Comtech Telecommunications Corp: Form 10-Q for the period ended Oct 31, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this Quarterly Report on Form 10-Q contains, and oral statements made by our representatives from time to time may contain, forward-looking statements. Forward-looking statements can be identified by words such as: "anticipate," "believe," "continue," "could," "estimate," "expect," "future," "goal," "outlook," "intend," "likely," "may," "plan," "potential," "predict," "project," "seek," "should," "strategy," "target," "will," "would," and similar references to future periods, or the negative of those words and expressions, as well as statements in future tense. Forward-looking statements include, among others, statements regarding our expectations for our strategic alternatives process, our expectations for further portfolio-shaping opportunities, our expectations for other operational initiatives, our expectations for completing further financing initiatives, our future performance and financial condition, the plans and objectives of our management and our assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under our control which may cause our actual results, future performance and financial condition, and achievement of our plans and objectives of our management to be materially different from the results, performance or other expectations implied by these forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or our good faith belief with respect to future events, and is subject to risks and uncertainties that are difficult to predict and many of which are outside of our control. Factors that could cause actual results to differ materially from current expectations include, among other things: the outcome and effectiveness of the aforementioned strategic alternatives process, further portfolio-shaping opportunities, other operational initiatives, and the completion of further financing activities; our ability to access capital and liquidity; our ability to implement changes in our executive leadership; the possibility that the expected benefits from our strategic activities will not be fully realized, or will not be realized within the anticipated time periods; the risk that acquired businesses will not be integrated successfully; impacts from, and uncertainties regarding, future actions that may be taken by activist stockholders; the possibility of disruption from acquisitions or dispositions, making it more difficult to maintain business and operational relationships or retain key personnel; the risk that we will be unsuccessful in implementing a tactical shift in our Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for our niche products and solutions with higher margins; the nature and timing of our receipt of, and our performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; the timing and amount of adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; new product announcements and enhancements or rebranding; changing customer demands and/or procurement strategies and our ability to scale opportunities and deliver solutions to current and prospective customers; changes and uncertainty in prevailing economic and political conditions (including financial and capital market conditions), including as a result of military conflicts or any tariff, trade restrictions or similar matters; impact of government shutdowns; changes to government procurement practices; changes in the price of oil in global markets; changes in prevailing interest rates and foreign currency exchange rates; risks associated with our legal proceedings, customer claims for indemnification, and other similar matters; risks associated with our obligations under our credit facilities; risks associated with our large contracts; risks associated with supply chain disruptions; and other factors described in this and our other filings with the Securities and Exchange Commission ("SEC"). However, these risks are not the only risks that we face. Additional risks and uncertainties, not currently known to us or that do not currently appear to be material, may also materially adversely affect our business, financial condition and/or operating results in the future. We describe risks and uncertainties that could cause actual results and events to differ materially in the "Risk Factors" (Part I, Item 1A), "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (Part II, Item 7) and "Quantitative and Qualitative Disclosures about Market Risk" (Part II, Item 7A) in our Annual Report on Form 10-K filed with the SEC on November 10, 2025, and in "Risk Factors" (Part II, Item 1A) and "Quantitative and Qualitative Disclosures about Market Risk" (Part I, Item 3) of this Quarterly Report on Form 10-Q. We do not intend to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law.

OVERVIEW

We are a leading provider of satellite and space communications technologies, terrestrial and wireless network solutions, Next Generation 911 ("NG-911") and emergency services and cloud native capabilities. This includes the critical communications infrastructure that people, businesses, and governments rely on when durable, trusted connectivity is required, no matter where they are – on land, at sea, or in the air – and no matter what the circumstances – from armed conflict to a natural disaster. Our solutions are designed to fulfill our customers’ needs for secure wireless communications in the most demanding environments, including those where traditional communications are unavailable or cost-prohibitive, and in mission-critical and other scenarios where performance is crucial. Over the long-term, we anticipate future growth in our end markets due to a trend of increasing demand for global voice, video and data usage in recent years, in addition to the growth of emergency communication networks and related applications. We provide our solutions to both commercial and governmental customers.

We manage our business through two reportable operating segments: Satellite and Space Communications and Allerium. See Part I. - Financial Information - Item 1. Notes to Condensed Consolidated Financial Statements - Note (14) - Segment Information for further description and information related our segments.

Our Quarterly Financial Information

Quarterly and period-to-period sales and operating results may be significantly affected by, among other things, short-term or long-term contracts with our customers, allowances for bad debt, impairments of long-lived assets (including goodwill) and changes in the estimated fair value of derivative instruments and warrants. In addition, our gross profit is affected by a variety of factors, including, among other things, the mix of products, systems and services sold, production efficiencies, provisions for excess and obsolete inventories, estimates of warranty expense, price competition and general economic conditions. Our gross profit may also be affected by the impact of any cumulative adjustments to contracts that are accounted for over time. Our contracts with the U.S. government (or prime contractors to the U.S. government) can be terminated for convenience at any time and orders are subject to unpredictable funding, deployment and technology decisions by our customers. Some of these contracts are indefinite delivery/indefinite quantity ("IDIQ") contracts and, as such, the U.S. government is not obligated to purchase any equipment or services under these contracts. We have, in the past, experienced and we continue to expect significant fluctuations in sales and operating results from quarter-to-quarter and period-to-period due to these factors. As such, comparisons between periods and our current results may not be indicative of a trend or future performance.

CRITICAL ACCOUNTING POLICIES

We consider certain accounting policies to be critical due to the estimation process involved in each.

Revenue Recognition. In accordance with FASB ASC 606 - Revenue from Contracts with Customers ("ASC 606"), we record revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. See Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (3) - Revenue Recognition and Part I. - Financial Information - Item 4. Controls and Procedures for further information.

A cost-to-cost measure of progress is principally used to account for contracts in our Satellite and Space Communications segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line within our Allerium segment.

For over time contracts using a cost-to-cost measure of progress, we have an estimate at completion ("EAC") process in which management reviews the progress and execution of our performance obligations and calculates an estimated contract profit based on total estimated contract revenue and cost. Since certain contracts extend over a long period of time, the impact of revisions in revenue and/or cost estimates during the progress of work may impact current period earnings through a cumulative adjustment. Additionally, if the EAC process indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract revenue and cost estimates for significant contracts are generally reviewed and reassessed at least quarterly.

We perform on a broad range of contracts whose revenue is recognized over time, including the development of complex and advanced customized solutions which often require the application of new technologies. Cost estimates on fixed-price development contracts and early stage/low-rate production contracts are inherently more uncertain as to future events than on mature, full-rate production contracts. As a result, for fixed-price development contracts and early stage/low-rate production contracts, there is typically more variability in those estimates and greater financial risk associated with unanticipated cost growth. Risks include, but are not limited to: technical engineering risks related to the underlying technologies being developed; schedule risks related to completing performance obligations timely; and customer risks related to changing specifications.

