FREQUENCY ELECTRONICS INC 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Frequency Electronics, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Frequency Electronics, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of April 30, 2026 and 2025, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended April 30, 2026, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2026 and 2025, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2026, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue recognized using the percentage-of-completion cost-to-cost method As described further in note 1 to the consolidated financial statements, the Company generates a majority of its revenue from contracts with its customers where revenue is recognized over time using the percentage-of-completion cost-to-cost method. Under this method, the Company measures progress towards completion based on the ratio of costs incurred to date to total estimated costs to satisfy the Company’s performance obligation. The percentage-of-completion cost-to-cost method requires management to use significant estimates and assumptions to estimate costs associated with its contracts with customers. These costs are estimated at contract inception and are monitored and updated throughout the duration of the contract. We identified revenue recognized using the percentage-of-completion cost-to-cost method as a critical audit matter. The principal consideration for our determination that revenue recognized using the percentage-of-completion cost-to-cost method is a critical audit matter is management’s use of significant estimates and assumptions in determining the total estimated costs at completion. Auditing these estimates and assumptions required especially challenging, subjective, and complex auditor judgment. Table of Contents 20 Table of Contents Our audit procedures related to cost estimates used in recognizing revenue under the percentage-of-completion cost-to-cost method included the following, among others: ● We gained an understanding of the Company’s process to develop the estimates and assumptions used in determining the total estimated costs at completion. ● We evaluated the reasonableness of significant estimates and assumptions used by management to develop its cost estimates through reviewing key terms of the contracts, comparing margin estimates with actual margins generated by similar contracts that have been completed, evaluating costs incurred to date relative to the contracts’ remaining tasks and timeline, and inspecting analyses and documentation used to support the cost estimates, as applicable. ● We inquired with project management, engineers, and others directly involved with the execution of contracts to evaluate management’s ability to satisfy the requirements of the contract, as well as to evaluate project status and challenges which may affect the cost estimates. ● We evaluated contract activity during the period subsequent to April 30, 2026, but before the financial statements were issued, to identify changes in conditions or events that may result in significant changes to the Company’s cost estimates as of April 30, 2026. ● We evaluated the appropriateness of the timing of the incorporation of changes to cost estimates, including evaluating the timeline of key events and knowledge points that led to management’s determination that a change in estimate was necessary. ● We performed retrospective reviews when evaluating management’s estimation process by comparing actual outcomes to previous estimates. ● We recalculated revenue and gross profit recognized during the year based on the Company’s measurement of its progress towards completion. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2023. Melville, New York July 16, 2026 21 Table of Contents FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES Consolidated Balance Sheets (In thousands, except par value) April 30, April 30, 2026 2025 ASSETS: Current assets: Cash and cash equivalents $ 1,603 $ 4,720 Accounts receivable, net of allowances of $ 39 at April 30, 2026 and $ 110 at April 30, 2025 4,740 5,914 Contract assets 17,277 17,914 Inventories 22,618 23,487 Prepaid income taxes 221 - Prepaid expenses and other 1,517 1,071 Total current assets 47,976 53,106 Property, plant, and equipment, net 7,105 6,188 Deferred taxes 14,084 12,045 Goodwill 218 617 Cash surrender value of life insurance and assets held in trust 11,744 10,882 Right-of-use assets – operating leases 7,409 8,659 Restricted cash 1,331 1,365 Other assets 839 875 Total assets $ 90,706 $ 93,737 LIABILITIES AND STOCKHOLDERS’ EQUITY: Current liabilities: Accounts payable – trade $ 2,979 $ 1,359 Accrued liabilities 6,482 5,899 Loss provision accrual 103 460 Income taxes payable - 103 Operating lease liability, current portion 2,002 2,027 Contract liabilities 9,418 13,607 Total current liabilities 20,984 23,455 Deferred compensation 7,664 7,933 Operating lease liability, non-current portion 5,648 6,729 Other liabilities 7 - Total liabilities 34,303 38,117 Contingencies (Note 15) Stockholders’ equity: Preferred stock - $ 1.00 par value; authorized 600 shares, no shares issued and outstanding - - Common stock - $ 1.00 par value; authorized 20,000 shares, 9,925 shares issued and 9,869 shares outstanding at April 30, 2026; 9,717 shares issued and 9,704 shares outstanding at April 30, 2025 9,925 9,717 Additional paid-in capital 45,506 42,475 Retained earnings 2,756 3,659 Common stock reacquired and held in treasury at cost ( 56 shares at April 30, 2026 and 13 shares at April 30, 2025) ( 1,784 ) ( 231 ) Total stockholders’ equity 56,403 55,620 Total liabilities and stockholders’ equity $ 90,706 $ 93,737 The accompanying notes are an integral part of these consolidated financial statements. 22 Table of Contents FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data) Years Ended April 30, 2026 2025 Consolidated Statements of Operations Revenues $ 63,227 $ 69,811 Cost of revenues 44,831 39,714 Gross margin 18,396 30,097 Selling and administrative expenses 15,403 12,289 Research and development expenses 5,994 6,076 Operating (loss) income ( 3,001 ) 11,732 Other income (expense): Income on investments 673 519 Interest expense ( 87 ) ( 104 ) Other expense, net ( 493 ) ( 3 ) (Loss) income before benefit from income taxes ( 2,908 ) 12,144 Benefit from income taxes ( 2,005 ) ( 11,542 ) Net (loss) income $ ( 903 ) $ 23,686 Net (loss) income per common share: Basic (loss) income per share $ ( 0.09 ) $ 2.46 Diluted (loss) income per share $ ( 0.09 ) $ 2.46 Weighted average shares outstanding: Basic 9,783 9,612 Diluted 9,783 9,615 The accompanying notes are an integral part of these consolidated financial statements. 23 Table of Contents FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) Years Ended April 30, 2026 2025 Cash flows from operating activities: Net (loss) income $ ( 903 ) $ 23,686 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,888 2,055 Amortization of operating leases 2,459 1,895 (Recovery) provision for losses on accounts receivable, other assets, and warranty reserve ( 201 ) 314 Provision for inventory reserve ( 323 ) 1,248 Deferred taxes ( 2,039 ) ( 12,053 ) (Recovery) loss provision accrual ( 357 ) 56 Loss on sale of fixed and other assets 55 3 Derecognition of goodwill 399 - Inventory write off due to restructuring 3,768 - Employee benefit plans expense 1,655 1,399 Stock-based compensation expense 1,974 1,161 Changes in operating assets and liabilities: Accounts receivable 1,245 ( 1,300 ) Contract assets 772 ( 7,706 ) Inventories ( 2,577 ) ( 1,303 ) Prepaid expenses and other ( 446 ) 125 Other assets ( 825 ) ( 661 ) Accounts payable - trade 1,620 ( 989 ) Accrued liabilities 578 1,135 Contract liabilities ( 4,189 ) ( 8,032 ) Operating lease liabilities ( 2,315 ) ( 1,947 ) Prepaid income taxes ( 324 ) 140 Other liabilities ( 632 ) ( 654 ) Net cash provided by (used in) operating activities 1,282 ( 1,428 ) Cash flows from investing activities: Capital expenditures ( 2,859 ) ( 1,808 ) Net cash used in investing activities ( 2,859 ) ( 1,808 ) Cash flows from financing activities: Payment of dividend - ( 9,567 ) Purchase of treasury stock ( 1,574 ) ( 377 ) Net cash used in financing activities ( 1,574 ) ( 9,944 ) Net decrease in cash and cash equivalents and restricted cash ( 3,151 ) ( 13,180 ) Cash and cash equivalents and restricted cash at beginning of year 6,085 19,265 Cash and cash equivalents and restricted cash at end of year $ 2,934 $ 6,085 The accompanying notes are an integral part of these consolidated financial statements. 