What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-07-17 compared with 2025-07-18 · 260 added, 218 removed, 89 unchanged (84% of the section changed)

1 unchanged sentence

Harbor ” Statement under the Private Securities Litigation Reform Act of 1995:

statements in this Annual Report on Form 10-K 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

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, 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

statements in this Annual Report on Form 10-K 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 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.

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.

Accounting Estimates

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its most critical accounting policies to be the recognition of revenue and costs on production contracts, income taxes and the valuation

of inventory.

of 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 inventory or the market value of its products.

a contract, the realizable value of its inventories or the market value of its products.

Changes in estimates can have a material impact

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costs for material and labor.

accordance with industry practice, inventoried costs contain amounts relating to contracts and programs with long production cycles,

a portion of which will not be realized within one year.

Inventory write downs are established for slow-moving materials based on percentage

of usage over a ten-year period, obsolete items on a gradual basis over five years with no usage and costs incurred on programs for which

production-level orders cannot be determined as probable.

Such write-downs are based upon management’s experience and expectations

for future business.

July 4, 2025, President Trump signed H.R.1, the One Big Beautiful Bill Act (“OBBBA”) into law.

In accordance with U.S.

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) provides 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 enactment of the OBBBA did not have a material impact on our

provision or effective tax rate as of April 30, 2026.

We continue to evaluate the OBBBA and its requirements, as well as its application

to our business and its impact on cash taxes and our effective tax rate.

income tax expense, deferred tax asset and liabilities, and liabilities for unrecognized tax benefits reflect management’s best

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income tax expense.

income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the 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.

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.

Company maintains a valuation allowance of approximately $1.4 million against certain deferred tax assets including state tax credits

and capital loss carryforwards because the realization of these tax attributes requires sufficient taxable income be sourced to the respective

state jurisdiction and capital gain income is required to utilize capital losses.

The Company will continue to evaluate the realizability

of its deferred tax assets quarterly.

Any further increases or decreases in the valuation allowance could have an unfavorable or favorable

impact on the Company’s income tax provision and net income in the period in which such determination is made.

As of April 30,

2025, the deferred tax asset is recorded at its more-likely-than-not realizable amount.

income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the

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

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.

Company maintains a valuation allowance of approximately $1.4 million against certain deferred tax assets including state tax

credits and capital loss carryforwards because the realization of these tax attributes requires sufficient taxable income be sourced

to the respective state jurisdiction and capital gain income is required to utilize capital losses.

The Company will continue to

evaluate the realizability of its deferred tax assets quarterly.

Any further increases or decreases in the valuation allowance could

have an unfavorable or favorable impact on the Company’s income tax provision and net income in the period in which such

determination is made.

As of April 30, 2026, the deferred tax asset is recorded at its more-likely-than-not realizable

benefits are recognized for an uncertain tax position when, in the Company’s judgment, it is more likely than not that the position

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items in the Company’s consolidated statements of operations:

Fiscal Years Ended April 30,

Less intersegment revenues

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Research and development expenses

Operating income

Operating (loss)income

Other income, net

Benefit from income taxes

Ended April 30,

Net (loss) income

Fiscal Years Ended April 30,

(in thousands)

Intersegment revenues

the fiscal year ended April 30, 2025 revenue increased by approximately $14.5 million, or 26%, compared to the prior fiscal year.

Company is encouraged by the significant revenue growth compared to the prior fiscal year.

The majority of the increase in revenue for

fiscal year 2025, as compared to fiscal year 2024, was as a result of an increase in sales in the U.S.

Government/DOD Satellite market.

In fiscal year 2025, revenues from satellite programs, one of the Company’s largest business areas, increased by $17.7 million,

or 76%, compared to the prior fiscal year.

The increase was due mainly to adjustments in total estimated costs in the current period

resulting from efficiencies realized.

Satellite program revenues for Government end-use were 53% and 40% of total revenues for fiscal

years 2025 and 2024, respectively.

Satellite program revenues for commercial end-use were 6% and 2% of total revenue for fiscal years

2025 and 2024, respectively.

the fiscal year ended April 30, 2026 revenue decreased by approximately $6.6 million, or 9%, compared to the prior fiscal year.

Fiscal 2026 was a year of digestion from a revenue standpoint, as the Company pulled forward some revenue into last year’s

As a result of the shutdown of the FEI-Elcom manufacturing business, the Company sacrificed some near-term revenue in

the fourth quarter.