The estimation of contract revenue, cost and progress toward completion requires the use of judgment, which can be affected by any number of factors over time and which may cause our actual results to differ materially from those estimates, as facts and circumstances change or become known to us. Changes in estimates can occur for a variety of reasons including, but not limited to: changes in the availability, productivity and cost of labor; the effect of change orders on contract scope; the resolution of engineering risks at lower or higher costs than anticipated; the availability and cost of material components and subcontracts, as well as the performance of our subcontractors or suppliers; the impact of unanticipated changes in our customers' schedules; and changes in indirect cost allocations, such as overhead.

The impact of gross favorable and unfavorable changes in contract estimates on reported gross margin is presented in the table below:

Impairment of Long-Lived Assets, Including Goodwill. As of October 31, 2025, total goodwill recorded on our Condensed Consolidated Balance Sheet aggregated $204.6 million (of which $30.5 million relates to our Satellite and Space Communications segment and $174.1 million relates to our Allerium segment). Additionally, as of October 31, 2025, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $168.1 million (of which $39.8 million relates to our Satellite and Space Communications segment and $128.3 million relates to our Allerium segment). For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, our segments each constitute a reporting unit and we must make various assumptions in determining their estimated fair values. See Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (15) - Long-lived Assets, including Goodwill for further information. Ongoing and future actions supporting our transformation plan could result in a material impairment of our goodwill and/or intangible assets.

Provision for Warranty Obligations. We provide warranty coverage for most of our products, including products under long-term contracts, for a period of at least one year from the date of shipment. We record a liability for estimated warranty expense based on historical claims, product failure rates and other factors. Costs associated with some of our warranties that are provided under long-term contracts are incorporated into our estimates of total contract costs. There exist inherent risks and uncertainties in estimating warranty expenses, particularly on larger or longer-term contracts. If we do not accurately estimate our warranty costs, any changes to our original estimates could be material to our results of operations and financial condition.

Accounting for Income Taxes. Our deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and applying enacted tax rates expected to be in effect for the year in which we expect the differences to reverse. Our provision for income taxes is based on domestic (including federal, state and local) and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting and available credits and incentives. The U.S. and Canadian governments are our most significant income tax jurisdictions.

For tax positions taken or expected to be taken in a tax return, we account for unrecognized tax benefits using a “more-likely-than-not” threshold for financial statement recognition and measurement. We may be challenged upon review by the applicable taxing authority and positions taken by us may not be sustained. We recognize all or a portion of the benefit of income tax positions in our GAAP results only when we have made a determination that it is "more-likely-than-not" that the tax position will be sustained upon examination, based upon the technical merits of the position and other factors. For tax positions that are determined as "more-likely-than-not" to be sustained upon examination, the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We recognize potential interest and penalties related to uncertain tax positions in income tax expense. In assessing the need for a valuation allowance for deferred tax assets, we consider all positive and negative evidence, including past financial performance, timing and judgments about future taxable income and tax planning strategies. Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount "more-likely-than-not" expected to be realized. We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets. Significant judgment is required in determining income tax provisions and tax positions. The ultimate outcome of tax exposures and risks involves significant uncertainties. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations and financial condition.

Our U.S. federal income tax returns for fiscal 2022 through 2025 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state and foreign income tax returns prior to fiscal 2021 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Capitalized Engineering Costs. We generally expense all research and development costs. Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other personnel-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Costs incurred internally in researching and developing software to be sold are charged to expense until technological feasibility has been established for the software. Judgment is required in determining when technological feasibility of a product is established. Technological feasibility for our advanced communication software solutions is generally reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers and when we are able to validate the marketability of such product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. To date, costs capitalized related to software developed for the purpose of selling to third parties was not material, but could increase in the future.

As it relates to software developed for the purpose of internal-use (e.g., hosted "SaaS" applications within our Allerium segment), costs capitalized primarily consist of direct labor and third-party vendor costs associated with creating the software. Software development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation/operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage include costs related to the design and implementation of the selected software components, software build and configuration infrastructure, and software interfaces. Capitalization of costs requires judgment in determining when a project has reached the application development stage, the proportion of time spent in the application development stage, and the period over which we expect to benefit from the use of that software. For the three months ended October 31, 2025 and 2024, internal-use software costs capitalized were $1.6 million and $1.0 million, respectively. Capitalized internal use software costs are amortized once the software is placed in service on the straight-line method over the estimated useful life of the software, which is generally three years.

Provisions for Excess and Obsolete Inventory. We record a provision for excess and obsolete inventory based on historical and projected usage trends. Other factors may also influence our provision, including decisions to restructure or exit a product line, technological change and new product development. These factors could result in a change in the amount of excess and obsolete inventory on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if we determine that our inventory was overvalued, we would be required to recognize such costs in our financial statements at the time of such determination. Any such charge could be material to our results of operations and financial condition.

Allowance for Doubtful Accounts. We perform credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness, as determined by our review of our customers’ current credit information. Generally, we will require cash in advance or payment secured by irrevocable letters of credit before an order is accepted from an international customer that we do not do business with regularly. In addition, we seek to obtain insurance for certain domestic and international customers.

We monitor billing events, collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. In light of ongoing tight credit market conditions and high interest rates, we continue to see requests from our customers for higher credit limits and longer payment terms. We have, on a limited basis, approved certain customer requests. Also, we can from time to time experience significant increases in the overall level of contract assets (i.e., unbilled receivables) related to large, long-term contracts with certain U.S. government, domestic and international customers. We continuously monitor our accounts receivable credit portfolio.

We may not be able to accurately predict our future credit loss experience. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition.

Derivative Instruments and Warrant Liabilities. We evaluate our financial instruments, including our Credit Facility, Subordinated Credit Facility, Convertible Preferred Stock and warrants to issue our common stock pursuant to the terms of such instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Such evaluation considers a qualitative and quantitative assessment of whether the host instrument is more debt or equity-like, and if embedded derivatives should be bifurcated from the host instrument and/or combined for accounting purposes. For derivatives that are accounted for as liabilities, the derivative is initially recorded at its estimated fair value and is then re-valued at each reporting date, with changes in its estimated fair value reported in our Condensed Consolidated Financial Statements. To estimate such fair values, with the assistance of a third party valuation expert, we primarily use Monte Carlo simulation models, on a with and without basis, or Black-Scholes option pricing models, each adjusted for instrument-specific terms. Due to the nature of our derivative instruments and warrant liabilities, we must use Level 3 inputs for estimating fair value, which are unobservable inputs developed using the best available information under the circumstances. Level 3 inputs are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect our assumptions related to how market participants would use similar inputs to price the asset or liability. Accordingly, our estimates and assumptions could prove to be inaccurate. Also, changes in such estimates and assumptions from period to period could be material to our results of operations and financial condition. See Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (4) - Fair Value Measurements and Financial Instruments for further information.

