FEIM 10-K & 10-Q changes, risk factors and insider trading

Either as a prime contractor or as a subcontractor, we rely heavily on U.S. Government programs, from which we derived approximately 94%91% and 98%94% of our sales in fiscal 2025year 2026 and fiscal 2024,year 2025, respectively. These U.S Government programs may be only partially or incrementally funded funded and are subject to potential termination. These programs may also be subject to funding reductions and/or delays due to changes in government priorities or other factors. Whether direct contracts with the U.S. Government or contracts with prime contractors to the U.S. Government, our contracts typically are funded at a level less than the full contract value and require periodic incremental additional funding in order to continue. Should circumstances change regarding funding and sufficient funding become unavailable, contracts may be terminated, delayed significantly or put on stop work status.

As a subcontractor, the Company is reliant on a few large customers that generally hold the ultimate contract with the U.S. Government. During fiscal year 2025,2026, onlyLockheed NorthropMartin, GrummanL3Harris, and Boeing each accounted for more than 10% of the Company’s consolidated revenues; however, therevenues. Company has other large customers that it relies on for significant portions of its consolidated revenues. These customers typically incorporate our products into larger programs. If these customers encounter technical, financial or other issues unrelated to our products that affect the larger program’s operations, the related program may be terminated or require expensive, unanticipated revisions. These issues, although unrelated to our products, could adversely impact us if our customers’ contracts with the U.S. Government become subject to re-competition or are ultimately cancelled. Additionally, our larger customers are sophisticated corporations with large research and development staffs and budgets. If one or more sought to design and manufacture replacements for our products, they could potentially discontinue their need for our products. Alternatively, our larger customers could look to replace our products with the products of one or more of our competitors. The loss of the U.S. Government or one or more of our other larger customers or programs could adversely affect our business, financial position, results of operations and/or cash flows.

The Company’s operating income can be adversely affected when estimated contract costs increase. Reasons for increased estimated contract costs include: design issues; changes in estimates of the nature and complexity of the work, including technical or quality issues or requests for additional work; production challenges, including those resulting from the timeliness of customer funding,funding and the unavailability or reduced productivity of qualified labor; the availability, performance, and quality of significant subcontractors; supplier issues, including the costs, timeliness and availability of materials and components; changes in laws or regulations; actions necessary for long-term customer satisfaction; and natural disasters or other matters. We have filed, and may file, requests for equitable adjustment or claims to seek recovery in whole or in part for our increased costs and aim to protect against these risks through contract terms and conditions when practical, but the prime contractor or the U.S. Government may disagree with our requests or may not have funding to cover them.

Due to their nature, fixed price contracts inherently tend to have more financial risk than cost-type contracts, including as a result of inflationary pressures, labor shortages, and increased labor rates. In fiscal 2025,year 96%2026, 95% of our sales were derived from fixed-price contracts. contracts. While the Company’s management uses its best judgment to estimate costs associated with fixed-price contracts, future events may require adjustments, which could ultimately adversely affect the Company’s operating income.

We operate in a highly competitive industry focused on very high-performance products. Many of our competitors are larger, have greater financial resources and have larger R&D and marketing staffs. While we also maintain a robust internal R&D program that is intended to maintain our technical edge, the Company is limited in its resources and ultimately may not be able to successfully compete. Technology is advancing rapidly, and if we are unable to respond effectively to competition, we may lose existing customers, fail to win future business or experience undue pricing pressures that could affect our financial performance. Certain of our current technologies may become subject to significant future advancements, which may make our products obsolete or non-competitive. Competitors may be able to develop new manufacturing technologies that afford them cost and/or schedule advantages compared to our products. Customers may elect a less expensive product, even where it offers lower performance, compared to our current products. Specifically, the emergence of numerous LEO commercial satellite systems that have significantly lower requirements for life in orbit may result in new products based on commercial parts and processes not required for the high performance and/or longer lived geo-synchronous orbit satellites for which the Company has typically developed products. This may result in a migration to less capable, but less expensive products compared to what the Company has traditionally produced. This may result in reduced market share, lower revenues and adversely impact our business operations and financial financial conditions. Additionally, competitors may have the benefit of other contracts that enable them to produce in volume with a concomitant concomitant cost advantage that affords them a price advantage. Many of our customers have in-house capability to develop products comparable to to ours and may opt to do so. Accordingly, if we are unable to continue to compete successfully against our current or future competitors, we may experience declines in future revenues and market share, which could have a material adverse effect on our business, financial position, position, results of operations and/or cash flows.

