NASDAQ: FEIM

CORPORATE
STRUCTURE AND RESTRUCTURING

On April 30, 2026, FEI-Elcom
Tech, Inc. (“FEI-Elcom”) a wholly-owned subsidiary of the Company, was converted into a Delaware limited liability company.
The ongoing business operations of FEI-Elcom will continue under the FEI-NY segment. This restructuring was a transaction between entities
under common control and did not result in a change in the consolidated financial statements of the Company. For more information regarding
the Company’s restructuring, see Note 1 to the Consolidated Financial Statements.

MARKETS

The
Company’s principal end markets are time and frequency generation and distribution systems for use in satellite payloads and terrestrial
secure command control and communications systems.

For
the satellite market, the Company has a unique legacy of providing master timing systems, power converters, and frequency generation,
synthesis and distribution systems. These products are applicable for both commercial and U.S. Government end-use. Currently, it is estimated
that there are over 14,000 U.S. satellites with varying remaining useful lives operating in Geostationary, Medium and Low Earth Orbits
(“LEO”). The number of operational satellites with emphasis on high-throughput is expected to continue to grow over the next
ten years as demand for higher bandwidths and improved anti-jam-anti-spoofing increases. Furthermore, the U.S. Government is expected
to contract options for additional GPS III satellites, and the Company believes it is well positioned to compete for the onboard clock
ensemble with its high-precision digital Rubidium atomic frequency standard.

For
the terrestrial secure command control and communications systems market, the Company’s products support multiple C4ISR and EW
applications for the U.S. Government on land, sea and air-borne platforms. Recently identified threats to the communication capabilities
of U.S. Government facilities through jamming or “spoofing” global positioning systems (“GPS”) signals may be
mitigated by the Company’s technologies. In addition, similar types of threats to the public and enterprise networks have been
identified by the U.S. Department of Homeland Security. The Company’s high precision, ruggedized clocks combined with specialized
software are essential for certain secure communication systems.

To
address these markets, the Company has several corporate entities that operate under two reportable segments primarily based on the geographic
locations of its subsidiaries. The two reportable segments are (1) FEI-NY, which includes the subsidiaries FEI Government Systems, Inc.
and FEI Communications, Inc., and, until April 30, 2026, included FEI-Elcom; and (2) FEI-Zyfer, Inc. (“FEI-Zyfer”).

Frequency
Electronics has made a strategic decision to focus on satellite payloads, C4ISR and EW market segments, because the Company believes
these business areas represent significant opportunities for revenue growth.

FEI-NY

FEI
Government Systems, Inc. and FEI Communications, Inc. design and manufacture U.S. Government and commercial satellite electronics, as
well as products for the U.S. military and commercial telecom customers. These products are designed and manufactured at the Company’s
Long Island, New York headquarters facility.

Until
April 30, 2026, FEI-Elcom designed and manufactured Radio Frequency (“RF”) microwave modules, devices and subsystems up to
60 GHz including fast switching, ultra-low phase noise synthesizers, up-down converters, receivers, tuners, ceramic resonance oscillators
and dielectric resonance oscillators.

2.
FEI-Zyfer – Precision time references for terrestrial secure communications and command and control, and frequency
products that incorporate GPS technology are manufactured by FEI-Zyfer. FEI-Zyfer’s GPS capability complements the Company’s
existing technologies and permits the combined entities to provide a broader range of embedded systems for a variety of timing functions
and anti-spoofing applications.

For
additional information about these reportable segments, see Item 1. Business – Reportable Segments and Products below.