By doing so, the Company believes it is the right long-term decision to better align its capital and growth

potential as it focuses on the much larger addressable markets it is starting to sell into:

alternative position, navigation and

timing (ALT-PNT) solutions;

quantum sensing, including magnetometers;

space defense and exploration;

and, proliferated satellite

program revenues for Government end-use were 31% and 53% of total revenues for fiscal years 2026 and 2025, respectively.

Satellite program

revenues for commercial end-use were 6% of total revenue for both fiscal years 2026 and 2025.

on satellite program contracts are recorded in the FEI-NY segment and are recognized primarily under the percentage-of-completion (“POC”)

Revenues from non-space U.S.

Government/DOD customers decreased by approximately $2.4 million, or 8%, in fiscal year 2025 compared

to fiscal year 2024.

These revenues are recorded in both the FEI-NY and FEI-Zyfer segments and accounted for approximately 38% and 52%

of consolidated revenues for fiscal years 2025 and 2024, respectively.

Other commercial and industrial sales accounted for approximately

Government/DOW customers increased by approximately $11.5 million, or 43.2%, in fiscal year 2026

compared to fiscal year 2025.

These revenues are recorded in both the FEI-NY and FEI-Zyfer segments and accounted for approximately 60%

and 38% of consolidated revenues for fiscal years 2026 and 2025, respectively.

Sales in the other commercial and industrial sales area

were $2.4 million and $3.1 million for the fiscal year ended April 30, 2025 and the fiscal year ended April 30, 2024, respectively.

Ended April 30,

Other commercial and industrial sales accounted for approximately

3% of consolidated revenues for both fiscal years 2026 and 2025.

Sales in the other commercial and industrial sales area were $2.1 million

and $2.4 million for the fiscal year ended April 30, 2026 and the fiscal year ended April 30, 2025, respectively.

Fiscal Years Ended April 30,

(in thousands)

Gross Profit Percentage

the fiscal year ended April 30, 2025, the gross profit and gross profit percentage increased as a result of several factors.

in gross profit dollars was directly related to the significant increase in revenues over the prior fiscal year period as well as the

increase in gross margin.

The majority of the increase in the gross profit percentage, as compared to the prior fiscal year, was in the

FEI-NY segment and was attributed to the Company’s performance on several traditional space programs at higher margins, due to

favorable cumulative catch-up adjustments, and those programs progressing ahead of schedule.

In addition, the Company has new programs

that are progressing well, and the Company anticipates that they will generate additional revenue and profit.

For the fiscal year ended

April 30, 2026, the gross profit and gross profit percentage decreased as a result of several factors.

The Company invested significantly

in the business during Fiscal 2026 in order to better prepare for the anticipated strong growth ahead.

The majority of this investment

was focused on hiring engineering talent in advance of the large ramp-up in production and revenue that is expected, based in part on

the historically high existing backlog.

This had near-term dampening effects on gross margin, as engineering costs flowed through the

manufacturing overhead portion of our cost of revenues, raising this expense before the generation of revenue.

Another meaningful investment

was a business process improvement investment, which should allow the Company to improve turnaround time;

these expenses flowed through

overhead and had a similar impact on gross margins.

With the orders and demand coming in, the Company believes it is a prudent long-term

decision to be ready for that business and to super-serve customers, who increasingly want more work done more quickly.

Additionally, the

Company has increased the internal focus on the largest and most profitable market opportunities, and de-emphasized or discontinued products

with lower growth potential and lower margin profiles that have historically been part of the business.

Specifically, the Company chose

to restructure FEI-Elcom effective April 30, 2026.

The Company believes FEI-Elcom did not have the growth or margin potential of the Company’s

core space and defense markets, nor those of the much larger addressable markets the Company is starting to sell into:

alternative position,

navigation and timing (ALT-PNT) solutions;

quantum sensing, including magnetometers and Rydberg sensors;

space defense and exploration;

and, proliferated satellite programs.

The FEI-Elcom restructuring included a $3.8 million inventory write-down, a non-cash charge which

flowed through cost of revenues further depressed gross margins for this reported period, but which, we believe is not reflective of ongoing

business trends.

The Company had several non-recurring charges that flowed through operating expenses this quarter, the majority of which

was a non-cash charge for an accrual related to a one-time change in employee sick/paid-time-off policies.

Most of this charge flowed

through cost of revenues, impacting gross margins, and the balance flowed through selling and administrative expenses.

and Administrative Expenses

Ended April 30,

fiscal years ended April 30, 2025 and 2024, selling and administrative expenses (“SG&A”) were 18% of consolidated revenues

in both periods.

While total SG&A expenses increased in fiscal year 2025, as compared to the prior fiscal year, SG&A expenses

remained consistent as a percentage of revenue in fiscal year 2025.

