What changed in this filing

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Item 1A. Risk Factors

2024-10-30 compared with 2023-10-12 · 328 added, 185 removed, 633 unchanged (45% of the section changed)

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• New and ongoing challenges relating to current supply chain constraints and impacts from inflation, including for satellite ground station and troposcatter components, could adversely impact our revenue, gross margins and financial results.

• Our business outlook is difficult to forecast and operating results are subject to significant fluctuations and are likely to be volatile.

• If global economic business and political conditions deteriorate as compared to the current environment it could have a material adverse impact on our business outlook and our business, operating results and financial condition.

• We have significant operations in locations which could be materially and adversely impacted in the event of a terrorist attack or other significant disruptions (including natural disasters).

• The military conflict between Russia and Ukraine, and the global response to it could adversely impact our revenues, gross margins and financial results.

Government's budget deficit, as well as a breach of the debt ceiling, could have an adverse impact on our operations.

• We have significant operations in locations which could be materially and adversely impacted in the event of a terrorist attack and government responses thereto or significant disruptions (including natural disasters) to our business.

• Ongoing instability and conflicts in global markets, including in the Ukraine and Eastern Europe, Israel, Lebanon, the Gaza Strip and the Middle East and Asia, and the attending possibility of economic sanctions, have created and may continue to create economic and political disruption that could adversely impact our revenue, gross margins and financial results.

Strategic Transformation Risks

• We may fail to realize all of the anticipated benefits of our operational initiatives, including the strategic alternatives for our Terrestrial and Wireless Networks segment and further portfolio-shaping opportunities, or those benefits may take longer to realize than expected.

• Our transformation strategy may require a substantial portion of the time and attention of our management team, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

Business Risks

• Our backlog is subject to customer cancellation or modification.

• Our current cash and liquidity projections raise substantial doubt about our ability to continue as a going concern.

• Our business outlook is difficult to forecast and operating results are subject to significant fluctuations and are likely to be volatile.

• Our backlog is subject to customer cancellation or modification and such cancellations or modifications could result in a decline in sales and increased provisions for excess and obsolete inventory.

• Our efforts to invoice and collect unbilled receivables may be unsuccessful.

• Contract cost growth on our firm fixed-price contracts exposes us to reduced profitability and the potential loss of future business and other risks.

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• A change by wireless carrier partners in the pricing and other terms by which they offer our products to their end-customers could have a material adverse affect.

• Disputes with our subcontractors or key suppliers or their inability to deliver on a timely basis, could cause unanticipated delays in our shipments.

• Disputes with our subcontractors or key suppliers or their inability to deliver on a timely basis, could cause delays in our shipments.

• Our estimates regarding future warranty obligations may change based on a variety of factors, impacting future cost of revenue.

Strategic Growth Risks

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• We must service the debt and maintain compliance with various covenants under a credit facility that imposes restrictions on our business.

• Acquisitions of companies and investments could prove difficult to integrate, disrupt our business, dilute stockholder value or adversely affect operating results or the market price of our common stock.

• Our investments in recorded goodwill and other intangible assets could be impaired as a result of future business conditions, a deterioration of the global economy or if we change our reporting unit structure.

• Divestitures of portions of our business in the course of pursuing strategic alternatives and revisiting our portfolio could prove difficult to carve out, disrupt our business, dilute stockholder value or adversely affect operating results or the market price of our common stock.

• Our investments in recorded goodwill and other intangible assets have been impaired and may be further impaired as a result of future business conditions, a deterioration of the global economy or if we change our reporting unit structure as we pursue strategic alternatives.

Cybersecurity Risks

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• We may be subject to environmental liabilities.

• The success of our business is dependent on compliance with FCC rules and regulations and similar foreign laws and regulations.

• The success of our business is dependent on compliance with FCC rules and regulations and similar foreign, state and local laws and regulations.

• Regulation of the mobile communications industry and VoIP is evolving, and unfavorable changes or our failure to comply with existing and potential new legislation or regulations could harm our business and operating results.

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Some of our single source suppliers, particularly those that provide satellite ground station and troposcatter components, have reported to us that they are having disruptions in their respective supply chains.

These single source components, which include items such as cooling fans and power supplies, are in limited supply.

These single source components, which include items such as RF filters and custom fiber connectors are in limited supply with very long lead times.

In some cases, we have now depleted our stock inventory and we are on waiting lists to obtain additional components.

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There can be no assurance that the impacts of all the aforementioned conditions will not continue, or worsen, in the future.

Our business outlook is difficult to forecast and operating results are subject to significant fluctuations and are likely to be volatile.

Historically, our business outlook is difficult to forecast and backlog (sometimes referred to herein as orders or bookings), net sales and operating results may vary significantly from period to period due to a number of factors including:

fluctuating market demand;

start-up costs associated with the opening of our two new high-volume technology manufacturing centers;

price competition;

new product introductions by us or our competitors;

customer bankruptcies;

changing customer partnering procurement strategies;

fluctuations in foreign currency exchange rates;

unexpected changes in the timing of delivery of components or subsystems;

the financial performance and impact of acquisitions;

new accounting standards;

political instability;

regulatory developments;

changes in income tax rates or tax credits;

the price and expected volatility of our stock (which will impact, among other items, the amount of stock-based compensation expense we may record);

general global economic conditions, and the impact of natural disasters or global pandemics, such as the COVID-19 pandemic.

We have experienced, and will experience in the future, significant fluctuations in bookings, net sales and operating results from period to period.

For example, a sudden change in global economic or political conditions could have an immediate impact on a large portion of our net sales, a large amount of which are derived from products such as satellite ground station technologies, amplifier products and mission-critical technologies that generally have short order and lead times.

Similarly, sales of certain of our public safety and location technologies are subject to sudden changes in wireless carrier procurement strategies, including decisions to sole-source such solutions or to perform such solutions internally.

As a result, bookings and backlog related to these solutions are extremely sensitive to short-term fluctuations in customer demand.

In addition, a large portion of our consolidated net sales are derived in part from large U.S.

federal and state government programs or large foreign government opportunities that are subject to lengthy sales cycles (including funding requirements) and are therefore difficult to predict.

If global economic business and political conditions deteriorate as compared to the current environment it could have an adverse impact on our business outlook and our business, operating results and financial condition.

If global economic business and political conditions deteriorate as compared to the current environment it could have a material adverse impact on our business outlook and our business, operating results and financial condition.

Many of the end-markets for our products and services may be significantly impacted for other issues that result in adverse global economic conditions.

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Many governments around the world are under pressure to reduce their spending.

In recent years, global oil and natural gas prices have been volatile and have significantly impaired the ability of certain of our government customers in the oil and gas producing regions of the world to invest in telecommunications products and infrastructure.

From time to time, global oil and natural gas prices have been volatile and have significantly impaired the ability of certain of our government customers in the oil and gas producing regions of the world to invest in telecommunications products and infrastructure.

Additionally, from time to time, the relative strength of the U.S.

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remains difficult to obtain, our international customers and suppliers may find it difficult to obtain financing, which could result in a decrease in or cancellation of orders for our products and increased transaction costs (e.g., insurance, performance bonds).

Volatility of financing conditions may cause our customers to be reluctant to spend funds required to purchase our equipment and could cause their projects to be postponed or canceled.

Volatility of financing conditions may cause our customers to be reluctant to spend funds required to purchase our solutions and could cause their projects to be postponed or canceled.

In addition, if an adverse economic environment and lack of financing results in insolvencies for our customers, it would adversely impact the recoverability of our accounts receivable and/or inventories which would, in turn, adversely impact our results of operations.

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Our customers have reduced their budgets for spending on telecommunications equipment and systems and in some cases postponed or reduced the purchase of our products and systems.

In the future, our customers may again reduce their spending on telecommunications equipment and systems which would negatively impact both of our operating segments.

If this occurs, it would adversely affect our business outlook, net sales, profitability and the recoverability of our assets, including intangible assets such as goodwill.

We have significant operations in Arizona, Florida, California, Washington State, Maryland, New York and other locations which could be materially and adversely impacted in the event of a terrorist attack and government responses thereto or significant disruptions (including natural disasters) to our business.

In the future, our customers may again reduce their spending on telecommunications equipment and systems which would negatively impact our business.

If this occurs, it would adversely affect our outlook, net sales, profitability and the recoverability of our assets, including intangible assets such as goodwill.

We have significant operations in Arizona, Florida, California, Washington State, Maryland and other locations which could be materially and adversely impacted in the event of a terrorist attack and government responses thereto or significant disruptions (including natural disasters) to our business.

Terrorist attacks, the U.S.

and other governments' responses thereto, and threats of war could adversely impact our business, results of operations and financial condition.

For example, our 911 hosted location-based services and satellite teleport services operations depend on our ability to maintain our computer and equipment and systems in effective working order, and to protect our systems against damage from fire, natural disaster, terrorist attack, power loss, telecommunications failure, sabotage, unauthorized access to our system or similar events.

For example, our 911 hosted location-based services and satellite teleport services operations depend on our ability to maintain our computer equipment and systems in effective working order, and to protect our systems against damage from fire, natural disaster, terrorist attack, power loss, telecommunications failure, sabotage, unauthorized access to our system or similar events.

