Quarterly Report for Quarter Ending July 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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

The statements in this Quarterly Report on Form 10-Q ("Form 10-Q") regarding future earnings and operations and other statements relating to the future constitute "forward-looking" statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences 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 Company's senior, secured revolving credit facility with JPMorgan Chase Bank, N.A., as the lender, volatility in the Company's stock price, including due to the relatively low trading volume of its common stock, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive. Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2026 (the "Form 10-K") include additional factors that could materially and adversely impact the Company's business, financial condition and results of operations. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company's business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Form 10-Q and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies and Estimates

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

Revenue Recognition

Revenues for most contracts are reported in operating results over time using the cost-to-cost method. Under this method, revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs with related cost of revenues recorded as the costs are

incurred. Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information regarding labor, outside services, materials, overhead costs and status of the contract. The effect of any change in the estimated gross margin rate for a contract is reflected in revenues in the period in which the change is known. Provisions for the full amount of anticipated losses on contracts are made in the period in which they become determinable.

Significant judgment is used in evaluating the financial information for certain contracts to determine an appropriate budget and estimated cost. The Company evaluates this information continuously and bases its judgments on historical experience, design specifications, and expected costs for material and labor.

Income Taxes

We are subject to income taxes in the U.S., and significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets that are not more likely than not to be realized. We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. In completing our assessment of realizability of our deferred tax assets, we consider our history of income (loss) measured at pre-tax income (loss) adjusted for permanent book-tax differences on a jurisdictional basis, volatility in actual earnings, excess tax benefits related to stock-based compensation in recent prior years and impacts of the timing of reversal of existing temporary differences. We also rely on our assessment of the Company's projected future results of business operations, including uncertainty in future operating results relative to historical results, volatility in the market price of our common stock and its performance over time, variable macroeconomic conditions impacting our ability to forecast future taxable income, and changes in business that may affect the existence and magnitude of future taxable income. Our valuation allowance assessment is based on our best estimate of future results considering all available information.

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Our provision for or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

RESULTS OF OPERATIONS

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

		Three Months ended July 31,
		2026				2025
Revenues
FEI-NY			75.0	%			75.0	%
FEI-Zyfer			29.7				26.9
Less intersegment revenues			(4.7	)			(1.9	)
			100.0				100.0
Cost of revenues			54.2				63.2
Gross margin			45.8				36.8
Selling, general and administrative expenses			17.5				26.0
Research and development expenses			6.1				8.2
Operating income			22.2				2.6
Other income, net			0.2				1.4
Provision (benefit) for income taxes			4.4				(0.6	)
Net income			18.0	%			4.6	%

Revenues

		Three months ended July 31,
		(in thousands)
Segment		2026				2025				Change
FEI-NY		$	17,594			$	10,354			$	7,240				69.9	%
FEI-Zyfer			6,957				3,718				3,239				87.1
Intersegment revenues			(1,100	)			(260	)			(840	)			323.1
		$	23,451			$	13,812			$	9,639				69.8	%

For the three months ended July 31, 2026, revenues from commercial and U.S. Government communication satellite programs accounted for approximately 50% of consolidated revenues compared to approximately 47% of consolidated revenues during this same period in the prior fiscal year. Revenues are recognized primarily over time under the Percentage of Completion method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/Department of War ("DOW") customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 47% of consolidated revenues for the three months ended July 31, 2026 compared to approximately 50% of consolidated revenue during the same period in the prior fiscal year. Other commercial and industrial revenues for the three months ended July 31, 2026 and 2025, accounted for approximately 3% of consolidated revenue in both periods.

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Revenue for the three months ended July 31, 2026, increased by over 69%, or $9.6 million, as compared to the same quarter of the prior fiscal year. This increase was due to significantly higher revenue in both segments. Revenue from commercial and U.S. Government communication satellite programs increased over 80%, or 5.2 million, and revenues from non-space U.S. Government/DOW customers increased over 61%, or $4.2 million, over the same period in the prior fiscal year.

Gross Margin

		Three Months ended July 31,
		(in thousands)
		2026				2025				Change
		$	10,750			$	5,082			$	5,668				111.5	%
GM Rate			45.8	%			36.8	%

For the three months ended July 31, 2026, both gross margin ("GM") and GM Rate increased compared to the same period in the prior fiscal year. The increase in GM was attributable to the $9.6 million increase in revenue compared to the same period in the prior fiscal year. The 9% improvement in GM Rate was attributable in part to product mix with the majority of programs running at targeted margins, and partially due to efficiencies recognized as programs mature.

Selling, General, and Administrative Expenses

Three Months ended July 31,
(in thousands)
2026				2025				Change
$	4,105			$	3,585			$	520				14.5	%

For the three months ended July 31, 2026 and 2025, selling, general, and administrative ("SG&A") expenses were approximately 18% and 26%, respectively, of consolidated revenues. While SG&A expenses as a percentage of consolidated revenues decreased approximately 8% versus the prior year period, the actual expenditures increased by $0.5 million. The increase in SG&A expenses during the three months ended July 31, 2026 related mostly to compensation expenses. See Note B to the Condensed Consolidated Financial Statements in this Form 10-Q. SG&A as a percentage of revenue decreased 8% versus the same period of the prior year demonstrating positive operating leverage as a result of strategic headcount additions and process optimizations implemented over the prior year.