Fiscal 2026: First Quarter Results and Business Outlook

Financial results for the first quarter of fiscal 2026 include:

• Consolidated net sales were $111.0 million, compared to $130.4 million in the fourth quarter of fiscal 2025 and $115.8 million in the first quarter of fiscal 2025; the more recent period reflects the impacts of earlier-than-anticipated orders and net sales, as well as certain contracts nearing completion in the fourth quarter of fiscal 2025; additionally, performance in the first quarter of fiscal 2026, particularly in our Satellite and Space Communications segment, reflects the impacts of timing delays in orders and net sales as a result of the recent U.S. government shutdown, as well as the decision to phase out and eliminate certain low margin revenues;
• Gross margin was 33.1%, compared to 31.2% in our fourth quarter of fiscal 2025 and 12.5% in our first quarter of fiscal 2025; the sequential improvement in our quarterly gross margin percentage builds upon the quarterly trend achieved throughout fiscal 2025, which reflects the impact of actions to reduce cost of goods sold and to improve product mix;
• GAAP net loss attributable to common stockholders was $19.8 million and included, among other things: (i) non-cash charges of $18.0 million, of which (a) $6.6 million related to the amortization of deferred financing costs, debt discount, accreted interest and interest paid-in-kind associated with our senior and subordinated credit facilities; (b) $5.0 million related to the amortization of intangible assets; (c) $3.9 million related to net paid-in-kind dividends associated with our Convertible Preferred Stock; (d) $1.4 million related to the remeasurement of warrants and derivatives; and (e) $1.1 million related to the amortization of stock-based compensation; and (ii) cash charges of $3.2 million, of which (x) $2.4 million related to restructuring costs; and (y) $0.8 million related to CEO transition costs;
• GAAP EPS net loss of $0.67 and Non-GAAP EPS net loss of $0.18;
• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $9.6 million, compared to Adjusted EBITDA of $13.3 million for the fourth quarter of fiscal 2025 and negative $30.8 million for the first quarter of fiscal 2025;
• New bookings (also referred to as orders) of $101.9 million, resulting in a quarterly book-to-bill ratio of 0.92x (a measure defined as bookings divided by net sales); as part of our transformation plan, we have refocused and prioritized our sales efforts to target higher margin opportunities in which we have greater differentiation;
• Backlog of $663.0 million as of October 31, 2025, compared to $672.1 million as of July 31, 2025 and $811.0 million as of October 31, 2024; new bookings and backlog do not yet include the full value of the $130.0 million plus, multi-year contract extension awarded to us by a U.S. domestic top tier mobile network operator in November 2025;
• Revenue visibility of approximately $1.1 billion as of October 31, 2025; we measure this revenue visibility as the sum of our $663.0 million of funded backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders; and
• Cash flows provided by operating activities were $8.1 million, our third consecutive quarter of positive operating cash flows; this includes $2.2 million in aggregate payments for restructuring costs, including severance, and CEO transition costs; cash flows provided by operating activities would have been $10.3 million without these restructuring costs; operating cash flows in the first quarter of fiscal 2026 include $4.9 million of total net cash paid for interest and income taxes.

Non-GAAP financial measures discussed above are reconciled to the most directly comparable GAAP financial measures in the table included in the below section “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended October 31, 2025 and 2024.”

Other Key Business Developments and Updates

Satellite and Space Communications

Our Satellite and Space Communications segment continues to focus on capitalizing on our differentiated capabilities, thoughtfully evaluating the product portfolio and implementing initiatives to improve margins and cash flow generation.

During the first quarter of fiscal 2026, we were awarded:

• over $7.8 million in orders from an international reseller of our troposcatter family of systems ("FoS"), including Modular Transportable Transmission Systems ("MTTS") and Multi-Path Radios ("MPRs") intended for use in multiple international government end user applications;
• approximately $4.0 million in aggregate orders related to satellite ground infrastructure solutions, including production units, intended for use in a new LEO satellite constellation network being deployed;
• an approximate $2.5 million hardware order awarded to us by a leading aerospace, aviation and defense company based in the U.S.;
• an award, valued in excess of $2.0 million, calling for the supply of MTTS units to the U.S. Army;
• approximately $2.0 million in aggregate orders for satellite ground infrastructure solutions intended for use in support of a MEO satellite constellation;
• over $1.8 million in orders related to providing spare and repair services to various customers of our amplifier solutions;
• over $1.8 million of incremental orders related to the supply of initial production units to our prime contractor in support of two next-generation satellite modem contracts, which we expect will be moving into full production during fiscal 2026;
• an order, valued in excess of $1.4 million, related to supply of multi-band amplifiers; and
• incremental funding of approximately $1.3 million for continued, ongoing training and support of complex cybersecurity operations for U.S. government customers.

In September 2025, as part of our operational efficiency and cost savings plans, we made the decision to migrate certain production capabilities and operational functions to our manufacturing operations in Chandler, Arizona. Such initiative is expected to: be completed in fiscal 2026, result in increased manufacturing efficiencies, allow us to further optimize our facilities footprint and result in recurring annualized cost savings of approximately $3.0 million.

In December 2024, we received notice from our prime contractor to stop work associated with a legacy U.S. Marine Corps contract. Such contract was subsequently terminated. We initiated litigation against the prime contractor in order to enforce our rights. As of July 31, 2025, $15.7 million of total receivables related to our contract remained outstanding. After the filing of our Form 10-K on November 10, 2025, we entered into discussions with our prime contractor to explore a comprehensive settlement of our pending litigation. Based on the status of such discussions as of the issuance date of our first quarter fiscal 2026 financial statements, and considering actions identified to further mitigate cost to both our prime contractor and the U.S. Marine Corps, we reduced cumulative net sales and receivables related to this contract in the first quarter of fiscal 2026 by $1.8 million. After taking into account these adjustments to our GAAP results and $0.2 million of cash collections during the first quarter of fiscal 2026, total receivables related to our contract were $13.7 million as of October 31, 2025. To date, no settlement has been reached with our prime contractor and the litigation between the parties remains pending in the courts. While we believe that we have meritorious claims, some or all of our receivables could be at risk of not being collected. Future results of operations related to our troposcatter solutions product line depend, in part, on the nature, timing and amount associated with resolving this matter.

Allerium

With strategic wins in the U.S., Canada and Australia, we believe Comtech's position as a trusted leader in 911, NG-911 and public safety applications positions us increasingly well when it comes to delivering similarly sophisticated solutions for other types of emergencies. New emergency requesting devices, such as "wearables," vehicles, smart speakers and AI capable cameras, and new delivery methods, such as through satellite networks, are expected to drive innovation and growth within the public safety market over time.

During the first quarter of fiscal 2026, we were awarded:

• approximately $27.0 million of initial funding toward a multi-year contract extension ultimately awarded to us in November 2025 and valued in excess of $130.0 million; this contract (a) was awarded to us by Allerium's largest customer, a leading telecommunications company in the U.S. known for its network reliability and security, (b) is for scalable services, and (c) reinforces Allerium's commitment to helping carriers and public safety organizations modernize critical infrastructure and optimize service reliability with confidence;
• over $15.0 million of incremental, multi-year funding related to the continued deployment of NG-911 solutions for a state in the southwestern region of the U.S.; and
• various funded orders from a top tier U.S. mobile network operator, aggregating $5.8 million and primarily for maintenance and new feature releases associated with previously deployed wireless location-based solutions.