Any unanticipated interruption or delay in our operations or breach of security could have an adverse effect on our business, results of operations and financial condition.

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If a natural disaster or other business interruption occurred with respect to our high-volume technology manufacturing center, we do not have immediate access to other manufacturing facilities and, as a result, our business, results of operations and financial condition could be materially adversely affected.

To support our long-term business goals for our satellite earth station product line, in fiscal 2023, we completed our relocation of certain of our satellite earth station product line operations to our new 146,000 square foot facility in Chandler, Arizona.

Nevertheless, loss of that facility would have a negative impact on our production capability and we would incur unexpected costs and lost revenue associated with our inability to meet our contractual commitments.

We design and manufacture our over-the-horizon microwave equipment and systems in Florida, where major hurricanes have occurred in the past, and amplifiers in Santa Clara, California, an area close to major earthquake fault lines, and also manufacture amplifiers in Melville, New York, an area subject to hurricanes.

The loss of our facility in Arizona would have a negative impact on our production capability and we would incur unexpected costs and lost revenue associated with our inability to meet our contractual commitments.

Additionally, certain of our Terrestrial and Wireless Networks segment activities are conducted in Washington State near a fault line.

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Navy facility which may be more prone to a terrorist attack.

Our operations in these and other locations (such as in our high-volume technology manufacturing center located in Arizona and our antenna production facility in the United Kingdom), could be subject to natural disasters or other significant disruptions, including hurricanes, tornadoes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power shortages and blackouts, telecommunications failures, and other natural and man-made disasters or disruptions.

Our operations in these and other locations (such as in our high-volume technology manufacturing center located in Arizona), could be subject to natural disasters or other significant disruptions, including hurricanes, tornadoes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power shortages and blackouts, telecommunications failures, and other natural and man-made disasters or disruptions.

We cannot be sure that our systems will operate appropriately if we experience hardware or software failure, intentional disruptions of service by third parties, an act of God or an act of war.

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and/or loss of life, all of which could materially increase our costs and expenses and adversely affect our business, results of operations and financial condition.

The military conflict between Russia and Ukraine, and the global response to it could adversely impact our revenues, gross margins and financial results.

Ongoing instability and conflicts in global markets, including in the Ukraine and Eastern Europe, Israel, Lebanon, the Gaza Strip and the Middle East and Asia, and the attending possibility of economic sanctions, have created and may continue to create economic and political disruption that could adversely impact our revenue, gross margins and financial results.

government and other nations have imposed significant restrictions on most companies’ ability to do business in Russia.

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We may also be the subject of increased cyber-attacks as a result of the conflict.

The military conflict between Russia and Ukraine has impacted our sales pipeline and continues to have significant repercussions for our business.

Although sales into Russia represented approximately 1% of our consolidated net sales in fiscal 2023 and 2022, consolidated net sales into Russia in fiscal 2024 and beyond were expected to significantly grow.

As a result of the economic sanctions against Russia, however, we have stopped accepting new orders in Russia and plan to wind down operations in fiscal 2024.

Accordingly, we are completing the production of backlog for approved in-country customers and repatriating cash proceeds as permitted by both U.S.

and Russian law.

As a result of this conflict, in fiscal 2022 and 2023, certain customers (including the U.S.

and Ukrainian government) paused procurement and deployment of satellite and troposcatter communication systems, and instead began purchasing war-fighting equipment.

It has become difficult to predict the timing or dollar amount of our contract awards in the region.

For example, we had several opportunities to provide wireless communication systems (including troposcatter systems) to Ukraine for a variety of both defense and communications uses.

Funding for these systems was expected to be provided by Ukraine and by the U.S.

government and these items were expected to be awarded and shipped in the second half of fiscal 2022.

As result of the conflict in Ukraine, however, the award was not received and shipped until the first half of our fiscal 2023.

The military conflict between Russia and Ukraine has impacted our sales pipeline and continues to have repercussions for our business.

Although sales into Russia represented approximately 1% of our consolidated net sales in fiscal 2024 and 2023, consolidated net sales into Russia in fiscal 2025 and beyond had been expected to grow.

As a result of the economic sanctions against Russia, however, we have stopped accepting new orders in Russia and initiated a wind down of operations in fiscal 2024.

As a result of this conflict, from time to time over the past two years, we believe that certain customers (including the U.S.

government, Ukraine and neighboring countries) paused procurement and deployment of satellite and troposcatter communication systems, and instead began purchasing war-fighting equipment.

Accordingly, it has become difficult to predict the timing or dollar amount of our contract awards in the region.

For example, we anticipated being awarded several opportunities to provide wireless communication systems (including troposcatter systems) to Ukraine and neighboring countries for a variety of both defense and communications uses.

However, while we continue to track such opportunities and believe that they will ultimately be awarded to us, such opportunities continue to be delayed.

Additionally, funding for opportunities with other customers that we expected to book and ship has also been shifted to other programs and/or temporarily delayed as a result of changes in defense spending priorities.

Prior to this conflict, we maintained a small group of employees in Moscow, Russia who supported certain UHP-branded satellite communications products.

In fiscal 2023, we continued to expand our Canadian operations and shifted certain commercial software development and support activities outside of Russia.

Prior to this conflict, we maintained a small group of employees who supported certain UHP-branded satellite communications products.

In fiscal 2024, we continued to expand our operations and shift certain commercial software development and support activities to Canada.

However, as we are currently in an environment where software engineering talent is already in high demand and commands a premium, we expect to incur additional annual expenses in connection with this personnel shift for our UHP products.

We may not be able to timely ramp up our operations in Canada or elsewhere on a sufficient scale to support anticipated growth of our UHP products, which could adversely impact future revenues, gross margins and operations.

Government's budget deficit, as well as a breach of the debt ceiling, could have an adverse impact on our operations.

Our sales to government customers are highly dependent on the U.S.

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Any one or combination of these factors may adversely impact our operations, resulting in a decline of sales and operating income.

Strategic Transformation Risks

We may fail to realize all of the anticipated benefits of our operational initiatives, including the strategic alternatives for our Terrestrial and Wireless Networks segment and further portfolio-shaping opportunities, or those benefits may take longer to realize than expected.

On October 17, 2024, we announced that we are executing a strategy to transform Comtech into a pure-play satellite and space communications company.

There can be no assurance that the exploration of strategic alternatives will result in a transaction on terms acceptable to us or other strategic changes or outcomes.

Even if a transaction or series of transactions were completed, there can be no assurance as to the timing of completing these activities.

Moreover, we may not realize any or all of the anticipated benefits from our pursuit of strategic alternatives for our Terrestrial and Wireless Networks segment, or the anticipated benefits from further portfolio-shaping opportunities, and related transactions could in fact adversely affect our business.

Our ability to realize the anticipated benefits of our transformation strategy and further portfolio-shaping opportunities will depend, to a large extent, on our ability to continue to focus on satellite and space communications and to achieve more predictable growth in the absence of any divested businesses, including the Terrestrial and Wireless Networks segment.

Some of the anticipated benefits may not occur for a significant period of time.

In addition, we may retain certain liabilities or obligations related to our Terrestrial and Wireless Networks segment or other businesses that may arise under contract or law, or may have difficulties enforcing our rights, contractual or otherwise, against the buyer.

The focus on becoming a pure-play satellite and space communications company and the related transactions may not enhance long-term stockholder value as anticipated.

Further, our strategic transformation could result in near term restructuring charges and a material impairment of our goodwill and/or intangible assets, among other things.

Many of these factors will be outside of our control and any one of them could result in increased costs, including restructuring charges, decreases in the amount of expected revenues and diversion of management’s time and energy, which could adversely affect our business, financial condition and results of operations.

In addition, the process of such strategic transformations, including divesting assets, carries an inherent risk of market fluctuations and economic uncertainties that could undermine the value we expect to realize.

Our transformation strategy may require a substantial portion of the time and attention of our management team, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

Our management team has spent, and continues to spend, a significant amount of time and effort focusing on our transformation strategy.

This diversion of attention may have an adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the time it takes to complete our transformation strategy is protracted.

During the pendency of the transformation strategy, our employees may face considerable distraction and uncertainty and we may experience increased levels of employee attrition.

A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations.

The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

Likewise, we could experience losses of customers who may be concerned about our ongoing long-term viability.

Business Risks

Our backlog is subject to customer cancellation or modification and such cancellations could result in a decline in sales and increased provisions for excess and obsolete inventory.

Our current cash and liquidity projections raise substantial doubt about our ability to continue as a going concern.

Pursuant to the requirements of ASC Topic 205-40, " Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern ," we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern.

This evaluation does not take into consideration the potential mitigating effect of our plans that have not been fully implemented or are not within our control as of the date the audited Consolidated Financial Statements are issued.

When substantial doubt exists, we are required to evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern.

The mitigating effect of our plans, however, is only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the Consolidated Financial Statements are issued, and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued.

As of the date these financial statements were issued (the "issuance date"), we evaluated whether the following adverse conditions, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern over the next twelve months beyond the issuance date.

Over the past three fiscal years, we incurred operating losses of $79.9 million, $14.7 million and $33.8 million in fiscal 2024, 2023 and 2022, respectively.