REPORTABLE
SEGMENTS AND PRODUCTS

The Company operates under
two reportable segments, primarily aligned with the geographical locations of its subsidiaries: (1) FEI-NY and (2) FEI-Zyfer. Within each
segment the Company designs, develops, manufactures and markets precision time and frequency control products for different markets as
described below. The Company’s Chief Operating Decision Maker (“CODM”) measures segment performance based on total revenues,
cost of revenues, and profits generated by each geographic center rather than on the specific types of customers or end-users. Consequently,
the Company determined that the segments indicated above appropriately reflect the way the Company’s CODM views the business. The
FEI-NY segment, which includes the parent company, FEI, operates out of the Company’s Long Island, New York headquarters facility.
The FEI-NY segment also includes the operations of FEI-Elcom. FEI-Elcom, in addition to its own product line, provides design and technical
support for FEI’s business. 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 Note 1 to the Consolidated Financial Statements. The products manufactured by the FEI-NY segment are precision time
and frequency products, and more recently, quantum sensing products ,principally marketed to the commercial and U.S. Government satellite
markets, to other U.S. Department of War (“DOW”) customers and to wireless communications network providers. Quantum sensors
include magnetic sensors (magnetometers), and Rydberg sensors (compact receiving antennae), which utilize the same basic physics phenomena
as atomic clocks. Because FEI-NY has manufactured atomic clocks for decades, the quantum sensor market represents a new growing market
which utilizes the underlying technology behind atomic clocks, and is a natural arena for FEI to compete in. The FEI-Zyfer segment, which
operates out of California, designs and manufactures products that incorporate GPS technologies and high-precision clocks designed and
manufactured at FEI. FEI-Zyfer sells its products to both commercial and U.S. Government customers and collaborates with FEI on joint
product development activities.

During
fiscal years 2026 and 2025, approximately 72% and 76%, respectively, of the Company’s consolidated revenues were from products
sold by the FEI-NY segment. In fiscal years 2026 and 2025, sales for the FEI-Zyfer segment were 34% and 27%, respectively, of the Company’s
consolidated revenues. (The sum of annual sales percentages exceeds 100% due to intersegment sales.)

Consolidated
revenues include sales to end-users in countries located outside of the U.S., primarily in Europe and Asia. During fiscal years 2026
and 2025, foreign sales comprised 9% and 6%, respectively, of the Company’s consolidated revenues. For segment information, see
Note 13 to the Consolidated Financial Statements.

The
Company’s sales on U.S. Government programs for both space and non-space applications are generally made under fixed price or cost-plus
contracts either directly with U.S. Government agencies or indirectly through subcontracts intended for U.S. Government end-use.

For
fixed-price contracts, the price paid to the Company is not subject to adjustment by reason of costs incurred by the Company in the performance
of the contract, except for costs incurred due to contract changes ordered by the customer. These contracts are negotiated on terms under
which the Company bears the risk of cost overruns and derives the benefit from cost savings. Cost-plus contracts reimburse the Company
for the actual costs incurred in performance of the contract requirements.

As
indicated above, many of the programs and platforms for which the Company supplies products and systems are used by the U.S. Government
for maintaining secure communications world-wide, for obtaining vital intelligence and for enabling precision targeting capabilities.
The Company’s products are also used in classified projects for the U.S. Government. It is the belief of management that the future
success of the mission of the U.S. military and intelligence community is dependent on successful and timely deployment of these systems.
Thus, the Company anticipates that adequate funds will be provided by the U.S. Government to ensure that the programs are completed.
However, the Company’s experience indicates that programs and/or product sales can be delayed or canceled due to variations associated
with periodic U.S. Government appropriations cycles and shifting priorities. If the U.S. Government canceled or delayed, even temporarily,
programs and/or purchases involving Company products, the Company’s business could suffer a material adverse effect.

Negotiations
on U.S. Government contracts are sometimes based in part on Certificates of Current Costs. An inaccuracy in such certificates may entitle
the U.S. Government to an appropriate recovery. The Company’s accounts with respect to these contracts are subject to audit by
the Defense Contract Audit Agency (“DCAA”). The Company’s last full incurred cost audit was performed in 2008. Additionally,
the Company had successfully completed an accounting system audit in 2018 and 2023. The Company is required to submit, for subsequent
review, an Incurred Cost Report by October 31, for each year then ended. All such required reports have been filed with no adverse comments
to date.

Frequency
Electronics has a DCAA audited and approved accounting system, which enables the Company to enter into contracts directly with U.S. Government
agencies that require government certified accounting systems.

Government
end-use contracts are subject to termination by the purchaser for convenience or default, as well as various other Federal Acquisition
Regulations provisions. In the event of a termination for convenience, the Company is entitled to receive compensation as provided under
the specific terms of such contracts. There were two government end-use contracts terminated during the fiscal year ended April 30, 2026.

