support a wide range of cyber

risk and compliance management use cases, such as:

Automated asset inventory - helps quickly define IT boundary/parameters and establish audit/test plans.

Automated control validation - reduces manual test efforts.

Automated continuous control monitoring - offers ongoing assurance of compliance.

Vulnerability management functionality - understand vulnerabilities that apply to IT environments.

Remediation management - workflow to help organizations prioritize risk, establish remediation plans, and track remediation progress

Automated regulatory report generation - reduces manual effort needed to create regulatory reports (bi-product of the workflow

Cloud integration - allows Xacta to manage cloud-based resources (multi-cloud environments) as well as on-premises assets.

Cloud deployment - allows Xacta to be deployed as a SaaS, Virtual Machine Image (“VMI”), Amazon Machine Image, and Microsoft Azure

VMI, as well as on-premises.

Intelligent workflow - Artificial Intelligence (“AI”)-like functionality reduces the need for manual intervention.

Predictive control mapping - AI-like functionality helps reduce redundant control testing and manual control mapping effort to help

address audit fatigue.

Automated control inheritance - allows organizations to share common compliance information - cloud providers share common controls

with customers as per the shared responsibility model of cloud security - which greatly reduces manual effort and enables rapid cloud adoption.

Visualization and reporting - reduces dependency on third-party business intelligence products.

End-to-end workflow capabilities - support for complex system authorization processes like FedRAMP and the NIST Risk Management

Framework, dramatically reducing time, cost, and effort.

Evidence of security posture compliance - designed to provide the body of evidence needed for regulatory or legal proceedings and

insurance claims to verify security posture compliance with industry best practices at the time of an event.

Xacta Evolution

Xacta was launched in August 2000 and was the first automated solution of its kind.

Xacta was initially

created to help U.S.

government organizations satisfy demanding security risk and compliance management requirements.

Over the years, commercial and international demand for the Xacta solutions provided by Telos has grown rapidly.

In 2004, Xacta was enhanced to provide industry-first automated continuous monitoring functionality.

Between 2002 and 2005, Telos was issued five patents in the area of security risk and compliance management, including one patent for what is now known as continuous monitoring.

Since then, numerous technical enhancements have been made to Xacta,

some of which are described above in “Xacta’s Critical Capabilities.”

Xacta supports other NIST frameworks such as the NIST Cybersecurity Framework (“CSF”), which was

established in 2014 via Executive Order 13636 to help commercial organizations in the 16 DHS-defined critical infrastructure sectors improve their cyber risk posture.

Executive Order 13800, issued in 2017, requires federal agencies to adopt the CSF,

and it is also being adopted by many countries as a national cybersecurity standard.

Xacta also currently supports various vendor/supply chain risk management standards such as NIST Special

Publication 800-161 and NIST Special Publication 800-171.

NIST 800-171 is a contractual requirement for approximately 70,000 commercial companies that support the U.S.

federal government.

Xacta will also support an emerging standard called Cybersecurity Maturity Model Certification, which

will soon be required by approximately 300,000 commercial organizations that support DoD.

Xacta has highly customizable workflows that can be configured to support most any cybersecurity/risk

and compliance management frameworks.

To that end, Xacta can support national and international security compliance standards such as HIPAA, PCI-DSS, ISO 27000, and many others.

Xacta does not require a customer to abandon (i.e.

rip and replace) its existing solutions - rather it

works with the customer’s prior software choices and uses those software choices as data feeds so that Xacta can perform automated (and continuous) security compliance validation.

Xacta use cases include audit management, compliance management, inventory management, vulnerability

management, continuous compliance monitoring, vendor/supply chain risk management, cyber risk management, risk remediation management, and security authorizations.

These use cases are broadly applicable across industry verticals globally and help

explain the large and expanding market in which Xacta participates.

Our goal is to make Xacta the default security risk and compliance management solution of choice for

commercial and government entities across the globe that seek continuous compliance with cybersecurity and risk management frameworks and standards.

Telos Ghost Overview

As cyber threats have increased in scope and scale and the consequences of hacks and breaches have

grown, we have developed a solution that enables organizations to work on the internet without being detected.

In 2018, we introduced Telos Ghost, which allows our customers to shield communications, transactions, and even their very presence on the

web from the view of cyber adversaries.

Conceived on the notion that “you can’t exploit what you can’t see,” Telos Ghost provides organizations

a virtually anonymous way to do business, connect with global resources, and conduct research online.

Telos Ghost is a virtual obfuscation network-as-a-service that:

obscures and varies network pathways to prevent adversaries from tracking users and information.

uses multiple layers of encryption to protect information and remove source and destination IP addresses, eliminating network paths

back to the source.

enables users to manage their technical and non-technical persona to disguise their identity and location.

hides critical network resources using cloaked capabilities for email, storage, unified communications, and other applications.

Telos Ghost seeks to eliminate cyber-attack surfaces by obfuscating and encrypting data, masking user

identity and location, and hiding network resources.