In addition, over the past three fiscal years, net cash used in operating activities was $54.5 million and $4.4 million in fiscal 2024 and 2023, respectively, and net cash provided by operating activities was $2.0 million in fiscal 2022.

Our ability to meet future anticipated liquidity needs over the next year beyond the issuance date will largely depend on our ability to generate positive cash inflows from operations, maximize our borrowing capacity under our Credit Facility, as discussed further below, and or secure other sources of outside capital.

While we believe we will be able to generate sufficient positive cash inflows, maximize our borrowing capacity and secure outside capital, there can be no assurance our plans will be successfully implemented and, as such, we may be unable to continue as a going concern over the next year beyond the issuance date.

As discussed further in " Notes to Consolidated Financial Statements - Note (8) - Credit Facility " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), on June 17, 2024, we entered into a $222.0 million credit facility with a new syndicate of lenders, which replaced our prior credit facility.

As further discussed below, we subsequently amended the credit facility on October 17, 2024 (the "Credit Facility").

The Credit Facility consists of a committed $162.0 million term loan (“Term Loan”) and $60.0 million revolver loan (“Revolver Loan”).

At July 31, 2024 and October 25, 2024 (the date closest to the issuance date), total outstanding borrowings under the Credit Facility were $194.2 million and $199.1 million, respectively.

At both July 31, 2024 and October 25, 2024, $32.5 million was drawn on the Revolver Loan.

As of the issuance date, our available sources of liquidity approximate $28.7 million, consisting solely of qualified cash and cash equivalents.

That is, our available sources of liquidity do not include the remaining portion of the committed Revolver Loan due to the lenders' consent right, discussed below, to any borrowings that exceed $32.5 million.

The Credit Facility, among other things, requires compliance with new restrictive and financial covenants, including:

a maximum allowable Net Leverage Ratio of 3.25x for the fiscal quarter ending January 31, 2025;

a minimum Fixed Charge Coverage Ratio of 1.20x for the fiscal quarter ending January 31, 2025;

a minimum Average Liquidity requirement at each

quarter end of $20.0 million;

and a minimum EBITDA of $35.0 million for the fiscal quarter ending October 31, 2025.

Such ratios adjust under the Credit Facility in future periods.

The Credit Facility was amended on October 17, 2024 to waive certain defaults or events of default, including in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of July 31, 2024.

The amendment also provides for, among other things:

(i) increases the interest rate margins applicable to the loans;

(ii) modifies certain financial and collateral reporting requirements;

(iii) provides a lender consent right with respect to $27.5 million of Revolver Loan borrowings above $32.5 million;

(iv) permits the incurrence of $25.0 million of senior unsecured subordinated debt (as described below);

(v) amends the maturity date to the earlier of (x) July 31, 2028 or (y) 90 days prior to the earliest date that the debt under the Subordinated Credit Agreement (as defined below) becomes due and payable;

and (vi) suspends financial covenant testing through the end of our fiscal quarter ending January 31, 2025.

In addition, we entered into a Subordinated Credit Agreement with the existing holders of our Convertible Preferred Stock (the “Subordinated Credit Agreement”) on October 17, 2024, which provides a subordinated unsecured term loan facility in the aggregate principal amount of $25.0 million (the “Subordinated Credit Facility”).

The proceeds of the Subordinated Credit Facility:

(i) cured our default on certain financial covenants under the Credit Facility, as discussed above;

(ii) provides additional liquidity to us;

and (iii) funds our general working capital needs, including support of our strategic transformation initiatives, as discussed below.

Our ability to meet our current obligations as they become due may be impacted by our ability to remain compliant with the financial covenants required by the Credit Facility, or to obtain future waivers or amendments from the lenders in the event compliance is not maintained.

While we believe we will be able to secure such waivers or amendments, as needed, there can be no assurance such waivers or amendments will be secured or on terms that are acceptable to us.

If we are unable to secure waivers or amendments, the lenders may declare an event of default, which would cause an immediate acceleration and repayment of all outstanding principal, interest and fees due under our Credit Facility.

Absent our ability to repay the forgoing amounts upon the declaration of an event of default, the lenders may exercise their rights and remedies under the Credit Facility, which may include, among others, a seizure of substantially all of our assets and/or the liquidation of our operations.

If an event of default occurs that allows the lenders to exercise these rights and remedies over the next year beyond the issuance date, we will be unable to continue as a going concern.

As of the issuance date, our plans to address our ability to continue as a going concern include, among other things:

• executing a strategy to transform Comtech into a pure-play satellite and space communications company (ongoing and future actions supporting our transformation strategy include:

an exploration of strategic alternatives for our Terrestrial and Wireless Networks segment, which is well underway;

the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus;

and the implementation of additional operational initiatives to both achieve profitable results from operations as well as to align our go-forward cost structure with a pure-play focus on satellite and space communications), as discussed further in Note (18) – “Cost Reduction Activities;”

• pursuing initiatives to reduce investments in working capital, namely accounts receivable and inventory;

• improving process disciplines to attain and maintain profitable operations by entering into more favorable sales or service contracts;

• reevaluating our business plans to identify opportunities (e.g., within our Satellite and Space Communications segment) to focus future investment on our most strategic, high-margin revenue opportunities;

• reevaluating our business plans to identify opportunities to further reduce capital expenditures;

• seeking opportunities to improve liquidity through any combination of debt and/or equity financing (including possibly restructuring our Credit Facility, Convertible Preferred Stock and/or Subordinated Credit Agreement);

• seeking other strategic transactions and/or measures including, but not limited to, the potential sale or divestiture of assets.

While we believe the implementation of some or all of the elements of our plans over the next year beyond the issuance date will be successful, these plans are not all solely within management’s control and, as such, we can provide no assurance our plans are probable of being effectively implemented as of the issuance date.

Therefore, the adverse conditions and events described above are uncertainties that raise substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future.

Accordingly, the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

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.

Our business outlook is difficult to forecast and operating results are subject to significant fluctuations and are likely to be volatile.

the impact of strategic alternatives and portfolio reshaping;

fluctuating market demand;

price competition;

delayed collections from customers;

new product introductions by us or our competitors;

customer bankruptcies;

changing customer partnering procurement strategies;

fluctuations in foreign currency exchange rates;

unexpected changes in the timing of delivery of components or subsystems;

the financial performance and impact of acquisitions or divestitures;

new accounting standards;

political instability;

regulatory developments;

changes in income tax rates or tax credits;

the price and expected volatility of our stock (which will impact, among other items, the amount of stock-based compensation expense we may record);

perceptions of our financial condition and ability to continue as a going concern;

general global economic conditions, and the impact of natural disasters or global pandemics, such as the COVID-19 pandemic.

We have experienced, and will experience in the future, significant fluctuations in bookings, net sales and operating results from period to period.

As a result, bookings and backlog related to these solutions are extremely sensitive to short-term fluctuations in customer demand.

In addition, a large portion of our consolidated net sales are derived in part from large U.S.

federal and state government programs or large foreign government opportunities that are subject to lengthy sales cycles (including funding requirements) and are therefore difficult to predict.

Our backlog is subject to customer cancellation or modification and such cancellations or modifications could result in a decline in sales and increased provisions for excess and obsolete inventory.

We currently have a backlog of orders, mostly under contracts that our customers may modify or terminate.

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Any such charges could be materially adverse to our results of operations and financial condition.

Our efforts to invoice and collect unbilled receivables may be unsuccessful.

As of July 31, 2024, we had $123.7 million of contract assets recorded on our Consolidated Balance Sheet, commonly referred to as unbilled receivables.

generally accepted accounted principles, such contract assets generally result from timing differences between (a) when we must recognize revenue on contracts based on our activities to satisfy performance obligations related to products that have no alternative use and for which we have the right to payment in the event of a contract termination, and (b) when we can invoice our customers under the terms of those associated contracts (i.e., which is often based on our successful achievement of a milestone, such as an acceptance test or physical delivery of a product).

Unbilled receivables remain at risk for collection due to several factors, including but not limited to our inability to meet invoicing milestones, customer contracts being terminated for default or actual indirect rates on cost reimbursable contracts ultimately being less than those rates estimated for revenue recognition purposes.

Contract cost growth on our firm fixed-price contracts, including most of our government contracts, cost reimbursable type contracts and other contracts that cannot be justified as an increase in contract value due from customers exposes us to reduced profitability and the potential loss of future business and other risks.

A substantial portion of our products and services are sold under firm fixed-price contracts.

Firm fixed-price contracts inherently have more risk than flexibly priced contracts.

Firm fixed-price contracts inherently have more risk than flexibly priced contracts, particularly if they involve non-recurring engineering efforts that are not yet proven.

This means that we bear the risk of unanticipated technological, manufacturing, supply or other problems, price increases or other increases in the cost of performance.

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Operating margin could be materially adversely affected when contract costs that cannot be billed to the customer are incurred.

This cost growth can occur if initial estimates used for calculating the contract price were incorrect, or if estimates to complete increase.

This cost growth can occur if initial estimates used for calculating the contract price were incorrect, if estimates to complete increase or if we encounter unanticipated growth in research and development activity to support our firm fixed-price development contracts.