Unallocated

In December 2025, as part of our ongoing board refreshment initiatives, our Board of Directors (the “Board”) appointed Mary Jane Raymond as an independent director. Ms. Raymond’s extensive corporate finance, internal control oversight, mergers and acquisitions and operational experience qualifies Ms. Raymond to serve on the Board.

Business Outlook

While business conditions and our operational and financial performance have improved over the past several quarters, the operating environment remains largely unpredictable due to many factors, including but not limited to those matters discussed throughout this Form 10-Q and in our Cautionary Statement Regarding Forward-Looking Statements in this Form 10-Q. Such conditions and factors have caused and could cause variability in our financial results from period to period. Accordingly, we are not providing forward-looking guidance on a GAAP or Non-GAAP basis.

Additional information related to our Business Outlook for Fiscal 2026 and a definition and explanation of Adjusted EBITDA is included in the below section Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended October 31, 2025 and 2024.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2025 AND 2024

Net Sales. Consolidated net sales were $111.0 million and $115.8 million for the three months ended October 31, 2025 and 2024, respectively, representing a decrease of $4.8 million, or 4.1%. The period-over-period decrease reflects lower net sales in both segments, as further discussed below.

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $55.1 million for the three months ended October 31, 2025 as compared to $58.9 million for the three months ended October 31, 2024, a decrease of $3.8 million, or 6.5%. Related segment net sales for the three months ended October 31, 2025 primarily reflect anticipated lower net sales of our troposcatter solutions. Our Satellite and Space Communications segment represented 49.6% of consolidated net sales for the three months ended October 31, 2025, as compared to 50.9% for the three months ended October 31, 2024. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended October 31, 2025 and 2024 was 0.77x and 0.99x, respectively. Such change reflects, in part, the decision to phase out and eliminate certain low margin revenue.

Allerium

Net sales in our Allerium segment were $55.9 million for the three months ended October 31, 2025, as compared to $56.9 million for the three months ended October 31, 2024, a decrease of $1.0 million, or 1.8%. Related segment net sales for the three months ended October 31, 2025 primarily reflect lower net sales of our call handling solutions, offset in part by higher net sales of our NG-911 services. Our Allerium segment represented 50.4% of consolidated net sales for the three months ended October 31, 2025, as compared to 49.1% for the three months ended October 31, 2024. Our book-to-bill ratio in this segment for the three months ended October 31, 2025 and 2024 was 1.06x and 1.22x, respectively. In the three months ended October 31, 2025, we were awarded approximately $27.0 million of initial funding toward a multi-year contract extension ultimately awarded to us by a U.S. domestic mobile network operator in November 2025 and valued in excess of $130.0 million.

Bookings, sales and profitability in both segments can fluctuate from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by our customers and changes in the general business environment. Period-to-period fluctuations in bookings are normal for our segments. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance. Also, we announced that we are exploring strategic alternatives for our businesses. Accordingly, future results of operations can be impacted by the timing and outcome of such initiatives. There can be no assurance that the exploration of strategic alternatives will result in a transaction or other strategic changes or outcomes.

Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the three months ended October 31, 2025 and 2024 are as follows:

Sales to U.S. government customers include sales to the U.S. DoD, intelligence and civilian agencies, as well as sales directly to or through prime contractors. Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. For the three months ended October 31, 2025 and 2024, the U.S. government represented 10.0% or more of our consolidated net sales. Also, for the three months ended October 31, 2025, a top tier mobile network operator accounted for 10.6% of our consolidated net sales. For the three months ended October 31, 2024, except for the U.S. government, there were no customers that represented 10.0% or more of consolidated net sales. International sales for the three months ended October 31, 2025 and 2024 (which include sales to U.S. domestic companies for inclusion in products that are sold to international customers) were $32.9 million and $18.8 million, respectively. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented 10% or more of consolidated net sales for the three months ended October 31, 2025 and 2024.

Gross Profit. Gross profit was $36.8 million and $14.5 million for the three months ended October 31, 2025 and 2024, respectively, an increase of $22.3 million, or 153.3% of net sales. Gross profit, as a percentage of consolidated net sales, for the three months ended October 31, 2025 was 33.1% as compared to 12.5% for the three months ended October 31, 2024. Our gross profit for the three months ended October 31, 2025 (both in dollars and as a percentage of consolidated net sales) reflects: (i) overall product mix changes, as discussed above; and (ii) improved operational and financial performance, as a result of our transformation initiatives to, among other things, enhance operational efficiency, streamline product lines with a focus on strategic, higher operating margin products, reduce cost structures and improve contractual terms with customers and vendors. The prior year period also included an $11.4 million non-cash charge related to the write down of certain inventories as a result of restructuring activities within our Satellite and Space Communications segment. The sequential improvement in our quarterly gross margin percentage for the first quarter of fiscal 2026 builds upon the quarterly trend achieved throughout fiscal 2025. Gross profit, as a percentage of related segment net sales, is further discussed below.

Our Satellite and Space Communications segment's gross profit, both in dollars and as a percentage of related segment net sales, for the three months ended October 31, 2025 increased significantly in comparison to the three months ended October 31, 2024. Gross profit in the more recent period reflects changes in products and services mix, as well as other segment related items, as discussed above. Gross profit also benefited from this segment's transition from low or no margin non-recurring engineering contracts to higher volume manufacturing orders. Our quarterly gross profit percentage for this segment improved sequentially throughout fiscal 2025, as well as in our first quarter of fiscal 2026.

Our Allerium segment's gross profit, both in dollars and as a percentage of related segment net sales, for the three months ended October 31, 2025 increased in comparison to the three months ended October 31, 2024. The gross profit percentage in the more recent period reflects changes in products and services mix, as discussed above. Such gross margins also reflect the continued adoption of our solutions by new customers, as well as the migration of more PSAPs onto our NG-911 core services and platforms, as we progress through initial deployments of our solutions to monthly recurring revenue streams.

Included in consolidated cost of sales for the three months ended October 31, 2025 and 2024 are provisions for excess and obsolete inventory of $0.1 million and $12.5 million, respectively. As discussed in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Provisions for Excess and Obsolete Inventory, we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage trends. As discussed above, in the prior year period, we recorded a non-cash charge of $11.4 million within Cost of Sales on our Condensed Consolidated Statement of Operations related to the write down of inventory associated with approximately 70 products within our satellite ground infrastructure product line that were discontinued. Such prior year period non-cash charge also included the write down of inventory associated with the CGC Divestiture that was no longer considered salable during the period.

Our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each segment, and therefore is inherently difficult to forecast. Our consolidated gross profit, as a percentage of consolidated net sales, may also be impacted by the timing and outcome of actions we may take related to our transformation plan.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $29.9 million and $51.6 million for the three months ended October 31, 2025 and 2024, respectively. As a percentage of consolidated net sales, selling, general and administrative expenses were 27.0% and 44.6% for the three months ended October 31, 2025 and 2024, respectively.