24 Table of Contents FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Continued) Years Ended April 30, 2026 2025 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 87 $ 104 Income taxes $ 351 $ 371 Non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease liabilities $ 438 $ 4,122 The accompanying notes are an integral part of these consolidated financial statements. 25 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity Years ended April 30, 2026 and 2025 (In thousands, except share data) Additional Retained earnings Treasury stock Accumulated other Common Stock paid in (accumulated (at cost) comprehensive Shares Amount capital deficit) Shares Amount Income (loss) Total Balance at April 30, 2024 9,511,560 $ 9,512 $ 50,334 $ ( 20,027 ) 741 $ ( 3 ) $ - $ 39,816 Exercise of stock options 1,819 2 ( 151 ) ( 11,917 ) 149 - Contribution of stock to 401(k) plan 70,100 70 831 - - - - 901 Stock-based compensation expense 133,520 133 1,028 - - - - 1,161 Shares withheld on employee taxes on vested equity awards - - - - 24,264 ( 377 ) - ( 377 ) Dividends - - ( 9,567 ) - - - - ( 9,567 ) Net income - - - 23,686 - - - 23,686 Balance at April 30, 2025 9,716,999 $ 9,717 $ 42,475 $ 3,659 13,088 $ ( 231 ) $ - $ 55,620 Contribution of stock to 401(k) plan 36,067 36 1,250 - - - - 1,286 Stock-based compensation expense 171,629 172 1,781 - ( 1,650 ) 21 - 1,974 Shares withheld on employee taxes on vested equity awards - - - - 44,389 ( 1,574 ) - ( 1,574 ) Net loss - - - ( 903 ) - - - ( 903 ) Balance at April 30, 2026 9,924,695 $ 9,925 $ 45,506 $ 2,756 55,827 $ ( 1,784 ) $ - $ 56,403 The accompanying notes are an integral part of these consolidated financial statements. 26 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2026 and 2025 1. Summary of Accounting Policies Organization The Company is principally engaged in the design, development and manufacture of precision time and frequency control products and components for microwave integrated circuit applications. Basis of Presentation and Principles of Consolidation : The consolidated financial statements include the accounts of Frequency Electronics, Inc. and its wholly-owned subsidiaries (the “Company” or “Registrant”). References to “FEI” are to the parent company alone and do not refer to any of its subsidiaries. See Note 13 for information regarding the Company’s business segments: (1) FEI-NY (which includes the subsidiaries FEI Government Systems, Inc., FEI Communications, Inc., and until April 30, 2026, included FEI-Elcom Tech, Inc. (“FEI-Elcom”)), and (2) FEI-Zyfer, Inc. (“FEI-Zyfer”). Effective as of April 30, 2026, FEI-Elcom converted into a Delaware limited liability company; however, the ongoing business operations of FEI-Elcom will continue under the FEI-NY segment. For more information regarding the Company’s restructuring, see “Restructuring” below. Intercompany accounts and transactions are eliminated in consolidation. Use of Estimates: These consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) and require management to make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes. Actual results could differ from these estimates. Significant estimates include, but are not limited to, accounting for revenue recognition using a cost-to-cost input model, inventory reserves, deferred compensation plans, impairment of goodwill and other long-lived assets, stock-based compensation, and income taxes including deferred income taxes. Cash Equivalents: The Company considers certificates of deposit and other highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. Such investments may at times be in excess of the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation insurance limits. No losses have been experienced on such investments. Accounts Receivable and Allowance for Credit Losses: Accounts receivable, net, consists of amounts collectible from customers recorded at the original invoiced amount. Management analyzes accounts receivable and the potential for credit losses based on customer concentrations, credit worthiness, current economic trends and changes in customer payment terms. Accounts receivable are recorded at their stated amount, less allowance for credit losses. When it is determined amounts are not recoverable, the receivable is written off against the allowance. Property, Plant and Equipment: Property, plant and equipment is recorded at cost, net of accumulated depreciation and amortization. Expenditures for betterments are capitalized; maintenance and repairs are charged to operations when incurred. When fixed assets are sold or retired, the cost and related accumulated depreciation and amortization are eliminated from the respective accounts and any gain or loss is credited or charged to operations. If events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the long-lived asset. No impairment losses have been recognized in the years ended April 30, 2026 and 2025. Depreciation and Amortization: Depreciation of property, plant and equipment is computed on the straight-line method based upon the estimated useful lives of the assets ( 40 years for buildings and 3 to 10 years for machinery, equipment, furniture, and other depreciable assets). Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the estimated useful life of the asset. 27 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Inventories: Inventories, which consist of raw materials, work-in-process and finished goods are stated at the lower of cost or net realizable value, with cost determined on the first-in, first-out method. The cost of work-in-process and finished goods generally include the cost of materials, labor, overhead and other costs that are directly related to their production. The Company reviews its inventories quarterly to determine reserves for excess or obsolete inventory based upon historical sales trends, expected production usage, and other factors. Changes to inventory are charged to cost of revenues in the period when such changes are identified. Inventories represent raw materials, work-in-process, and finished goods that relate to non-customized products sold to customers at a point in time. Inventories also represent raw materials and in-process and completed components parts that are used in multiple customer projects but have not been allocated to a specific customer project or incorporated in the creation of customized products that are sold to specific customers over a period of time. Goodwill: The Company records goodwill as the excess of purchase price over the fair value of identifiable net assets acquired. The Company performs a qualitative evaluation of events and circumstances impacting each reporting unit to determine the likelihood of goodwill impairment. Based on this evaluation, if it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise, the Company will perform a quantitative impairment test to compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss will be recognized in an amount equal to that excess. Due to the restructuring of FEI-Elcom at April 30, 2026 goodwill has been written down in full. Management has determined that goodwill was not impaired as of April 30, 2025, based on its qualitative assessment of impairment for the period. Revenue and Cost Recognition: Revenue is recognized when or as performance obligations are satisfied, which is when control over goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to receive. A performance obligation is a distinct product or service that is transferred to the customer based on the contract. The transaction price is allocated to each performance obligation and is recognized as revenue upon satisfaction of that performance obligation. The Company derives a majority of its revenue through contracts with customers that involve the sale of goods and services with specifications, frequencies and significant customization to address the requirements of a specific customer and contracts where the end user is the U.S. Government. These contracts generally include one performance obligation, which is typically a customized product or a series of distinct customized products. Control over this performance obligation transfers to the customer over time as the Company creates the customized product because such product does not have an alternative use to the Company and the contract provides the Company with an enforceable right to payment for performance completed to date. In certain cases, the customer also controls the product as it is being created by the Company. Accordingly, revenue is reported in operating results over time using the percentage-of-completion (“POC”) cost-to-cost method. Under this method, revenue is recorded based on the ratio of costs incurred over total estimated contract costs. This method provides a faithful depiction of the transfer of the customized product to the customer because the costs incurred represent the Company’s inputs towards satisfying the performance obligation. Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to complete based on current available information, project status, historical experience with similar contracts, changes to product specifications, and other factors. The estimation of total costs through completion is complicated and subject to many variables. Total cost estimates can be affected by a number of factors such as changes in the assessment of the nature and complexity of the work; design challenges including changes to design specifications; technical challenges including those related to quality control; production challenges including those resulting from the timeliness of customer funding, and the unavailability or reduced productivity of qualified labor; supplier challenges including the cost, availability, and quality of raw materials and subcontractor services; changes in laws or regulations; actions necessary for long-term customer satisfaction; and natural disasters or other matters. Changes in these cost estimates could result in the recognition of unfavorable cumulative catch-up adjustments to the Company’s operating results of the period when such changes are made. Costs to satisfy the performance obligation, which include direct materials, direct labor, manufacturing overhead and other direct costs, are expensed as incurred except when the Company determines that the total estimated costs through completion will exceed total revenue, resulting in a contract loss. Such contract loss is accrued for immediately in the period when the loss is identified. 28 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 The Company also derives its revenue through contracts or purchase orders from customers that involve the sale of goods and services that are not significantly customized and therefore, such goods and services have an alternative use to the Company because they can be resold to other customers. These contracts typically include one performance obligation, which is a non-customized product or service ordered by the customer. Control over this performance obligation transfers to the customer and revenue is recorded at a point time when passage-of-title (“POT”) occurs as reflected by either (i) shipment of the product or (ii) performance of the services, which are generally completed within a very short period. When payment is contingent upon customer acceptance, revenue is deferred until such acceptance is received. Costs directly related to the production of a non-customized product are capitalized in inventory and are generally expensed when the product is shipped to or accepted by the customer. Cost of services are expensed as incurred. Contract costs include all direct material costs, direct labor costs, manufacturing overhead and other direct costs related to contract performance. Selling, general and administrative costs are charged to expense as incurred. Practical Expedients The Company expenses sales commissions as sales and marketing expenses in the period they are incurred if the expected amortization period is one year or less. The Company expenses costs, other than sales commissions, to obtain a contract in the period for which they are incurred as these amounts would have been incurred even if the contract had not been obtained. The Company elected the practical expedient to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than as a promised service. The Company elected the practical expedient not to disclose the transaction price allocated to the remaining performance obligations because the duration of the Company’s contracts is typically one year or less in consideration of the customer’s option to terminate its contract for convenience without incurring a substantive termination penalty. Payments under long-term contracts may be received before or after revenue is recognized. The U.S. Government customer typically withholds payment of a small portion of the contract price until contract completion. Therefore, long-term contracts typically generate unbilled receivables (contract assets) but may generate advances and progress billings (contract liabilities). Long-term contracts are typically negotiated with a schedule of milestones, with criteria to be met, which are billed on completion. Long-term contract unbilled receivables and advances and progress billings are not considered a significant financing component because they are intended to protect either the customer or the Company in the event that some or all of the obligations under the contract are not completed. In addition, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. 29 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Disaggregation of Revenue Total revenue recognized over time using the POC method was approximately $ 57.7 million and $ 65.8 million of the $ 63.2 million and $ 69.8 million reported for the years ended April 30, 2026 and 2025, respectively. The amounts by segment and product line were as follows: Fiscal Year Ended April 30, 2026 (In thousands) POC Revenue POT Revenue Total Revenue FEI-NY $ 40,263 $ 5,388 $ 45,651 FEI-Zyfer 17,421 4,310 21,731 Intersegment - ( 4,155 ) ( 4,155 ) Revenue $ 57,684 $ 5,543 $ 63,227 Fiscal Year Ended April 30, 2025 (In thousands) POC Revenue POT Revenue Total Revenue FEI-NY $ 49,585 $ 3,684 $ 53,269 FEI-Zyfer 16,206 2,454 18,660 Intersegment - ( 2,118 ) ( 2,118 ) Revenue $ 65,791 $ 4,020 $ 69,811 Fiscal Years Ended April 30, (in thousands) 2026 2025 Revenues by Product Line: Satellite revenue $ 23,128 $ 40,897 Government non-space revenue 38,011 26,549 Other commercial & industrial revenue 2,088 2,365 Consolidated revenues $ 63,227 $ 69,811 30 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Research and Development: The Company engages in R&D activities to identify new applications for its core technologies, to improve existing products and to improve manufacturing processes to achieve cost reductions and manufacturing efficiencies. R&D costs include basic research, applied research, concept formulation studies, design, development, related test activities, and all associated direct labor, manufacturing overhead, direct materials and contracted services. Such costs are expensed as incurred. The Company also, from time to time, engages in customer-funded R&D activity. Any customer funds received in connection therewith would appear in revenues and the associated expenses are included in cost of revenues. Additionally, some of our programs include engineering and development efforts which are also incorporated in costs to complete the program and are recognized in revenues and costs of revenues. Income Taxes: The Company recognizes deferred tax liabilities and assets based on the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established and adjusted when necessary to increase or reduce deferred tax assets to the amount expected to be realized. The Company analyzes its tax positions under accounting standards which prescribe recognition thresholds that must be met before a tax benefit is recognized in the financial statements and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under these standards, the Company may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. Interest and penalties recognized on income taxes are recorded as income tax expense. Earnings (Loss) per Share: Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share are computed by dividing net earnings (loss) by the sum of the weighted average number of shares of common stock and the if-converted effect of unexercised stock options and stock appreciation rights (“SARs”). Diluted earnings (loss) per share excludes the if-converted effect of such items if their inclusion would be anti-dilutive. Fair Values of Financial Instruments: Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, short-term credit obligations, and cash surrender value of life insurance are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value based upon the nature of the instrument and current market conditions. Management is not aware of any factors that would significantly affect the value of these amounts. The Company also has an investment in a privately-held Russian company, Morion, Inc. (“Morion”), see Note 9 for additional information. The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels of the fair value hierarchy are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities. Level 2 Inputs to the valuation methodology include: -Inputs other than quoted prices that are observable for the asset or liability; and -Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The business account and U.S. securities are valued on a Level 1 basis. The fixed income corporate debt securities are valued on a Level 2 basis. Level 2 securities are valued at the closing prices and are consistent with quoted prices of similar assets reported in active markets. See Note 11 for additional information. 