It provides the additional layers of security and privacy needed for intelligence gathering, cyber threat protection, securing critical infrastructure, and protecting communications and

applications when operations, property, and even lives can be jeopardized by a single error in security.

Telos Ghost Critical Capabilities

Private Web Access:

Secure anonymous

Internet access.

Telos Ghost disguises the identity and location of personnel when using the public web for cyber threat intelligence and competitive research.

It provides users with dynamic access for every session and assures that

traffic securely traverses the virtual private lines of Telos Ghost.

Scalable and flexible, Telos Ghost Private Web Access allows users multiple points of international or domestic egress to the public internet based on customer requirements.

Traffic mixing and misdirection techniques are designed to ensure that activity remains anonymous, obscure and private.

Private Network Access:

security with VPN flexibility.

This capability is designed to allow authorized users to work with mission-critical enterprise information without being seen or discovered.

It enables the establishment of sustainable cybersecurity

infrastructure, providing multi-layered secure tunnels for data traffic and obscuring the correlation between the entry doorways and the client cloud from external observers.

Software and system agnostic and accessible from nearly any device

and location, Telos Ghost Private Network Access is designed to provide a full security solution while maintaining existing encryption and software services.

Cloaked Services:

Hidden unified

mobile communications, storage, and applications.

Telos Ghost also provides remote users with the ability to securely talk, text, email, store information, and use video and applications over nearly any mobile device.

These abilities

include fully encrypted geo-masked hidden mobile communications for device-agnostic voice, video, chat, and data;

hidden storage to store, analyze, and collaborate privately and securely within Telos Ghost;

and hidden email and applications

that cloaks the servers for access only by Telos Ghost users.

Telos Ghost Applications

Cyber threat research.

Ghost provides members of a U.S.

government organization with an isolated networking infrastructure that enables red team members to operate securely and privately without attracting unwanted attention.

Open source intelligence.

government organization uses Telos Ghost to securely conduct open source cyber threat intelligence analysis.

Supply chain security vulnerability

A security company that vets the vulnerability of supply chains in the Defense Industrial Base uses Telos Ghost to inspect the digital connections of the supply chain online, safe from observation by adversaries that

might otherwise evade discovery.

Worldwide investigative and recovery

A commercial firm uses Telos Ghost for cloaked online research and voice communications over mobile devices to enable secure, privatized communications as they track and recover property from nefarious actors.

Telos AMHS is used by military field operatives for critical communications on the battlefield.

1999, it has been one of our signature security solutions and has been one of the most widely used organizational messaging products in DoD and other agencies charged with defending U.S.

national security.

Telos AMHS is designed to support a range of secure messaging services to a worldwide community of U.S.

military, government, and allied customers operating in both strategic and tactical environments.

It is used to securely transmit messages that provide direction and establish a formal position, commitment, or response requiring the authority of an

organization, rather than an individual, including:

Military command and control;

Cross-border authorizations;

Exchanges between military forces of sovereign nations;

High-level policy, procedure, or directives;

Response to legal, sensitive, or personnel matters.

Because Telos AMHS supports timely and reliable delivery for authoritative communications, its uses

include terrorist warnings, “eyes-only” messages, military execution orders, intelligence information, overflight clearances, and Emergency Action Messages for nuclear command and control.

Information exchange at this level and for these purposes

requires operational requirements for time-sensitive, guaranteed delivery, precedence, high availability, and reliability.

Telos AMHS is the only web-based solution for assured messaging and directory services using the DISA’s

Organizational Messaging Service and its specialized communications protocols.

With Telos AMHS, users are able to send and receive rich-text messages across security domains and in different formats using plain language addressing.

Users can search

messages, archive messages, and send attachments up to 200MB to accommodate photos and videos, including those of terrorists, most wanted notices, maps, and satellite images.

More than fifty organizations around the world depend on Telos AMHS, including the Joint Staff,

combatant commands, military services, defense agencies, federal agencies, and the IC.

Telos AMHS provides a proven return on investment over alternative organizational messaging offerings and has been implemented on a SaaS basis by an increasing

number of organizations.

Telos ID Identity Offerings

Telos ID Overview

Telos ID provides trusted identity and digital services that are critical for the delivery of vital

citizen services that millions of Americans rely on each year.

Access to these vital services requires a robust and reliable infrastructure comprised of advanced technologies, facilities, and professional staff members that can effectively deliver

these services around the world.

We have transformed the Telos ID business model by leveraging a SaaS approach.

We utilize our

partnerships with AWS and ServiceNow, and we have fully integrated a robust suite of customer service, cybersecurity, and performance monitoring tools that align with DHS’s Continuous Diagnostics and Mitigation (“CDM”) Program that are designed to

enable us to quickly deliver SaaS or turn-key solutions to our federal customers.

Our digital platform extends web, mobile, and client applications that also drive professional services and product licensing opportunities.

Our services are

differentiated because our back-end system is intended to interface with critical homeland security and law enforcement systems and are tightly coupled with a mature, modern cloud-based platform that can scale to support large federal, state, local,

and commercial programs.

We maintain government certifications and designations that distinguish Telos ID, including TSA PreCheck ®

enrollment provider, Designated Aviation Channeling provider, FBI-approved Channeler, and the FINRA Electronic Fingerprint Submission provider.

We are the only commercial entity in our industry designated as a Secure Flight Services provider for

terrorist watchlist checks.

Our strategic partners offer retail and on-demand service channels that further differentiate our

Our established global logistics infrastructure provides responsive supply chain support.

We operate a full-service call center with chat-bots, AI, and virtual agent support, all of which contribute to scalability.

Our network and security

operations centers align with U.S.

Computer Emergency Readiness Team and CDM best practices.

Telos ID Applications and Use Cases

Military ID .

than 25 years, Telos ID’s identity trust services have provided access to health care, commissary services, and critical defense resources for more than 2,000,000 military members, their dependents, and civilian employees through use of the

Common Access Card (“CAC”).

We operate more than 250,000 components that comprise 7,000 end-user systems deployed around the world to nearly 2,000 military installations.

We provide near real-time data collection support on personnel movement

and location information for operating forces, government civil servants, and government contractors in specified operational theaters.

This system has captured over 636,000,000 scans of government, U.S.

military, and contractor personnel

since its inception.

Our logistics infrastructure provides responsive 24-hour delivery of components to our warfighters deployed across the globe, and we custom-build our identity, credentialing, and access management solutions to function

effectively in austere environments that demand reliability and performance at all times.

TSA Airport Employee Vetting .

Historically, more than 300,000,000 airline passengers’ travel experiences have been handled by more than 1,500,000 aviation workers who are screened through Telos ID’s aviation channeling service.

As one of only two authorized aviation

channeling providers in the market, we offer our aviation partners innovative biometric, identity trust, and customer service technologies that are critical to the operation of more than half of the largest airports in the nation.

support nearly 100 commercial airports, airlines, and general aviation customers, and our Independent Secure Flight Vetting technology provides a secure vetting service for non-travelers who need to access secure areas of an airport.

the first commercial company in the United States to implement the FBI’s Rap Back service, enabling our aviation partners to perform continuous monitoring for insider threat detection.

Census Bureau Enumerator

For the 2020 U.S.

Census, we have processed more than 1,000,000 enumerators through our 1,100 identity service centers.

Telos ID extends digital identity verification, fingerprinting, and photo services across the nation

in support of 2020 Census hiring initiatives.

We custom designed and deployed more than 1,300 desktop, kiosk, and mobile workstations that are operated by thousands of Census-cleared staff members.

At the peak, Telos ID’s managed service

supported more than 30,000 appointments per day, and our customer call center handled more than 35,000 daily calls at the peak.

TSA PreCheck ® Enrollment Screening .

Telos ID’s recent award of a 10-year contract to provide enrollment services in support of the TSA PreCheck ®

Enrollment Program presents a large, high-profile opportunity for us, and we are preparing to launch services under this program in early 2021.

The TSA PreCheck ® contract is an important example of a government-sponsored, consumer

facing opportunity, in which we provide PreCheck ® enrollment services to individual, fee-paying applicants.

Telos ID’s service will engage with the world’s leading airline, hospitality, credit card, ride share, and other Fortune

500 businesses to provide consumer marketing and loyalty program tie-ins to promote the PreCheck ® program.

In addition, this program is expected to feature an omni-channel market approach that leverages advanced digital services to

reach our customers across several market segments.

CMS Healthcare Provider Screening .

Telos ID was recently awarded a 10-year contract to provide technology and service solutions that detect, prevent, and proactively deter fraud, waste and abuse in the Medicare and Medicaid programs.

Telos ID’s digital identity trust platform

and digital services is expected to offer critical technology necessary to identify and mitigate fraud across the United States.

Each year, approximately 1,500,000 health care providers are required to undergo FBI-based non-criminal history

checks requiring identity trust services, including identity verification, fingerprinting, and continuous monitoring.

Telos ID's digital trusted identity platform -- IDTrust360® -- is a leading, fully integrated suite

containing IoT, Machine Learning (ML), AI, and other advanced cloud-hosted products and services that deliver identity trust, multi-modal biometric capture and matching, identity assurance, identity vetting, document validation, credentialing,

personnel security, case management, call center support, cyber security, network and security operations, service management, integrated logistics, and numerous other features and functions.

Its open architecture is supported by a flexible API

gateway and a robust workflow engine that can efficiently extend individual services or offer the entire platform as a SaaS or turn-key solution for our customers.

IDTrust360® is the only commercially owned and operated platform on the market with

direct interfaces to the FBI's criminal records, DHS's terrorist watch list service, Treasury's pay.gov, other government identity risk management systems, and numerous commercial identity, intelligence, and risk-based data sources.

We are actively

engaged with federal customers to integrate vital event records, government identification document records, and other fingerprint-based biometric records hosted across multiple agencies.

This enables Telos ID exclusively to offer NIST-compliant

digital identity services aligned with federal security mandates.

IDTrust360 ® extends web, mobile, and client applications within a fully integrated low-code development environment for rapid application development.

The environment meets

FISMA High certification standards and is NIST SP 800-53 certified within multiple federal agencies, while boasting 99.998% availability performance and enterprise-level scalability.

IDTrust360 ® leverages leading cyber security and network

monitoring tools aligned with DHS Continuous Diagnostics & Mitigation and industry best practices for strengthening network defense and enhancing the resiliency of our infrastructure necessary for managing and protecting millions of identity

records, sensitive information, and end-point hardware components deployed across thousands of sites around the world for customers operating within defense, homeland security and law enforcement, financial, health, commerce, transportation, retail,

and other market segments.

Secure Mobility

Nearly 20 years ago, we were the first non-government solutions provider to receive approval to design

and deliver secure wireless solutions to DoD.

That authorization to operate enabled us to build a very large footprint within DoD and the U.S.

As a result, we have a long track record of enabling our customers to work remotely and

Given the depth of our relationships, when one of our customers elects to modernize its remote mobility infrastructure, it frequently chooses to work with us.

Within the U.S.

Air Force and supporting DoD communities, we have designed and

delivered enterprise-level secure mobile networks on every active duty, Air National Guard, and Air Force Reserve site worldwide.

Our secure mobility team brings credentials to every engagement, supplying deep expertise and experience

as well as highly desirable clearances and industry recognized certifications for network engineering, mobility, and security.

We also foster and maintain key industry partnerships, offering insight into technology advances and early access to new

secure mobility solutions.

Network Management and Defense

On a managed basis, we offer a broad suite of services needed to operate, administer, and defend complex

enterprise networks, giving our customers the benefit of these capabilities without having to commit to the cost and burden of providing the services for themselves.

We have the expertise to manage and defend large-scale enterprises and have been

successful at hiring and retaining personnel with the necessary key skills and security clearances.

Our Competitive Strengths

Leading cybersecurity company with a

long history of providing security solutions to the most sophisticated customers .

We have been providing security solutions, specializing in the area of cybersecurity, since 1995.

Our customers include some of the most

security-conscious organizations in the world, including the IC.

For example, we believe that our award-winning Xacta offering is the dominant commercial risk management solution in the federal government space and is increasingly being

adopted in the commercial sphere, notably by leading cloud providers such as AWS and Microsoft Azure.

Additionally, Telos Ghost gives organizations and individuals the ability to hide in plain sight, eliminating attack vectors from hackers

through obfuscation and mis-attribution.

And, we believe our Telos ID identity offerings are market disruptors that present large opportunities for growth.

Superior security solutions and

capabilities .

Our solutions are designed for both government and commercial industries and are configured to operate in highly sensitive, highly classified environments, serving some of the most demanding, secure organizations in the

Our solutions are flexible, and can be deployed in various ways, including on premises, in the cloud, or in hybrid or multi-cloud environments.

Proven ability to win and retain

large contracts and enterprise-level deals, providing clear visibility into future revenue and profitability .

We have over 20 active acquisition contracts and vehicles, thousands of active contracts and purchase orders, and more than

350 customers in each of the last three years.

These contracts, vehicles and customers present a solid platform for growth.

As but one example, we have provided IT security support to the Defense Manpower Data Center (“DMDC”) under a variety

of contract vehicles since 1995, and this program accounts for annual revenue at a historical average of approximately $28 million over the last five years.

We also have proven repeatedly our ability to deploy our security solutions at the

enterprise level for both federal and commercial organizations.

These long-term contract relationships provide predictable, recurring revenue at attractive margins.

Our substantial investments into

technology and automation can be expanded beyond our core market .

Our solutions are built to help our customers be more secure, more efficient, and more effective.

We have made investments across the company to take advantage of

efficiencies and automation through scalable security solutions that are market driven and market proven.

In contrast to traditional cybersecurity businesses with a focus on government customers, we own the intellectual property developed

through our R&D initiatives and can deploy our technology solutions across our entire public and private sector customer set.

The ability to offer our solutions beyond the U.S.

federal government sphere is a key enabler of our strategy to

grow and expand our relationships with commercial customers.

Strong relationships with our

We are a customer-centric organization and pride ourselves on our close customer relationships.

We have longstanding relationships with DoD, civilian agencies of the federal government, and the IC that date back more than

Since 1995, our security solutions have been adopted by many defense, intelligence, civilian agency, and commercial customers, and we believe that the Telos brand has become synonymous with trust.

Respected, experienced management

Our executive officers have an average tenure at Telos of approximately 21 years.

The team is comprised of personnel with extensive military, federal government, and commercial backgrounds who are directly familiar with

customer needs.

Our management team also includes senior professionals who are experienced in developing commercial software solutions and leading technical teams throughout the development process.

COVID-resistant business .

support mission critical operations.

Because of this and the growth of remote workforces as a result of the COVID-19 pandemic, we believe, based upon our 2020 financial performance to date, that our business is relatively COVID resistant.

Additionally, the automation provided by our solutions can help customers do more with less as they are forced to downsize their staffs because of the pandemic.

Automation is now even more critical to efficiently manage a business, including

with respect to cyber risk and regulatory compliance, which should result in additional demand for our security solutions.

Our Growth Strategies

We are pursuing multiple strategies in order to grow the company, in both our commercial and government

business end markets in the United States and abroad.

Our key strategies are:

Leverage our diverse security

solutions to expand our presence in commercial markets .

Our offerings are designed to have broad application and include security risk and compliance, secure messaging, identity vetting, and managed attribution and obfuscation.

believe that we are well-positioned to sell our capabilities into a dynamic and growing commercial opportunity set and to innovate to address emerging and unique requirements.

For example, we have leveraged core Xacta functionality to meet

the needs of large financial services and CRM firms.

We have also leveraged our U.S.

federal government identity management qualifications to improve the speed and accuracy of vetting results for nearly 100 airports, air carriers, and general

aviation across the country.

We intend to continue to innovate and are developing additional offerings for cloud, mobile, and IoT devices.

Grow our revenue and expand margins

by building robust sales channels .

In recent years, we have formed an inside sales organization that serves as both the direct channel to a wider account universe and an effective and efficient training program to grow our field

sales organization.

We plan to expand our partner program to include a variety of channels, including resellers, integrators, and contract partners to help us more quickly gain access to new markets, particularly commercial and international.

For example, both Telos Ghost and Xacta are now available through various AWS and Microsoft Azure marketplaces, serving regions around the world and markets requiring varying levels of security.

We plan to grow our direct sales team and to

accelerate the expansion of these channel partner initiatives, which we anticipate will drive revenue growth and material gross margin expansion.

Target and replace inefficient legacy

Recognizing the limitations of their legacy systems, organizations are replacing existing systems and processes with our solutions.

For example, Telos AMHS is a web-centric system that replaced legacy capabilities like

communications centers for the purpose of executing operational orders (through organizational messaging) across the U.S.

federal government and around the world.

Xacta has disrupted the cyber risk and compliance management business across

federal government, replacing tedious manual activity with automation and delivering that automation to meet our customer’s needs flexibly on premises, in hybrid environments, in the cloud, and across multi-cloud infrastructures.

Broaden reach within the U.S.

We have historically focused on the U.S.

federal government and believe that we are an established leader in providing security solutions to federal agencies, including DoD and the IC.

Nonetheless, we believe the U.S.

federal government represents a significant growth opportunity, and we expect to continue to invest in products to serve additional customers in this vertical.

For example, Xacta is included on DHS’s CDM Approved Products List to provide

federal agencies with innovative security tools, which we believe presents us with an excellent opportunity to pursue contracts with additional federal agencies.

In addition, our platform is available for use in the AWS GovCloud (US) and

Azure Government.

Expand our international footprint .

We are expanding our international operations and intend to invest globally to broaden our international footprint.

We are currently working with countries such as Canada, Singapore, Australia, and Bahrain to offer Xacta to address cyber risk

and compliance management capabilities.

We are also working to expand AMHS to all NATO countries and to offer Telos Ghost internationally.

We intend to grow our international customer base by increasing our investments in overseas operations,

establishing channel partners, and adding personnel in Europe, the Middle East, and Asia-Pacific.

Pursue strategic acquisition

opportunities .

We believe that our markets remain fragmented, with many niche players providing limited product solutions targeting narrow customer segments.

Given the breadth of our solution set and our customer end markets, we

believe that we are well-positioned to opportunistically acquire smaller companies and incorporate their technology or deploy their solutions across a larger customer set.

We believe that a targeted and opportunistic acquisition strategy will

complement our significant organic growth opportunity.

Sales and Marketing

We target decision makers in government agencies and departments, and commercial businesses who have a need for cyber,

cloud, and enterprise security solutions.

Decisions regarding contract awards by our customers typically are based upon an assessment of the quality of our past performance, responsiveness to proposal requirements, uniqueness of the offering itself,

price, and other competitive factors.

Our products and services in many instances combine a wide range of skills drawn from each of our major product and service

Accordingly, we must maintain expert knowledge of federal agency policies, procedures and operations.

We employ marketing and business development professionals who identify, qualify, and sell opportunities for us.

all of our officers and managers, including the chief executive officer, other executive officers, vice presidents, and division managers, actively engage in new business development.

We have strategic business relationships with certain companies in the information technology industry.

These strategic

partners have business objectives compatible with ours, and offer products and services that complement ours.

We intend to continue developing such relationships wherever they support our marketing, growth and solution offering objectives.

The majority of our business is awarded through submission of formal competitive bids.

Commercial bids are frequently

negotiated as to terms and conditions such as schedule, specifications, delivery and payment.

However, in government proposals, in most cases, the customer specifies the terms, conditions and form of the contract.

Our contracts and subcontracts are generally composed of a wide range of contract types including indefinite

delivery/indefinite quantity (“IDIQ”) and government-wide acquisition contracts (known as “GWACs”) which are generally firm fixed-priced, cost plus, or time-and-materials contracts.

For 2019, 2018, and 2017, the Company’s revenue derived from firm

fixed-price contracts was 82.7%, 74.9%, and 83.1%, respectively, cost plus contracts was 8.2%, 12.9%, and 7.4%, respectively, and time-and-material contracts was 9.1%, 12.2%, and 9.5%, respectively.

We derive a substantial portion of our revenues from contracts and subcontracts with the U.S.

Our revenues are

generated from a number of contract vehicles and task orders.

Over the past several years we have sought to diversify and improve our operating margins through an evolution of our business from an emphasis on product reselling to that of an advanced

solutions and services provider.

To that end, although we continue to offer resold products through our contract vehicles, we have focused on selling solutions and services and outsourcing product sales, as well as designing and delivering Telos

manufactured technology products.

In general, we believe our contract portfolio is characterized as having low to moderate financial risk due to the limited number of long-term fixed price development contracts.

Our IT solutions primarily involve the design and integration of commercial off-the-shelf IT products

into integrated solutions deliverables.

Such equipment is generally available from several sources, although several factors including technical specifications, proprietary or brand-specific equipment requirements, or contractual channel agreements

may limit the availability of sourcing options.

We utilize more than 300 vendors as direct materials suppliers, subcontractors, and service providers.

The vendors utilized in any given measurement period vary based on the mix and timing of the

solutions delivered.

Therefore, while a smaller subset of suppliers, subcontractors, and service providers may be employed to deliver the majority of the revenue for a particular period, were there to be an unforeseen disruption to one of these

vendors, the delay would likely be short-term in nature due to the existence of alternate sourcing options.

We derived a substantial portion of our revenues from contracts and subcontracts with the U.S.

Revenue by customer sector for the last three fiscal years is as follows:

(dollar amounts in thousands)

State & Local, and Commercial

We build market awareness of Telos and our solutions through a variety of marketing

programs, including regular briefings with industry analysts, public relations activities, government relations initiatives, web seminars, trade show exhibitions, speaking engagements, blog and other social media posts, and web site marketing.

appropriate, we pursue joint marketing and selling efforts with our strategic partners.

We typically focus on large government and commercial organizations that have demanding security

requirements and/or complex cyber security risk and compliance management objectives.

Customer acquisition often involves extensive interaction at all levels of the organizations from users

to executives and decision makers.

We seek to forge relationships throughout an organization in an effort to obtain broad consensus as part of the sales process.

Currently, the customer acquisition process is largely driven by direct sales activity.

As a result of the long tenure of many of our employees, many of our sales and business development

executives have trusted relationships that have developed over many years.

We augment these trusted relationships with senior leaders who have retired from the military, civil service, and various related industries.

Many of these individuals are our

These leaders provide our sales team with access to high level contacts that would be difficult to achieve otherwise.

Our sales executives are supported by an inside sales team that works with the Telos marketing team on

various awareness campaigns where sales leads are obtained, vetted, and pursued via proactive outreach (calls, email, etc.).

Metrics are tracked using a formal CRM process and used to equip the sales executives with useful sales

Our sales team works hand in hand with our marketing team and various subject matter experts to develop target awareness campaigns for our various solutions that generate valuable leads and contacts.

Our sales strategy is to establish a customer foothold with one of our solutions and work to achieve

rapid success.

We then leverage this customer relationship to expand usage of other Telos solutions.

We have a variety of upsell opportunities that allow us to expand our presence within a customer account.

For example, there are various

complementary Xacta features that build on each other and are sold separately.

Additionally, our sales team is responsible for selling all Telos solutions.

This allows a sales executive to quickly identify demand for other Telos solutions in existing

Our sales team also works with partner organizations like AWS, Microsoft Azure, and Rackspace

Technology, Inc.

to pursue mutual customers.

These relationships represent our current channel sales strategy that we are in the process of expanding.

We are also actively working with Singapore Technologies Engineering, Limited, which is helping us

gain access to the Asian market for cyber security solutions.

We plan to expand our direct sales capability for markets in which we are well-known, such as the U.S.

government, certain

critical infrastructure sectors, and certain commercial verticals like healthcare and financial services.

We also plan to expand our channel sales capability to gain rapid access to other commercial verticals and international markets.

We will be increasing our investment in sales and marketing with the goal of increasing sales of our

security solutions and acquiring customers in a variety of verticals.

In 2021, we are planning on implementing an approximate 300% increase from our 2020 sales and marketing investment.

We currently have less than 10 salespeople at Telos who carry

quotas that they are expected to meet.

We plan on adding direct, quota-driven, in-house sales assets to focus on commercial accounts.

We will focus Xacta and Telos Ghost sales efforts in the banking/financial services and insurance sector,

healthcare, energy, and other critical infrastructure protection markets.

We will also be investing in additional lead generation tools, financial incentives and marketing programs.

Our partner program will include a variety of channels, including resellers, technical/integrators, and

consulting partners to help us accelerate access and implementations in new markets, particularly commercial and international.

Currently, we participate in Microsoft and AWS partner programs, which incentivize their respective sellers to promote

Telos security solutions (e.g., Xacta and Telos Ghost).

As part of the sales and channel program investment, we are also making corporate investments in

functional areas such as contracts, solution architects and operations.

Much of our business is awarded through submission of formal competitive bids, though about 50% is

awarded through limited competition or sole source contracts.

We build market awareness of Telos and our solutions through a variety of marketing programs, including

regular briefings with industry analysts, public relations activities, government relations initiatives, web seminars, trade show exhibitions, speaking engagements and web site marketing.

We will be making additional investments in these types of

activities and targeting additional vertical specific content creation, targeted advertising and brand awareness campaigns, social media campaigns, and search engine marketing.

When appropriate, we will engage in joint marketing activities with our

channel, technology and consulting partners.

We operate in a highly competitive marketplace.

There are other companies that provide solutions similar

Although these companies provide offerings that overlap with some of our solutions, we are not aware of any single company that provides competitive solutions in all of the areas where we compete.

The primary companies with which our

solutions compete range from security solutions and software organizations such as CLEAR (operated by Alclear, LLC), Cutting Edge, IDEMIA, MetricStream Inc., Palantir Technologies Inc., RSA Archer, ServiceNow, Inc., and Unisys Corporation, to more

traditional government services integrators that provide products and services such as Booz Allen Hamilton Inc., General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, and Science Applications International

The majority of our business is in response to competitive requests from potential and current

Aside from other companies that compete in our space, we sometimes face indirect competition from

solutions that are developed “in-house” by some of our customers.

Our People and Culture

As of December 31, 2019, we employed 730 people, which includes 75 from Teloworks, and 149 from Telos ID.

Of our employees,

404 hold security clearances of secret or higher.

Our people are proficient in many fields such as computer science, information security and vulnerability testing,

networking technologies, physics, engineering, operations research, mathematics, economics, and business administration.

As of December 31, 2020, we had 785 employees, of which approximately 60% held security clearances.

Our people are proficient in many fields such as computer science, information security and

vulnerability testing, networking technologies, physics, engineering, operations research, mathematics, economics, and business administration.

We place a high value on our people.

As a result, we seek to remain competitive in terms of salary structures, incentive

compensation programs, fringe benefits, opportunities for growth, and individual recognition and award programs.

Our management team is committed to maintaining a corporate culture that fosters mutual respect and job satisfaction for

our people, while delivering innovation and value to customers and shareholders.

As a result, we seek to remain competitive in terms of salary

structures, incentive compensation programs, fringe benefits, opportunities for growth, and individual recognition and award programs.

Our management team is committed to maintaining a corporate culture that fosters mutual respect and job

satisfaction for our people, while delivering innovation and value to customers and shareholders.

This commitment is reflected in our core values.

with integrity, at Telos we:

Always with integrity, at Telos we:

Build trusted relationships,

3 unchanged sentences

These values are woven throughout the fabric of Telos.

They are reflected in our hiring practices, reinforced regularly,

and reviewed during appraisals.

They are reflected in our hiring practices,

reinforced regularly, and reviewed during appraisals.

They are written into annual and quarterly objectives for staff and managers alike, as well as department and company business goals.

Employees are encouraged to challenge themselves and each other to exhibit the core

values in everyday activities.

Our employees also are given avenues of communication and interaction should they observe activities that are inconsistent

with the Company’s core values.

Employees are encouraged to challenge themselves and each

other to exhibit the core values in everyday activities.

Our employees also are given avenues of communication and interaction should they observe activities

that are inconsistent with our core values.

Encouraged first to speak openly about any issues, a hotline provides an opportunity to express concerns anonymously.

We consider the foundational value of integrity to be a non-negotiable requirement of employment, and an expectation of

suppliers, partners, and our customers.

We consider the foundational value of integrity to be a non-negotiable requirement of employment, and

an expectation of suppliers, partners, and our customers.

We guard our reputation and will take aggressive action to protect it.

An essential part of our brand promise is that we always engage employees, customers, partners, suppliers, and investors with integrity.

We operate in a highly competitive marketplace.

There are other companies that provide solutions

similar to ours.

Although these companies provide offerings that overlap with some of our solutions, we are not aware of any single company that provides competitive solutions in all of the areas where we compete.

The companies that our solution

areas compete with range from integrators that provide products and services such as Booz Allen Hamilton, General Dynamics, Lockheed Martin, Northrop Grumman, SAIC and Daon, to more software-specific organizations such as ServiceNow and RSA Archer.

The majority of our business is generated in response to competitive requests from potential and

current customers.

competitive factors.

Aside from other companies that compete in our space, we sometimes face indirect competition from

solutions that are developed “in-house” by some of our customers.

An essential part of our brand promise is that we always engage employees, customers, partners, suppliers, and investors

with integrity.

Government Contracts and Regulation

Our business is heavily regulated.

We must comply with and are affected by laws and regulations

relating to the formation, administration and performance of U.S.

We must comply with and are affected by laws and regulations relating

to the formation, administration and performance of U.S.

Government and other contracts.

12 unchanged sentences

Government and cannot be specifically described.

The operating results of these classified programs are included in our consolidated financial statements.

Many of our contracts with the U.S.

Government are funded year to year by the procuring U.S.

Government agency as determined by the fiscal requirements of the U.S.

Government and the respective procuring agency.

Such a contracting process results in two distinct categories of backlog:

funded and unfunded.

Total backlog consists of the

aggregate contract revenues remaining to be earned by us at a given time over the life of our contracts, whether funded or not.

Funded backlog consists of the aggregate contract revenues remaining to be earned by us at a given time, but only to the

extent, in the case of U.S.

Government contracts, when funded by the procuring U.S.

Government agency and allotted to the specific contracts.

Unfunded backlog is the difference between total backlog and funded backlog.

Included in unfunded backlog

are revenues which may be earned only when and if customers exercise delivery orders and/or renewal options to continue such existing contracts.

A number of contracts that we undertake extend beyond one year and, accordingly, portions of contracts

are carried forward from one year to the next as part of the backlog.

Because many factors affect the scheduling and continuation of projects, no assurance can be given as to when revenue will be realized on projects included in our backlog.

At December 31, 2019 and 2018, we had total backlog from existing contracts of approximately $354.5

million and $290.8 million, respectively.

Such amounts are the maximum possible value of additional future orders for systems, products, maintenance and other support services presently allowable under those contracts, including renewal options

available on the contracts if fully exercised by the customers.

Funded backlog as of December 31, 2019 and 2018 was $112.4 million and $79.3 million, respectively.

While backlog remains a measurement consideration, in recent years we, as well as other U.S.

Government contractors, experienced a material change in the manner in which the U.S.

Government procures equipment and services.

These procurement changes include the growth in the use of General Services Administration ("GSA") schedules which

authorize agencies of the U.S.

Government to purchase significant amounts of equipment and services.

The use of the GSA schedules results in a significantly shorter and much more flexible procurement cycle, as well as increased competition with many

companies holding such schedules.

Along with the GSA schedules, the U.S.

Government is awarding a large number of omnibus contracts with multiple awardees.

Such contracts generally require extensive marketing efforts by the multiple awardees to

procure business under the omnibus contract through separate task or delivery orders.

The use of GSA schedules and omnibus contracts, while generally not providing immediate backlog, provide areas of growth that we continue to aggressively pursue.

We derive a substantial portion of our revenues from U.S.

Government contracting, and as such we are

annually subject to the seasonality of the U.S.

Government purchasing.

Government fiscal year ends on September 30, it is not uncommon for U.S.

Government agencies to award extra tasks in the weeks immediately prior to the end of its

fiscal year in order to avoid the loss of unexpended fiscal year funds.

As a result of this cyclicality, we have historically experienced higher revenues in the third and fourth fiscal quarters, ending September 30 and December 31, respectively, with

the pace of orders typically substantially reduced during the first and second fiscal quarters ending March 31 and June 30, respectively.

operating results of these classified programs are included in our consolidated financial statements.

We develop our annual budgeted revenue by estimating for the upcoming year our continuing business from

existing customers and active contracts.

We consider backlog, both funded and unfunded (as explained below), other expected annual renewals, and expansion planned by our current customers.

In the context of our current customer portfolio, we view

“recurring revenue” as revenue that occurs often and repeatedly.

In each of the last three years, recurring revenue has exceeded 85% of our annual revenue.

Our total budgeted revenue is the combination of recurring revenue and a forecast of new

Total backlog, a component of recurring revenue, consists of the aggregate contract revenues remaining

to be earned by us at a given time over the life of our contracts, whether funded or unfunded.

Funded backlog consists of the aggregate contract revenues remaining to be earned at a given time, which, in the case of U.S.

government contracts, means

that they have been funded by the procuring agency.

Unfunded backlog is the difference between total backlog and funded backlog and includes potential revenues that may be earned if customers exercise delivery orders and/or renewal options to

continue these contracts.

Based on historical experience, we generally assume option year renewals to be exercised.

Most of our customers fund contracts on a basis of one year or less and, as a result, funded backlog is generally expected to be

earned within one year from any point in time, whereas unfunded backlog is expected to be earned over a longer period.

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

What changed 10-K

Item 1. Business