During the prior year period in fiscal 2025, we determined that an unbilled receivable contract asset related to an international customer and reseller of our troposcatter technologies was at risk of not being invoiced or collected. As a result and considering that we offered a price concession (i.e., variable consideration) to our customer, in the first quarter of fiscal 2025, our Satellite and Space Communications segment reversed $1.6 million of cumulative revenue and associated unbilled receivable contract assets related to this transaction and recorded a non-cash charge to fully reserve for the remaining $17.4 million unbilled receivable contract asset within our allowance for doubtful accounts.

Also, during the three months ended October 31, 2025 and 2024, we incurred $2.4 million and $6.5 million, respectively, of restructuring costs within selling, general and administrative expenses primarily to streamline our operations and improve efficiency (including costs related to legal and professional fees associated with our pursuit of strategic alternatives, the wind down of our steerable antenna product line in the U.K. initiated in our fourth quarter of fiscal 2024 and severance costs).

Excluding such provision for doubtful accounts and restructuring costs, selling, general and administrative expenses for the three months ended October 31, 2025 and 2024 would have been $27.5 million, or 24.8% and $27.7 million or 23.9%, respectively, of consolidated net sales. The increase in our selling, general and administrative expenses, as a percentage of consolidated net sales, excluding such items is primarily due to lower consolidated net sales and higher stock based compensation, as discussed below.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $1.0 million and $0.2 million, respectively, for three months ended October 31, 2025 and 2024. During the prior year period, we reversed a portion of our stock-based compensation expense related to performance shares due to lower-than-estimated achievement of fiscal 2022 performance share goals. Stock-based compensation expense for the prior year period also reflects the forfeiture of awards related to our former Chief Operating Officer and former Chief Executive Officer, whose employment were both terminated during the prior year period. Amortization of stock-based compensation is not allocated to our two reportable operating segments.

Research and Development Expenses. Research and development expenses were $3.8 million and $3.7 million for the three months ended October 31, 2025 and 2024, respectively, representing an increase of $0.1 million, or 2.1%. As a percentage of consolidated net sales, research and development expenses were 3.4% and 3.2% for the three months ended October 31, 2025 and 2024, respectively.

For the three months ended October 31, 2025 and 2024, research and development expenses of $1.0 million and $0.9 million, respectively, related to our Satellite and Space Communications segment and $2.8 million and $2.7 million, respectively, related to our Allerium segment. The remaining research and development expenses in the three months ended October 31, 2025 and 2024 related to the amortization of stock-based compensation expense.

When appropriate, we seek customer funding for research and development to adapt our products to specialized customer requirements. During the three months ended October 31, 2025 and 2024, customers reimbursed us $6.1 million and $4.8 million, respectively, which is not reflected in the reported research and development expenses, but is included in net sales with the related costs included in cost of sales.

During the three months ended October 31, 2025 and 2024, we also incurred engineering efforts related to cost to fulfill contract assets and internal use software, for which we capitalized $1.6 million and $2.1 million, respectively.

During the prior year period in fiscal 2025, we incurred $0.3 million of strategic emerging technology costs in our Satellite and Space Communications segment for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations. Commencing in the second quarter of fiscal 2025, as a result of our decision to cease operations related to our steerable antenna product line in the U.K., we no longer have such costs.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives for the three months ended October 31, 2025 and 2024 was $5.0 million (of which $1.4 million was for the Satellite and Space Communications segment and $3.6 million was for the Allerium segment) compared to $6.6 million (of which $3.0 million was for the Satellite and Space Communications segment and $3.6 million was for the Allerium segment), respectively. The decrease in our Satellite and Space Communications segment's amortization reflects the impact of our fourth quarter fiscal 2024 decision to wind down our steerable antenna product line in the U.K.

Impairment of Long-Lived Assets, including Goodwill. Based on lower-than-expected financial performance within our Satellite and Space Communications segment during the prior year period, and other factors, we performed a quantitative goodwill impairment test as of October 31, 2024 and 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 prior year period, we recognized a $79.6 million non-cash goodwill impairment charge in our Satellite and Space Communications reporting unit. See Part I. - Financial Information - Item 1. - Note (15) - Long-Lived Assets, including Goodwill for further information.

Proxy Solicitation Costs. During the prior year period in fiscal 2025, we incurred $1.6 million of proxy solicitation costs in our Unallocated segment as a result of a now-settled proxy contest.

CEO Transition Costs. During the three months ended October 31, 2025 and 2024, we recorded $0.8 million and $0.6 million, respectively, related to CEO transition costs. Such Unallocated expenses consisted primarily of net legal expenses related to a former CEO, as well as third party CEO search firm expenses in the prior year comparable period.

Operating Income (Loss). Our operating loss for the three months ended October 31, 2025 was $2.8 million, as compared to an operating loss of $129.2 million in the prior year period. Operating income (loss) by reportable segment is shown in the table below:

($ in millions)

Our GAAP operating loss of $2.8 million for the three months ended October 31, 2025 reflects: (i) $5.0 million of amortization of intangibles; (ii) $2.4 million of restructuring costs (of which $0.8 million and $1.6 million related to our Satellite and Space Communications and Unallocated segments, respectively); (iii) $1.1 million of amortization of stock-based compensation; and (iv) $0.8 million of CEO transition costs, as discussed above. Excluding such items, our consolidated operating income for the three months ended October 31, 2025 would have been $6.6 million, or 5.9% of net sales.

Our GAAP operating loss of $129.2 million for the three months ended October 31, 2024 reflects: (i) a non-cash goodwill impairment charge of $79.6 million; (ii) $6.6 million of amortization of intangibles; (iii) $6.5 million of restructuring costs (of which $2.4 million, $0.1 million and $4.0 million related to our Satellite and Space Communications, Allerium and Unallocated segments, respectively); (iv) $1.6 million of proxy solicitation costs; (v) $0.6 million of CEO transition costs; (vi) $0.3 million of strategic emerging technology costs; (vii) $0.3 million of amortization of cost to fulfill assets; and (viii) $0.2 million of amortization of stock-based compensation, as discussed above. Excluding such items, our consolidated operating loss for the three months ended October 31, 2024 would have been $33.7 million.

The improvement, excluding the above items, from the $33.7 million operating loss in the prior year period to $6.6 million of operating income for the more recent period primarily reflects higher gross profit (both in dollars and as percentage of consolidated net sales), lower selling, general and administrative expenses and lower amortization of intangibles, offset in part by higher research and development expenses, as discussed above. Operating income (loss) by reportable segment is further discussed below.

The improvement in our Satellite and Space Communications segment operating income for the three months ended October 31, 2025 primarily reflects higher gross profit (both in dollars and as a percentage of related segment net sales), lower selling, general and administrative expenses and lower amortization of intangibles, offset in part by higher research and development expenses, as discussed above. The prior year period also included a $79.6 million non-cash charge related to the impairment of goodwill within our Satellite and Space Communications segment.

The change in our Allerium segment operating income in the more recent period primarily reflects higher gross profit (both in dollars and as a percentage of related segment net sales), offset by higher selling, general and administrative expenses and research and development expenses, as discussed above.