The approximately $2.1 million dollar increase is made up of mainly

payroll related items such as, 401K expense, stock option expense, and bonus accrual.

In addition to these expenses, trade show and related

costs also increased during fiscal year 2025 as well.

Fiscal Years Ended April 30,

(in thousands)

In fiscal years ended April

30, 2026 and 2025, selling and administrative expenses (“SG&A”) were 24% and 18% of consolidated revenues, respectively.

Both SG&A expenses in total and as a percentage of revenue increased in fiscal year 2026, as compared to the prior fiscal year.

mentioned above, there were also significant investments in the future and one-time charges that were included in SG&A.

and most important is the opening of the Colorado facility and all the associated costs.

The Company believes this facility will be a

key contributor to the future growth of the Company.

Additional expenses were recorded for the restructuring of FEI-Elcom.

of the remaining increase was non-recuring charges related to a change in sick/paid-time off policies and legal expenses related to the

various items the Company has instituted for the future growth of the Company.

Going forward, the Company expects to demonstrate operating

leverage on its SG&A expenses as revenue increases.

and Development Expenses

Ended April 30,

a percentage of consolidated revenue, R&D expense for the fiscal years ended April 30, 2025 and 2024 were 9% and 6%, respectively.

The Company funded R&D amount was higher in fiscal year 2025 as compared to the previous fiscal year, partially because the previous

fiscal year R&D expenditures was lower than planned and some of the expenses were subsequently captured in fiscal year 2025.

increase in R&D expense 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.

funds received in connection with customer funded R&D appears in revenues and the associated expenses are included in cost of revenues

Fiscal Years Ended April 30,

(in thousands)

As a percentage of consolidated

revenue, R&D expense for the fiscal years ended April 30, 2026 and 2025 were 10% and 9%, respectively.

The Company funded R&D

as a percentage of consolidated revenue was slightly higher in fiscal year 2026 as compared to the previous fiscal year, partially because

the previous fiscal year R&D expenditures were lower than planned and some of the expenses were subsequently captured in fiscal year

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,

but the Company expects to demonstrate operating leverage on its R&D expenses as revenue increases.

funds received in connection with customer funded R&D appear in revenues and the associated expenses are included in cost of revenues

and are not included in the table above.

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future R&D activity.

Ended April 30,

the fiscal year ended April 30, 2025, the Company recorded operating income of $11.7 million compared to an operating income of $5.0

million in the prior fiscal year.

The increase is mainly attributable to the Company’s significant increase in revenue and gross

margin during fiscal year 2025, as noted above, from traditional space programs that have been executed ahead of schedule, well within

budgets, and performed well technologically.

The positive effects of cost cutting measures instituted by management have also contributed

to the increase.

Ended April 30,

(loss) income

Fiscal Years Ended April 30,

(in thousands)

For the fiscal year ended

April 30, 2026, the Company recorded an operating loss of $3.0 million compared to an operating income of $11.7 million in the prior fiscal

As mentioned in the revenue, gross profit, and SG&A sections above, the Company’s fiscal 2026 was a critically important

year for the future of the Company.

Going forward the Company expects to demonstrate significant operating leverage as revenue increases.

Fiscal Years Ended April 30,

(in thousands)

Income on investments

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Other expense, net

change from the prior fiscal year was relatively minimal.

All three categories presented were slightly lower in fiscal year 2025 compared

to the prior fiscal year.

Tax (Benefit) Provision

Ended April 30,

Effective tax rate on pre-tax book

income (loss):

change from the prior fiscal year was mainly caused by a gain on the sale of the Company’s available-for sale marketable securities

and a loss on investment due to the restructuring of FEI-Elcom.

Additionally, interest expense was approximately 16% lower in fiscal

year 2026, as compared to the prior fiscal year.

Fiscal Years Ended April 30,

(in thousands)

Fiscal Years Ended April 30,

(in thousands)

Effective tax rate on pre-tax book (loss) income:

the fiscal year ended April 30, 2026, the Company recorded an income tax benefit of $2.0 million.

1 unchanged sentence

2025, the Company recorded an income tax benefit of $11.5 million.

Company’s effective tax rate of (95.0)% for fiscal year 2025 differs from the U.S.

federal statutory rate of 21% primarily due

to a reduction of the valuation allowance.

(See Note 13 to the Consolidated Financial Statements for a reconciliation of the actual tax

benefit to the expected tax provision at the federal statutory rate.)

The Company’s effective

tax rate of 69.0% for fiscal year 2026 differs from the statutory rate primarily due to state income taxes, tax credits and the tax effects

of stock-based compensation windfall benefits recognized during the fiscal year partially offset by an Internal Revenue Code Section 162(m)

limitation on compensation deductions.

of April 30, 2026, the Company has U.S.

federal net operating losses of $5 million of which $1.7 million begins to expire in fiscal year

2026 through fiscal year 2031.

federal net operating losses of $5 million includes $1.7 million which is subject to an annual

limitation under Internal Revenue Code Section 382.

federal net operating losses of $10.9 million of which $1.7 million begins to expire in fiscal

year 2027 through fiscal year 2031.

federal net operating losses of $10.9 million includes $1.7 million which is subject to

an annual limitation under Internal Revenue Code Section 382.

The remaining U.S.

federal net operating losses of $3.4 million have an indefinite

carry-forward period.

federal net operating losses of $9.2 million have an

indefinite carry-forward period.

federal capital loss carry-forward of $0.7 million expires in fiscal years 2028.

credits of $0.7 million begin to expire in fiscal year 2038 through fiscal year 2045.

The Company also has state net operating loss carryforwards,

and state tax credits that expire in various years and amounts.

July 4, 2025, President Trump signed H.R.

1, the “One Big Beautiful Bill Act”, into law.

In accordance with U.S.

the Company will account for the tax effects of changes in tax law in the period of enactment which is Q1 of fiscal year 2026.

is currently in the process of analyzing the tax impacts of the law change, but we do not expect a material impact on our financial statements.

R&D credits of $0.8 million begin to expire in fiscal year 2038 through fiscal year 2046.

The Company also has state net operating

loss carryforwards, and state tax credits that expire in various years and amounts.

AND CAPITAL RESOURCES

cash used in operations was $1.4 million in fiscal year 2025 compared to net cash provided by operations of $8.7 million in fiscal year

cash provided by operations was $1.3 million in fiscal year 2026 compared to net cash used in operations of $1.4 million in fiscal year

The Company’s balance sheet continues to reflect a highly liquid position with working capital of $27.0 million at April

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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 April 30,

fiscal years 2025 and 2024, the Company incurred $5.9 million and $4.4 million, respectively, in non-cash charges to earnings, including

adjustments relating to net assets and liabilities for operating leases, 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, cash provided by operations was mainly due to increases in net income,

mainly in the U.S.

Government/DOD 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.

The Company’s current ratio was 2.3 to 1 at both April 30, 2026 and at April 30, 2025.

During fiscal years 2026 and

2025, the Company incurred $9.3 million and $3.9 million, respectively, in non-cash charges to earnings, including adjustments relating

to amortization of ROU 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 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.

fiscal year 2025, cash used in operations was mainly due to increases in net income, mainly in the U.S.

Government/DOW Satellite market,

and deferred tax assets primarily due to the reduction of the valuation allowance, partially offset by a decrease in contract liabilities

and contract assets.

cash used in investing activities for the fiscal year ended April 30, 2026 was $2.9 million compared to $1.8 million used in investing

activities for the fiscal year ended April 30, 2025 all relating to purchases of capital expenditures.

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.

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.

Company will continue to expend resources for R&D to develop, improve and acquire products for space applications, guidance and targeting

6 unchanged sentences

connection with such acquisitions.

fiscal year 2025, as in fiscal year 2024, the impact of inflation on the Company’s business was an increases in costs for materials

and services.

The Company believes this may continue to impact expenses in fiscal year 2026 and future years.

During fiscal year 2026, as in fiscal year 2025, the impact of inflation

on the Company’s business was an increase in costs for materials and services.

The Company believes inflation may continue to impact

expenses in fiscal year 2027 and future years.

of April 30, 2026, the Company had retained earnings of $2.8 million.

The Company believes that its cash, as of April 30, 2025, and cash

flows from operations 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

The Company believes that its cash, as of April 30, 2026, cash

flows from operations, 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).

June 12, 2026, the Company entered into a senior, secured revolving credit facility with JPMorgan Chase Bank, N.A., as the lender (the

“Credit Agreement”).

The Credit Agreement provides for a three-year revolving credit facility of $10.0 million, of which

up to $5.0 million is available for the issuance of letters of credit.

The Credit Agreement provides that the Company may, at its option,

increase the aggregate amount of the revolving credit facility in an amount up to $10.0 million, subject to certain customary conditions

and on the terms set forth in the Credit Agreement.

There can be no assurance that additional funding will become available.

under the revolving credit facility are subject to a commitment fee of 0.35% per annum on the daily amount of the undrawn portion of

the revolving credit facility.

The Company’s obligations under the Credit Agreement are guaranteed by FEI-Zyfer, Inc., a wholly-owned

subsidiary of the Company.

The revolving credit facility matures on June 12, 2029.

For more information regarding the Credit Agreement,

see Note 7 to the Consolidated Financial Statements.

ACCOUNTING PRONOUNCEMENTS

November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands on the required disclosure of incremental

segment information.

The new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal

years beginning after December 15, 2024, with early adoption permitted.

We adopted the new standard effective April 30, 2025.

we have enhanced our segment disclosures to include the presentation of cost of revenues by segment and the disclosure of our Chief Operating

Decision Maker (“CODM”).

The adoption of this ASU has no material effect on the consolidated financial statements and only

affects our disclosure.

December 2023, the FASB issued ASU No.

December 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” (“ASU 2023-09”).

which requires companies to annually disclose categories in the effective tax rate reconciliation and additional information about income

The new guidance is effective for annual periods beginning after December 15, 2024, and interim periods within fiscal years

beginning after December 15, 2024, with early adoption permitted.

The Company is in the process of evaluating the impact that the adoption

2023-09 will have to the financial statements and related disclosures.

ASU 2023-09 is intended to enhance the transparency and decision

usefulness of income tax disclosures.

The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily

through changes to the rate reconciliation and income taxes paid information.

Early adoption is permitted.

A public entity can apply

the amendments in ASU 2023-09 prospectively or retrospectively to all annual periods beginning after December 15, 2024.

was adopted by the Company prospectively for the year ended April 30, 2026, and the Company, accordingly, made the required changes in

its income tax related disclosure (Refer to “Note 12.

Income Taxes”).

The adoption of ASU 2023-09 did not have any material

impact on the Company’s audited consolidated financial statements.

November 2024, the FASB issued ASU No.

2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation

Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

This ASU requires entities to disclose certain 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 relevant expense captions that are not separately disaggregated quantitatively.

The amendments are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after

December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact this standard will have on the consolidated

financial statements.

December 2025, the FASB issued ASU No.

2025-11, Interim Reporting (Topic 270):

Narrow Scope Improvements, an amendment of the FASB Accounting

Standards Codification.

The amendments in this ASU primarily provide clarification on interim reporting requirements and enhanced disclosure

requirements.

The amendments also include a disclosure principle to disclose all events since the end of the last annual reporting period

that have a material impact on the Company.

The ASU is effective for fiscal years beginning after December 15, 2027, and all interim

reporting periods within applicable annual periods, with early adoption permitted.

The Company is currently evaluating the effect that

this standard will have on its consolidated financial statements and related disclosures.

financial information reported herein is not necessarily indicative of future operating results or of the future financial condition

of the Company.

Company has an investment in Morion, a privately-held Russian company, which manufactures high precision quartz resonators and crystal

The Company has also licensed certain technology to Morion.

Company’s investment consists of 4.6% of Morion’s outstanding shares, accordingly, the Company accounts for its investment

in Morion on a cost basis.

During the fiscal year ended April 30, 2025, the Company acquired no product from Morion.

During the fiscal

year ended April 30, 2024, the Company acquired product from Morion in the aggregate amount of approximately $89,000.

During the fiscal

years ended April 30, 2025 and 2024, the Company sold no product and no training services to Morion, and the Company received no dividends

to the Russia-Ukraine conflict and resulting sanctions, the future status of FEI’s equity investment in Morion is uncertain.

response to these conditions, in connection with the preparation of the audited financial statements included in the 2022 Form 10-K,

the Company impaired its investment in Morion in full.

purchases of materials from Morion consisted mainly of quartz crystal blanks, which were used in the fabrication of quartz resonators.

However, on October 30, 2024, the U.S.

Department of Treasury’s Office of Foreign Assets Control designated Morion as a Specially

Designated National, resulting in the blocking of all Morion property and property interests.

As a result, the Company has terminated

all commercial relationships with Morion, including the licensing of technology to Morion and the purchase of any products from Morion.

The Company has established alternate sources of supply with respect to items previously acquired from Morion.

The Company is also capable

of fabricating the crystal blanks in-house.

is a less than wholly-owned subsidiary of Gazprombank, a state-owned Russian bank.

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

On July 16, 2014, after the Company’s investment in Morion, Gazprombank was designated as an SSI.

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

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 the Office of Foreign Assets

Control (“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.

Quantitative and Qualitative Disclosure about Market Risk

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

What changed 10-K

Item 7. Management’s Discussion and Analysis