FEI-NY
Segment:

FEI-NY
provides precision time, frequency generation and synchronization products and subsystems that are found on-board satellites, in ground-based
communication systems and imbedded in mobile platforms operated by the U.S. military. FEI-NY has made a substantial investment in research
and development (“R&D”) to apply its core technologies to satellite payloads, non-space DOW programs and commercial and
industrial markets. Revenues from satellite payloads, both for commercial and U.S. Government applications, have become FEI-NY’s
largest business area while the portion of commercial network infrastructure sales has declined relatively. FEI-NY expects to continue
to generate substantial revenues from deployment of new and replacement satellites and other U.S. Government/DOW applications including
sales of ruggedized subsystems for mobile U.S. military platforms.

Satellite
Payloads

The
use of satellites launched for communications, navigation, weather forecasting, video and data transmissions and Internet access has
expanded the need to transmit increasing amounts of voice, video, and data to earth-based receivers. This requires more precise timing
and frequency control at the satellite. The Company manufactures the master timing systems (quartz, rubidium) and other significant timing
and frequency generation products for navigation, communication and intelligence collection satellites, and many of the Company’s
other space assemblies are used onboard spacecraft for command, control and power distribution. Efficient and reliable DC-DC power converters
are also manufactured for the Company’s own assemblies and as stand-alone products for space applications. The Company’s
oven-controlled quartz crystal oscillators are cost-effective precision frequency sources suited for high-end performance required in
satellite communications, airborne and terrestrial datalinks and geophysical survey positioning systems. Commercial satellite programs
that utilize the Company’s space-qualified products include Iridium NEXT Constellation, Intelsat EPIC, O3B, WAAS, MexSat, MSV,
ICO, TerreStar, EchoStar, Inmarsat and others. The Company is also pursuing core product opportunities for planned satellite constellations
that will operate in Low- or Medium-Earth Orbits.

In
the years ahead, the Company expects that the DOW will require more secure communication capabilities, more assets in space and greater
bandwidth. The Global Positioning Satellite System, the MILSTAR Satellite System and the AEHF Satellite System are examples of the programs
in which the Company has participated or plans to participate and which management believes are important to the success of the U.S.
Government’s communication, intelligence and Precision Navigation and Timing (“PNT”) needs. It is likely that the DOW
will move to adopt smaller and less expensive satellites for LEO applications, which the Company anticipates will necessitate the adaptation
of the Company’s products or development of new products to better suit this type of satellite architecture. The Company previously
manufactured the master clock for the Trident missile, the basic timing system for the Voyager I and Voyager II deep space exploratory
missions and the quartz timing system for the Space Shuttle. The Company’s product offerings for U.S. Government satellite programs
are similar in design and function to those used on commercial satellites, as described above.

U.S.
Government- Non-space

In
addition to space-based programs, the Company’s proprietary products are used in airborne and ground-based guidance,
navigation, communications, radar, sonar and electronic countermeasures and timing systems. The Company has developed and patented a
low acceleration-sensitive technology which offers an approximate 100 times improvement in performance under shock, vibration and
other environmental effects as compared to other devices. Products are built in accordance with DOW standards and are in use on many
of the U.S. Government’s important military applications. The Company anticipates that the U.S. government will provide
adequate funds to sustain these programs.

Until
April 30, 2026, FEI-Elcom addressed RF microwave modules and subsystems up to 60 GHz including fast switching, ultra-low phase noise
synthesizers, up-down converters, receivers, tuners, ceramic resonance oscillators and dielectric resonance oscillators.

FEI-Zyfer
Segment:

FEI-Zyfer
designs, develops and manufactures products that provide PNT, primarily incorporating Global Navigation Satellite System(s) technology.
FEI-Zyfer’s products make use of both “in-the-clear” civil and “crypto-secured” military signals for GPS.
FEI-Zyfer’s products are integrated into radar systems, airborne SIGINT/COMINT platforms, information networks, test equipment,
military command and control terminals, and satellite ground stations. FEI-Zyfer’s products are an important extension of FEI’s
core product line, specifically in secure PNT for Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance,
and Reconnaissance (C5ISR). Recently identified threats to the communication capabilities of U.S. Government and to the public and enterprise
networks through jamming, multi-path or “spoofing” GPS signals may be mitigated by FEI-Zyfer’s technologies and products.
High precision, ruggedized clocks combined with specialized software are essential for the security of government communication and systems.
More than 95% of FEI-Zyfer’s revenues are derived from sales where the end user is the U.S. Government.