Excluding the impact of its respective portion of restructuring charges, CEO transition costs and proxy solicitation costs in each period, Unallocated expenses for the more recent period would have been $9.0 million, as compared to $9.5 million in the prior year period. The decrease in Unallocated expenses, excluding such items, was primarily due to lower overall expenditures for selling, general and administrative expenses, offset in part by higher stock based compensation, as discussed above.

Interest Expense and Other. Interest expense was $11.6 million and $9.5 million for the three months ended October 31, 2025 and 2024, respectively. The increase during the more recent period is primarily due to our Subordinated Credit Facility, offset in part by lower outstanding debt under our Credit Facility. Our effective interest rate in the more recent period was approximately 18.5%, as compared to 19.0% in the prior year period. Our current cash borrowing rate under our Credit Facility is approximately 14.0%, which reflects the benefit of amendments to the Credit Facility and lower interest rates, as compared to 16.6% in the corresponding prior year period.

Interest (Income) and Other. Interest (income) and other for both the three months ended October 31, 2025 and 2024 was nominal. All of our available cash and cash equivalents are currently invested in bank deposits and money market deposit accounts which, at this time, are currently yielding an immaterial interest rate.

Write-off of Deferred Financing Costs and Debt Discounts. In connection with the October 17, 2024 amendment to the Credit Facility, $1.4 million of deferred financing fees and debt discounts were immediately expensed during the prior year period.

Change in Fair Value of Warrants and Derivatives. During the three months ended October 31, 2025 and 2024, we recorded a $1.4 million and $5.5 million non-cash expense, respectively, due to the remeasurement of warrants and derivatives related to our Credit Facility, Subordinated Credit Facility and Convertible Preferred Stock. See Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (9) - Credit Facility, Note (10) - Subordinated Credit Facility and Note (17) - Convertible Preferred Stock for more information.

Provision For Income Taxes. For the three months ended October 31, 2025 and 2024, we recorded a tax expense of $0.4 million and $2.1 million, respectively. Our effective tax rate (excluding discrete tax items) for the three months ended October 31, 2025 and 2024 was (3.0)% and (3.8)%, respectively. The change in rate is primarily due to changes in expected product and geographical mix.

For purposes of determining our estimated annual effective tax rate ("AETR") to be applied to earnings from continuing operations for fiscal 2026, the change in fair value of warrants and derivatives and CEO transition costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our AETR.

During the three months ended October 31, 2025, we recorded a negligible net discrete tax expense primarily related to interest expense accrued on unrecognized tax benefits. During the three months ended October 31, 2024, we recorded a net discrete tax benefit of $0.1 million primarily related to proxy solicitation costs and CEO transition costs.

Our U.S. federal income tax returns for fiscal 2022 through 2025 are subject to potential future IRS audit. None of our state and foreign income tax returns prior to fiscal 2021 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Net Loss Attributable to Common Stockholders. During the three months ended October 31, 2025 and 2024, consolidated net loss attributable to common stockholders was $19.8 million and $155.9 million, respectively. In addition to those items discussed above: (i) the more recent period includes $3.9 million of net dividends related to our Convertible Preferred Stock; and (ii) the prior year period includes $58.6 million of net dividends related to our Convertible Preferred Stock, offset in part by a $51.2 million gain related to the exchange of our Series B-1 for Series B-2 Convertible Preferred Stock on October 17, 2024.

Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended October 31, 2025 and 2024 are shown in the table below (numbers in the table may not foot due to rounding):

($ in millions)

The increase in consolidated Adjusted EBITDA for the three months ended October 31, 2025 as compared to the three months ended October 31, 2024 reflects higher gross profit (both in dollars and as percentage of consolidated net sales) and lower selling, general and administrative expenses, offset in part by higher research and development expenses, as discussed above.

The increase in our Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, reflects higher gross profit (both in dollars and as a percentage of related segment net sales) and lower selling, general and administrative expenses, offset in part by higher research and development expenses, as discussed above.

The change in our Allerium segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, reflects higher gross profit (both in dollars and as a percentage of related segment net sales), offset in part by higher selling, general and administrative expenses and research and development expenses, as discussed above.

A reconciliation of our fiscal 2025 GAAP operating loss to Adjusted EBITDA loss is shown in the table below (numbers in the table may not foot due to rounding):

($ in millions)

52

Reconciliations of our GAAP consolidated results to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding). Non-GAAP results reflect Non-GAAP provisions for (benefits from) income taxes based on year-to-date results, as adjusted for the Non-GAAP reconciling items included in the tables below. We evaluate our Non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time. Our Non-GAAP effective income tax rate can differ materially from our GAAP effective income tax rate.

($ in millions, except for per share amount)

($ in millions, except for per share amount)

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before interest, income taxes, depreciation, amortization of intangibles, impairment of long-lived assets, including goodwill, amortization of cost to fulfill assets, amortization of stock-based compensation, CEO transition costs, change in fair value of warrants and derivatives, proxy solicitation costs, restructuring costs, strategic emerging technology costs (for next-generation satellite technology) and write-off of deferred financing costs and debt discounts, and in the recent past, acquisition plan expenses, change in fair value of the convertible preferred stock purchase option liability, COVID-19 related costs, facility exit costs, strategic alternatives expenses and other and loss on business divestiture. These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Although closely aligned, our definition of Adjusted EBITDA is different than EBITDA (as such term is defined in our Credit Facility and Subordinated Credit Facility) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies.

Adjusted EBITDA, as well as adjusted operating income (loss), net income (loss) attributable to common shareholders and net income (loss) per diluted common share, as presented in the above tables, are non-GAAP measures. These Non-GAAP measures are frequently requested by investors and analysts. We believe that investors and analysts may use these Non-GAAP measures along with other information contained in our SEC filings, including GAAP measures, in assessing our performance and comparability of our results with other companies. Our Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of our outstanding convertible preferred stock.

These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP measures in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in our SEC filings. As we have not provided future Non-GAAP financial guidance or targets, there is no need to reconcile our business outlook to the most directly comparable GAAP measures. Furthermore, even if guidance or targets had been provided, items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted at this time. For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable. Accordingly, reconciliations to the Non-GAAP forward looking metrics would not be available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents were $43.6 million and $40.0 million at October 31, 2025 and July 31, 2025, respectively. For the three months ended October 31, 2025, our cash flows reflect the following:

• Net cash provided by operating activities was $8.1 million for the three months ended October 31, 2025 as compared to net cash used in operating activities during the prior year period of $21.8 million. The significant period-over-period improvement reflects favorable changes in net working capital requirements, due primarily to improved accountability and process disciplines, as well as the timing of and progress toward completion on contracts accounted for over time, including related shipments, billings and collections. These activities allowed us to reduce receivables and inventory levels since July 31, 2025. Also, as a result of our enhanced liquidity, driven by our improved operational and financial performance and recent amendments to our credit facilities, operating cash flows in the more recent period reflect our concerted efforts to maintain lower levels of accounts payable in order to improve vendor relations and position ourselves to negotiate more favorable payment terms.