To a lesser extent, we provide products and services under cost reimbursable type contracts which carry the entire burden of costs exceeding a negotiated contract ceiling price.

Also, if contract costs grow beyond our or our customer's expectations, we may not be awarded future anticipated orders from customers related to their longer-term production needs.

The cost estimation process requires significant judgment and expertise.

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These spending levels are not generally correlated with any specific economic cycle, but rather follow the cycle of general public policy and political support for this type of spending.

Government contracts are conditioned upon the continuing availability of congressional appropriations and Congress’s failure to appropriate funds, or Congress’s actions to reduce or delay spending on, or reprioritize its spending away from, U.S.

Government contracts are conditioned upon the continuing availability of congressional appropriations and Congress’ failure to appropriate funds, or Congress’s actions to reduce or delay spending on, or reprioritize its spending away from, U.S.

government programs which we participate in, could negatively affect our results of operations.

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The federal debt limit continues to be actively debated as plans for long-term national fiscal policy are discussed.

The outcome of these discussions could have a significant impact on defense spending broadly and programs we support in particular.

The outcome of these discussions, which could be affected by the presidential and congressional elections in 2024, could have a significant impact on defense spending broadly and programs we support in particular.

The failure of Congress to approve future budgets and/or increase the debt ceiling of the U.S.

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government spending could have an adverse effect on our business, results of operations and financial condition.

It is possible that a shutdown of the U.S.

government may occur, or interim budgets may be adopted.

On September 25, 2024, the U.S.

Senate voted to pass a bipartisan Continuing Resolution (CR;

9747) to extend federal spending and avert a government shutdown through December 20, 2024.

House passed the measure that same day and the measure was signed by President Biden prior to the beginning of fiscal year 2025.

Accordingly, it is still possible that a partial shutdown of the U.S.

government may occur, or additional interim budgets may be adopted.

As such, we may experience delayed orders, delayed payments and adverse impacts on our results of operations.

We may experience related supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and subcontractors.

All of the aforementioned conditions and factors could, in the aggregate, have a material adverse effect on our business, results of operations and financial condition.

All of the aforementioned conditions and factors could have a material adverse effect on our business, results of operations and financial condition.

Additionally, cost cutting, efficiency initiatives, reprioritization, other affordability analyses, and changes in budgetary priorities by our governmental customers, including the U.S.

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government are subject to unique business and commercial risks, including:

• protest following an award by an unsuccessful bidder, resulting in a stop-work order;

• unexpected contract or project terminations or suspensions;

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There can be no assurance that we will win additional contracts or that actual contracts that are awarded will ultimately be profitable.

• We can be disqualified as a supplier to the U.S.

government - As a supplier to the U.S.

• Failure to comply with government contractor obligations can result in adverse consequences for the company - As a supplier to the U.S.

government, we must comply with numerous regulations, including those governing security, contracting practices and classified information.

Failure to comply with these regulations and practices could result in fines being imposed against us or our suspension for a period of time from eligibility for bidding on, or for award of, new government contracts.

Failure to comply with these regulations and practices could result in fines being imposed against us, civil or criminal penalties, termination of contracts, our suspension for a period of time from eligibility for bidding on, or for award of, new government contracts, or other adverse consequences.

If we are disqualified as a supplier to government agencies, we would lose most, if not all, of our U.S.

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government contracts can be audited by the Defense Contract Audit Agency ("DCAA") and other U.S.

government agencies and we can be subject to penalties arising from post-award contract audits (sometimes referred to as a Truth in Negotiations Act or "TINA" audit) or cost audits in which the value of our contracts may be reduced.

government agencies and we can be subject to penalties arising from post-award contract audits (sometimes referred to as a Truth in Negotiations Act or "TINA" audit), cost audits in which the value of our contracts may be reduced or increased costs to implement corrective actions.

If costs are found to be improperly allocated to a specific contract, those costs will not be reimbursed, and any such costs already reimbursed would be required to be refunded.

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government contracting or subcontracting for a period of time.

Our dependence on sales to international customers exposes us to unique business, commercial and export compliance audit risks.

Our dependence on sales to international customers exposes us to unique business, commercial and export compliance risks.

Sales for use by international customers (including sales to U.S.

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and foreign regulations that may apply to the export of our products.

Some of our business partners also have international operations and are subject to the risks described above.

Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.

Although we take steps to mitigate our risk with respect to international sales, we may not be able to do so in every instance for any of the following reasons, among others:

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Violations of any of these laws, rules or regulations, and other business practices that are regarded as unethical, could interrupt the sales of our products and services, result in the cancellation of orders or the termination of customer relationships, and could damage our reputation, any of which developments could have a material adverse effect on our business, results of operations and financial condition.

• We must comply with all applicable export control laws and regulations of the U.S.

• We must comply with all applicable export control laws and regulations of the U.S., the U.K.

and other countries - Certain of our products and systems may require licenses from U.S.

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In addition, in certain cases, U.S.

export controls also severely limit unlicensed technical discussions, such as discussions with any persons who are not U.S.

citizens or permanent residents.

export controls also severely limit unlicensed technical discussions, such as discussions with any persons who are foreign nationals.

As a result, in cases where we may need a license, our ability to compete against a non-U.S.

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Treasury Department's OFAC.

We are also subject to similar restrictions in the U.K.

and other countries.

• We must comply with the FCPA and similar laws elsewhere - We are subject to the FCPA and other foreign laws prohibiting corrupt payments to government officials, which generally bar bribes or unreasonable gifts to foreign governments or officials.

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A violation of any of the regulations enumerated above could materially adversely affect our business, financial condition and results of operations.

Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, agents, or subsidiaries will not violate our policies.

These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions.

Additionally, changes in regulatory requirements which could restrict our ability to deliver services to our international customers, including the addition of a country to the list of sanctioned countries under the IEEPA or similar legislation could negatively impact our business.

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• We must maintain a company-wide Office of Trade Compliance - In the past, we have self-reported violations of export control laws or regulations to the U.S.

Department of State, Directorate of Defense Trade Controls ("DDTC"), DoC and OFAC.

Department of State, Directorate of Defense Trade Controls ("DDTC"), DoC, OFAC and similar regulatory authorities in the jurisdictions where we have operations, including His Majesty's Revenue & Customs ("HMRC") in the United Kingdom.

In addition, we have made various commitments to U.S.

government agencies that oversee trade and export matters and have committed that we will maintain certain policies and procedures including maintaining a company-wide Chief Trade Compliance Officer and Office of Trade Compliance and conducting ongoing internal assessment and reporting any future violations to those agencies.

government agencies that oversee trade and export matters and have committed that we will maintain certain policies and procedures including maintaining a company-wide Chief Trade Compliance Officer and Office of Trade Compliance and conducting ongoing internal assessments and reporting of any future violations to those agencies.

Even though we take precautions to avoid engaging in transactions that may violate U.S.

export control laws or regulations, including trade sanctions, those measures may not be effective in every instance.

If it is determined that we have violated U.S.

export control laws or regulations or trade regulations, civil and criminal penalties could apply, and we may suffer reputational harm.

export control laws or regulations and their foreign counterparts, including trade sanctions, those measures may not be effective in every instance.

If it is determined that we have violated export control laws or regulations or trade regulations in any jurisdictions, civil and criminal penalties could apply, and we may suffer reputational harm.

• We are subject to future export compliance audits - We continue to implement policies and procedures to ensure that we comply with all applicable export control laws and regulations.

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These negotiations are complex and may take long periods of time.

Even when we successfully negotiate a multi-period contract, our wireless carrier contracts, such as the ones with Verizon which collectively accounted for 10.6% of our sales in fiscal 2023, provide for terminations with notice and provide a mechanism for the wireless carrier to renegotiate lower fees and/or change services.

Even when we successfully negotiate a multi-period contract, our wireless carrier contracts provide for terminations with notice and provide a mechanism for the wireless carrier to renegotiate lower fees and/or change services.

Fee pressure from these carriers is constant and ongoing.

Thus, even when we obtain a multi-period contract term, our revenues could be suddenly and materially reduced.

Competitors offer technology that has functionality similar to ours for free, under different business models.

From time to time, competitors offer technology that has functionality similar to ours for free, under different business models.

Competition from such free offerings may reduce our revenue and harm our business.

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If we are unable to meet contractual requirements with our wireless carrier partners, they could terminate our agreements or we may be required to refund a portion of monthly subscriptions fees they have paid us.

Disputes with our subcontractors or key suppliers or their inability to deliver on a timely basis, could cause unanticipated delays in our shipments.

Disputes with our subcontractors or key suppliers or their inability to deliver on a timely basis, could cause delays in our shipments.

Our subcontractors and key suppliers are essential members of our team.

Nevertheless, we may occasionally have commercial disputes with them (e.g., over the quality, timeliness or cost of their products).

Nevertheless, we may occasionally have commercial disputes with them (e.g., over the quality, timeliness or cost of their products or payment patterns in connection with rendered goods and services).

As suppliers evaluate our financial condition on an ongoing basis, they may also take steps to revise payment terms (e.g., by requiring payment in advance of delivery or payment milestones) that may negatively impact the anticipated timing of components required for the assembly of our products or services rendered in support of our programs.