Our products are technologically complex and require state-of-the-art technology and manufacturing expertise. If a defect in design, materials or workmanship is not identified prior to delivery, the defect can result in product failure and potentially the loss of mission capability for the systems into which our products are integrated. All satellites cannot be recovered from orbit to repair failed sub-systems, therefore failure of a Company product incorporated into a satellite may result in the complete loss of the satellite with a significant impact to the Company’s reputation and future business prospects. Penalties and possible litigation may result from these types of problems, with potential significant impact to our business, financial position, results of operations and/or cash flows.

We rely on very unique skill sets in our employee population. Our average employee tenure is approximately 1411 years and the median age is approximately 51.53. Our products rely on very experienced engineers, physicists and manufacturing personnel who are trained in-house and who acquire competence only after a lengthy period of time. Given the median age of our average employee, we anticipate that a number of our key personnel will retire in the coming years. If we are unable to attract, train and retain competent and skilled replacement employees, our ability to design, develop and manufacture our products will be adversely affected. Furthermore, our operating performance is also dependent upon personnel who hold security clearances and receive substantial training to work on certain programs or tasks. If we were to experience an unanticipated attrition with respect to these employees, it will be difficult for us to replace them on a timely basis.

Health epidemics, pandemics and similar outbreaks, such as COVID-19,outbreaks create substantial risk to the Company. Employees work in close proximity to one another. Therefore, if an employee is infected with a communicable disease, such as COVID-19,disease or suspected of being infected, other employees he or she has come in contact with may also be infected, with a cascading effect on the workforce. In addition to the time off to recover, there is a need to clean and disinfect the areas where the employee was working and had frequented in the facility. The nature of the Company’s business requires mostly “hands-on” activities related to design, manufacturing and testing. Therefore, absenteeism resulting from infectious diseases and cleaning procedures to disinfect various areas of our facilities can have a significant impact on a contract’s schedule, with a corresponding impact to costs. The Company is not able to predict possible future health epidemics, pandemics, or similar outbreaks, but if they manifest, they could have significant adverse effects on our business, financial position, results of operations and/or cash flows.

We operate in a highly regulated industry and are routinely audited and reviewed by the U.S. Government and its agencies. These agencies review performance under our contracts, our cost structure and accounting, and our compliance with applicable laws, regulations, terms and standards, as well as the adequacy of our systems in meeting government requirements. If an audit uncovers improper or illegal activities, we would be subject to possible civil and criminal penalties, sanctions, forfeiture of profits or suspension or debarment. Most of our contracts are subject to Federal Acquisition Regulations (FARs) or Defense Federal Acquisition Regulation Supplement (DFARS). Violation of any of these regulations can result in significant consequences, including fines, disbarmentsdebarments or other punitive measures by the U.S. Government. Additionally, the Company has defense department security clearance that is required for performance on several contracts. Failure to maintain compliant security procedures may result in suspension of our security clearance and inability to perform on current contracts, as well as limit our ability to be awarded future contracts. The Company is also subject to export control requirements, anti-boycott regulations and Office of Foreign Assets Control (OFAC) sanctions against business dealings with certain persons and entities, including its investment in Morion, Inc., a less than wholly-owned subsidiary of state-owned Russian bank Gazprombank. ViolationFor example, the U.S. Ukraine-related sanctions regime has since 2014 included a list of sectoral sanctions identifications (“SSI”) pursuant to Executive Order 13662, which prohibits certain transactions, including certain extensions of credit, with an entity designated as an SSI or certain affiliates of an entity designated as an SSI. On July 16, 2014, after the Company’s investment in Morion, Gazprombank was designated as an SSI. As previously disclosed, in light of Morion’s relationship with Gazprombank, in 2020, the Company evaluated, with the assistance of external legal counsel, certain sales to Morion and the timing of payments by Morion to the Company in connection with those sales to determine whether payments by Morion may have inadvertently constituted extensions of credit in violation of Directive 1 under Executive Order 13662. The Company determined that certain payments by Morion – the majority of which occurred more than five years ago – were not timely. Following the evaluation, on May 7, 2020, the Company voluntarily disclosed its findings to OFAC. The Company’s voluntary disclosure to OFAC related solely to delays in collection of accounts receivable that exceeded then-applicable payment windows set forth in sanctions regulations and did not relate to any other type of payment or transaction. On February 17, 2021, the Company received a Cautionary Letter from OFAC indicating that OFAC has completed its review of the matter. According to OFAC, the Cautionary Letter was issued instead of pursuing a civil monetary penalty or taking other enforcement action. On October 30, 2024, OFAC designated Morion as a Specially Designated National, resulting in the blocking of all Morion property and property interests and the termination of all commercial relationships between the Company and Morion. Although the Company’s prior voluntary disclosure to OFAC discussed above did not lead to any civil monetary penalty or other enforcement action and although the Company has terminated all commercial relationships with Morion following Morion’s designation as a Specially Designated National, the Company continues to hold a minority equity interest in Morion, and there can be no assurance that the Company’s historical or continuing relationship with Morion will not result in additional regulatory scrutiny or liability. Any future violation of any of thesethe requirements, governmental regulations discussed above, including OFAC sanctions, or requirementsother maysimilar laws, regulations, terms or standards could have a material adverse effect on our financial position, results of operations and/or cash flows.