Operating cash flows in the more recent period include lower aggregate net cash payments for interest and taxes of $4.9 million, compared to $6.8 million in the prior year period.

Operating cash flows for the first quarter of fiscal 2026 and 2025 also include $2.2 million and $5.8 million, respectively, in aggregate payments for restructuring costs, including severance, proxy solicitation costs, CEO transition costs and strategic emerging technology costs for next-generation satellite technology.

• Net cash used in investing activities was $3.3 million and $2.4 million for the three months ended October 31, 2025 and 2024, respectively, and primarily reflects capital expenditures in our Allerium segment to build-out cloud-based computer networks and internal use software applications, as well as capital investments and building improvements in connection with our leased facilities.
• Net cash used in financing activities during the more recent period was $1.2 million and primarily reflects a scheduled principal payment toward the Term Loan outstanding under our Credit Facility. Net cash provided by financing activities in the prior year period was $21.4 million and primarily reflects the initial net proceeds received under our Subordinated Credit Facility.

The Credit Facility, Subordinated Credit Facility and Convertible Preferred Stock are discussed below and in Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (9) - Credit Facility, Note (10) - Subordinated Credit Facility and Note (17) - Convertible Preferred Stock.

Liquidity

At October 31, 2025 and December 10, 2025 (the date closest to the issuance date):

• total outstanding borrowings under our Credit Facility were $135.0 million and $130.7 million, respectively; of such amounts, $17.6 million and $12.6 million, respectively, was drawn on the Revolver Loan; on December 1, 2025, we repaid $5.0 million of the Revolver Loan;
• total outstanding borrowings under our Subordinated Credit Facility were $101.5 million and $102.1 million, respectively, including interest paid-in-kind or accrued on the $35.0 million subordinated priority term loan; such amount does not include the $25.7 million and $32.5 million, respectively, of make-whole amounts associated with the $65.0 million portion of the Subordinated Credit Facility (pursuant to the terms discussed in Note (10) - Subordinated Credit Facility, as of December 3, 2025, the make-whole amount related to the $40.0 million portion of the Subordinated Credit Facility increased from the initial 33.0% to 50.0%);
• the liquidation preference of our outstanding convertible preferred stock was $208.7 million and $210.8 million, respectively (excluding potential increases in the liquidation preference and other obligations that could be triggered by, among other things, breaches of covenants and/or asset sales resulting in a change in control of the Company); and
• our available sources of liquidity totaled $51.0 million and $36.9 million, respectively, which includes qualified cash and cash equivalents of $41.4 million and $22.3 million, respectively, and the remaining available portion of the Revolver Loan of $9.6 million and $14.6 million, respectively.

As of the issuance date, we expect cash and cash equivalents and cash flows from both operating and financing activities to be our principal sources of liquidity. We believe these sources of liquidity will be sufficient to fund our operating and cash commitments for investing and financing activities over the next year beyond the issuance date. Over the next year beyond the issuance date, we believe that we will be able to generate sufficient positive cash inflows and maximize the remaining available portion of the Revolver Loan under our Credit Facility to continue as a going concern and comply with the covenants contained in our credit facilities. Our ability to meet future anticipated liquidity needs over the next year beyond the issuance date will largely depend on our ability to execute on our operational strategy, generate positive cash inflows from operations, maximize the remaining available portion of the Revolver Loan under our Credit Facility and or secure outside capital. Our ability to do so may also be affected by general economic, financial and other factors which are beyond our control.

Our material cash requirements are for working capital, debt service (including interest), capital expenditures, tax payments, facilities lease payments and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash under certain circumstances.

Our material cash requirements could increase beyond our current expectations due to factors such, as but not limited to: (i) an inability to meet our current obligations under our credit facilities as they become due, or to obtain future waivers or amendments from the lenders in the event compliance is not maintained; (ii) general economic conditions; (iii) a change in customer or government spending priorities and/or contracting decisions; (iv) larger than usual customer orders; (v) a future redemption by the holders of our Convertible Preferred Stock; or (vi) actions we may take related to our transformation plan.

Also, in light of our transformation plan initiatives, we continue to review and evaluate our capital allocation plans. Furthermore, we may choose to raise additional funds through equity and debt financing transactions to provide additional flexibility or to pursue acquisitions. Although it is difficult in the current economic and credit environment to predict the terms and conditions of financing that may be available in the future, we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets.

In addition to making capital investments for our high-volume manufacturing center in our Satellite and Space Communications segment, we have also been making significant capital expenditures and building out cloud-based computer networks and internal use software applications to support customers in our Allerium segment. We expect capital investments for these and other initiatives to continue in fiscal 2026.

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss while at the same time maximize the income we receive without significantly increasing risk. To minimize risk, we generally invest excess cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, and U.S. Treasury securities. Money market mutual funds we invest in are direct obligations of the U.S. government, bank securities guaranteed by the Federal Deposit Insurance Corporation, certificates of deposit and commercial paper and other securities issued by other companies. While we cannot predict future market conditions or market liquidity, we believe our investment policies are appropriate in the current environment. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

On September 29, 2020, our Board of Directors authorized a $100.0 million stock repurchase program, which replaced our prior program. The $100.0 million stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws and the terms of our Credit Facility. There were no repurchases of our common stock during the three months ended October 31, 2025 and 2024.

In fiscal 2023, we adjusted our capital allocation plans and determined to forgo a common stock dividend. Future common stock dividends, if any, remain subject to compliance with financial covenants under our Credit Facility and Subordinated Credit Facility, as well as Board approval and certain voting rights of holders of our Convertible Preferred Stock.

At October 31, 2025, we had $0.1 million of cash deposited as collateral in connection with outstanding standby letters of credit to guarantee future performance on certain customer contracts and no commercial letters of credit outstanding.

Commitments

In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. We do not expect that these commitments, as of October 31, 2025, will materially adversely affect our liquidity. At October 31, 2025, cash payments due under contractual obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in the normal course of our business, are as follows:

($ in thousands)

As stated above, the amounts in the above table represent cash payments due under contractual obligations. Interest payments related to our Credit Facility were calculated based on the outstanding borrowings at October 31, 2025. Interest related to the Credit Facility was calculated based on the SOFR forward curve, plus the applicable margin, and does not assume any interest paid-in-kind. The Subordinated Credit Facility amount includes paid-in-kind interest through October 31, 2025 on the $35.0 million Subordinated Credit Facility Amendment No. 2 Priority Term Loan. The Subordinated Credit Facility Make-Whole Amount represents $65.0 million of the outstanding Subordinated Credit Facility principal amount, multiplied by the applicable make-whole rate for each applicable tranche as of October 31, 2025. The Subordinated Credit Facility and Make-Whole Amount are not included in the total due within one year column given the timing of such payment is subject to the timing of certain repayments, prepayments and maturity date associated with the Credit Facility. See Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (9) - Credit Facility, Note (10) - Subordinated Credit Facility, and Note (11) - Leases for further information.