31 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Equity-based Compensation: The cost of employee services received in exchange for awards of equity instruments are based on the grant-date fair value of the award. We recognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for the award. For awards with performance conditions, we recognize the fair value of the award as compensation expense when it is probable that the performance condition will be achieved. The Company has elected an accounting policy to account for award forfeitures as they occur, with no adjustment for estimated forfeitures. Concentration of Credit Risk: Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents and trade receivables. The Company maintains cash accounts at several commercial banks at which the balances exceed FDIC limits. The Company has not experienced any losses on such amounts. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base and their dispersion across geographic areas, principally within the U.S. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral. Restructuring: During the fourth quarter of fiscal 2026, the Company approved a plan to exit its FEI-Elcom business. Effective as of April 30, 2026, FEI-Elcom, a wholly-owned subsidiary of the Company, was converted into a Delaware limited liability company and the ongoing business operations, including the net book value of the assets and liabilities at April 30, 2026, of FEI-Elcom have been transferred to the FEI-NY segment. As FEI-Elcom was already reported within the FEI-NY segment, the restructuring did not result in a change in the financial presentation of any segment information. The remaining workforce will continue as employees of FEI-NY while remaining in the New Jersey office location. As a result of the restructuring, the Company recognized approximately $ 3.8 million of inventory write offs included in cost of revenues, approximately $ 0.4 million of SG&A expense related to severance and legal costs, and approximately $ 0.4 million of other expense for derecognition of goodwill in the consolidated statement of operations. All charges noted related to restructuring have been recorded in the FEI-NY segment. The Company believes that the charges associated with this restructuring are substantially complete as of April 30, 2026 . New Accounting Pronouncements: In 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”). 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. The guidance 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. See Note 12 for additional information. The adoption of ASU 2023-09 did not have any material impact on the Company’s audited consolidated financial statements. In 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. In 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. Reclassifications: Certain amounts in prior years have been reclassified to conform to the current year presentation. 32 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 2. Earnings per Share Reconciliations of the weighted average shares outstanding for basic and diluted earnings per share for the fiscal years ended April 30, 2026 and 2025, respectively, were as follows: For the Fiscal Years Ended April 30, 2026 2025 Weighted average shares outstanding: Basic EPS Shares outstanding (weighted average) 9,783,358 9,611,914 Effect of Dilutive Securities ** 2,622 Diluted EPS Shares outstanding 9,783,358 9,614,536 ** For the fiscal year ended April 30, 2026, there were no shares to exclude from the calculation of dilutive securities. There were no shares excluded for the fiscal year ended April 30, 2025. 3. Contract Assets and Liabilities At April 30, 2026, 2025, and 2024, contract assets, contract liabilities, and accounts receivable, net consisted of the following (in thousands): April 30, 2026 April 30, 2025 April 30, 2024 Contract Assets $ 17,277 $ 17,914 $ 10,523 Contract Liabilities $ ( 9,418 ) $ ( 13,607 ) $ ( 21,639 ) Accounts receivable, net $ 4,740 $ 5,914 $ 4,614 Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to accounts receivable when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied, and therefore, revenue has not been recognized. Contract assets and liabilities arise from timing differences between the satisfaction of performance obligations which primarily occur over time as costs are incurred on the contract and billing which are dictated by the terms of the contract with the customer. Contract assets decreased $ 0.6 million in fiscal year 2026, as a result of reclassifications to accounts receivable when the right to consideration becomes unconditional, net of additional rights to consideration for work completed but not billed to customers at the reporting date. Contract liabilities decreased $ 4.2 million during fiscal year 2026, primarily due to the satisfaction of the related performance obligations, net of advance payments received where the related performance obligations have not been satisfied at the reporting date. In fiscal year 2026, we recognized $ 9.3 million of our contract liabilities at April 30, 2025, as revenue. In fiscal year 2025, we recognized $ 18.3 million of our contract liabilities at April 30, 2024, as revenue. If contract losses are anticipated, a loss provision is recorded for the full amount of such losses when they are determinable. The liability for contract losses is presented as loss provision accrual within the consolidated balance sheets. 4. Inventories Inventories at April 30, 2026 and 2025, consisted of the following (in thousands): April 30, 2026 April 30, 2025 Raw materials and component parts $ 13,026 $ 14,668 Work in progress 9,205 8,444 Finished goods 387 375 $ 22,618 $ 23,487 Inventory reserves included in inventory were $ 10.0 million and $ 10.3 million for the fiscal years ended April 30, 2026 and 2025, respectively. 33 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 5. Property, Plant and Equipment, net Property, plant and equipment, net, at April 30, 2026 and 2025, consisted of the following (in thousands): April 30, 2026 April 30, 2025 Buildings and building improvements $ 3,325 $ 2,923 Machinery, equipment and furniture 36,915 63,347 40,240 66,270 Less accumulated depreciation ( 33,135 ) ( 60,082 ) $ 7,105 $ 6,188 Depreciation and amortization expense were $ 1.9 million and $ 2.1 million for the fiscal years ended April 30, 2026 and 2025, respectively. During the second quarter of fiscal year 2026, the Company completed a comprehensive review of its fully depreciated fixed assets. As a result, the Company identified certain machinery, equipment, and computer hardware that was no longer in use or obsolete. The Company wrote off $ 28.9 million of gross fixed assets that had a net book value of zero . 6. Right-of-Use Assets and Lease Liabilities The Company’s leases primarily represent offices, warehouses, vehicles, manufacturing and R&D facilities, which expire at various times through 2030 and are operating leases. Contractual arrangements are evaluated at inception to determine if the agreement contains a lease. The leases contain renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. We include options to extend or terminate leases in the right-of-use (“ROU”) operating lease asset and liability when it is reasonably certain we will exercise these options. As of April 30, 2026, lease options were not included in the calculation of the ROU operating lease asset and liability. ROU assets and lease liabilities are recorded based on the present value of future lease payments which will factor in certain qualifying initial direct costs incurred as well as any lease incentives that may have been received. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term. The Company elected the practical expedient for short-term leases which allows leases with terms of twelve months or less to be recorded on a straight-line basis over the lease term without being recognized on the consolidated balance sheet. The Company has also elected the practical expedient to account for lease and non-lease components as a single component. The table below presents ROU assets and lease liabilities recorded on the consolidated balance sheets as follows: Classification April 30, 2026 April 30, 2025 (In thousands) Assets Right-of-use assets - operating leases Right-of-use assets leases $ 7,409 $ 8,659 Liabilities Operating lease liabilities, current portion Lease liability, current 2,002 2,027 Operating lease liabilities, non-current portion Lease liability, non-current 5,648 6,729 Total lease liabilities $ 7,650 $ 8,756 34 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Total operating lease expense was approximately $ 2.5 million, of which approximately $ 0.5 million was attributable to variable lease expenses, for fiscal year ended April 30, 2026, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the consolidated statements of operations. Total operating lease expense was approximately $ 1.9 million, of which approximately $ 0.4 million was attributable to variable lease expenses, for fiscal year ended April 30, 2025, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the consolidated statements of operations. In addition, the Company made cash payments of $ 2.3 million and $ 1.9 million for operating leases during the fiscal years ended April 30, 2026 and 2025, respectively, which are included in cash flows from operating activities in our consolidated statements of cash flows. During the year ended April 30, 2026, the Company recorded incremental ROU assets and lease liabilities of approximately $ 0.4 million arising from a new lease for FEI-NY, which commenced during the quarter ended October 31, 2025. During the year ended April 30, 2025, the Company recorded incremental ROU assets and lease liabilities of approximately $ 4.1 million arising from the third amendment to the FEI-Zyfer lease, which commenced in fiscal year 2025. There were no ROU assets or lease liabilities that were recorded for any leases that had not commenced as of April 30, 2026. The table below reconciles the undiscounted cash flows for each of the next five fiscal years and total of the remaining fiscal years to the operating lease liabilities recorded on the consolidated balance sheet as of April 30, 2026: Fiscal Year Ending April 30, (in thousands) 2027 $ 2,064 2028 2,388 2029 2,535 2030 1,658 2031 45 Thereafter - Total lease payments 8,690 Less imputed interest ( 1,040 ) Present value of future lease payments 7,650 Less current obligations under leases ( 2,002 ) Long-term lease obligations $ 5,648 As of April 30, 2026 and 2025, the weighted-average remaining lease term for all operating leases was 3.9 years and 4.5 years, respectively. The Company does not generally have access to the rate implicit in the leases, therefore, we use a discount rate based on our incremental borrowing rate, which is determined using our credit rating and information available as of the commencement date. The weighted average discount rate for operating leases as of April 30, 2026 and 2025, was 7.09 % and 6.85 %, respectively. 7. Debt Obligations As of April 30, 2026 and 2025, the Company had no debt obligations nor any borrowing capacity pursuant to a credit facility. On 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 $ 10,000,000 , of which up to $ 5,000,000 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 $ 10,000,000 , 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. Commitments 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 (the “Subsidiary Guarantor”). The revolving credit facility matures on June 12, 2029. The Company and the Subsidiary Guarantor also entered into a separate pledge and security agreement (the “Security Agreement”) with JPMorgan Chase Bank, N.A., as lender, pursuant to which the Company and the Subsidiary Guarantor each pledged all or substantially all of its assets, including equity in its domestic subsidiaries, in favor of the lender as collateral for the obligations under the Credit Agreement and the other loan documents. 35 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Loans designated by the Company at the time of borrowing as “CBFR Borrowings” that are outstanding under the Credit Agreement bear interest at a rate per annum equal to (i) the greater of (a) the Prime Rate (as defined in the Credit Agreement) in effect on such day or (b) 2.50 %; plus (ii) 2.50 %. Loans designated by the Company at the time of borrowing as “SOFR Borrowings” that are outstanding under the Credit Agreement bear interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Credit Agreement) for the interest period in effect for such borrowing plus 2.50 %. Under the terms of the Credit Agreement, accrued interest on each loan is payable in arrears on the applicable interest payment date for each loan. The loans under the Credit Agreement may be prepaid at any time without premium or penalty (other than any accrued interest or breakage costs, if applicable). The Company expects that the proceeds from the Credit Agreement will be used for general corporate purposes and to provide general working capital. The Credit Agreement contains customary affirmative and negative covenants, including limitations on mergers, consolidations and sales of assets, limitations on indebtedness, liens and sales and leasebacks, limitations on transactions with affiliates, limitations on investments, limitations on dividends and distributions and limitations on swap agreements, as well as other customary terms and provisions. In addition, the Credit Agreement contains financial covenants specifying that, as of the end of each fiscal quarter commencing with the fiscal quarter ended July 31, 2026, (i) the total leverage ratio will not exceed 2.25 to 1.00 and (ii) the fixed charge coverage ratio will not be less than 1.25 to 1.00. The Credit Agreement also contains events of default customary for such financings, the occurrence of which would permit the lenders to accelerate the amount due thereunder. Such events of default include failure to pay principal, failure to pay interest and other amounts within three days of the due date, failure to comply with a covenant beyond any applicable grace period, material misrepresentations, default beyond the applicable grace period on other material indebtedness, certain events of bankruptcy or insolvency of the Company and its subsidiaries, guarantor defaults, judgment defaults and change of control, among others. 8. Accrued Liabilities Accrued liabilities at April 30, 2026 and 2025, respectively, consisted of the following (in thousands): 2026 2025 Vacation and other compensation $ 1,822 $ 1,575 Incentive compensation 191 1,347 Payroll taxes 665 712 Warranty reserve 517 567 Commissions 19 24 Deferred compensation payable 634 634 Other 2,634 1,040 $ 6,482 $ 5,899 9. Investment in Morion, Inc. The Company has an investment in Morion, a privately-held Russian company, which manufactures high precision quartz resonators and crystal oscillators. The Company has also licensed certain technology to Morion. The Company’s investment consists of 4.6 % of Morion’s outstanding shares. However, due to the Russia-Ukraine conflict and resulting sanctions the future status of FEI’s investment in Morion became uncertain and accordingly, such investment was written off in fiscal year 2022. The carrying value of this investment is $ 0 as of April 30, 2026 and 2025. During the fiscal years ended April 30, 2026 and 2025, the Company did not acquire any product from Morion. During the fiscal years ended April 30, 2026 and 2025, the Company sold no product and no training devices to Morion, and the Company received no dividends from Morion. Prior 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 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. 36 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 10. Restricted Cash As of April 30, 2026 and 2025, restricted cash consisted of approximately $ 1.3 million and $ 1.4 million, respectively, related to a letter of credit required for contractual restrictions during the period of performance for one of the Company’s contracts. Restricted cash is classified as current or non-current based on the remaining performance period of the contract. A reconciliation of cash and cash equivalents and restricted cash from the consolidated balance sheets to the consolidated statements of cash flows is shown below (in thousands): April 30, 2026 April 30, 2025 Cash and cash equivalents $ 1,603 $ 4,720 Restricted cash 1,331 1,365 Total cash and cash equivalents and restricted cash $ 2,934 $ 6,085 11. Employee Benefit Plans Profit Sharing Plan: The Company provides its U.S.