Additionally, our subcontractors and suppliers may experience financial difficulties which may impact their ability to execute against their contractual commitments and delay or otherwise disrupt deliveries.

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External events outside our control may disrupt our supply chain.

With recent history in mind, natural disasters, pandemics, extreme weather conditions, legislative or regulatory changes may all impact the performance of our supplier base.

Natural disasters, pandemics, extreme weather conditions, legislative or regulatory changes may all impact the performance of our supplier base.

Our subcontractors and suppliers may also, in turn, be unable to maintain the quality of the materials they receive from their respective suppliers.

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In some instances, where we rely on supplier certifications of compliance with these laws and regulations, an improper or incomplete certification may adversely impact our production capability.

Our estimates regarding future warranty obligations may change based on a variety of factors, impacting future cost of revenue.

Our products are complex, and we cannot ensure that our extensive testing will detect all defects.

Quality issues reported by our customers for products covered under warranty could adversely impact our reputation and negatively affect our operating results.

If significant warranty obligations arise due to reliability or quality issues arising from such defects, our reputation and operating results could be negatively impacted.

Strategic Growth Risks

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These risks include:

• We may not be ultimately successful in implementing our "One Comtech" transformation and integration of individual businesses into two segments - The transformation of Comtech from stand-alone individual businesses toward a single “One Comtech” is a complex undertaking, requiring the consolidation of both manufacturing and back-office teams around the globe in parallel with a global re-branding effort.

Managing the merger of multiple production facilities and their attending employee populations is difficult and may negatively impact business prospects in the short and long term.

Similarly, our re-branding of the company as Comtech risks damaging goodwill accumulated over decades of operation as individual businesses.

• The loss of key technical and/or management personnel could adversely affect our business - Our future success depends on the continued contributions of key technical and management personnel.

• We may not be ultimately successful in transformation activities - The pursuit of strategic alternatives and portfolio reshaping is a complex undertaking.

Managing the disposition of multiple production facilities and their attending employee populations is difficult and may negatively impact business prospects in the short and long term.

Additionally, in the course of evaluating our portfolio, we determined that our Satellite and Space Communications reporting unit had an estimated fair value below its carrying value and concluded that our goodwill in this reporting unit was impaired, as noted in the “Impairment of long-lived assets, including goodwill" line item on our Consolidated Statements of Operations.

• The loss of key technical and/or management personnel in the course of our restructuring could adversely affect our business - The pursuit of strategic alternatives and reshaping of our portfolio businesses will require the continued contributions of key technical and management personnel.

The management skills that have been appropriate for us in the past may not continue to be appropriate if we grow and diversify.

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If we are not able to timely and effectively manage our growth and maintain the quality standards required by our existing and potential customers, it could have an adverse effect on our business, results of operations and financial condition.

Additionally, in light of various factors including but not limited to our announcement to pursue strategic alternatives, we have postponed and or re-prioritized certain initiatives (e.g., our drive toward an common company-wide ERP tool), which may result in certain inefficiencies and or increased costs in the future.

• Our markets are highly competitive and there can be no assurance that we can continue to compete effectively - The markets for our products are highly competitive.

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Many of our competitors have financial, technical, marketing, sales and distribution resources greater than ours.

Recently, we have seen increased requests for proposals from large wireless carriers for sole-source solutions and have responded to several such requests.

We continue to see requests for proposals from large wireless carriers for sole-source solutions and have responded to several such requests.

In order to induce retention of existing customer contracts and obtain business on a sole-source basis, we may ultimately agree to adjust pricing on a retroactive basis.

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Although we obtain certain components and subsystems from a single source or a limited number of sources, we believe that most components and subsystems are available from alternative suppliers and subcontractors.

During the past four years, partly driven by the COVID-19 pandemic and as a result of overall increased industry-wide demand, lead times for many components have increased as well as freight costs.

In addition, threats of or actual tariffs could limit our ability to obtain certain parts on a cost-effective basis, or at all.

During the past several years, as a result of overall increased industry-wide demand, lead times for many components have increased as well as freight costs.

In addition, threats of or actual tariffs, disruptions in shipping vessels having access to normal trade routes and/or unexpected port closures could limit our ability to obtain certain parts on a cost-effective basis, or at all.

A significant interruption in the delivery of such items could have an adverse effect on our business, results of operations and financial condition.

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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 Chief Executive Officer (“CEO”), or other key positions could deplete our institutional knowledge base and erode our competitive advantage.

In March 2024, we terminated our former President and CEO 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 CEO.

Ratigan was appointed as President and CEO on October 28, 2024, following a lengthy search process during which internal and external candidates were evaluated by a retained search firm and interviewed by our Board of Directors.

Additionally, Maria Hedden, our Chief Operating Officer, resigned from the Company on September 13, 2024.

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 an growth plans, including to our relationships with our customers and employees.

We have incurred indebtedness under a Credit Facility, and may incur substantial additional indebtedness in the future, and may not be able to service that debt in the future and we must maintain compliance with various covenants that impose restrictions on our business.

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

On November 30, 2022, we refinanced the amount outstanding under the Credit Facility by entering into a Second Amended and Restated Credit Agreement (also referred to herein as the “Credit Facility”) with the existing lenders.

The Credit Facility provides a senior secured loan facility of up to $300.0 million consisting of:

(i) a revolving loan facility (“Revolving Loan Facility”) with a borrowing limit of $150.0 million, including a $20.0 million letter of credit sublimit and a swingline loan credit sublimit of $15.0 million;

(ii) a $50.0 million term loan A (“Term Loan”);

and (iii) an accordion feature allowing us to make a request to borrow up to an additional $100.0 million subject to the satisfaction of specified conditions, including approval by our lenders.

As of July 31, 2023, the amount outstanding under our Credit Facility was $164.4 million, of which $4.4 million and $160.0 million is reflected in the current and non-current portion of long-term debt, respectively, on our Consolidated Balance Sheet.

As of July 31, 2023, we also had $1.0 million of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts.

Currently, the Credit Facility has a maturity date of October 31, 2024 (“Maturity Date”), which is approximately one year out from now.

In anticipation of the upcoming Maturity Date, we engaged a third-party financial advisor to assist us with both the refinancing of our existing Credit Facility, as well as with our evaluation of other capital structure-related alternatives.

In tandem with these activities, which we believe are nearing closure, we are also in discussions with our existing lenders to amend and extend the Maturity Date of the Credit Facility, if needed to complete these important initiatives.

However, we may not be successful in securing an amendment and extension of the Credit Facility or complete such refinancing activities by October 31, 2023, when the debt outstanding under our Credit Facility would become a short-term current liability.

At the Maturity Date of the Credit Facility, as it currently stands or as may be extended, if we do not have sufficient funds to repay our debt when due, it may be necessary to refinance our debt through additional debt or equity financings.

If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on such refinancing, increases in interest expense could have a material adverse effect on our business, results of operations and financial condition.

In addition, if we are not able to obtain favorable terms pursuant to any such refinancing, the size of our Credit Facility could be reduced, more restrictive covenants could be imposed on our business and features of the existing Credit Facility could otherwise be altered or eliminated.

Our Credit Facility contains various affirmative and negative covenants that may restrict our ability to, among other things, permit liens on our property, change the nature of our business, transact business with affiliates and/or merge or consolidate with any other person or sell or convey certain of our assets to any one person.

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.

We have incurred indebtedness under a credit facility and an unsecured subordinated loan, and may incur substantial additional indebtedness in the future, and may not be able to service that debt in the future and we must maintain compliance with various covenants that impose restrictions on our business.

On June 17, 2024, we entered into a new $222.0 million credit facility with a syndicate of lenders (the "Credit Facility").

As of July 31, 2024, total borrowings outstanding under the Credit Facility were $194.2 million, of which $190.1 million is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet.

Subsequent to year end, to enhance our liquidity while we pursue strategic alternatives, other restructuring related activities and the collection of our unbilled receivables, we amended our Credit Facility to, among other things, relax certain financial and non-financial covenants.

We also entered into a $25.0 million senior subordinated unsecured loan agreement with our existing preferred shareholders.

See " Notes to Consolidated Financial Statements " included in " Part II - Item 8.

Financial Statements and Supplementary Data " included in this Form 10-K, for further information.

On the Maturity Date of the Credit Facility, if we do not have sufficient funds to repay our debt when due, it may be necessary to refinance our debt through additional debt or equity financings.

If, at the time of any such refinancing, prevailing interest rates or other factors result in higher interest rates on such refinancing, increases in interest expense could have a material adverse effect on our business, results of operations and financial condition.

In addition, if we are not able to obtain favorable terms pursuant to any such refinancing, the size of our Credit Facility could be reduced, more restrictive covenants could be imposed on our business and features of the Credit Facility could otherwise be altered or eliminated.

Our Credit Facility contains various affirmative and negative covenants that may restrict our ability to, among other things, incur additional indebtedness, permit liens on our property, change the nature of our business, transact business with affiliates and/or merge or consolidate with any other person or sell or convey certain of our assets to any one person.

We anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future, however, there can be no assurance that we will be able to meet these covenants.

Further, our ability to comply with covenants, terms of and conditions on our facility may be affected by events beyond our control.

Failure to comply with covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations.