As discussed in Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (17) – Convertible Preferred Stock, the holders of the Convertible Preferred Stock have the option to redeem such shares for cash: (i) in the event of the occurrence of an asset sale meeting certain criteria; (ii) on or after April 30, 2027 in the event of a satisfaction of the existing Credit Facility; and (iii) in all other cases, October 31, 2028. As the Convertible Preferred Stock are not mandatorily redeemable for cash, the redemption value of such shares are not presented in the table above.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts. Pursuant to these agreements, we have agreed to indemnify, hold harmless and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party, including but not limited to losses related to third-party intellectual property claims. It is not possible to determine the maximum potential amount under these agreements due to a history of nominal claims and the unique facts and circumstances involved in each particular agreement.

As discussed further in Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (19) - Legal Proceedings and Other Matters, we are subject to a number of indemnification demands and we are incurring ongoing legal expenses in connection with these matters. Our insurance policies may not cover the cost of defending indemnification claims or providing indemnification. As a result, pending or future claims asserted against us by a party that we have agreed to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

We entered into employment and/or change of control agreements, as well as indemnification agreements with certain of our executive officers, directors and certain key employees. All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of the Company or termination of the employee.

Our Condensed Consolidated Balance Sheet at October 31, 2025 includes total liabilities of $8.1 million for uncertain tax positions, including interest, any or all of which may result in a cash payment. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of any potential cash settlement with the taxing authorities.

RECENT ACCOUNTING PRONOUNCEMENTS

We are required to prepare our Condensed Consolidated Financial Statements in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") which is the source for all authoritative U.S. generally accepted accounting principles, which is commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs"). See Part I. - Financial Information - Item 1. - Notes to Condensed Consolidated Financial Statements - Note (2) – Adoption of Accounting Standards and Updates for further information.

Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from borrowings under our credit facilities. Based on the amount of outstanding debt under our credit facilities, a hypothetical change in interest rates by 10% would change interest expense by approximately $2.4 million over a one-year period. Although we do not currently use interest rate derivative instruments to manage exposure to interest rate changes, we may choose to do so in the future in connection with our credit facilities.

Our earnings and cash flows are also subject to fluctuations due to changes in interest rates on our investment of available cash balances. As of October 31, 2025, we had cash and cash equivalents of $43.6 million, which consisted of cash and highly-liquid money market deposit accounts. Many of these investments are subject to fluctuations in interest rates, which could impact our results. Based on our investment portfolio balance as of October 31, 2025, a hypothetical change in interest rates of 10% would have a nominal impact on interest income over a one-year period. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), was carried out by us under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, we concluded that our disclosure controls and procedures were not effective as of October 31, 2025, as a result of the material weaknesses in our internal control over financial reporting discussed below.

Notwithstanding our material weaknesses, we have concluded that the condensed consolidated financial statements and other financial information included in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the U.S. ("U.S. GAAP").

Material Weaknesses in Internal Control over Financial Reporting

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.

As previously disclosed in our Annual Report on Form 10-K for the year ended July 31, 2025, we did not design and maintain an effective control environment commensurate with our financial reporting requirements based on the criteria in the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Framework (2013), as we lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective processes and controls.

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, other assets, contract liabilities and complex accounting matters and transactions (including debt, convertible preferred stock and related embedded derivatives). Deficiencies in control activities contributed to misstatements and the potential for there to have been material misstatements within these areas.

Also, an international component of our Allerium segment had ineffective controls. Specifically, we did not design and maintain effective general information technology controls (“GITCs”) and business process controls in the following areas: (i) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to financial applications, programs and data to appropriate company personnel; (ii) program change management controls to ensure that changes to information technology (“IT”) programs and data affecting financial applications and underlying accounting records are properly identified, tested, authorized and implemented with appropriate segregation of duties; and (iii) business process controls to ensure that journal entries were not amended prior to posting, as the enterprise resource planning (“ERP”) system which the international component operates did not, at the time of testing, restrict approvers from changing journal entries prior to posting. While no material misstatements were identified with respect to this international component, these deficiencies impact control activities over all financial statement account balances, classes of transactions and disclosures and contributed to the potential for there to have been material misstatements within the international component.

Remediation Plan

Our remediation efforts are ongoing and we will continue our initiatives to hire and engage additional skilled resources in program management and accounting and finance related functions, and implement and document policies, procedures and internal controls. Management is committed to the remediation of the material weaknesses described above.

To date, management undertook the following remedial actions in conjunction with the above remediation plan:

• Reorganized and reassigned responsibilities for executing specific internal controls over financial reporting to staff within the finance organization whose experience aligns more closely with these responsibilities;
• Hired more qualified staff with sufficient knowledge and experience to strengthen our financial reporting;
• Engaged third-party consultants to perform a comprehensive review of our accounting and reporting functions to assist in designing our remediation plan;
• Designed and began implementing a comprehensive remediation plan to enhance our internal control environment that was approved by the Audit Committee;
• Initiated and will continue the process to document, implement and redesign controls, policies, and procedures with an appropriate level of precision to detect a material misstatement, and to retain sufficient documentation to support the operating effectiveness of controls over revenue, inventory, other assets, contract liabilities, debt, convertible preferred stock and related embedded derivatives;
• While management has made significant progress in remediating controls relating to complex accounting matters and transactions by engaging a third-party specialist with the requisite knowledge, experience and resources, the material weakness will not be considered remediated until the implemented controls operate for a sufficient period of time and management had concluded, through testing, that the related controls are effective;
• We engaged a third-party specialist with sufficient knowledge and experience to oversee our internal audit function; such individual is independent of management and reports directly to the Audit Committee; and
• With respect to our international component's operations, accounting and financial reporting, management initiated and will continue to implement proper segregation of duties and enhance control activities over GITCs. For instance, the ERP system which the international component operates has been customized to now restrict approvers from changing journal entries prior to posting.

We will continue to monitor the effectiveness of our remediation plan and refine the remediation plan as appropriate. These actions represent significant progress in addressing the material weaknesses. However, they do not represent the full suite of improvements that we plan to make in order to strengthen our internal control over financial reporting. Additional components of our remediation plan include:

• Conducting training sessions for all control owners and relevant personnel to improve documentation that supports effective control activities, including evidence of the completeness and accuracy of information used in controls;
• For those employees involved in the estimate at completion (“EAC”) process, conducting specialized training sessions related to newly designed or enhanced control activities that were put in place for preparing and reviewing an EAC and its impact on the accuracy of financial reporting; and
• With respect to our international component's operations, accounting and financial reporting, updating and documenting its policies and procedures, including IT policies and procedures and the enhancement of certain control activities over user access, change management and the review of third-party services organization reports.

Remediation of the identified material weaknesses and strengthening of our internal control environment will require a substantial effort throughout fiscal 2026 and beyond, as necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes In Internal Control Over Financial Reporting

Other than for the on-going remediation efforts described above, there have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our fiscal quarter ended October 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on Effectiveness of Controls

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II

OTHER INFORMATION

There have been no material changes to the description of the risk factors affecting our business previously disclosed in “Part I. - Item 1A. - Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended July 31, 2025, as filed with the SEC on November 10, 2025, which is hereby incorporated by reference.