BACKLOG

As
of April 30, 2026, the Company’s consolidated backlog amounted to approximately $111 million compared to $70 million, at the end
of the prior fiscal year. Approximately 73% of the current backlog is expected to be filled during the Company’s fiscal year ending
April 30, 2027. As of April 30, 2026, there were no amounts included in backlog under cost-plus or fixed-fee contracts that had not been
funded. The Company excludes from backlog those contracts or awards for which it has not received authorization to proceed. The Company
expects any partially funded contracts to become fully funded over time and will add the additional funding to its backlog at that time.
The backlog is subject to change for various reasons, including possible cancellation of orders, change orders, change in contract terms
and other factors beyond the Company’s control. Accordingly, the backlog is not necessarily indicative of the revenues or profits
(losses) which may be realized when the results of such contracts are reported.

CUSTOMERS
AND SUPPLIERS

The
Company’s products are sold to both commercial and governmental customers. For the 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.

During
fiscal year 2026, Lockheed Martin Corporation (“Lockheed Martin”), L3Harris Technologies, Inc. (“L3Harris”),
and The Boeing Company (“Boeing”) each accounted for more than 10% of the Company’s consolidated revenues.

During
fiscal year 2025, Northrop Grumman Company (“Northrop Grumman”) accounted for more than 10% of the Company’s consolidated
revenues.

The
loss by the Company of any one of these customers could have a material adverse effect on the Company’s business. The Company believes
its relationship with these companies is mutually satisfactory. Additionally, the Company is not aware of any prospect for the cancellation
or significant reduction of any of its commercial or existing U.S. Government contracts; however, the cancellation or significant reduction
of the Company’s commercial or existing U.S. Government contracts could have a material adverse effect on the Company’s business.

The
Company purchases a variety of electrical and other components and materials for use in the manufacture of its products. The Company
is not dependent upon any one supplier or source of supply for any of its materials and maintains alternative sources of supply for
all of its purchases. The Company has found its suppliers to be generally reliable and price-competitive; however, recent quotes for
various parts and materials reflect longer delivery schedules and price increases. Where supply chain issues have been encountered,
the Company has responded by changing the source of supply or redesigning products and replacing unavailable parts and materials
with alternates wherever possible. FEI-NY is dependent on a limited number of suppliers for space qualified parts. If these
suppliers were unable to deliver in reasonable time frames, then the prompt qualification of alternate suppliers may not be feasible
or cost effective. Consequently, the Company could experience delays in delivery of its end products or costs in excess of what was
originally quoted.

RESEARCH
AND DEVELOPMENT

The
Company’s technological leadership continues to be an essential factor as it pursues future growth in revenues and earnings. The
Company has focused its internal R&D efforts on improving the core physics and electronic performance in its time and frequency products,
conducting research to develop new time and frequency technologies and capabilities, improving product manufacturability by seeking to
reduce its production costs through product redesign and process improvements and other measures to take advantage of lower cost components.

The
Company continues to focus a significant portion of its own resources and efforts on developing hardware for satellites (commercial
and U.S. Government) and terrestrial commercial communications systems, including wireless and GPS-related systems. During fiscal
years 2026 and 2025, the Company expended $6.1 million on such R&D activity in both years. See Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations. Additionally, the Company receives customer funding for
specific R&D projects and anticipates additional funding from customers for future R&D initiatives. Although funding is
obtained from customers, the Company retains the rights to any products developed. During fiscal years 2026 and 2025, some of the
Company’s development resources were applied to the design-stage of fixed-price satellite payload sub-system programs. For
fiscal year 2027, the resources to be allocated to R&D will depend on market conditions and identification of new opportunities,
as was the case in fiscal year 2026.

PATENTS
AND LICENSES

The
Company believes that its business is generally not dependent on patent or license protection. Rather, it is primarily dependent upon
the Company’s technical competence, the quality of its products and its prompt and responsible contract performance. However, employees
working for the Company assign all rights to inventions to the Company, and the Company presently holds such patents and licenses. In
certain limited circumstances, the U.S. Government may use or permit the use by the Company’s competitors of certain patents or
licenses the government has funded. During fiscal year 2003, the Company received a broad and significant patent for proprietary quartz
oscillator technology which the Company has incorporated into its legacy designs, and which it will incorporate into future designs,
to exploit in both legacy and new applications. In 2006, the Company obtained a basic patent for its low g-sensitivity technology which
management believes will permit greatly enhanced performance of devices on moving platforms and under externally imposed shock or vibration.
The Company’s current patents run through 2026.