We have and may in the future become subject to investigations, claims, disputes, enforcement actions and administrative, civil or criminal litigation, arbitration or other legal proceedings across a broad array of matters, including government contracts, commercial transactions, false claims, false statements, compliance with government orders, mischarging, contract performance, fraud, procurement integrity, securities laws and requirements, products liability, warranties, hazardous materials, personal injury claims, environmental, stockholder derivative actions, acquisitions and divestitures, intellectual property, tax, corporate law and obligations, employment, export/import, anti-corruption, debt and equity, labor, health and safety, the COVID-19 pandemic and the Company’s response to it, accidents, and employee benefits and plans, including plan administration, improper payments and issues related to privacy and security (cyber and physical). These matters can divert financial and management resources; result in administrative, civil or criminal fines, penalties or other sanctions (including judgments, convictions, consent or other voluntary decrees or agreements), compensatory, treble or other damages, non-monetary relief or other liabilities; and otherwise harm our business and our ability to obtain and retain new business. Certain allegations against us can lead to suspension or debarment from government contracts. A suspension or debarment could have a material adverse effect on the Company because of our reliance on U.S. Government contracts. Additionally, an investigation, claim, dispute, enforcement action or litigation, even if pending or not ultimately substantiated or if fully indemnified or insured, can also negatively impact our reputation among our customers, and make it substantially more difficult for us to compete effectively for business in the future. Accordingly, investigations, claims, disputes, enforcement actions, litigation or other legal proceedings could have a material adverse effect on our financial position, results of operations and/or cash flows.

The trading price of our common stock stockhas been, and may continue to be volatile.volatile and subject to wide fluctuations in response to various factors, many of which we cannot control. As a result, investors in our common stock may experience substantial losses. This volatility may or may not be related to our operating performance. Our operating results, from time to time, may be below the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock.

The statements in this Annual Report on Form 10-K regarding future earnings and operations and other statements relating to the future constitute constitute “forward-looking” statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, the risks associated with reliance on key customers, including the U.S. government, the Company’s use of estimates when accounting for contracts, actions by significant customers or competitors, competitive factors, new products and technological changes, continued acceptance of the Company’s products in the marketplace, dependence upon third-party vendors, product prices and raw material costs, the Company’s ability to attract and retain key employees, general domestic and international economic conditions, health epidemics and pandemics, external disruptions to the Company’s facilities or supply chain, the Company’s operations in a highly regulated industry, the outcome of any litigation and arbitration proceedings, cybersecurity attacks, noncompliance with any of the covenants in the Credit Agreement, volatility in the Company’s stock price, including due to the relatively low trading volume of its common stock, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive. Other sections of this Form 10-K include additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company’s business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Form 10-K and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements. The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts, income taxes and the valuation of inventory.inventories. Each of these areas requires the Company to make use of reasonable estimates, including estimating the cost to complete a contract, the realizable value of its inventoryinventories or the market value of its products. Changes in estimates can have a material impact on the Company’s financial position and results of operations.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial financial statements, which will result in taxable or deductible amounts in the future. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In evaluating our ability to recover deferred tax assets in the jurisdiction from which they arise, we consider all positive and negative evidence, including the reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets will not be realizable, we establish a valuation allowance. For the fiscal year ended April 30, 2025, the valuation allowance decreased by approximately $13.9 million from the prior fiscal year primarily due to releasing the majority of the valuation allowance recorded against the deferred tax asset. The change in estimate occurred in the quarter ended January 31, 2025 because Frequency no longer had cumulative losses in recent years due to significant earnings in the quarter ended January 31, 2025.

Revenues on satellite program contracts are recorded in the FEI-NY segment and are recognized primarily under the percentage-of-completion (“POC”) method. Revenues from non-space U.S. Government/DODDOW customers decreasedincreased by approximately $2.4$11.5 million, or 8%,43.2%, in fiscal year 20252026 compared compared to fiscal year 2024.2025. These revenues are recorded in both the FEI-NY and FEI-Zyfer segments and accounted for approximately 60% and 38% and 52% of consolidated revenues for fiscal years 20252026 and 2024,2025, respectively. Other commercial and industrial sales accounted for approximately 3% and 6% of consolidated revenues for both fiscal years 20252026 and 2024, respectively.2025. Sales in the other commercial and industrial sales area were $2.4$2.1 million and $3.1$2.4 million for the fiscal year ended April 30, 20252026 and the fiscal year ended April 30, 2024,2025, respectively.

As a percentage of consolidated revenue, R&D expense for the fiscal years ended April 30, 20252026 and 20242025 were 9%10% and 6%,9%, respectively. The Company funded R&D as amounta percentage of consolidated revenue was slightly higher in fiscal year 20252026 as compared to the previous fiscal year, partially because the previous fiscal year R&D expenditures waswere lower than planned and some of the expenses were subsequently captured in fiscal year 2025. 2026. The increase in R&D expense as a percentage of consolidated revenue, also reflects the Company’s commitment to maintaining its technical excellence. The Company expects future R&D investment to be in line with, or even potentially above, historical spending.spending, but the Company expects to demonstrate operating leverage on its R&D expenses as revenue increases.

The funds received in connection with customer funded R&D appearsappear in revenues and the associated expenses are included in cost of revenues and are not included in the table above. The Company believes that internally generated cash and cash reserves are adequate to fund its future R&D activity.

Operating Income(loss) income

Income Tax (Benefit) Provision

Net cash provided by operations was $1.3 million in fiscal year 2026 compared to net cash used in operations wasof $1.4 million in fiscal year 2025 compared to net cash provided by operations of $8.7 million in fiscal year 2024.2025. The Company’s balance sheet continues to reflect a highly liquid position with working capital of $29.7$27.0 million at April 30, 20252026 as compared to $27.3$29.7 million at April 30, 2024.2025. Included in working capital at April 30, 20252026 was $4.7$1.6 million consisting of cash and cash equivalents. The Company’s current ratio at April 30, 2025 was 2.3 to 1, compared to 1.9 to 1 at both April 30, 2024. 2026 and at April 30, 2025.

During fiscal years 20252026 and 2024, 2025, the Company incurred $5.9$9.3 million and $4.4$3.9 million, respectively, in non-cash charges to earnings, including adjustments relating to netamortization assetsof andROU liabilities for operating leases,assets, loss provision accrual, deferred tax assets, depreciation and amortization expense, inventory adjustments, warranty and accounts receivable reserves and certain employee benefit plan expenses, including accounting for stock-based compensation. During fiscal year 2025,2026, cash provided by operations was mainly due to increases in deferred tax assets, accounts payable, accrued liabilities, and decreases in inventory, which were partially offset by a decrease in contract liabilities and an increase in the net loss. During fiscal year 2025, cash used in operations was mainly due to increases in net income, mainly in the U.S. Government/DODDOW Satellite market, and deferred tax assets primarily due to the reduction of the valuation allowance, and partially offset by a decrease in contract liabilities and contract assets. During fiscal year 2024, cash flows relating to operating activities increased as a result of decreases in the loss provision accrual and other liabilities and increases in contract assets and inventory, partially offset by an increase in contract liabilities and net income.

Net cash used in financing activities for the fiscal year ended April 30, 2026 was $1.6 million, all related to purchase of treasury stock. Net cash used in financing activities for the fiscal year ended April 30, 2025 was $9.9 million, of which $9.6 million was related to a special cash dividend payment of $1.00 per share of common stock paid on August 29, 2024. There was no cash used in financing activities for the fiscal year ended April 30, 2024.

During fiscal year 2025,2026, as in fiscal year 2024,2025, the impact of inflation on the Company’s business was an increasesincrease in costs for materials and services. The Company believes thisinflation may continue to impact expenses in fiscal year 20262027 and future years.

As of April 30, 2025,2026, the Company had retained earnings of $3.7$2.8 million. The Company believes that its cash, as of April 30, 2025, and2026, cash flows from operationsoperations, and borrowings available under the Credit Agreement (as defined below) will provide sufficient liquidity to meet its operating needs in the normal course of business in both the short-term (next twelve months from the date of issuance of these consolidated financial statements) and in the long-term (beyond the next twelve months).

In DecemberNovember 2023,2024, the FASB issued ASU No. 2023-09,2024-03, Income TaxesStatement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (TopicSubtopic 740220-40): ImprovementsDisaggregation of Income Statement Expenses. This ASU requires entities to Income Tax Disclosures (“ASU 2023-09”), which requires companies to annually disclose categoriescertain expenses, including purchases of inventory, employee compensation, depreciation, and intangible asset amortization, by caption. Additionally, entities must provide a qualitative description of the amounts remaining in therelevant effectiveexpense taxcaptions ratethat reconciliationare andnot additionalseparately informationdisaggregated about incomequantitatively. taxes paid. The newamendments guidance isare effective for annual reporting periods beginning after December 15, 2024,2026 and interim reporting periods within fiscal years beginning after December 15, 2024,2027, with early adoption permitted. The Company is in the process ofcurrently evaluating the impact thatthis the adoption of ASU No. 2023-09standard will have toon the consolidated financial statements and related disclosures.statements.

The statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) regarding future earnings and operations and other statements relating to the future constitute “forward-looking” statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences includeinclude, but are are not limited to, ourthe inabilityrisks toassociated integratewith operationsreliance andon personnel,key customers, including the U.S. Government, the Company’s use of estimates when accounting for contracts, actions by significant customers or competitors, generalcompetitive domesticfactors, new products and andtechnological international economic conditions, reliance on key customers, including the U.S government,changes, continued acceptance of the Company’s products in the marketplace, competitivedependence factors,upon newthird-party products and technological changes, vendors, product prices and raw material costs, dependencethe Company’s ability to attract and retain key employees, general domestic and uponinternational third-partyeconomic vendors,conditions, otherhealth epidemics and pandemics, external disruptions to the Company’s facilities or supply chain, chainthe relatedCompany’s issues, increasing costs for materials, operating related expenses, competitive developments, changesoperations in manufacturinga andhighly transportationregulated costs, the availability of capital,industry, the outcome of any litigation and arbitration proceedings, proceedings,cybersecurity attacks, noncompliance with any of the covenants in the Company’s senior, secured revolving credit facility with JPMorgan Chase Bank, N.A., as the lender, volatility in the Company’s stock price, including due to the relatively low trading volume of its common stock, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive. Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 20252026 (the “Form 10-K”) include additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company’s business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Form 10-Q and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory. Both of these areas require the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory and the market value of its products. Changes in estimates can have a material impact on the Company’s financial position and results of operations. The Company’s significant accounting policies did not change during the three and nine months ended JanuaryJuly 31, 2026.

Revenues for most contracts are reported in operating results predominantly over time using the cost-to-cost method. Under this method, revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs with related cost of revenues recorded as the costs are incurred. Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information regarding labor, outside services, materials, overhead costs,costs and status of the contract. The effect of any change in the estimated gross margin rate (“GM Rate”) for a contract is reflected in revenues in the period in which the change is known. Provisions for the full amount of anticipated losses on contracts are made in the period in which they become determinable.