-based employees with a profit-sharing plan and trust under § 401(k) of the Internal Revenue Code. This plan allows all eligible employees to defer a portion of their income through voluntary contributions to the plan. In accordance with the provisions of the plan, the Company can make discretionary matching contributions in the form of cash or common stock. For the fiscal years ended April 30, 2026 and 2025, the Company contributed 36,067 and 70,100 shares of common stock, respectively. The approximate value of these shares at the date of contribution was $ 1.3 million and $ 0.9 million in fiscal years 2026 and 2025, respectively. Contributed shares are drawn from the Company’s common stock and during fiscal years 2026 and 2025, such transactions increased additional paid in capital by $ 1.3 million and $ 0.8 million, respectively. As of April 30, 2026, the plan held a total of 440,546 shares, which were allocated to the accounts of the individual participants. As of April 30, 2025, the plan held a total of 504,734 shares, which were allocated to the accounts of the individual participants. Income Incentive Pool: The Company maintains incentive bonus programs for certain employees that are based on operating profits of the individual subsidiaries to which the employees are assigned. The Company also adopted a plan for the President and Chief Executive Officer of the Company for which the formula is based on consolidated pre-tax profits, bookings, and revenue. The incentive bonus recorded for the fiscal year ended April 30, 2026 and April 30, 2025 was $ 0.2 million and $ 1.8 million, respectively. Employee Stock Plans: On August 27, 2024, the Board of Directors, subject to stockholder approval, adopted the 2025 Stock Award Plan (“2025 Plan”), which replaced the 2005 Stock Award Plan. The 2025 Plan incorporates all previous grants under the previous plan, without changes to the original terms of the grants, and adds 700,000 shares for future grants. The 2025 Plan was approved by stockholder vote at the Company’s annual meeting of stockholders held on October 8, 2024. The 2025 Plan is for key management employees, including officers and directors who are employees, certain consultants and independent members of the Board of Directors. Under the 2025 Plan equity compensation, such as nonqualified stock options, incentive stock options, stock appreciation rights (“SAR”), performance stock units (“PSU”) and restricted stock units (“RSU”), are granted at the discretion of the Compensation Committee of the Board of Directors at an exercise price not less than the fair market value of the Company’s common stock on the date of grant. Typically, options and SARs vest over a four-year period from the date of grant. The options and SARs generally expire five or ten years after the date of grant (the most recent SARs awards, beginning in fiscal year 2017, expire in five years ), at the Compensation Committee’s discretion, and are subject to certain restrictions on transferability of the shares obtained on exercise. Under the 2025 Plan, instruments granted which expire, are canceled, or are tendered in the exercise of such instruments, increase the shares available for future grants under the 2025 Plan. 37 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 As of April 30, 2025, eligible employees and directors had been granted total SARs representing approximately 2,385,000 shares of the Company’s common stock, of which no shares were outstanding and no shares were exercisable. There were no SARs granted during the fiscal year 2025. When the SARs become exercisable, the Company will settle the SARs by issuing to exercising recipients the number of shares of stock from common stock or treasury stock, if available, equal to the appreciated value of the Company’s stock between the grant date and exercise date. At the time of exercise, the quantity of shares under the SARs grant equal to the exercise value divided by the then market value of the shares will be returned to the pool of available shares for future grant under the 2025 Plan. During the fiscal year ended April 30, 2025, employees exercised 20,000 SARs and were granted 4,556 shares of the Company’s common stock. There were 15,444 shares returned to the pool of available shares. Forfeitures are recorded as they occur. There were no options or SARs granted, exercised, canceled or expired during the fiscal year ended April 30, 2026. The following table summarizes information about stock option and SARs activity for the fiscal years ended April 30, 2026 and 2025: Stock Options and Stock Appreciation Rights Weighted- Average Weighted Average Remaining Aggregate Exercise Grant Date Contractual Intrinsic Shares Price Fair Value Term Value Outstanding – April 30, 2024 86,000 $ 13.01 $ 1,118,640 0.9 years $ - Granted - - - Exercised ( 20,000 ) 12.24 ( 244,800 ) ( 127,200 ) Expired or canceled ( 66,000 ) 13.24 ( 873,840 ) Outstanding – April 30, 2025 - $ - $ - $ - Available for future grants 1,269,186 As of April 30, 2026 and 2025, respectively, there were no unrecognized compensation cost related to non-vested options and SARs under the plans. During the fiscal year ended April 30, 2026 and 2025, there were no shares that vested. There were no stock-based compensation costs, for options and SARs, included in the cost of revenues of programs on which the Company recognizes revenue under the POC method for the fiscal years ended April 30, 2026 and 2025. There was no stock-based compensation expense included in selling and administrative expenses related to options and SARs during the fiscal years ended April 30, 2026 and 2025, respectively. The Company classifies cash flows resulting from the tax benefits from tax deductions recognized upon the exercise of stock options or SARs (tax benefits) as operating cash flows. The Company did not recognize any tax benefits from the exercise of stock options and SARs for the fiscal years presented. 38 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Restricted Stock Plan and Other Issuances: The Company began issuing RSUs to eligible employees in fiscal year 2020. The fair value of these awards is equivalent to the market value of the Company’s common stock on the grant date and vests over a period of time. RSUs are not shares of the Company’s common stock and do not have any rights or privileges thereof, including voting or dividend rights. On the applicable vesting date, the holder of an RSU becomes entitled to share of the Company’s common stock. A portion of the RSUs awarded will vest annually until fiscal year 2029, the remaining represent awards that cliff vest in fiscal year 2029. During the fiscal year ended April 30, 2026, there were no shares of common stock issued to employees for milestone years of service to the Company. During the fiscal year ended April 30, 2025, the Company issued 1,550 shares of common stock to select employees for milestone years of service to the Company. These shares were issued under the 2025 Stock Award Plan, are shares of the Company’s common stock, and are fully vested at time of issuance. In fiscal year 2021 the Company elected to issue PSUs. The fair value of these awards is equivalent to the market value of the Company’s common stock on the grant date and requires an assessment of the probability that the specified performance conditions will be achieved, which is updated at each reporting date. PSUs are not shares of the Company’s common stock and do not have any rights or privileges thereof, including voting or dividend rights. On the applicable vesting date, subject to the attainment of the specified performance conditions, the holder of a PSU becomes entitled to a share of the Company’s common stock. PSUs are subject to certain restrictions and forfeiture provisions, in addition to the specified performance conditions. The PSUs awarded will vest, subject to achieving these performance conditions, annually until fiscal year 2029. Stock-based compensation costs, related to RSUs and PSUs, included in the cost of revenues of programs on which the Company recognizes revenue under the POC method were approximately $ 699,000 and $ 357,000 for the fiscal years ended April 30, 2026 and 2025, respectively. Stock-based compensation expense, for RSUs and PSUs, included in selling and administrative expenses was approximately $ 1.2 million and $ 776,000 for the fiscal years ended April 30, 2026 and 2025, respectively. Unrecognized stock compensation was $ 7.7 million and $ 4.2 million for the fiscal years ended April 30, 2026 and 2025, respectively. The grant date fair value of vested RSUs and PSUs was approximately $ 1.5 million and $ 918,000 for the fiscal years ended April 30, 2026 and 2025, respectively. The following table summarizes activity for the RSUs and PSUs awards that reduce available capacity under the 2025 Plan for the fiscal years ended April 30, 2026 and 2025: Weighted- Average Shares Grant Date Fair Value Balance – April 30, 2024 474,569 $ 6.94 Granted 187,250 13.13 Vested ( 131,970 ) 6.95 Forfeited - - Balance – April 30, 2025 529,849 $ 9.12 Granted 112,048 52.65 Vested ( 171,629 ) 8.84 Forfeited ( 34,120 ) 14.28 Balance – April 30, 2026 436,148 $ 20.01 As of April 30, 2026, performance conditions related to the majority of outstanding PSUs are anticipated to be achieved. The PSUs will continue to vest, the same as RSUs, annually over a four year period. Deferred Compensation Agreements: The Company has a series of agreements with key employees providing for the payment of benefits upon retirement or death. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, mortality rates, assumed rates of return, and turnover rates. The actuarial assumptions used to determine deferred compensation liabilities and expense are reviewed annually and modified based on current economic conditions and trends. The discount rate used to measure obligations is based on the Company’s bond rate yield curve. 39 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Under these agreements, each key employee receives specified retirement payments for the remainder of the employee’s life with a minimum payment of ten years’ benefits to either the employee or his or her beneficiaries. The agreements also provide for lump sum payments upon termination of employment without cause and reduced benefits upon early retirement. The Company pays the benefits out of its working capital but has also purchased whole life or term life insurance policies on the lives of certain of the participants to cover the optional lump sum obligations of the agreements upon the death of the participant. Deferred compensation expense charged to selling and administrative expenses during the fiscal year ended April 30, 2026 was approximately $ 374,000 . Deferred compensation expense charged to selling and administrative expenses during the fiscal year ended April 30, 2025 was approximately $ 504,000 . Life Insurance Policies and Assets Held in Trust: The whole-life insurance policies on the lives of certain participants covered by deferred compensation agreements have been placed in a trust. Upon the death of any insured participant, cash received from life insurance policies in excess of the Company’s deferred compensation obligations to the estate or beneficiaries of the deceased, are also placed in the trust. These assets belong to the Company until a change of control event, as defined in the trust agreement, should occur. At that time, the Company is required to add sufficient cash to the trust so as to match the deferred compensation liability described above. Such funds will be used to continue the deferred compensation arrangements following a change of control. The Life Insurance Policies amounted to $ 7.3 million and $ 7.0 million at April 30, 2026 and 2025, respectively. The business account and U.S. securities within the trust are valued on a Level 1 basis and amounted to $ 4.0 million and $ 3.5 million at April 30, 2026 and 2025, respectively. The fixed income corporate debt securities within the trust are valued on a Level 2 basis and amounted to $ 0.4 million at April 30, 2026 and 2025. Level 2 securities are valued at the closing prices and are consistent with quoted prices of similar assets reported in active markets. 12. Income Taxes On July 4, 2025, President Trump signed H.R.1, the One Big Beautiful Bill Act (“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) 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. For financial reporting purposes, (Loss) income before benefit for income taxes, includes the following components (in thousands): Fiscal Year Ended April 30, 2026 2025 Domestic operations $ ( 2,908 ) $ 12,144 (Loss) income before income taxes $ ( 2,908 ) $ 12,144 The benefit from income taxes consisted of the following (in thousands): Fiscal Year Ended April 30, 2026 2025 Current: Federal $ 18 $ 137 State 16 374 Current provision 34 511 Deferred: Federal ( 1,501 ) ( 9,634 ) State ( 538 ) ( 2,419 ) Deferred tax benefit ( 2,039 ) ( 12,053 ) Total benefit $ ( 2,005 ) $ ( 11,542 ) 40 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 The difference between the federal statutory rate of 21 % and the Company’s effective tax rate after the adoption of ASU 2023-09 is summarized as follows (in thousands): Fiscal Year Ended April 30, 2026 Amount % Income tax at statutory federal tax rate $ ( 611 ) 21.0 % State and local income tax, net of federal income tax effect ( 417 ) 14.4 % Changes in valuation allowances ( 19 ) 0.6 % Nontaxable or nondeductible items: Stock Based Compensation ( 1,205 ) 41.5 % Non-deductible officer’s compensation 246 ( 8.5 )% Goodwill Write-off 84 ( 2.9 )% Other nontaxable or nondeductible items ( 1 ) 0.1 % Research and Development Tax credits ( 176 ) 6.0 % Changes in unrecognized tax benefits 5 ( 0.2 )% Other 89 ( 3.0 )% Total benefit $ ( 2,005 ) 69.0 % In the fiscal year ended April 30, 2026, state and local income taxes in California comprise the majority of the state and local income taxes, net of the federal income tax effect category. The difference between the federal statutory rate of 21 % and the Company’s effective tax rate before the adoption of ASU 2023-09 is summarized as follows: Fiscal Year Ended April 30, 2025 Statutory rate $ 2,550 State and local tax 223 Valuation allowance on deferred tax assets ( 13,874 ) Nondeductible expenses 5 FDII ( 81 ) Nontaxable life insurance cash value increase ( 65 ) Stock compensation ( 153 ) Tax credits ( 319 ) Change in tax rate 173 Other items ( 1 ) Total benefit $ ( 11,542 ) 41 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 The components of deferred taxes are as follows (in thousands): Fiscal Year Ended April 30, 2026 2025 Deferred tax assets: Employee benefits $ 2,901 $ 2,810 Inventory 4,081 2,876 Accounts receivable 95 144 Tax credits 2,111 1,945 Property, plant and equipment 87 - Deferred costs 1,355 1,511 Lease liability 1,898 2,128 Capital loss carry-forward 176 194 Research & development 1,693 2,247 Net operating loss carryforwards 3,649 2,276 Other assets 305 301 Total deferred tax asset 18,351 16,432 Deferred tax liabilities: Property, plant and equipment - ( 74 ) Right of use asset ( 1,838 ) ( 2,104 ) Other liabilities ( 177 ) ( 77 ) Deferred state income tax ( 897 ) ( 779 ) Net deferred tax asset 15,439 13,398 Valuation allowance ( 1,355 ) ( 1,353 ) Net deferred tax asset $ 14,084 $ 12,045 In assessing the potential for realization of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. A valuation allowance, if needed, reduces the deferred tax assets to the amounts expected to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We assess all positive and negative evidence when determining the amount of the net deferred tax assets that are more-likely-than-not to be realized. This evidence includes, but is not limited to, prior earnings history, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. Concluding that a valuation allowance is not needed is difficult when there is significant negative evidence such as cumulative losses in recent years. As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the “Change in valuation allowances” line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance. Fiscal Year Ended April 30, 2026 Balance at the beginning of the fiscal year $ 1,353 Changed charged to income tax expense 2 Balance at the end of the fiscal year $ 1,355 The 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 amount. 42 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 As of April 30, 2026, the Company has U.S. federal net operating losses of $ 10.9 million of which $ 1.7 million begins to expire in fiscal year 2027 through fiscal year 2031. The U.S. 