COMPETITION

The
Company experiences competition in all areas of its business. Many of the Company’s competitors are larger, have greater financial
resources and have larger R&D and marketing staffs. The Company has a strong history of competing successfully in this environment
due to the quality, reliability and outstanding record of performance its products have achieved. The Company competes primarily on the
basis of the accuracy, performance and reliability of its products, the ability of its products to function under severe conditions,
such as in space or in other extremely hostile environments, and the Company’s track record of prompt and responsive contract performance
and technical competence. The Company has unique and broad capabilities which include quartz and rubidium-based timing references and
specialized RF microwave technology. With respect to very high precision products, the Company encounters fewer competitors than it does
for lower precision products for which there are a significant number of suppliers.

The
Company’s principal competition for space products is the in-house capability of its major customers such as Boeing, Northrop Grumman
and Lockheed Martin, as well as a number of other firms capable of providing high-reliability microwave frequency generators. With respect
to non-space products, such as systems for precision time for terrestrial secure communication and command and control, and products
for multiple applications in the EW market, the Company competes with larger domestic companies such as Microchip Technology Incorporated
and Mercury Systems, Inc.

The
Company believes its ability to obtain raw materials, manufacture finished products, integrate them into systems and sub-systems and
interface these systems with highly sophisticated end-user applications provides a strong competitive edge.

EMPLOYEES

Due
to the specialized nature of our business, our performance depends on identifying, attracting, developing, motivating, and retaining
a highly skilled workforce in multiple areas, including engineering, science, manufacturing, information technology, cybersecurity and
business development. The Company develops its workforce using a broad-based recruiting process to select talented individuals and by
offering competitive compensation and benefits.

The
Company currently employs 242 employees (232 full-time and 10 part-time), 99% based in the U.S. No employees are represented by labor
unions. We believe our relationships with our employees are favorable as reflected in our high retention rates.

See
“Risk Factors” for further discussion regarding risks related to our workforce and employee relations.

OTHER
ASPECTS

The
Company’s business is not seasonal although it expects to experience some fluctuation in revenues during the second fiscal quarter
as a result of summer holiday periods.

INFORMATION
ABOUT OUR EXECUTIVE OFFICERS

The
executive officers hold office until the annual meeting of the Board of Directors following the annual meeting of stockholders, subject
to earlier removal by the Board of Directors.

The
names of all executive officers of the Company and all positions and offices with the Company that they presently hold are as follows:

Thomas McClelland
-
President
and Chief Executive Officer

Oleandro Mancini
-
Senior
Vice President, Business Development

Steven L. Bernstein
-
Chief
Financial Officer and Secretary and Treasurer

Thomas
McClelland, age 71, joined the Company as an engineer in 1984 and was elected Vice President, Commercial Products in March 1999. In fiscal
year 2011, Dr. McClelland’s title was modified to Vice President, Advanced Development to describe his expanded role in the Company.
In January 2020, Dr. McClelland’s title was modified to Senior Vice President and Chief Scientist. In July 2022, Dr. McClelland
was appointed the Company’s Interim President and Chief Executive Officer, in addition to his existing positions and responsibilities
with the Company, following the resignation of the Company’s former President and Chief Executive Officer. On January 17, 2023,
Dr. McClelland was appointed the Company’s President and Chief Executive Officer.

Oleandro
Mancini, age 77, joined the Company in August 2000 as Vice President, Business Development and was promoted to Senior Vice President
in 2010. Prior to joining the Company, Mr. Mancini served from 1998 to 2000 as Vice President, Sales and Marketing at Satellite Transmission
Systems, Inc. and from 1995 to 1998 as Vice President, Business Development at Cardion, Inc., a Siemens A.G. company. From 1987 to 1995,
he held the position of Vice President, Engineering at Cardion, Inc.

Steven
L. Bernstein, age 61, joined the Company in April 2010 as its Controller and was appointed to the position of Chief Financial Officer
in April 2016. In January 2019, Mr. Bernstein was also appointed as Secretary and Treasurer of the Company, in addition to his role as
Chief Financial Officer. Prior to joining the Company, Mr. Bernstein worked in the North America accounting group of Arrow Electronics,
a Fortune 500 electronics distributor.