Further, our ability to comply with covenants, terms of and conditions on our Credit Facility may be affected by events beyond our control.

Failure to comply with covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and permit the agents under the Credit Facility to enforce on the collateral pledged to the secured parties thereunder.

Our substantial debt obligations could impede, restrict or delay the implementation of our business strategy or prevent us from entering into transactions that would otherwise benefit our business.

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A substantial increase in our indebtedness could also have a negative impact on our credit ratings.

In this regard, failure to maintain our credit ratings could adversely affect the interest rate available to us in future financings, as well as our liquidity, competitive position and access to capital markets.

Any decision regarding future borrowings will be based on the facts and circumstances existing at the time, including market conditions and our credit ratings.

The holders of our Series A Preferred Convertible Stock have a majority vote consent right over our ability to amend, restate, or replace the Credit Facility on terms that are materially different to those of the Credit Facility or that adversely affect our ability to fulfill its repurchase obligations of the Series A Preferred Convertible Stock.

If we need to amend, restate or replace the Credit Facility on materially different terms or terms adverse to the interests of the holders of our Series A Preferred Convertible Stock, and we are unable to obtain the consent of such holders, we may be unable to obtain required financing or liquidity on favorable terms, or at all.

Acquisitions of companies and investments could prove difficult to integrate, disrupt our business, dilute stockholder value or adversely affect operating results or the market price of our common stock.

We expect to continue to evaluate other acquisitions and investments as part of our growth plans.

Such efforts may not result in an acquisition or ultimately be beneficial to us.

Future acquisitions or investments may result in the use of significant amounts of cash, potentially dilutive issuances of equity securities, incurrence of large amounts of debt, increases to amortization expense and future write-offs of the acquired intangibles.

Acquisitions and investments involve risks that include failing to:

• properly evaluate the technology;

Divestitures of portions of our business in the course of pursuing strategic alternatives and revisiting our portfolio could prove difficult to carve out, disrupt our business, dilute stockholder value or adversely affect operating results or the market price of our common stock.

We expect to pursue strategic alternatives for our Terrestrial and Wireless Networks segment while evaluating further portfolio shaping opportunities.

Future divestitures may result in the use of significant amounts of cash, increases to amortization expense and future write-offs of intangibles.

Divestiture related activities also involve risks that include failing to:

• obtain competitive bids for our assets;

• accurately forecast the financial impact of the transaction, including accounting charges and transaction expenses;

• integrate the technologies, products and services, research and development, sales and marketing, support and other operations;

• integrate and retain key management personnel and other key employees;

• retain and cross-sell to acquired customers;

• combine potentially different corporate cultures.

Acquisitions and investments could also:

• support products and services, research and development, sales and marketing, support and other operations during the pendency of disposition activity;

• retain key management personnel and other key employees;

• retain customers

Divestiture activity could also:

• divert management’s attention away from the operation of our businesses;

• result in significant goodwill and intangibles write-offs in the event an acquisition or investment does not meet expectations;

• increase expenses, including expenses of managing the growth of such acquired businesses.

There can be no assurance that any future acquisition or investment will be successful within the anticipated time frame, or at all, will be as valuable as the amount we pay to acquire it, and will not adversely affect our business, results of operations or financial condition.

In addition, if we consummate future acquisitions using our equity securities or securities convertible into our equity securities, existing stockholders may be diluted, which could have a material adverse effect on the market price of our common stock.

Foreign acquisitions and investments are regularly subject to scrutiny by the U.S.

government and its agencies, such as the Committee on Foreign Investment in the United States (“CFIUS”) and the Defense Counterintelligence and Security Agency (“DCSA”) and our role as a U.S.

federal contractor escalates such scrutiny, in particular, with respect to compliance with industrial security requirements.

Failure to comply with the requirements of the U.S.

government could result in fines being imposed against us or our suspension for a period of time of authority to operate under certain government programs or from eligibility for bidding on, or for award of, new government contracts, which could have a material adverse effect on our business, results of operations and financial condition.

Our investments in recorded goodwill and other intangible assets could be impaired as a result of future business conditions, a deterioration of the global economy or if we change our reporting unit structure.

• result in additional significant goodwill and intangibles write-offs in the event a disposition negatively impacts our future results of operations and or cash flows;

• increase expenses, including transaction expenses associated with the disposition.

There can be no assurance that our pursuit of strategic alternatives will be successful within the anticipated time frame, or at all.

There can also be no assurance that such activity will not adversely affect our business, results of operations or financial condition.

After completing restructuring activities and related expenses, our decision to cease operations of our steerable antenna product line in Basingstoke, UK is expected to result in future annual cash savings relative to the past three fiscal years.

If we are unsuccessful in negotiating termination liabilities with our customers or vendors, however, our UK entity may become insolvent and our assumptions with respect to the liquidity of our Basingstoke operations may not materialize.

Our investments in recorded goodwill and other intangible assets could be further impaired as a result of future business conditions, a deterioration of the global economy or if we change our reporting unit structure as we pursue strategic alternatives.

As of July 31, 2024, goodwill recorded on our Consolidated Balance Sheet aggregated $284.2 million.

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For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, our Satellite and Space Communications and Terrestrial and Wireless Networks segments each constitute a reporting unit and we must make various assumptions in determining their estimated fair values.

Reporting units are defined by how our Chief Executive Officer ("CEO") manages the business, which includes resource allocation decisions.

Reporting units are defined by how our CEO manages the business, which includes resource allocation decisions.

We may, in the future, change our management approach which in turn may change the way we define our reporting units, as such term is defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350 " Intangibles - Goodwill and Other.

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however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

On August 1, 2023 (the first day of our fiscal 2024), we performed our annual quantitative assessment and estimated the fair value of each of our reporting units using a combination of the income and market approaches.

Based on our quantitative evaluation, we determined that our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least 18.3% and 8.9%, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

During the fourth quarter of fiscal year 2024, our lower-than-expected financial performance, cured default on certain credit facility covenants and sustained decrease in our stock price since August 1, 2023 were each considered triggering events requiring an interim quantitative impairment test as of July 31, 2024.

Based on our quantitative evaluation, we determined that our Terrestrial and Wireless Networks reporting unit had an estimated fair value in excess of its carrying value of at least 24.7% and concluded that our goodwill in this reporting unit was not impaired.

However, we determined that our Satellite and Space Communications reporting unit had an estimated fair value below its carrying value and concluded that our goodwill in this reporting unit was impaired.

As a result, in the fourth quarter of fiscal 2024, we recognized a non-cash $48,925,000 goodwill impairment charge in our Satellite and Space Communications reporting unit.

Such loss is included in the “ Impairment of long-lived assets, including goodwill " line item on our Consolidated Statements of Operations .

Due to their proximity, the quantitative impairment test as of July 31, 2024 is deemed to satisfy our annual goodwill impairment test requirement as of August 1, 2024 (the first day of fiscal 2025).

It is possible that, during fiscal 2025 or beyond, business conditions (both in the U.S.

and internationally) could deteriorate from the current state, our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate, or our common stock price could fluctuate.

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2025 or beyond.

If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units could be at risk of failing the quantitative assessment and goodwill and intangibles assigned to the respective reporting units could be impaired.

Also, as announced on October 17, 2024, we are executing a strategy to transform Comtech into a pure-play satellite and space communications company.

Ongoing and future actions supporting our transformation strategy include:

an exploration of strategic alternatives for our Terrestrial and Wireless Networks segment, which is well underway;

the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus;

Such activities could result in a material impairment of our goodwill and/or intangible assets.

See " Strategic Transformation " section above for more information.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2025 (the start of our fiscal 2026).

If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods.

In addition to our impairment analysis of goodwill, we also review net intangibles with finite lives when an event occurs indicating the potential for impairment.

We believe that the carrying values of our net intangibles were recoverable as of July 31, 2023.

Net Intangibles with Finite Lives

Similar to goodwill, we also review the recoverability of our net intangibles with finite lives whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Recoverability of an asset or asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group.

If the carrying amount of the asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group.

Accordingly, in addition to testing goodwill associated with our Satellite and Space Communications reporting unit for impairment, during the fourth quarter of fiscal year 2024, we also assessed the recoverability of the carrying values of our other long-lived assets, including identifiable intangible assets with finite useful lives.

Such testing also considered our decision in the fourth quarter of fiscal year 2024 to cease our steerable antenna operations located in the United Kingdom.

Based on our evaluation, we determined that the fair value of the asset group related to such operations was lower than its carrying value and recorded a non-cash $15,600,000 long-lived asset impairment charge in our Satellite and Space Communications segment.

Such loss is included in the “ Impairment of long-lived assets, including goodwill " line item on our Consolidated Statements of Operations .

Of the total amount, $9,925,000 relates to net intangible assets with finite lives, $1,151,000 relates to operating lease right-of-use assets, $2,651,000 relates to property, plant and equipment and $1,873,000 relates to other assets.

We determined that the carrying values of our remaining net intangibles were recoverable as of July 31, 2024.

Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

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If any such events occur, we may have to reimburse our customers for damages that they may have incurred, pay contract penalties, or provide refunds.