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 $ 9.2 million have an indefinite carry-forward period. The U.S. federal capital loss carry-forward of $ 0.7 million expires in fiscal year 2028. U.S. federal 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. A reconciliation of the beginning and ending amounts of unrecognized tax benefits, is as follows (in thousands): 2026 2025 Balance at the beginning of the fiscal year $ 144 $ 111 Additions based on positions taken in the current year 41 - Additions based on positions taken in prior years 11 45 Decreases based on positions taken in prior years - ( 12 ) Lapse in statute of limitations - - Balance at the end of the fiscal year $ 196 $ 144 The entire amount reflected in the above table at April 30, 2026, if recognized, would reduce our effective tax rate. As of April 30, 2026 and 2025, the Company did not recognize or accrue for the payment of interest or penalties. The Company is subject to taxation in the U.S. federal, and various state and local, jurisdictions. The Company is no longer subject to examination of its U.S. federal income tax returns by the Internal Revenue Service for fiscal years 2021 and prior. Net operating losses and tax attributes generated in closed years and utilized in open years are subject to adjustment by the tax authorities. Cash taxes paid were as follows (in thousands): Fiscal Year Ended April 30, 2026 Federal $ 100 State and local 251 Total $ 351 Income taxes paid (net of refunds) exceeded 5% of total income taxes paid (net of refunds) in the following jurisdictions: Fiscal Year Ended April 30, 2026 Federal $ 100 State and local California 223 Texas 20 Other 8 Total $ 351 43 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 13. Segment Information The Company operates under two reportable segments based on the geographic locations of its subsidiaries: (1) FEI-NY – operates out of New York and its operations consist principally of precision time and frequency control products used in three principal markets - communication satellites (both commercial and U.S. Government-funded); terrestrial cellular telephone or other ground-based telecommunication stations; and other components and systems for the U.S. military. The FEI-NY segment also includes the operations of the Company’s wholly-owned subsidiary, FEI-Elcom. FEI-Elcom, in addition to its own product line, provides design and technical support for the FEI-NY segment’s satellite business. Effective as of April 30, 2026, FEI-Elcom was converted into a Delaware limited liability company. The ongoing business operations of FEI-Elcom will remain within the FEI-NY reporting segment. (2) FEI-Zyfer – operates out of California and its products incorporate Global Positioning System (GPS) technologies into systems and subsystems for secure communications, both government and commercial, and other locator applications. This segment also provides sales and support for the Company’s wireline telecommunications family of products, including US5G, which are sold in the U.S. market. The Company measures segment performance based on the operating income generated by the geographic location of its subsidiaries rather than on the specific types of customers or end-users. Consequently, the Company determined that the segments indicated above most appropriately reflect the way the Company’s management views the business. The accounting policies of the two segments are the same as those described in Note 1. Our Chief Executive Officer (“CEO”) serves as our CODM who evaluates the segment performance and allocates resources to them based on operating income which is defined as income before investment income, interest expense, other expenses, and income taxes. Operating income by segment is used to monitor segment results compared to prior periods to determine areas of business process improvements, profitable market opportunities, forecasted results, and the annual plan. All acquired assets, including intangible assets, are included in the assets of both reporting segments. 44 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 The tables below present segment revenue, significant segment expenses which consist of segment cost of revenue and segment research and development costs, and segment operating (loss) income for each reportable segment and on a consolidated basis as reported in the consolidated statements of operations for the fiscal years ended April 30, 2026 and 2025 (in thousands): For the Fiscal Years Ended April 30, 2026 2025 Revenues: FEI-NY $ 45,651 $ 53,269 FEI-Zyfer 21,731 18,660 Less intersegment revenues ( 4,155 ) ( 2,118 ) Consolidated revenues $ 63,227 $ 69,811 Cost of revenues: FEI-NY $ 35,816 $ 29,331 FEI-Zyfer 12,497 12,598 Less intersegment cost of revenues ( 3,482 ) ( 2,215 ) Consolidated cost of revenues $ 44,831 $ 39,714 Research and development expenses: FEI-NY $ 3,800 $ 3,374 FEI-Zyfer 2,194 2,702 Consolidated research and development expenses $ 5,994 $ 6,076 Operating (loss) income: FEI-NY $ ( 5,442 ) $ 11,514 FEI-Zyfer 3,813 743 Less intersegment ( 673 ) 98 Corporate ( 699 ) ( 623 ) Consolidated operating (loss) income $ ( 3,001 ) $ 11,732 Other segment items included in the determination of operating (loss) income includes SG&A of $ 11.5 million and $ 9.1 million for the fiscal years ended April 30, 2026 and 2025, respectively, for the FEI-NY segment, and $ 3.2 million and $ 2.6 million for the fiscal years ended April 30, 2026 and 2025, respectively, for the FEI-Zyfer segment. 45 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 The tables below present the identifiable assets of each reportable segment and on a consolidated basis as reported in the consolidated balance sheets as of April 30, 2026 and 2025 and the depreciation and amortization charges related to these identifiable assets for the fiscal years then ended (in thousands): April 30, 2026 April 30, 2025 Identifiable assets: FEI-NY $ 40,849 $ 39,125 FEI-Zyfer 23,759 23,865 less intersegment balances ( 814 ) ( 140 ) Corporate 26,912 30,887 Consolidated identifiable assets $ 90,706 $ 93,737 For the Fiscal Years Ended April 30, 2026 2025 Depreciation and amortization: FEI-NY $ 1,799 $ 1,932 FEI-Zyfer 94 123 Corporate - - Consolidated depreciation and amortization expense $ 1,893 $ 2,055 Major Customers The Company’s products are sold to both commercial and governmental customers. For the fiscal years ended April 30, 2026 and 2025, approximately 91 % and 94 %, respectively, of the Company’s sales were made under contracts to the U.S. Government or subcontracts for U.S. Government end-use. In the fiscal year ended April 30, 2026, revenues from four customers of the FEI-NY segment, which each accounted for more than 10% of that segment’s revenues, were $ 7.0 million, $ 5.5 million, $ 5.3 million, and $ 5.1 million. In the fiscal year ended April 30, 2025, revenues from one customer of the FEI-NY segment, which accounted for more than 10% of that segment’s revenues, was $ 26.9 million. In the FEI-Zyfer segment, revenues from one customer, which accounted for more than 10% of that segment’s revenues, was $ 8.1 million in the fiscal year ended April 30, 2026. In the FEI-Zyfer segment, revenues from two customers, which each accounted for more than 10% of that segment’s revenues, were $ 2.9 million and $ 3.4 million in the fiscal year ended April 30, 2025. The loss by the Company of any one of these customers would have a material adverse effect on the Company’s business. The Company believes its relationship with these customers is mutually satisfactory. Sales to the major customers referenced above can include commercial and governmental end users. 46 Table of Contents FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued April 30, 2026 and 2025 Foreign Sales Revenues in each of the Company’s segments include sales to foreign governments or to companies located in foreign countries. For the fiscal years ended April 30, 2026 and 2025, revenues, based on the location of the procurement entity, were derived from the following locations (in thousands): For the Fiscal Years Ended April 30, 2026 2025 Domestic $ 57,745 $ 65,362 Foreign 5,482 4,449 $ 63,227 $ 69,811 During the fiscal year ended April 30, 2026, material foreign sales to one Asian country amounted to approximately $ 3.8 million. During the fiscal year ended April 30, 2025, material foreign sales to one Asian country amounted to approximately $ 3.5 million. 14. Product Warranties The Company generally provides its customers with a one-year warranty regarding the manufactured quality and functionality of its products. The Company establishes warranty reserves based on its product history, current information on repair costs and annual sales levels. As of April 30, 2026 and 2025, respectively, changes in the carrying amount of accrued product warranty costs, reported in accrued expenses on the consolidated balance sheets, were as follows (in thousands): 2026 2025 Balance at beginning of year $ 567 $ 542 Warranty costs incurred ( 438 ) ( 253 ) Product warranty accrual 388 278 Balance at end of year $ 517 $ 567 15. Contingencies In the normal course of its business, the Company may be involved in various claims, negotiations and legal actions. As of April 30, 2026, the Company was not a party to any litigation in which an unfavorable outcome or material claim is probable or in which losses associated with the litigation can be reasonably estimated. 16. Subsequent events On July 1, 2026, the Company acquired a 20 % minority interest in an LLC for $ 0.5 million. Pursuant to the transaction, the Company may be required to purchase up to an additional 25 % interest subsequent to the closing of the initial agreement. The Company is currently in the process of evaluating the accounting treatment for this transaction. 47 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.