Research and Development Expenses

Three Months ended July 31,
(in thousands)
2026				2025				Change
$	1,445			$	1,133			$	312				27.5	%

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

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Operating Income

Three Months ended July 31,
(in thousands)
2026				2025				Change
$	5,200			$	364			$	4,836				1,328.6	%

For the three months ended July 31, 2026, operating income increased significantly compared to the prior fiscal year period due to higher revenue, gross margin and operational efficiencies as described above.

Other Income (Expense), net

		Three Months ended July 31,
		(in thousands)
		2026				2025				Change
Investment income, net		$	61			$	218			$	(157	)			(72.0	)%
Interest expense			(19	)			(23	)			4				(17.4	)%
Other expense, net			-				(2	)			2				(100.0	)%
		$	42			$	193			$	(151	)			(78.2	)%

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

Provision (benefit) for Income Tax

Three Months ended July 31,
(in thousands)
2026				2025				Change
$	1,026			$	(77	)		$	1,103				(1,432.5	)%

		Three Months ended July 31,
Effective tax rate on pre-tax book income:		2026				2025
			19.6	%			-13.9	%

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

The estimated annual effective tax rate for the fiscal year ending April 30, 2027 is 24.90%. This calculation reflects an estimated income tax expense based on our current fiscal year annual pretax income forecast which includes non-deductible expenses, estimated R&D credits, and state income taxes. The estimate of the annual effective tax rate is based on evaluations of possible future events and may be subject to revision in future reporting periods.

For the three months ending July 31, 2026, the Company recorded an income tax provision of $1 million which includes a discrete income tax benefit of $0.3 million. The discrete income tax benefit was primarily due to stock compensation windfall deductions. The calculation of the overall income tax provision consists of current U.S. federal and state income taxes offset by a discrete tax benefit. For the three months ended July 31, 2025, the Company recorded an income tax benefit of $0.8 million which included a discrete income tax benefit of $0.2 million.

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

LIQUIDITY AND CAPITAL RESOURCES

The Company's consolidated balance sheets continue to reflect a strong working capital position of approximately $90.2 million at July 31, 2026 and approximately $27.0 million at April 30, 2026. Included in working capital at July 31, 2026 and April 30, 2026 was $61.4 million and $1.6 million, respectively, of cash and cash equivalents. The Company's current ratio was 5.3 to 1 at July 31, 2026 compared to 2.3 to 1 as of April 30, 2026.

Net cash provided by operating activities for the three months ended July 31, 2026 and 2025 was approximately $2.6 million and $1.2 million, respectively. The increase in net cash provided by operating activities in the first three months of fiscal 2027 as compared to the prior fiscal year period was primarily due to timing of billings and cash collections and an increase in net income. For the three months ended July 31, 2026 and 2025, the Company incurred approximately $2.5 million and $1.8 million, respectively, of non-cash charges to earnings including amortization of ROU assets, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.

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

Net cash provided by financing activities for the three months ended July 31, 2026 was $58.1 million, all related to the Company's public offering of its common stock in July 2026. On July 30, 2026, the Company completed a public offering (the "Offering") of 1,739,131 shares of its common stock. The Company offered and sold 1,086,957 shares of common stock, and certain selling stockholders offered and sold a total of 652,174 shares of common stock. The shares were sold to investors at $57.50 per share. The gross proceeds to the Company from the Offering, before deducting the underwriting discounts and commissions and offering expenses, were approximately $62.5 million. Net of underwriting discounts and commissions of approximately $3.8 million and offering expenses of approximately $0.6 million, the total proceeds received were approximately $58.1 million. The Company did not receive any proceeds from the sale of the shares by the selling stockholders. The Company intends to use the proceeds for general corporate purposes and investments in the Company's future growth. Net cash used in financing activities for the three months ended July 31, 2025 was $0.6 million, all related to purchase of treasury stock.

In addition, the Company granted the underwriters to the Offering an option, exercisable for 30 days, to purchase up to 260,869 shares of common stock from the Company on the same terms (the "Option Shares"). On August 3, 2026, the underwriters exercised their option in full and on August 5, 2026, purchased the Option Shares from the Company. The gross proceeds to the Company from the sale of the Option Shares, before deducting the underwriting discounts and commissions and offering expenses, were approximately $15 million.

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

During the three months ended July 31, 2026, the Company did not acquire any shares of the Company's common stock. As of July 31, 2026, the Company had repurchased approximately $1.0 million of its common stock out of the $20.0 million authorized under the current share repurchase authorization. During the three months ended July 31, 2025, the Company repurchased 21,910 shares of the Company's outstanding common stock at a weighted average share price of $26.60 per share.

The Company will continue to expend resources for R&D to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems that management believes will result in future growth and profitability. The Company anticipates securing additional customer funding for a portion of its R&D activities and will allocate internal funds depending on market conditions and identification of new opportunities. The Company expects internally generated cash will be adequate to fund these R&D efforts. The Company may also pursue acquisitions to expand its range of products and may use internally generated cash and external funding in connection with such acquisitions.

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

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 $10.0 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. 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, 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 in the Form 10-K.

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

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