Similar to all companies in our industry, we are under constant cyber-attack and are subject to an ongoing risk of security breaches and disruptions of our IT networks and related systems, including third-party data center facilities, whether through actual breaches, cyber-attacks (including ransomware) or cyber intrusions via the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization.

We face risk of Cybersecurity threats ranging from, ransomware and denial-of-service, to attacks from more advanced and persistent, highly organized adversaries, including nation state actors, which target the defense industrial base and other critical infrastructure sectors are persistent.

Our corporate information security organization, led by our Chief Information Security Officer ("CISO"), manages our overall information security strategy.

The current CISO has extensive information technology experience and partners closely with our Technology, Innovation & Cyber Committee of the Board of Directors.

More broadly, we routinely audit our systems and practices against the DFARS and proposed Cybersecurity Maturity Model Certification ("CMMC") program, DoD’s cybersecurity requirements for handling government contracts and Controlled Unclassified Information ("CUI"), respectively.

Nevertheless, similar to all companies in our industry, we are under constant cyber-attack and are subject to an ongoing risk of security breaches and disruptions of our IT networks and related systems, including third-party data center facilities, whether through actual breaches, cyber-attacks (including ransomware) or cyber intrusions via the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization.

We also maintain databases with private information regarding our customers and our employees.

Actual security breaches or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, have increased in recent years and have become more complex.

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• Disrupt the proper functionality of these networks, data center facilities and systems and therefore our operations and/or those of certain of our customers;

• Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;

• Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including employee information, trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;

• Compromise national security and other sensitive government functions;

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In addition, the cost of continually defending against cyber-attacks and actual breaches has increased in recent years and future costs and any or all of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

For example, as vulnerability standards evolve, our customers may attempt to pass along development and certification costs to us even following the deployment of our products, which may negatively impact our financial performance.

The measures we have implemented to secure information we collect and store or enable access to may be breached, which could cause us to breach agreements with our partners and expose us to potential investigation and penalties by authorities and potential claims for contract breach, product liability damages, credits, penalties or termination by persons whose information was disclosed.

We take reasonable steps to protect the security, integrity and confidentiality of the information we collect and store and to prevent unauthorized access to third-party data to which we enable access through our products, but there is no guarantee that inadvertent or unauthorized disclosure will not occur or that third parties will not gain unauthorized access despite our efforts.

If such unauthorized disclosure or access does occur, we may be required to notify persons whose information was disclosed or accessed under existing and proposed laws.

If such unauthorized disclosure or access does occur, we may be required to notify regulators, customers and persons whose information was disclosed or accessed under existing and proposed laws.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

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None of our state income tax returns prior to fiscal 2020 are subject to audit.

Although adjustments relating to past audits of our federal income tax returns were immaterial, a tax assessment or settlement for other periods or other jurisdictions that may be selected for future audit could have a material adverse effect on our business, consolidated results of operations and financial condition.

Although adjustments relating to past audits of our federal and state income tax returns were immaterial, a tax assessment or settlement for other periods or other jurisdictions that may be selected for future audit could have a material adverse effect on our business, consolidated results of operations and financial condition.

We may be subject to environmental liabilities.

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In addition, the handling, treatment or disposal of hazardous substances by us or our predecessors may have resulted, or could in the future result, in contamination requiring investigation or remediation, or lead to other liabilities, any of which could have a material adverse effect on our business, results of operations and financial condition.

The success of our business is dependent on compliance with FCC rules and regulations and similar foreign laws and regulations.

The success of our business is dependent on compliance with FCC rules and regulations and similar foreign, state and local laws and regulations.

Many of our products are incorporated into wireless communications systems that must comply with various U.S.

government regulations, including those of the FCC, as well as similar international laws and regulations.

government regulations, including those of the FCC, as well as similar state, local and international laws and regulations.

As a result, our business faces increased risks including the following:

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If state and local governments do not widely request that 911 services be provided or we become subject to significant pressures from wireless carriers with respect to pricing of 911 services, our 911 business would be harmed and future growth of our business would be reduced.

On May 17, 2023, the U.S.

Department of Health and Human Services, through the Substance Abuse and Mental Health Services Administration announced $200.0 million in new funding for states, territories and tribes to build local 988 capacity.

This follows an initial $432.0 million investment by the federal government in July 2022 to support the transition to 988 and build up crisis center capacity.

Our ability to develop this aspect of our business is highly dependent on the deployment of this federal funding.

If deployment of those funds is delayed, stopped or never occurs, our results of operations or financial condition could be materially adversely affected.

Over the past two years, the 988 Suicide & Crisis Lifeline has seen both growth and challenges as it continues to be rolled out across the U.S.

federal government has allocated significant funding to this initiative, with over $432.0 million earmarked for expanding services, including regional call centers and crisis intervention teams.

This funding is aimed at distributing emergency-type communications more efficiently, by providing a direct response for mental health crises.

Some states, like Michigan, have launched their own versions of 988 services with additional state and federal support.

However, despite these efforts, the system is still far from fully optimized.

Challenges include staffing shortages, particularly for behavioral health professionals, and the need for technological improvements like georouting to better connect callers with the appropriate local services.

Some states are also exploring sustainable funding models, such as implementing 988 surcharges similar to those used for 911 services, to ensure long-term viability.

At the federal level, the 988 Implementation Act introduced in 2023 seeks to expand access further by requiring health insurance plans to cover crisis services and addressing gaps in care for populations like those on Medicare.

This law is expected to enhance the reach and effectiveness of the lifeline by building out a more comprehensive mental health response infrastructure tailored to each community’s needs.

Despite these advancements, experts note that the system will take years to fully optimize as it contends with both logistical and workforce challenges across the country.

Some local initiatives, like those in Michigan, are already seeing increased call volumes and struggling to keep pace with the demand, particularly for youth mental health services.

Overall, the lifeline is seen as a critical step in improving mental health responses, but it faces significant hurdles in achieving full efficacy in the coming years.

If deployment of those funds is delayed, stopped or never occurs, our results of operations or financial condition in future periods could be materially and adversely affected.

Regulation of the mobile communications industry and VoIP is evolving, and unfavorable changes or our failure to comply with existing and potential new legislation or regulations could harm our business and operating results.

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The GDPR imposes certain privacy related requirements on companies that receive or process personal data of residents of the European Union that are currently different than those in the United States and include significant penalties for non-compliance.

Similarly, there are a number of legislative proposals in the United States, at both the federal and state level, that could impose new obligations in areas affecting our business, such as liability for personal data protection.

Similarly, there are a number of state privacy laws, as well as legislative proposals in the United States, at both the federal and state level, that could impose new obligations in areas affecting our business, such as liability for personal data protection.

In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services.

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Because securities laws, related regulations and financial reporting standards pertaining to our business are relatively complex, our business faces increased risks including the following:

• If we identify a material weakness in the future, our costs may unexpectedly increase - Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related SEC rules, we are required to furnish a report of management’s assessment of the effectiveness of our internal controls as part of our Form 10-K.

• Our costs will likely increase as a result of our identification of material weaknesses within our control environment - Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related SEC rules, we are required to furnish a report of management’s assessment of the effectiveness of our internal controls as part of our Form 10-K.

Our independent registered public accountants are required to attest to and provide a separate opinion.

To issue our report, we document our internal control design and the testing processes that support our evaluation and conclusion, and then we test and evaluate the results.

There can be no assurance, however, that we will be able to remediate material weaknesses, if any, that may be identified in future periods, or maintain all of the controls necessary for continued compliance.

See "Part II - Item 9A Controls and Procedures" for information related to the material weaknesses that we identified as of July 31, 2024.

There can be no assurance that we will be able to remediate the material weaknesses that we have identified, or maintain all of the controls necessary for continued compliance.

There likewise can be no assurance that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.

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We believe that these new and proposed laws and regulations could make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our Audit Committee, and qualified executive officers.

Our management has concluded that our disclosure controls and procedures were not effective as of July 31, 2024 due to material weaknesses in internal control over financial reporting.

If we are unable to maintain an effective system of disclosure controls and procedures and internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and financial results.

After consultation with our independent registered public accounting firm and our management team, our audit committee concluded that we:

(a) lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective process and controls.

As a result, we identified a material weakness in our internal control over financial reporting.

The control environment material weakness contributed to other material weaknesses within our system of internal control over financial reporting at the control activity level, where we did not design and implement effective control activities, including controls related to revenue, inventory and other assets.

Deficiencies in control activities contributed to accounting errors and the potential for there to have been material accounting errors within revenue, inventory and other assets.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements.

In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result.

We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

Indemnification provisions in our contracts could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.

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Therefore, it is possible that an unfavorable resolution of one or more of these matters could have a material adverse effect on our consolidated financial statements in a future period.

We are, from time to time, and could become a party to additional litigation or subject to claims, including product liability claims, employee claims, government investigations and other proceedings that could cause us to incur unanticipated expenses and otherwise have a material adverse effect on our business, results of operations and financial condition .

We are, from time to time, and could become a party to additional litigation or subject to claims, including product liability claims, current and former employee claims, government investigations and other proceedings that could cause us to incur unanticipated expenses and otherwise have a material adverse effect on our business, results of operations and financial condition .

We are, from time to time, involved in commercial disputes and civil litigation relating to our businesses.