The table below sets forth for the three and nine months ended JanuaryJuly 31, 2026 and 2025, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements:

For the three months ended January July 31, 2026, revenues from commercial and U.S. Government communication satellite programs accounted for approximately 25%50% of consolidated revenues compared to approximately 59%47% of consolidated revenues during this same period in the prior fiscal year. Revenues are recognized primarily over time under the percentage-of-completionPercentage (“POC”)of Completion method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/Department of DefenseWar (“DODDOW”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 74%47% of consolidated revenues for the three months ended JanuaryJuly 31, 2026 compared to approximately 39% 50% of consolidated revenue during the same period in the prior fiscal year. Other commercial and industrial revenues for the three months ended JanuaryJuly 31, 2026,2026 and 2025, accounted for approximately 1%3% of consolidated revenue compared to 2% in theboth same period of the prior fiscal year.periods.

For the three months and nine months ended January July 31, 2026, both gross margin (“GM”) and GM Rate decreasedincreased compared to the same periods period in the prior fiscal year. The decrease increase in GM and GM Rate werewas attributable to athe change$9.6 million increase in revenue compared to the mixsame of high margin production satellite programsperiod in the prior yearfiscal periodsyear. versusThe lower9% marginimprovement in GM Rate was attributable in part to product mix with the majority of programs withrunning significantat non-recurringtargeted engineering (“NRE”) effort during the threemargins, and ninepartially monthsdue endedto Januaryefficiencies recognized 31,as 2026.programs mature.

Research and Development (“R&D”) expenditures represent investments intended to keep the Company’s products at the leading edge of time and frequency technology and andto enhance future competitiveness. Fluctuations in R&D expenditures will occur in some periods due to current operational needs supporting ongoing programs. The Company plans to continue to invest in R&D in the future to keep its products at the state of the art.

For the three and nine months ended January July 31, 2026, operating income decreasedincreased significantly compared to the prior fiscal year periodsperiod due to lowerhigher revenue, gross margin and operational increased SG&Aefficiencies as described above.

Other income (expense), net is derived from various sources. The other income (expense), net can come from reclaiming of metal, refunds, interest on deferred trust assets, or the sale of a fixed asset. Interest expense is related to the deferred compensation payments made to retired employees. The majority of the approximately $0.2 million and $0.6$0.1 million of investment income for the three and nine months ended January July 31, 2026, respectively, was from interest income and unrealized gains on assets held in the Frequency Electronics, Inc. Deferred Compensation Trust.

Benefit Provision (benefit) for Income Tax

On July 4, 2025, President Trump signed the OBBBA into law. In accordance with U.S. GAAP, the Company accounted for the tax effects of changes in tax law in the period of enactment during– the first quarter of fiscal year 2026. The OBBBA made changes to the U.S. tax code, including, but not limited to: (1) allowing taxpayers to fully deduct domestic research expenditures for tax years beginning after December 31, 2024, (2) provides a catch-up relief provision for taxpayers to accelerate deductions for unamortized domestic research expenditures, (3) includes a permanent provision for 100% bonus depreciation deductions for most tangible personal property with a recovery period of 20 years or less, acquired and placed in service after January 19, 2025, and (4) for tax years beginning after December 31, 2024, restores Adjusted Taxable Income by adding back amortization and depreciation to calculate the limitation on interest deductions (effectively returning to EBITDA).

The estimated annual effective tax rate for the fiscal year ending April 30, 20262027 is 25.10%.24.90%. This calculation reflects an estimated income tax expense based on our current fiscal year annual pretax income forecast which includes non-deductible expenses, estimated research and developmentR&D credits, and state income taxes. The estimate of the annual effective tax rate is based on evaluations of possible future events and may be subject to revision in future reporting periods.

For the three months ending January July 31, 2026, the Company recorded an income tax benefitprovision of $127,246$1 million which includes a discrete income tax benefit of $568,117.$0.3 million. The discrete income tax benefit iswas primarily due to stock compensation windfall deductions. The calculation of the overall income tax provision consists of current U.S. federal and state income taxes.taxes offset by a discrete tax benefit. For the three months ended JanuaryJuly 31, 2025, the Company recorded an income tax benefit of $11.8$0.8 million which included a discrete income tax benefit of $11.9$0.2 million. The discrete income tax benefit in the comparable period is primarily due to the release of the valuation allowance.

The effective tax rate for the three months ended JanuaryJuly 31, 2026 was an income tax benefitprovision of 8.84%19.58% on pretax income of $1.4$5.2 million compared to an income tax benefit of 330.2%13.89% on pretax income of $3.6$0.6 million in the comparable prior fiscal year period. The effective tax rate for the three months ended JanuaryJuly 31, 2026 differs from the U.S. federal statutory rate of 21% primarily due to non-deductible expenses, state income taxes, R&D credits and discrete items.

The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $32.4$90.2 million at January July 31, 2026 and approximately $29.7 $27.0 million at April 30, 2025.2026. Included in working capital at JanuaryJuly 31, 2026 and April 30, 2025 2026 was $0.1$61.4 million and $4.7 $1.6 million, respectively, of cash and cash equivalents. The Company’s current ratio was 2.65.3 to 1 at JanuaryJuly 31, 2026 compared to 2.3 to 1 as of April 30, 2025.2026.

Net cash usedprovided inby operating activities for the ninethree months ended JanuaryJuly 31, 2026 and 2025 was approximately $0.8$2.6 million and net$1.2 and $1.3 million, respectively. The increase in net cash usedprovided inby operating activities in the first ninethree months of fiscal 20262027 as compared to the prior fiscal year period was primarily due to timing of billings and cash collections and aan decreaseincrease in net income. For the nine three months ended JanuaryJuly 31, 2026 and 2025, the Company incurred approximately $4.3$2.5 million and $4.2$1.8 million, respectively, of non-cash operating expensescharges to earnings including amortization of ROU assets, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs. For the nine months ended January 31, 2026 and 2025, the non-cash operating expenses does not include amounts related to the deferred tax assets which are approximately $0.2 million and $11.8 million, respectively.

Net cash used in investing activities for the ninethree months ended JanuaryJuly 31, 2026 and 2025 was approximately $2.3$0.9 million and $1.2$0.8 million, respectively, all relating to purchases of capital expenditures.expenditures and the purchase of investment.

In March 2005, the Company’s Board of Directors authorized the repurchase of up to $5.0 million worth of shares of the Company’s common stock. On September 9, 2025, the Company’s Board of Directors approved a new share repurchase authorization in the amount of $20.0 million. Under this new share repurchase authorization, shares of the Company’s shares of common stock may be purchased on a discretionary basis from time to time, subject to general business and market conditions andconditions, other investment opportunities,opportunities and compliance with the covenants under the Credit Agreement (as defined below), through open market purchases, privately negotiated transactions or other means. This repurchase program may be suspended or discontinued at any time without notice. The new share repurchase authorization replaced the Company’s existingprior $5.0 million share repurchase authorizationauthorization, which was initially authorized in March 2005, under which approximately approximately $0.6 million remained. ThisThe newcurrent share repurchase authorization does not have an expiration date.

During the three months ended January July 31, 2026, the Company acquireddid 12,260not acquire any shares of the Company’s common stock at a weighted average share price of $50.22 per share. The Company acquired these shares to satisfy tax withholding requirements upon the vesting of previously granted RSU awards.stock. As of JanuaryJuly 31, 2026, the Company had repurchased approximately $1.0 million of its common stock out of the $20.0 million authorized under the newcurrent share repurchase authorization. During the three months ended JanuaryJuly 31, 2025, the Company repurchased 11,802 21,910 shares of the Company’s outstanding common stock at a weighted average share price of $18.26$26.60 per share.

As of JanuaryJuly 31, 2026, the Company’s consolidated funded backlog was approximately $83$129 million compared to approximately $70$111 million at April 30, 2025.2026. Approximately 69% 67% of the backlog, as of JanuaryJuly 31, 2026, is expected to be realized in the next twelve months. The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion. Over time, as partially funded contracts become fully funded, the Company will add the additional funding to its backlog. The backlog is subject to change for various reasons, including possible cancellation of orders, change orders, terms of the contracts and other factors beyond the Company’s control. Accordingly, the backlog is not necessarily indicative of future revenues or profits (losses) which may be realized when the results of such contracts are reported.

The Company believes that its liquidity is adequate to meet its short-term operating and investment needs through at least MarchSeptember 17,14, 2027 and its long-term operation and investment needs for the foreseeable future thereafter.