COMTECH TELECOMMUNICATIONS CORP /DE/ 10-Q

Item 1A. Risk Factors Except as set forth below, there have been no material changes to the description of the risk factors affecting our business previously disclosed in “ Part I, Item 1A. Risk Factors ” of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023, which are hereby incorporated by reference. Our current cash and liquidity projections raise substantial doubt about our ability to continue as a going concern. As discussed in "Notes to Condensed Consolidated Financial Statements – Note (1) – General," and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources,” we have evaluated whether there are any conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern over the next twelve months. Based on our current business plans, including projected capital expenditures, we believe our current level of cash and cash equivalents, excess availability under our revolver loan and liquidity expected to be generated from future cash flows will be sufficient to fund our operations over the next twelve months beyond the issuance date. However, such a determination is dependent on several factors including, but not limited to, general business conditions and our ability to reduce investments in working capital (such as unbilled receivables). If we are unable to maintain our current level of cash and cash equivalents, excess availability under our revolver loan or generate sufficient liquidity from future cash flows, our business, financial condition and results of operations could be materially and adversely affected. Such conditions and events raise substantial doubt about our ability to continue as a going concern as of the date of this Quarterly Report on Form 10-Q. Although we have completed the refinancing of our Prior Credit Facility and are actively pursuing other strategies to mitigate these conditions and events and alleviate such substantial doubt about our ability to continue as a going concern, there can be no assurance that our plans will be successful. Our ability to meet our current obligations as they come due may be impacted by our ability to remain compliant with the financial covenants under our New Credit Facility or to obtain waivers or amendments that impact the related financial covenants. If we are unable to satisfy certain covenants and not able to obtain waivers or amendments, such event would constitute an Event of Default (as such term is defined under the New Credit Facility) and could cause an immediate acceleration and repayment of all outstanding principal, interest and fees due under the New Credit Facility. If there is an Event of Default, there can be no assurances that we will be able to continue as a going concern, which could force us to delay, reduce or discontinue certain aspects of our business strategy. Additionally, our ability to meet future anticipated liquidity needs will largely depend on our ability to generate positive cash inflows from operations and/or secure other sources of outside capital. Our ability to generate cash in the future or have sufficient access to credit from financial institutions and/or financing from public and/or private debt and equity markets on acceptable terms, or at all, (i) is subject to (a) general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control and (b) under certain circumstances, a majority vote consent right of the holders of the Convertible Preferred Stock (as discussed further in " Notes to Condensed Consolidated Financial Statements – Note (17) – " Convertible Preferred Stock "), and (ii) could (x) dilute the ownership interest of our stockholders, (y) include terms that adversely affect the rights of our common stockholders, or (z) restrict our ability to take specific actions such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. Also, our transition to sustained profitability is dependent upon the successful completion of our ongoing One Comtech transformation and integration of individual businesses into two segments and related restructuring activities to optimize our cost structure and reduce investments in working capital and/or capital expenditures. If we are unable to obtain sufficient, timely financial resources, our business, financial condition and results of operations could be materially and adversely affected and we may be forced to terminate, significantly curtail or cease our operations or to pursue other strategic alternatives, including commencing a case under the U.S. Bankruptcy Code. 63 Index In addition, the perception that we may not be able to continue as a going concern may cause customers, vendors and others to review and alter their business relationships and terms with us, and may affect our credit rating. If we seek additional financing to fund operations and there remains substantial doubt about our ability to continue as a going concern, financing sources may be unwilling to provide such funding to us on commercially reasonable terms, or at all. Uncertainty regarding our ability to continue as a going concern could also have a material and adverse impact on the price of our common stock, which could negatively impact our ability to obtain additional stock-based financing or enter into strategic transactions. Loss of our executive officers or other key personnel or other changes to our management team could disrupt our operations and growth plans or harm our business. We depend on the efforts of our executive officers and certain key personnel. Any unplanned turnover or our failure to develop an adequate succession plan or business continuity plan for one or more of our executive officers, including our interim Chief Executive Officer, or other key positions could deplete our institutional knowledge base and erode our competitive advantage. We recently terminated Ken Peterman as President and Chief Executive Officer for cause due to conduct unrelated to Comtech’s business strategy, financial results or previously filed financial statements and appointed John Ratigan, who was our Chief Corporate Development Officer, as interim Chief Executive Officer, effective immediately. The loss or limited availability of the services of one or more of our executive officers or other key personnel, or our inability to recruit and retain qualified executive officers or other key personnel in the future, could, at least temporarily, have an adverse effect on our operating results and financial condition. Leadership transitions can be inherently difficult to manage, and an inadequate transition may cause disruption to our business and growth plans, including to our relationships with our customers and employees. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. Item 4. Mine Safety Disclosures Not applicable.