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We are engaged in business activities characterized by rapid technological change, evolving industry standards, frequent new product announcements and enhancements, and changing customer demands.

The introduction of products and services or future industry standards embodying new technologies, such as multi-frequency time division multiple access ("MF-TDMA") based technologies could render any of our products and services obsolete or non-competitive.

The introduction of products and services or future industry standards embodying new technologies and approaches could render any of our products and services obsolete or non-competitive.

New satellite operators such as Starlink have driven significant changes in the way communications equipment is procured, and may further disrupt our markets.

The introduction of optical communications technology, including from satellite to satellite and satellite to ground, as well as potential offerings for satellite / cellular direct connectivity, may impact our future business.

The successful execution of our business strategy is contingent upon wireless network operators launching and maintaining mobile location services, our ability to maintain a technically skilled development and engineering team, our ability to create new network software products and adapt our existing products to rapidly changing technologies, industry standards and customer needs.

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New entrants seeking to gain market share by introducing new technology and new products may make it more difficult for us to sell our products and services and could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses, or the loss of market share or expected market share, any of which could have a material adverse effect on our business, results of operations and financial condition.

For example, many companies are developing new technologies and the shift towards open standards such as IP-based satellite networks will likely result in increased competition and some of our products may become commoditized as a result.

Our Terrestrial and Wireless Networks segment provides various technologies that are utilized on mobile phones.

For example, many companies are developing new technologies and the shift towards open standards will likely result in increased competition and some of our products may become commoditized as a result.

Our Terrestrial and Wireless Networks segment provides various technologies that are utilized on mobile devices.

Applications from competitors for location-based or text-based messaging platforms may be preloaded on mobile devices by original equipment manufacturers, or OEMs, or offered by OEMs directly.

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Network failures, disruptions or capacity constraints in our third-party data center facilities or in our servers maintained at their location could affect the performance of the products and services of our wireless applications and 911 business and harm our reputation and our revenue.

The ability of our subscribers to receive critical location and business information requires timely and uninterrupted connections with our wireless network carriers.

The ability of our subscribers (or those of our customers) to receive critical location and business information requires timely and uninterrupted connections with our wireless network carriers.

Any disruption from our satellite feeds or backup landline feeds could also result in delays in our subscribers’ ability to receive information.

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Factors that could have a significant impact on the market price of our stock include, among others:

• strategic transactions, such as acquisitions and divestures by us and our competitors;

• our ability to successfully integrate and manage recent acquisitions;

• strategic transactions, such as acquisitions and divestitures by us and our competitors;

• our ability to successfully integrate and manage acquisitions or unwind and manage divestitures;

• our issuance of potentially dilutive equity or equity-type securities;

• our issuance of debt;

• our issuance of debt or refinancing our debt;

• our ability to successfully access equity and debt capital markets;

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• results of technological innovations and new commercial products;

• changes in recommendations of securities analysts;

• changes in our own outlook or recommendations of securities analysts;

• government regulations;

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• rumors or allegations regarding our financial disclosures or practices;

• potential resurgences of the COVID-19 or similar pandemics.

• our ability to timely file documents required by the SEC within prescribed time periods;

• global pandemics.

Shortfalls in our sales or earnings in any given period relative to the levels expected by securities analysts could immediately, significantly and adversely affect the trading price of our common stock.

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Our Board of Directors and management team value constructive input from investors, regularly engage in dialogue with our stockholders, and are committed to acting in the best interests of all of our stockholders.

however, we have been, and may in the future be, subject to actions, campaigns, or proposals that may not align with our business strategies or the interests of our other stockholders.

Accordingly, there is no assurance that the actions taken by the Board of Directors and management in seeking to maintain constructive engagement with certain stockholders will be successful in preventing the occurrence of stockholder activist campaigns.

Campaigns by activist stockholders to effect changes at publicly traded companies often demand that companies undertake or pursue financial restructuring, increase debt, issue special dividends, repurchase shares, or undertake sales of assets or other transactions, including strategic transactions.

Campaigns may also be initiated by activist stockholders advocating for particular environmental or social causes.

Activist stockholders who disagree with the composition of a company’s board of directors, or with its strategy and/or management often seek to involve themselves in the governance and strategic direction of a company through various activities.

As discussed elsewhere in this report, we have been, and may in the future be, subject to activities and campaigns initiated by activist stockholders.

Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could divert the attention of our Board of Directors, management team and employees from the management of our operations and the pursuit of our business strategies.

However, there is no assurance that the actions taken by the Board of Directors and management team in seeking to maintain constructive engagement with certain stockholders will be successful in preventing the occurrence of stockholder activist campaigns.

Such campaigns may not align with our business strategies or what the Board of Directors believes is in the best interest of all of our stockholders.

Campaigns by activist stockholders to effect changes at publicly traded companies can result in different types of demands, such as that companies undertake or pursue financial restructuring, increase debt, issue special dividends, repurchase shares, or undertake sales of assets or other transactions, including strategic transactions.

Activist stockholders who disagree with the composition of a company’s board of directors, or with its strategy or leadership often seek to involve themselves or their designees in the governance and strategic direction of a company through various activities, including the nomination of director candidates.

In September 2024, Michael Porcelain, a former Chief Executive Officer and President of the Company, nominated a group of eight candidates to stand for election at our fiscal 2024 annual meeting of stockholders.

During the course of our Board's discussions with Mr.

Porcelain and in public communications, Mr.

Porcelain has made certain proposals for our Board’s consideration regarding the composition of the Board and management team.

We expect to continue to engage with Mr.

Porcelain and certain stockholders associated with him on these and related topics.

Responding to proxy contests and other actions by activist stockholders, including the current campaign by Mr.

Porcelain, can be costly and time-consuming, and could divert the attention of our Board of Directors, management team and employees from the management of our operations and the pursuit of our business strategies.

Further, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder campaigns or initiatives may result in the loss of potential business opportunities and make it more difficult to attract and retain investors, customers, employees, and other business partners.

Also, we could be required to incur significant expenses related to any activist stockholder matters (included but not limited to legal fees, fees for financial

advisors, fees for public relation advisors and proxy solicitation expenses).

As a result, activist stockholder campaigns could adversely affect our business, results of operations, financial condition and/or share price in ways that can be difficult to predict or foresee.

Even if we are successful in any proxy contest or in defending against any unsolicited takeover attempt, our business could be adversely affected by any such proxy contest or unsolicited takeover attempt due to:

• perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations or other strategic opportunities, and may make it more difficult to attract and retain qualified personnel, customers, suppliers, and other business partners;

• if individuals are elected or appointed to our Board of Directors with a specific agenda or who do not agree with our strategic plan, the ability of our Board of Directors to function effectively could be adversely affected, which could in turn adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders, and/or adversely affect our business, operating results and financial condition.

We cannot predict, and no guarantees can be given, as to the outcome or timing of any matters relating to the foregoing actions by stockholders and our responses thereto or the ultimate impact on our business, liquidity, financial condition or results of operations.

Any of these matters or any further actions by stockholders and our responses thereto may impact and result in volatility or stagnation of our share price.

Also, we could be required to incur significant expenses related to any activist stockholder matters, including the current campaign by Mr.

Porcelain, or accompanying litigation (including but not limited to legal fees, fees for financial advisors, fees for public relation advisors and proxy solicitation expenses).

As a result, activist stockholder campaigns could adversely affect our business, results of operations, financial condition and/or share price in ways that can be difficult to predict.

Even if we are successful in any proxy contest or other activism campaign, any such proxy contest or activist stockholder campaign could adversely affect our business due to:

• perceived uncertainties as to future direction, strategy or leadership that may result in the loss of potential business opportunities, acquisitions, collaborations or other strategic opportunities, and that may make it more difficult to attract and retain qualified personnel, investors, customers, suppliers, and other business partners;

• the risk that individuals may be elected to our Board of Directors with a specific agenda or who do not agree with our strategic plan, adversely affecting the ability of our Board of Directors to function effectively, which could in turn adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders, and/or adversely affect our business, results of operations and financial condition.

We cannot predict, and no guarantees can be given, as to the outcome or timing of any matters relating to the foregoing actions by activist stockholders and our responses thereto or the ultimate impact on our business, results of operations or financial condition.

Any of these matters or any further actions by activist stockholders and our responses thereto may impact the trading value of our securities.

Provisions in our corporate documents and Delaware law could delay or prevent a change in control of Comtech.

We have taken a number of actions that could have the effect of discouraging, delaying or preventing a merger, acquisition or divestiture involving Comtech that our stockholders may consider favorable.

For example, we currently have a classified board and the employment contract with our CEO and agreements with other of our executive officers provide for substantial payments in certain circumstances or in the event of a change of control of Comtech.

For example, we currently have a classified board which will be fully declassified at our 2024 Annual Meeting of Stockholders and the employment contract with our CEO and agreements with other of our executive officers provide for substantial payments in certain circumstances or in the event of a change of control of Comtech.

In the future, we may adopt a stockholder rights plan which could cause substantial dilution to a stockholder, and substantially increase the cost paid by a stockholder who attempts to acquire us on terms not approved by our Board of Directors.

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This provision could have the effect of delaying or preventing a change in control of Comtech.

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors