WYY Widepoint Corp - 10-K

ITEM 1A. RISK FACTORS

You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K. The matters discussed in the risk factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operation and future growth prospects and could cause the trading price of our common stock to decline.

RISKS RELATED TO OUR BUSINESS

We may be unable to renew the DHS CWMS 2.0 IDIQ .

During 2025 and 2024 approximately 77% and 79%, respectively, of our revenues were from the Department of Homeland Security for Cellular Wireless Managed Services (CWMS) 2.0 ID/IQ Contract (DHS CWMS 2.0 IDIQ). Our DHS CWMS 2.0 IDIQ contract is currently subject to re-competition, in a competitive process, and we are awaiting the government’s award decision; there can be no assurance that we will be awarded the successor contract, or that the terms, scope, or timing of any extension, bridge arrangement, or successor award will not materially differ from the current contract.  This contract represents a significant portion of our revenue. We estimate that the loss of the DHS CWMS 2.0 IDIQ, without any offsetting aggregate contract wins, would have a significant adverse impact on our operating cash flow and financial results; and we would likely be faced with a decision to initiate cost reduction actions that would largely include reductions in force for personnel and assets affected by the contract loss. Further, the availability of our line of credit is dependent on having sufficient billed accounts receivable as collateral.

If we are unable to rewin the DHS CWMS 2.0 IDIQ contract on substantially similar terms or at all, our financial condition and results of operations will be materially adversely impacted.

Our market is highly competitive and we may not be able to compete effectively or gain market acceptance of our products and service .

We operate in a market that is highly fragmented, price sensitive and subject to fierce competition. Additionally, rapid changes in technology may affect our ability to respond timely with new and innovative product offerings to address new market needs. We have a significant presence in the U.S federal marketplace and we expect the intensity of competition for government contracts, as well as commercial contracts to continue to increase in the future as existing competitors develop additional capabilities that better align with our core competencies and those of our target customer segment.

While we believe our customer service history, strong customer retention and integrated technology solution sets are  among  our  key  differentiators,  our  competitors may offer introductory pricing and significantly discount their services to gain market share and/or in exchange for revenues with higher margin services in other areas or at later dates. Increased competition could result in additional pricing pressure, reduced sales, shorter term lengths for customer contracts, lower margins or the failure of our solution to achieve or maintain broad market acceptance.  In addition, many of our competitors have greater financial resources than we have. If we are unable to compete effectively, it will be difficult for us to maintain our pricing rates and add and retain customers, have adequate financial resources to pay for and retain key personnel, and our business, financial condition and results of operations will be harmed.

We may not be able to respond to rapid technological changes with new software products and services, which could harm our sales and profitability .

Our portfolio of products, services, and solutions could become obsolete due to rapid technological changes such as the advancement and application of artificial intelligence and frequent new product and service introductions by our competitors in the mobile world. Additionally, frequent changes in mobile computing hardware and software technology, and resulting inconsistencies between the billing platforms utilized by major communications carriers and the changing demands of customers regarding the means of delivery of communications management solutions could affect our ability to efficiently deliver our services and harm our profit margins.

To achieve and maintain market acceptance for our solution, we must effectively anticipate these changes and offer software products and services that respond to them in a timely manner. Customers may require customized transactional and reporting capabilities that our current solution does not have and/or may be cost prohibitive to develop to meet the customer’s requirements and ensure our contract is profitable. In addition, the development of new products and services comes with a high degree of uncertainty with regard to return on investment and involves significant time and financial resources to action, as there is no guarantee that the funds and time spent on developing such products will ever generate a return. If we fail to develop software products and services that satisfy customer preferences in a timely and cost-effective manner, our ability to renew our agreements with existing customers and our ability to create or increase demand for our solution will be harmed.

Inflationary or other pressures on costs, such as inputs for devices, labor, tariffs, and distribution costs may impact our financial condition or results of operations.

We sell equipment manufactured by various suppliers and depend on suppliers to provide us, directly or through other suppliers, with items such as network equipment, customer premises equipment, and wireless-related equipment and other connected devices. In the past few years, the costs of these inputs and the costs of labor necessary to develop and maintain our networks and our products and services rapidly increased. In addition, many of these inputs are subject to price fluctuations and supply issues from a number of factors, including, but not limited to, market conditions, demand for raw materials used in the production of these devices and network components, weather, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, wars or other low-intensity conflicts, acts of terror, import and export requirements, and other factors beyond our control. Although we are unable to predict the impact on our ability to source materials in the future, these supply and inflationary pressures are likely to continue for the foreseeable future. In addition, we face additional cost pressure via tariffs imposed on the items we import.

Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products and services, may not be successful and in certain events we may be required to honor contractual prices that are no longer profitable to us. Higher product prices may result in reductions in sales volume. Consumers may be less willing to pay a price differential for our products and may increasingly purchase lower-priced offerings, or may forego some purchases altogether, during an economic downturn. To the extent that price increases are not sufficient to offset these increased costs adequately or in a timely manner, and/or if they result in significant decreases in sales volume, our business, financial condition or operating results may be adversely affected. Furthermore, we may not be able to offset any cost increases through productivity and cost-saving initiatives.

We may be unable to achieve profitability .

We have a history of operating losses. A significant contributing factor driving such prior net operating losses were investments in product development projects, sales and marketing that did not produce the expected return on investment; and as a result placed a significant cumulative strain on our networking capital and overall financial position. There is no guarantee that we will be able to meet our financial goals of growing top line revenue and positive net income without closing significant new business and incremental contract expansions and maintain control over operating costs. An inability to successfully grow our sales pipeline and close on new business that is profitable, adequately control costs, could affect our long-term viability, profitability and ultimately limit the financial resources we have available to grow our business and achieve our desired financial results. Further, our lack of profitability and limits on access to capital may cause us to be disqualified from winning new contracts or recompeted contracts, or require us to team, and thus share in revenues, with another larger prime contractor to be successful in winning.

Our sales cycles can be long, unpredictable and require considerable time and expense, which may cause our operating results to fluctuate.

Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale, is often lengthy and unpredictable. Some of our potential customers may already have partial managed mobility solutions in place under fixed-term contracts, which may limit their ability to commit to purchase our solution in a timely fashion. In addition, our potential customers typically undertake a significant evaluation process that can last up to a year or more, and which requires us to expend substantial time, effort and money educating them about the capabilities of our offerings and the potential cost savings they can bring to an organization. Furthermore, the purchase of our solution typically also requires coordination and agreement across many departments within a potential customer’s organization, which further contributes to our lengthy sales cycle. As a result, we have limited ability to forecast the timing and size of specific sales. Any delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly.

Our financial resources are limited and the failure of one or more new product or service offerings could materially harm our financial results.

Product research and development can be time consuming and costly, without any guarantee of a return on our investment. The failure of one of our products or services to gain market acceptance could cause us financial harm due to the costs involved in  developing  or acquiring  new  products and  services and , thereafter, marketing such new products and services. Any failure to gain market acceptances of our products and services could have a material adverse impact on our financial results. In addition, many of our competitors have greater resources than us and if we cannot keep pace with the intense competition in our marketplace, our business, financial condition and results of operations will suffer.

We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues .

A high percentage of our operating cash outlays, particularly personnel, rent and communications costs, are fixed in advance of any particular quarter. As a result, an unanticipated or prolonged decrease in the number or average size of, or an unanticipated delay in the scheduling for our projects may cause significant variations in operating results in any particular quarter and could have a material adverse effect on operations and cash flow for that quarter. An unanticipated termination, decrease or delay in the implementation of a significant anticipated customer contract could require us to maintain underutilized employees and that could have a material adverse effect on our cash flow, financial condition and results of operations. Other factors that may negatively affect our earnings and free cashflow from quarter to quarter include changes in:

the contractual terms and timing of completion of projects, including achievement of certain business results;

acceptance of our products to commercial or government customers;

budgets for government customers;

the implementation of new projects;

the adequacy of estimates of provisions for losses and credit losses;

the accuracy of our estimates of resources required to complete ongoing projects;

personnel, including the loss of key highly skilled personnel necessary to complete projects;

labor shortages;

supply chain issues;

inflationary pressures;

natural disasters, cyberattacks, war and/or terrorist attacks;

partial or complete government shutdowns;

global pandemics; and

general economic conditions and international hostilities including war.

These factors could adversely affect customer demand, the Company’s operations, and its ability to source and deliver services to its customers, which could have a material adverse effect on the Company’s financial results.

We currently have access to a credit facility, which provides for short term cashflow needs and requires us to maintain financial covenants and failure to achieve and maintain such covenants could limit our access to needed funds.

We have access to a credit facility consisting of a variable line of credit used primarily to meet short-term working capital requirements. The availability of borrowings under this facility is subject to certain conditions, including compliance with financial covenants measured annually as of December 31 and a borrowing base calculation based on eligible billed accounts receivable pledged as collateral. Although we have adequate collateral and were in compliance with our covenants as of December 31, 2025, we may not be able to maintain compliance or sufficient eligible collateral in future periods. If we fail to satisfy these requirements, our lender could restrict or terminate our ability to borrow under the facility, accelerate repayment of outstanding amounts, impose unfavorable renewal terms, or decline to renew the agreement. Any such actions could materially and adversely affect our liquidity. If sufficient borrowing capacity is not available, we may need to obtain additional financing, which may not be available on favorable terms or at all.

Federal agencies and certain large customers can unexpectedly terminate their contracts with us at any time without penalty.

All of our government contracts, including but not limited to the DHS IDIQ, contain a standard clause which allows the government to cancel our contract for convenience without penalty. In addition, our contracts with the federal government permit the governmental agency to modify, curtail or terminate the contract at any time for the convenience of the government.

Some of our commercial contracts with large enterprises also contain contract clauses that include the ability to cancel a contract for convenience by the customer for convenience with limited advance notice and without significant penalty. Termination, delay or modification of a contract by any large government or commercial customer could result in a loss of expected revenues and additional expenses for staff that were allocated to that customer’s project. We could be required to maintain underutilized employees who were assigned to the terminated contract or we could ultimately lose the subject matter expertise for that contract and be required to retain more expensive staffing resources to perform the contract when it resumes.  The unexpected cancellation or significant reduction in the scope of any of our large projects could have an immediate material adverse effect on our business, financial condition and results of operations.

Our contracting environment is becoming increasingly complex and subject to heightened regulatory requirements and enforcement, which increases our operational and compliance risk.

We operate in a regulatory and contractual environment that continues to evolve and become more complex. Many of our contracts, particularly those with government and regulated commercial customers, are subject to extensive statutory, regulatory, and contractual requirements. These requirements may relate to procurement rules, cybersecurity standards, data protection, labor compliance, cost accounting, reporting obligations, supply chain integrity, and other compliance mandates. Non-compliance with applicable laws, regulations, or contractual provisions can result in substantial penalties, including fines, contract termination, suspension or debarment, repayment obligations, reputational damage, or exclusion from future bidding opportunities.

In addition, we are increasingly pursuing contracts with broader scope, greater technical complexity, and more sophisticated performance and compliance obligations. These contracts often contain detailed pricing structures, performance metrics, indemnification provisions, audit rights, flow-down requirements, and other risk-shifting mechanisms that may expose us to financial or operational risk if not properly negotiated or managed.

Our ability to effectively mitigate these risks depends in part on maintaining adequate internal resources, including personnel with appropriate legal, regulatory, contracting, pricing, and compliance expertise. If we fail to devote sufficient resources to contract review and negotiation, or if we are unable to attract and retain qualified personnel capable of managing increasingly complex contractual and regulatory obligations, we may enter into agreements on unfavorable terms, underestimate compliance costs, or fail to maintain effective internal controls. Any such failure could result in increased costs, disputes, penalties, diminished profitability, or other material adverse effects on our business, financial condition, and results of operations.

As regulatory scrutiny increases and contractual complexity grows, the consequences of errors in contract negotiation, compliance oversight, or performance management may become more significant

Our inability to accurately price and sell our product offerings at an acceptable profit margin that customers are willing to pay will have a negative impact on our business that could extend for a number of years.

Most of our contracts with customers have terms of three to five years, often with optional renewal periods. Our government contracts generally consist of a base period with multiple option periods, while our commercial contracts typically have initial terms of three or more years with automatic annual renewals in many cases. Substantially all of these contracts are structured on a firm fixed-price basis per performance obligation.

The long-term and fixed-price nature of these contracts increases the importance of accurately defining the scope of work, appropriately pricing our services, and effectively managing performance obligations over the contract term. Our ability to do so depends in part on maintaining adequate personnel resources, including employees with sufficient experience and expertise in contract scoping, pricing, operational planning, and contract administration. If we do not maintain adequate staffing levels or do not have personnel with the appropriate level of experience to assess contractual terms, evaluate pricing assumptions, and manage performance risks, we may misprice contracts, underestimate costs, or fail to anticipate operational complexities.

In addition, because many of our contracts are firm fixed-price, we bear the risk of cost increases, including those resulting from inflation, labor shortages, supply chain disruptions, tariffs, or other economic conditions, and we may be unable to pass such increases on to customers. Any failure to accurately scope, price, or manage our contracts, or to complete our performance obligations in accordance with contractual requirements, could negatively affect our profitability over multiple years and could have a material adverse effect on our business, financial condition, and results of operations.

If we fail to effectively manage and develop our strategic relationships with key systems integrators, or if those third parties choose not to market and sell our TMaaS offering, our operating results would suffer.

The successful implementation of our strategic goals is dependent in part on strategic relationships with key systems integrators and other strategic partners. While our relationships with key systems integrators and other strategic partners is relatively a new strategy, we believe that our business relationship is strong and continuing to grow and we believe that our key systems integrators and other strategic partners will continue to support the inclusion of our TMaaS offering as part of their overall technology solution offering.

Some of our strategic relationships are relatively new and, therefore, it is uncertain whether these third parties will be able to market and sell our solution successfully or provide the volume and quality of customers that we believe may exist. If we are unable to manage and develop our strategic relationships, the growth of our customer base may be harmed and we may have to devote substantially more resources to the distribution, sales and marketing of our solution, which would increase our costs and decrease our earnings.

The loss of key personnel or an inability to attract and retain additional personnel may impair our ability to grow our business .

We are highly dependent upon the continued service and performance of our key executives, operational managers and subject matter experts to run our core operations. The replacement of these individuals likely would involve expenditure of significant time and financial resources, and their loss might significantly delay or prevent the achievement of our business objectives. We do not maintain key person life insurance with respect to any of our key executives and subject matter experts.

We plan to continue to replenish our ranks with the best available talent to optimize our workforce to do more with less resources. We face intense competition for qualified individuals from numerous consulting, technology, software and communications companies. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of qualified personnel to support our growth. New hires may require significant training and may take significant time before they achieve full productivity. If our recruiting, training and retention efforts are not successful or do not generate a corresponding increase in revenue, our business will be harmed.

In addition, if our key employees resign from us or our subsidiaries to join a competitor or to form a competing company, the loss of such personnel and any resulting loss of existing or potential customers to any such competitor could have a material adverse effect on our business, financial condition and   results of operations. Although we require certain of our employees to sign agreements prohibiting them from joining a competitor, forming a competing company or soliciting our customers or employees for certain periods of time, we cannot be certain that these agreements will be effective in preventing our key employees from engaging in these actions or that courts or other adjudicative entities will substantially enforce these agreements.

We provide minimum service-level commitments to many of our customers, and our inability to meet those commitments could result in significant loss of customers, harm to our reputation and costs to us.

Many of our customer agreements currently, or may in the future, require that we meet minimum service level commitments regarding items such as   platform availability, invoice processing speed and order processing speed. If we are unable to meet the stated service level commitments under these agreements, many of our customers will have the right to terminate their agreements with us and we may be contractually obligated to provide our customers with credits or pay other penalties. If our software products are unavailable for significant periods of time, we may lose a substantial number of our customers as a result of these contractual rights, we may suffer harm to our reputation, and we may be required to provide our customers with significant credits or pay our customers significant contractual penalties, any of which could harm our business, financial condition, results of operations.

Our long-term success in our industry depends, in part, on our ability to expand the sales of our solutions to customers located outside of the United States, and thus our business is susceptible to risks associated with international sales and operations.

We may expand the international sales and operations of our portfolio of solutions. This international expansion will subject us to new risks that we have not faced in the United States. These risks include:

geographic localization of our software products, including translation into foreign languages and adaptation for local practices and regulatory requirements;

lack of familiarity with and unexpected changes in foreign regulatory requirements;

longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

difficulties in managing, staffing and overseeing international implementations and operations, including increased reliance on foreign subcontractors;

challenges in integrating our software with multiple country-specific billing or communications support systems for international customers;

challenges in providing procurement, help desk and fulfillment capabilities for our international customers;

fluctuations in currency exchange rates;

increased tax compliance costs and potentially adverse tax consequences, including the complexities of transfer pricing, foreign value added or other tax systems and restrictions on the repatriation of earnings;

the burdens of complying with a wide variety of foreign laws and legal standards including US laws related to foreign operations;

increased financial accounting and reporting burdens and complexities;

potentially slower adoption rates of communications management solutions services internationally;

political, social and economic instability abroad, terrorist attacks and security concerns in general; and

reduced or varied protection for intellectual property rights in some countries.

Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.

We may be unable to successfully acquire complementary businesses, services or technologies to support our growth strategy .

We have in the past and may in the future acquire or invest in complementary and supplementary businesses, services or technologies. Demand for businesses with credible business relationships and capabilities to provide services to large commercial enterprises and/or governmental agencies at the federal, state and local level is very competitive. To the extent that the price of such acquisitions may rise beyond reasonable levels where funding for such acquisitions is no longer available, we may not be able to acquire strategic assets. Further, these acquisitions, investments or new business relationships may result in unforeseen difficulties and expenditures. We may encounter difficulties assimilating or integrating the businesses, technologies, products, services, personnel or operations of companies we have acquired or companies that we may in the future acquire. These difficulties may arise if the key personnel of the acquired company choose not to work for us, the company’s technology or services do not easily integrate with ours or we have difficulty retaining the acquired company’s customers due to changes in its management or for other reasons. These acquisitions may also disrupt our business, divert our resources and   require significant management attention that would otherwise be available for development of our business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. In addition, any future acquisition may require us to:

issue additional equity securities that would dilute our stockholders;

use cash that we may need in the future to operate our business;

incur debt on terms unfavorable to us or that we are unable to repay;

incur large charges or substantial liabilities; or

become subject to adverse tax consequences, substantial amortization or compensation charges.

If any of these risks materialize, our business and operating results would be harmed.

The emergence of one or more widely used, standardized communications devices or billing or operational support systems could limit the value and operability of our TMaaS solution and our ability to compete with the manufacturers of such devices or the competitors using such systems in providing similar services .

Our TMaaS solution derives its value in significant part from our communications management software’s ability to interface with and support the interoperation of diverse communications devices, billing systems and operational support systems. The emergence of a single or a small number of widely used communications devices, billing systems or operational support systems using consolidated, consistent sets of standardized interfaces for  the  interaction between communications service providers and their enterprise customers could significantly reduce the value of our solution to our customers and potential customers. Furthermore, any such communications device, billing system or operational support system could make use of proprietary software or technology standards that our software might not be able to support. In addition, the manufacturer of such device, or the carrier using such billing system or operational support system, might actively seek to limit the interoperability of such device, billing system  or operational support system with our software products for competitive or other reasons. This could be accelerated through the use of artificial intelligence. The resulting lack of compatibility of our software products would put us at a significant competitive disadvantage, or entirely prevent us from competing, in that segment of the potential market if such manufacturer or carrier, or its authorized licensees, were to develop one or more communications management solutions competitive with our solution.

A continued proliferation and diversification of communications technologies or devices could increase the costs of providing our software products or limit our ability to provide our TMaaS offering to potential customers .

Our ability to provide our TMaaS offering is dependent on the technological compatibility of our products with the communications infrastructures and devices of our customers and their communications service providers. The development and introduction of new communications technologies and devices requires us to expend significant personnel and financial resources to develop and maintain interoperability of our software products with these technologies and devices. Continued proliferation of communications products and services could significantly increase our research and development costs and increase the lag time between the initial release of new technologies and products and our ability to provide support for them in our software products, which would limit the potential market of customers that we have the ability to serve and the financial feasibility of our TMaaS offering.

If a communications carrier prohibits customer disclosure of communications billing and usage data to us, the value of our solution to customers of that carrier would be impaired, which may limit our ability to compete for their business.

Certain of our information technology-based solutions software functionality and services that we offer depend on our ability to access a customer’s communications billing and usage data. For example, our ability to offer outsourced or automated communications bill auditing, billing dispute resolution, bill payment, cost allocation and expense optimization depends on our ability to access this data. If a communications carrier were to prohibit its customers from disclosing this information to us, those enterprises would only be able to use these billing-related aspects of our solution on a self-serve basis, which would impair some of the value of our solution to those enterprises. This in turn could limit our ability to compete with the internally developed communications management solutions of those enterprises, require us to incur additional expenses to license access to that billing and usage data from the communications carrier, if such a license is made available to us at all, or put us at a competitive disadvantage against any third-party communications management solutions service provider that licenses access to that data.

RISKS RELATED TO BUSINESS WITH GOVERNMENT AGENCIES

A government shutdown, agency specific shut downs, or changes in the spending policies or budget priorities of the federal government could cause us to lose revenues .

We currently derive a majority of our annual revenues from contracts funded by federal government agencies. We believe that contracts with federal government agencies will continue to be a significant source of our revenues for the foreseeable future. Accordingly, shutdowns or changes in federal government fiscal or spending policies or changes in U.S. federal budget could directly affect our financial performance. The newly formed Department of Government Efficiency (DOGE) could have a negative impact on our revenues from the federal government. Among the factors that could harm our business are:

curtailment of the federal government’s use of technology services firms;

a significant decline in spending by the federal government, in general, or by specific agencies such as the Department of Homeland Security;

reductions in federal government programs or requirements, including government agency shutdowns and/or reductions in connection with sequestration;

any failure to raise the debt ceiling;

government inability to approve a budget and operate under a “Continuing Resolution”;

a shift in spending to federal programs and agencies that we do not support or where we currently do not have contracts;

delays in the payment of our invoices by government payment offices;

federal governmental shutdowns, and other potential delays in the government appropriations process;

redirection of federal government funds to address priorities or unforeseen emergent events such as a pandemics, wars, etc., and

general economic and political conditions, including any event, such as the coronavirus, that results in a change in spending priorities of the federal government.

These or other factors could cause federal government agencies and departments to delay payments owed for our services, to reduce their purchases under contracts, to exercise their right to terminate contracts, or not to exercise options to renew contracts, any of which could cause us to  lose revenues. In addition, any limitations imposed on spending by U.S. government agencies that result from efforts to reduce the federal deficit, including as a result of sequestration or otherwise, may limit both the continued funding of our existing contracts and our ability to obtain additional contracts.

Federal government efficiency initiatives and restructuring efforts could adversely affect our government revenues.

From time to time, the federal government undertakes initiatives intended to improve efficiency, reduce costs, streamline procurement, or restructure agencies and programs. These efforts, whether implemented through specific agencies, task forces, or broader policy directives, may result in reductions in government spending, changes in procurement priorities, workforce reductions, agency consolidations, or the elimination or modification of programs.

As a government contractor, our business operations, contract awards, and revenue streams may be adversely affected by such initiatives, including through reduced demand for our services, delays or cancellations of contracts, changes in customer requirements, or the loss of key government personnel with whom we maintain working relationships. Although our solutions are designed to help government customers operate more efficiently and reduce costs, there can be no assurance that these initiatives will not result in decreased funding, contract terminations, or other actions that could materially and adversely impact our financial condition, results of operations, or growth prospects.

We may incur substantial costs in connection with contracts awarded through a competitive procurement process, which could negatively impact our operating results .

Most if not all federal, state and local governments, as well as commercial contracts are awarded through a competitive procurement process that could be a year or more from the initial solicitation to final contract award. We expect that much of the business we seek in the foreseeable future will be awarded through competitive procedures and similar lengthy sales cycle. Competitive procurements can incur substantial upfront costs and present a number of potential risks, including:

the substantial cost and managerial time and effort that we spend to prepare bids and proposals for contracts that may not be awarded to us;

requirements to register to conduct business in another state or country could increase our compliance costs;

requirements to post a bid guarantee or similar performance guarantee as part of a bid submission; and

the expense and delay that we may face if our competitors protest or challenge contract awards made to us pursuant to competitive procedures, and the risk that any such protest or challenge could result in the resubmission of offers, or in termination, reduction, or modification of the awarded contract.

The costs we incur in the competitive procurement process may be substantial and, to the extent we participate in competitive procurements and are unable to win particular contracts, these costs could negatively affect our operating results. For example, our DHS contract was up for renewal in November 2025 and our proposal is currently under evaluation. There can be no guarantees we rewin the contract, or may be required to make significant concessions in order to rewin it. DHS has issued a modification that extends the current CWMS 2.0 IDIQ contract through April 24,  2026 and provides for one more additional 1-month extension, which if exercised,  would provide for performance through May 24, 2026. Task orders issued while CWMS 2.0 is under extension can be executed upon up to 1 year  after award. In addition, the General Services Administration multiple  award schedule contracts, government-wide acquisitions contracts, blanket purchase agreements, and other indefinite delivery/indefinite quantity contracts do not guarantee more than a minimal amount of work for us, but instead provide us access to work generally through further competitive procedures. This competitive process may result in increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenues under the relevant contract.

Our failure to obtain and maintain security certifications and necessary security clearances may limit our ability to perform classified work directly for government customers as a prime contractor or subcontractor, which could cause us to lose business.

Some government contracts require us to maintain both federal and industry recognized security certifications of our systems, facility security clearances, and require some of our employees to maintain individual security clearances. If we are unable to maintain security certifications of our systems, or our employees lose or are unable to timely obtain security clearances, or we lose a facility clearance, our customer may have the right to terminate the contract  or decide not to renew it upon its expiration. As a result, to the extent we cannot obtain or maintain the required security certifications and clearances for a particular contract, or we fail to obtain them on a timely basis, we may not derive the revenues anticipated from the contract, which, if not replaced with revenues from other contracts, could harm our operating results. To the extent we are not able to obtain facility security clearances or engage employees with the required security clearances for a particular contract, we will be unable to perform that contract and we may not be able to compete for or win new contracts for similar work.

Federal government contracts contain provisions giving government customers a variety of rights that are unfavorable to us, including the ability to terminate a contract at any time for convenience.

Federal government contracts contain provisions and are subject to laws and regulations that provide government customers with rights and remedies not typically found in commercial contracts. These rights and remedies allow government customers, among other things, to:

terminate existing contracts, with short notice, for convenience, as well as for default;

reduce orders under or otherwise modify contracts;

for contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor during negotiations furnished cost or pricing data that was not complete, accurate, and current;

for GSA multiple award schedule contracts, government-wide acquisition agreements, and blanket purchase agreements, demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process, or reduce the contract price under certain triggering circumstances, including the revision of pricelists or other documents

terminate our facility security clearances and thereby prevent us from receiving classified contracts;

cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

decline to exercise an option to renew a multi-year contract or issue task orders in connection with indefinite delivery/indefinite quantity contracts;

claim rights in solutions, systems, and technology produced by us;

prohibit future procurement awards with a particular agency due to a finding of organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors or the existence of conflicting roles that might bias a contractor’s judgment;

subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit offers for the contract or in the termination, reduction, or modification of the awarded contract; and

suspend or debar us from doing business with the federal government.

If a federal government customer terminates one of our contracts for convenience, we may recover only our incurred or committed costs, settlement expenses, and profit on work completed prior to the termination. If a federal government customer were to unexpectedly terminate, cancel, or decline to exercise an option to renew with respect to one or more of our significant contracts or suspend or debar us from doing business with the federal government, our revenues and operating results would be materially harmed.

RISKS RELATED TO PRIVACY, CYBERSECURITY AND TECHNOLOGY

Security breaches or cybersecurity events could result in the loss of customers and negative publicity and materially harm our business.

Many of the services we provide involve managing and protecting information involved in sensitive or classified government functions as well as sensitive commercial information. A security breach or cybersecurity event in one of these systems could cause serious harm to our business, damage our reputation, and prevent us from being eligible for further work on sensitive or classified systems for federal government customers. In addition, sensitive personal data could be illegally accessed and/or stolen through a cybersecurity event. We could incur losses from such a security breach that could exceed the policy limits under our insurance. Damage to our reputation or limitations on our eligibility for additional work resulting from a security breach in one of the systems we develop, install, and maintain could materially reduce our revenues.

The US Federal Government and many states have enacted laws requiring companies to notify consumers of data security breaches involving their personal data.  These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures. Any security breach or cybersecurity event, whether successful or not, would harm our reputation and could cause the loss of customers. Any of these events could have material adverse effects on our business, financial condition, and operating results.

Actual or perceived breaches of our security measures, or governmental required disclosure of customer information could diminish demand for our solution and subject us to substantial liability.

In the processing of communications transactions, we receive, transmit and store a large volume of sensitive customer information, including call records, billing records, contractual terms, and financial and payment information, including credit card information, and we  have  entered  into  contractual  obligations to maintain the confidentiality of certain of this information. Any person who circumvents our security measures could steal proprietary or confidential customer information or cause interruptions in our operations and any such lapse in security could expose us to litigation, substantial contractual liabilities, and loss of customers or damage to our reputation or could otherwise harm our business. We incur significant costs to protect against security breaches and may incur significant additional costs to alleviate problems caused by any breaches. In addition, if we are required to disclose any of this sensitive customer information to governmental authorities, that disclosure could expose us to a risk of losing customers or could otherwise harm our business.

If customers believe that we may be subject to requirements to disclose sensitive customer information to governmental authorities, or that our systems and software products do not provide adequate security for the storage of confidential information or its transmission over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use, our business will be harmed. Customers’ concerns about security could deter them from using  the  Internet to conduct transactions that involve confidential information, including transactions of the types included in our solution, so our failure to prevent security breaches, or the occurrence of well-publicized security breaches affecting the Internet in general, could  significantly  harm  our  business  and financial results.

We may be liable to our customers for damages caused by our services or by our failure to remedy system failures.

Many of our projects involve technology applications or systems that are critical to the operations of our customers’ businesses. If we fail to perform our services correctly, we may be unable to deliver applications or systems to our customers with the promised functionality or within the promised time frame, or to satisfy the required service levels for support and maintenance. While we have created redundancy and back-up systems, any such failures by us could result in claims by our customers for substantial damages against us. Additionally, in the event we manage third party services on behalf of our customers and fail to execute on approved changes requested by our customers it could result in claims asserted by our customers for substantial damages against us.

Although we attempt to limit the amount and type of our contractual liability for defects in the applications or systems we provide and carry insurance coverage that may mitigate this liability in certain instances, we cannot be assured that these limitations and insurance coverages will be applicable and enforceable in all cases. Even if these limitations and insurance coverages are found to be applicable and enforceable, our liability to our customers for these types of claims could still exceed our insurance coverage and be material in amount and affect our business, financial condition and results of operations.

Our ability to provide services to our customers depends on our customers’ continued high-speed access to the internet and the continued reliability of the internet infrastructure.

Our business depends on our customers’ continued high-speed access to the internet, as well as the continued maintenance and development of the internet infrastructure. The future delivery of our solutions will depend on third-party internet service providers to expand high-speed internet access, to maintain a reliable network with the necessary speed, data capacity and security, and to develop complementary solutions and services, including high-speed modems, for providing reliable and timely internet access and services. All of these factors are out of our control. To the extent that the internet continues to    experience an increased number of users, frequency of use, or bandwidth requirements, the internet may become congested and be unable to support the demands placed on it, and its performance or reliability may decline. Any internet outages or delays could adversely affect our ability to provide services to our customers.

Defects or errors in our TMaaS platform and/or processes could harm our reputation, impair our ability to sell our products and result in significant costs to us.

A key part of our service delivery involves the use of internally developed software solutions. If our software solutions contain undetected defects or errors that affect our ability to process customer transactions, prepare reports and/or deliver our services in general it may result in a failure to perform in   accordance with customer expectations and could result in monetary damages against us. Because our customers use our software products for important aspects of their businesses, any defects or errors in, or other performance problems with, our software products could hurt our reputation and may damage our customers’ businesses. If that occurs, we could be required to issue substantial service credits that reduce amounts invoiced to our customers, lose out on future sales or our existing customers could elect to not renew their customer agreements with us. Product performance problems could result in loss of market share, failure to achieve market acceptance and the diversion of development resources from software enhancements. If our software products fail to perform or contain a technical defect, a customer might assert a claim against us for damages. Whether or not we are responsible for our software’s failure or defect, we could be required to spend significant time and money in litigation, arbitration or other dispute resolution, and potentially pay significant settlements or damages.

Assertions by a third party that our software products or technology infringes its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or expensive licenses.

Although we believe that our services and products do not infringe on the intellectual property rights of others, infringement claims may be asserted against us in the future. There is frequent litigation in the communications and technology industries based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us may increase. These claims, whether or not successful, could:

divert management’s attention;

result in costly and time-consuming litigation;

require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or

require us to redesign our software products to avoid infringement.

As a result, any third-party intellectual property claims against us could increase our expenses and impair our business. In addition, although we have licensed proprietary technology, we cannot be certain that the owners’ rights in such technology will not be challenged, invalidated or circumvented. Furthermore, many of our customer agreements require us to indemnify our customers for certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. These types of claims could harm our relationships with our customers, may deter future customers from purchasing our software products or could expose us to litigation for these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party.

We may be unable to protect our proprietary software and methodology.

Our success depends, in part, upon our proprietary software, methodology and other intellectual property rights. We rely upon a combination of trade secrets, nondisclosure and other contractual arrangements, and copyright and trademark laws to protect our proprietary rights. We generally enter into nondisclosure and confidentiality agreements with our employees, partners, consultants, independent sales agents and customers, and limit access to and distribution of our proprietary information. We cannot be certain that the steps we take in this regard will be adequate to deter misappropriation of our proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. Furthermore, statutory contracting regulations protect the rights of federal agencies to retain access to, and utilization of, proprietary intellectual property utilized in the delivery of contracted services to such agencies. We have attempted to put in place certain safeguards in our policies and procedures to protect intellectual property developed by employees. Our policies and procedures stipulate that intellectual property created by employees and its consultants remain our property. If we are unable to protect our proprietary software and methodology, the value of our business may decrease, and we may face increased competition.

RISKS RELATED TO REGULATION

We operate in a highly regulated environment and are subject to audit by the U.S. government.

Numerous U.S. government agencies routinely audit and review government contractors. These agencies review a contractor’s performance under its contracts and compliance with applicable laws, regulations and standards. The U.S. government also reviews the adequacy of, and compliance with, internal control systems and policies, including the contractor’s purchasing, property, estimating, material, earned value management and accounting systems. In some cases, audits may result in delayed payments or contractor costs not being reimbursed or subject to repayment. If an audit or investigation were to result in allegations against a contractor of improper or illegal activities, civil or criminal penalties and administrative sanctions could result, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. In addition, reputational harm could result if allegations of impropriety were made. In some cases, audits may result in disputes with the respective government agencies that can result in negotiated settlements, arbitration or litigation. Moreover, new laws, regulations or standards, or changes to existing ones, can increase our performance and compliance costs and reduce our revenue and earnings.

The adoption of new procurement laws or regulations could reduce the amount of services that are outsourced by the federal government and cause us to experience reduced revenues.

New legislation, procurement regulations, or labor organization pressure could cause federal agencies to adopt restrictive procurement practices regarding the use of outside service providers. The American Federation of Government Employees, the largest federal employee union, strongly endorses legislation that may restrict the procedure by which services are outsourced to government contractors. One such proposal, the Truthfulness, Responsibility, and Accountability in Contracting Act, would have effectively reduced the volume of services that is outsourced by the federal government by requiring agencies to give in-house government employees expanded opportunities to compete against contractors for work that could be outsourced.  If such legislation, or similar legislation, were to be enacted, it would likely reduce the amount of IT services that could be outsourced by the federal government, which could materially reduce our revenues.

RISKS RELATED TO OUR SECURITIES AND CAPITAL STRUCTURE

Our common stock price has been volatile and is likely to be volatile in the future.

The stock market has, from time to time, experienced extreme price and volume fluctuations. The market prices of the securities of companies in our industry have been especially volatile. Broad market fluctuations of this type may adversely affect the market price of our common stock. The market price of our common stock has experienced, and may continue to be subject to volatility due to a variety of factors, including:

public announcements concerning us, our competitors or our industry;

externally published articles and analyses about us by retail investors and non-analysts;

changes in analysts’ earnings estimates;

information in third party chat rooms, third party publications and social media outlets;

the failure to meet the expectations of analysts;

fluctuations in operating results;

additional financings or capital raises;

introductions of new products or services by us or our competitors;

announcements of technological innovations;

additional sales of our common stock or other securities;

trading by individual investors that causes our stock prices to straddle at a low price for prolonged periods of time;

general economic conditions and events, including adverse changes in the financial markets, terrorist attacks, health pandemics, government shutdowns, war, adverse weather events, pandemics (such as the COVID-19 pandemic) and other disasters; and

Impairment of goodwill resulting from the fair value of our single reporting unit below its carrying value.

In the past, some companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation. If we were the object of securities class action litigation, we could incur substantial costs and experience a diversion of our management’s attention and resources and such securities class action litigation could have a material adverse effect on our business, financial condition and results of operations.

The future sale of shares of our common stock may negatively affect our common stock price and/or be dilutive to current stockholders.

If we sell substantial amounts of our common stock, the market price of our common stock could fall. Such stock issuances may be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders percentage ownership interest, which would have the effect of reducing our stockholders’ influence on matters on which our stockholders vote, and might dilute the book value of our common stock. There is no assurance that we will not seek to sell additional shares of our common stock in order to meet our working capital or other needs in a transaction that would be dilutive to current stockholders.

A third party could be prevented from acquiring shares of our common stock at a premium to the market price because of our anti-takeover provisions.

Various provisions of our certificate of incorporation, by-laws and Delaware law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to us and our stockholders. We are subject to the provisions of Section 203 of the General Corporation Law of Delaware.  Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is (i) a person who, together with affiliates and associates, owns 15% or more of our voting stock or (ii) an affiliate or associate of ours who was the owner, together with affiliates and associates, of 15% or more of our outstanding voting stock at any time within the 3-year period prior to the date for determining whether such person is “interested.”

Our certificate of incorporation also provides that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may be taken without such meeting only by the unanimous consent of all stockholders entitled to vote on the particular action. In order for    any matter to be considered properly brought before a meeting, a stockholder must comply with certain requirements regarding advance notice to us. The foregoing provisions could have the effect of delaying until the next stockholders’ meeting stockholder actions, which are favored by the holders of a majority of our outstanding voting securities. These provisions may also discourage another person or entity from making a tender offer for our common stock, because such person or entity, even if it acquired a majority of our outstanding voting securities, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders’ meeting, and not by written consent.

The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our certificate of incorporation and bylaws do not require a greater percentage vote. Our board of directors is classified into three classes of directors, with approximately one-third of the directors serving in each such  class of directors and  with  one class of directors being elected at each annual meeting of stockholders to serve for a term  of three years or until their successors are elected and take office. Our bylaws provide that the board of directors will determine the number of directors to serve on the board. Our board of directors presently consists of four members.

Our certificate of incorporation and bylaws contain certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The provisions eliminate, to the fullest extent permitted by the General Corporation Law of Delaware, a director’s personal liability to us or our stockholders with respect to any act or omission in the performance of his or her duties as a director. Our certificate of incorporation and bylaws also allow us to indemnify our directors, to the fullest extent permitted by the General Corporation Law of Delaware. Our bylaws also provide that we may grant indemnification to any officer, employee, agent or other individual as our Board may approve from time to time. We believe that these provisions will assist   us in attracting and retaining qualified individuals to serve as directors.

We do not expect to declare any dividends in the foreseeable future.

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the other sections of this Form 10-K, including “Risk Factors,” and the Financial Statements and notes thereto. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward Looking Statements and Risk Factor Summary.” Our actual results may differ materially.

Organizational Overview

We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, and interactive bill presentment and unified communication analytics solutions and IT as a Service (ITaaS). We help our clients achieve their organizational missions for mobility management and security objectives in this challenging and complex business environment.

We offer our TMaaS solutions through a flexible “As-a-Service” model or “Xaas” which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional, technical and security requirements for mobility management. Our TMaaS solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development.  The flexibility of our TMaaS solutions enables our customers to be able to quickly expand or contract their mobility management requirements.  Our TMaaS solutions are hosted and accessible on-demand through a secure federal government certified proprietary portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy identity management solutions that provide secured virtual and physical access to restricted environments.

Strategy

During 2025, we focused on increasing our customer base and our sales pipeline and leveraging our strategic relationships with key system integrators and strategic partners to capture additional market share. On February 19, 2025 WidePoint’s Intelligent Technology Management System (ITMS) achieved FedRAMP Authorized status from the Federal Risk and Authorization Management Program (FedRAMP) Program Management Office (PMO). In fiscal 2026, we will continue to focus on the following key goals:

Winning the DHS CWHS 3.0 re-compete,

Continue to find additional avenues for capturing new sales opportunities,

Continue to provide unmatched level of services to our current customer base,

Leverage our FedRAMP Authorized status as a differentiator from our competitors in pursuing government business,

Grow our recurring managed services revenues,

Add incremental capabilities to our Technology Management solution set and develop and possibly acquire new high margin business lines,

Leverage our software platforms to grow our SaaS revenues and take advantage of the opportunities emerging from the growth in remote working,

Expand our commercial customer base organically,

Continue to leverage the R2v3 Certification,

Execute cross-sell opportunities identified from ITA acquisition, including Identity Management (IdM), Telecommunications Lifecycle Management (TLM) and Digital Billing & Analytics (DB&A) solution,

Growing our sales pipeline by continuing to invest in our business development and sales team assets,

Pursuing additional opportunities with our key systems integrator and strategic partners,

Expanding our solution offerings into the commercial space, and

Explore integration of artificial intelligence into our solution to provide better information security, and improve service delivery while reducing response time and cost.

Our strategy for achieving our longer-term goals include:

Establishing a market leadership position in the trusted mobility management (TM2) sector,

pursuing strategic acquisitions to expand our solutions and our customer base,

delivering new incremental offerings to add to our existing TM2 offering,

creating and testing innovative new offerings that enhance our TM2 offering, and

transitioning our data center and support infrastructure into a more cost-effective and federally approved cloud environment to comply with perceived future contract requirements.

We believe these actions could drive a strategic repositioning to our TM2 offering and could include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TM2 offerings.

Critical Accounting Policies and Estimates

Refer to Note 2 to the consolidated financial statements for a summary of our significant accounting policies referenced, as applicable, to other notes. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. Our senior management has reviewed these critical accounting policies and estimates and related disclosures with its Audit Committee. See Note 2 to consolidated financial statements, which contain additional information regarding accounting policies and other disclosures required by U.S. GAAP.  The following section below provides information about certain critical accounting policies and estimates that are important to the consolidated financial statements and that require significant management assumptions and judgments.

Segments

Segments are defined by authoritative guidance as components of a company in which separate financial information is available and is evaluated by the chief operating decision maker (CODM), or a decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our chief executive officer.

We operate in one segment based on the consolidated information used by our CODM in evaluating the financial performance of our business and allocation resources. This single segment represents our Company’s business, which is providing managed services for government and commercial clients under the umbrella of Technology Management as a Service (TMaaS), that includes Identity Management (IdM), secure Mobility Managed Services (MMS), Telecom Lifecycle Management, Digital Billing & Analytics and IT as a service (ITaaS).

We present a single segment for purposes of financial reporting and prepared consolidated financial statements upon that basis.

Revenue Recognition

Our managed services solutions may require a combination of labor, third party products and services. Our managed services are generally not interdependent and our contract performance obligations are delivered consistently on a monthly basis. In the event there are undelivered performance obligations our practice is to recognize the revenue when the performance obligation has been satisfied.

A substantial portion of our revenues are derived from firm fixed price contracts with the U.S. federal government that are fixed fee arrangements tied to the number of devices managed. Our actual reported revenue may fluctuate quarter to quarter depending on the hours worked, number of users, number of devices managed, actual or prospective proven expense savings, actual technology spend, or any other metrics as contractually agreed to with our customers.

Our revenue recognition policies for our managed services are summarized and shown below:

Managed services are delivered on a monthly basis based on a standard fixed pricing scale and sensitive to significant changes in per user or device counts which form the basis for monthly charges. Revenue is recognized upon the completion of the delivery of monthly managed services based on user or device counts or other metrics. Managed services are not interdependent and there are generally no undelivered elements in these arrangements.

Identity service s are delivered as an on-demand managed service through the cloud to an individual or organization or sold in bulk to an organization capable of self-issuing credentials. There are two aspects to issuing an identity credential to an individual that consists of identity proofing which is a significant part of the service and monthly credential validation services which enable the credential holder to access third party systems. Identity proofing services are not bundled and do not generally include other performance obligations to deliver. Revenue is recognized from the sales of identity credentials to an individual or organization upon issuance less a portion deferred for monthly credential validation support services. In the case of bulk sales or credential management system revenue is recognized upon issue or availability to the customer for issuance. There is generally no significant performance obligation to provide post contract services in relation to identity consoles delivered. Identity certificates issued have a fixed life and cannot be modified once issued.

Software revenue for software sold as a subscription is recognized ratably over the license term from the date the software is accepted by the customer. Maintenance services, if contracted, are recognized ratably over the term of the maintenance agreement, generally twelve to thirty six months. Revenue for fixed price software licenses that are sold as a perpetual license with no significant customization are recognized when the software is delivered. When we enter into Software as a Service (SaaS) agreements and we are the principal in the transaction, we recognize revenue commensurate with the end customers consumption of the services Implementation fees are recognized when the work is completed. Revenue from this service does not require significant accounting estimates .

Our revenue recognition policy for our labor services is summarized and shown below:

Billable services are professional services provided on a project basis determined by our customers’ specific requirements. These technical professional services are billed based on time incurred and actual costs. We recognize revenues for professional services performed based on actual hours worked and actual costs incurred.

Our revenue recognition policy for our reselling services is summarized and shown below:

Reselling arrangements require the Company to procure third-party products and services in order to satisfy customer contractual obligations. The Company recognizes revenue and related costs on a gross basis in arrangements in which it controls the specified products or services prior to transfer to the customer. In these arrangements, the Company acts as the principal, as it is primarily responsible to the customer for fulfillment, bears inventory and credit risk for undelivered products and services, directly contracts with and issues purchase orders to third-party suppliers, and has discretion in selecting among multiple suppliers.

For reselling transactions in which the Company is the principal, revenue from product resales is generally recognized upon delivery, while revenue from resold services is generally recognized over the contractual service period. When the Company enters into Software-as-a-Service (“SaaS”) arrangements in which it is the principal, revenue is recognized in a manner that reflects the customer’s consumption of the services over the period of access.

In arrangements in which the Company does not control the underlying products or services prior to transfer and instead arranges for third parties to provide such products or services to customers on their own account, the Company acts as an agent. In these transactions, the Company recognizes revenue on a net basis, reflecting the fees or margins earned for arranging the transaction, with no corresponding recognition of the related third-party costs

Our revenue recognition policies for our billable carrier services is summarized and shown below:

Carrier services are delivered on a monthly basis and consist of phone, data and satellite and related mobile services for a connected device or end point. These services require us to procure, process and pay communications carrier invoices. We recognize revenues and related costs on a gross basis for such arrangements whenever we control the services before they are transferred to the customer. We are the principal in these transactions when we are seen as the primary creditor, we directly issue purchase orders directly to communications carriers for wireline and wireless services, and/or we have discretion in choosing optimal providers and rate plans. For arrangements in which we do not have such control we recognize revenues and related costs on a net basis.

Goodwill

Goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed. In accordance with GAAP, goodwill is not amortized but is tested for impairment at the reporting unit level annually and between annual tests if events or circumstances arise, such as adverse changes in the business climate, that would more likely than not reduce the fair value of the reporting unit below its carrying value.

A reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews. The Company has a single reporting unit for the purpose of impairment testing.

The Company performed its annual impairment assessment and based upon the Company’s market capitalization at December 31, 2025, as well as the absence of any indicators of impairment, the Company concluded there was no impairment of goodwill at December 31, 2025.

Accounting for Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is established when management determines that it is more likely than not that all or some portion of the benefit of the deferred tax asset will not be realized.

Since deferred taxes measure the future tax effects of items recognized in the financial statements, certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, management analyzes and estimates the impact of future taxable income, reversing temporary differences and available tax planning strategies. These assessments are performed quarterly, taking into account any new information.

The Company’s significant deferred tax assets consist of net operating loss carryforwards, share-based compensation and intangible asset amortization related to prior business acquisitions. Should a change in facts or circumstances lead to a change in judgment about the ultimate ability to realize a deferred tax asset (including our utilization of historical net operating losses and share-based compensation expense), the Company records or adjusts the related valuation allowance in the period that the change in facts or circumstances occurs, along with a corresponding increase or decrease to the income tax provision.

During the year ended December 31, 2025, the Company recorded a valuation allowance against a portion of domestic deferred tax assets because management determined that is it more likely than not the Company will not earn income sufficient to realize the deferred tax assets during the carryforward period.

2025 Results of Operations

Year Ended December 31, 2025 Compared to the Year ended December 31, 2024

Revenues

Revenues for the year ended December 31, 2025 were $150.5 million, an increase of $7.9 million (or 6%), compared to approximately $142.6 million in 2024. Our mix of revenues for the periods presented is set forth below:

YEARS ENDED

DECEMBER 31,

Dollar

Variance

Carrier Services

Managed Services:

Managed Service Fees

Billable Service Fees

Reselling and Other Services

Total Managed Services:

Our carrier services revenues increased by $5.1 million to $91.8 million from $86.8 million last year, primarily due to increased contracting activity with our federal customers, where we pay carrier invoices on behalf of those customers. A significant portion of our overall reported revenue consists of revenue from carrier services; however, it represents an insignificant portion of our overall reported gross profit. This is a commodity type service and is a pass through cost yielding no margin, but this is a necessary service to deliver to federal government customers that engage us to provide a full-service solution as part of our platform.

Our managed service fees increased by $3.3 million to $39.1 million from $35.8 million last year as a result of implementing a new commercial contract for a US government end customer later in the third quarter of 2024 compared with a full twelve months reflected in 2025 and an additional task order with the Customs and Border Protection in September of 2025 to manage 30,000 phone lines.

Billable services fees remained relatively constant from 2025 to 2024. Billable service fees can vary due to internal projects in our customer organizations.

Reselling and other services decreased by $0.7 million to $14.2 million from $14.9 million last year. The decrease was driven by a partial termination of a customer contract in 2025. Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.

Revenues by customer type for the periods presented is set forth below:

YEARS ENDED

DECEMBER 31,

Dollar

Customer Type

Variance

U.S. Federal Government

U.S. State and Local Governments

Foreign Governments

Commercial Enterprises

Our sales to federal government customers increased primarily because of a full twelve months of managed services revenues for a government end customer that began in late third quarter 2024 and an additional task order with the Customs and Border Protection in September of 2025 to manage 30,000 phone lines and associated carrier services that added approximately $5.2 million in 2025.

Our sales to state, local, and foreign government customers were relatively constant from year to year.

Our sales to commercial enterprise customers increased primarily as a result of increased sales in our ITaaS offering and increased commercial use of our identity management solutions.

Cost of Revenues

Our cost of revenues includes employee labor, excluding fringe benefit costs, and subcontractors directly associated with satisfying customer performance obligations, and the associated cost of accessory products and third-party software that we resell to our end customers. Cost of revenues also includes amortization of capitalized software related to delivering our solutions.

Cost of revenues for the year ended December 31, 2025 were $129.5 million (or 86% of revenues) compared to $123.5 million (or 87% of revenues) in 2024. Increased carrier services costs as well as costs related to reselling contributed to the dollar increase. Our cost of revenues will fluctuate due to our revenue mix.

Gross Profit

The following table illustrates gross profit related to Carrier services and Managed services:

YEARS ENDED

DECEMBER 31,

Dollar

Percent

Variance

Change

Revenues:

Carrier Services

Managed Services

Total revenue

Gross Profit:

Carrier Services

Managed Services

Total gross profit

Gross Margin:

Carrier Services

Managed Services

Total gross margin

Gross profit percentage for the year ended December 31, 2025 of our managed services was 36% compared to 34% in the prior period.

Gross profit for the year ended December 31, 2025 was $21.0 million (or 14% of revenues), compared to $19.0 million (or 13% of revenues) in 2024. The higher gross margin as a percentage of revenues is related to increased gross margins experienced in our managed services in 2025 compared to 2024.

Operating Expenses

Sales and marketing expenses include employee labor, excluding fringe benefit costs, and sales commissions associated with our sales force, commission fees paid to non-employee sales agents and partners, and costs associated with travel and trade shows. Sales and marketing expense for the year ended December 31, 2025 were $2.7 million (or 2% of revenues), compared to $2.3 million (or 2% of revenues) in 2024.

General and administrative expenses include employees in finance, human resources, information technology, and other administrative support functions; employee labor not associated with any single revenue producing activity, all company fringe benefits, including paid time off, employee health and medical insurance, 401(K) matching contributions, and payroll taxes. General and administrative expenses also include professional services to include audit, consulting, outside legal, and outsourcing services.

General and administrative expenses for the year ended December 31, 2025 were $19.7 million (or 13% of revenues), as compared to $17.6 million (or 12% of revenues) in 2024. The dollar increase primarily relates to an increase in employee compensation, and increased health insurance costs compared to the same period last year.

Depreciation and amortization expense increased to $1.3 million for the year ended December 31, 2025 as compared to $1.0 million in 2024, primarily due to increased depreciation expense recognized on certain disaster recovery assets based on their assessed in-service dates.

Other Income (Expense)

Net other income (expense) for the year ended December 31, 2025 was $0.1 million as compared to net other income (expense) of $(0.1) million in 2024.

Provision (Benefit) for Income Taxes

Income tax provision for the year ended December 31, 2025 was $97,700 compared to an income tax benefit of $4,000 in 2024.

Net Loss

As a result of the factors above, net loss for the year ended December 31, 2025 was $2.7 million or $0.28 loss per share as compared to a net loss of $1.9 million in 2024 or $0.21 loss per share.

Liquidity and Capital

Net Working Capital

Our sources of liquidity include cash on hand, our anticipated cash flows from operations, and interim funds available under the Old Dominion Credit Facility, through its maturity date of May 28, 2026. At December 31, 2025, our net working capital was approximately $2.3 million as compared to $2.4 million at December 31, 2024. We believe that our existing cash balances and our anticipated cash flows from operations and access to our credit facility will be sufficient to meet our working capital, capital expenditure, and contractual obligation requirements for the next 12 months. There is no assurance that, if needed, we will be able to borrow or raise capital on favorable terms or at all.

Cash Flows from Operating Activities

Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. Our single largest cash operating expense is labor and company sponsored benefits. Our second largest cash operating expense is our facility costs and related technology communication costs to support delivery of our services to our customers. We lease our facilities under non-cancellable long-term contracts. Any changes to our fixed labor and/or infrastructure costs may require a significant amount of time to take effect depending on the nature of the change made and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control. One US government agency, under the Department of Homeland Security, accounted for $6.8 million and $14.4 million of our unbilled receivables at December 31, 2025 and 2024, respectively.

For the year ended December 31, 2025, net cash provided by operating activities was approximately $5.7 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $1.6 million net cash provided by operations for the year ended December 31, 2024.

Cash Flows from Investing Activities

Cash used in investing activities provides an indication of our long-term infrastructure investments. We maintain our own technology infrastructure and may need to make additional purchases of computer hardware, software and other fixed infrastructure assets to ensure our environment is properly maintained and can support our customer obligations. We typically fund purchases of long-term infrastructure assets with available cash or capital lease financing agreements.

For the year ended December 31, 2025, cash used in investing activities was approximately $0.3 million and consisted of purchases of property and equipment.

For the year ended December 31, 2024, cash provided by investing activities was approximately $0.1 million and consisted of $0.2 million in proceeds from our factoring arrangement offset by purchases of property and equipment.

Cash Flows from Financing Activities

Cash used in financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.

For the year ended December 31, 2025, cash used in financing activities was approximately $0.7 million and reflects line of credit advances and payments of approximately $2.8 million, finance lease principal repayments of approximately $580,200, proceeds from stock option exercises of approximately $52,300 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $130,700.

For the year ended December 31, 2024, cash used in financing activities was approximately $0.9 million and reflects line of credit advances and payments of approximately $5.6 million, finance lease principal repayments of approximately $0.6 million and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $0.3 million.

Net Effect of Exchange Rate on Cash and Equivalents

For the year ended December 31, 2025, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $72,200 compared to last year. For the year ended December 31, 2024, the depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $31,900.

Credit Facility

On February 29, 2024, we entered into a Loan and Security Agreement (the “Loan”) and Promissory Note (the “Note,” and, together with the Loan, the “Agreements”) with Old Dominion National Bank. The Agreements provide for a $4,000,000 revolving line of credit facility (the “Credit Facility”) until May 28, 2026. The Company expects to renew its line of credit for a full year term on May 28, 2026 or sooner.

Advances under the Credit Facility are subject to a borrowing base equal to the lesser of (i) $4,000,000 or (ii) 80% of eligible accounts receivable. Interest accrues on the outstanding principal balance of the Credit Facility at an annual rate equal to the Prime Rate published in The Wall Street Journal, subject to a floor rate of 7.25%. Outstanding interest on the amount borrowed is payable monthly and all outstanding interest and principal is due on the maturity date of May 28, 2026. The Credit Facility includes customary covenants and events of default, including the following items that are measured: (i) a minimum tangible net worth of $2.0 million; (ii) a minimum annual EBITDA of $1.0 million and (iii) a ratio of current assets to current liabilities of not less than 1.0 to 1.0. We were in compliance with the covenants at December 31, 2025.

Off-Balance Sheet Arrangements

The Company has no existing off-balance sheet arrangements as defined under SEC regulations.