FEIM

FREQUENCY ELECTRONICS INC

NASDAQ · TECHNOLOGY · INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

67.28

+3.10 +4.83%

USD · close Oct 26

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MKT CAP $664.1MP/E —DIV YIELD —FCF YIELD -0.24%REV TTM $63.2M −9.4%NET INCOME −$903K −103.8%NET DEBT $4.4M52W 27.07 – 89.00SEC XBRL · TTM TO Invalid Date

How FEIM rewrote its risk factors

10-K ITEM 1A · FY2025 → FY2026

Text kept

67%

of sentences unchanged

Added

new sentences

Dropped

sentences removed

Length

+68

words, now 4,178

New in FY2026

Government programs, from which we derived approximately 91% and 94% of our sales in fiscal year 2026 and fiscal year 2025, respectively.
During fiscal year 2026, Lockheed Martin, L3Harris, and Boeing each accounted for more than 10% of the Company’s consolidated revenues.
Reasons for increased estimated contract costs include: design issues; changes in estimates of the nature and complexity of the work, including technical or quality issues or requests for additional work; production challenges, including those resulting from the timeliness of customer funding and the unavailability or reduced productivity of qualified labor; the availability, performance, and quality of significant subcontractors; supplier issues, including the costs, timeliness and availability of materials and components; changes in laws or regulations; actions necessary for long-term customer satisfaction; and natural disasters or other matters.
In fiscal year 2026, 95% of our sales were derived from fixed-price contracts.
This may result in reduced market share, lower revenues and adversely impact our business operations and financial conditions.
Accordingly, if we are unable to continue to compete successfully against our current or future competitors, we may experience declines in future revenues and market share, which could have a material adverse effect on our business, financial position, results of operations and/or cash flows.
Penalties and possible litigation may result from these types of problems, with potential significant impact to our business, financial position, results of operations and/or cash flows.
Our average employee tenure is approximately 11 years and the median age is approximately 53.
If we experience unanticipated attrition with respect to these employees, it will be difficult for us to replace them on a timely basis.
Health epidemics, pandemics and similar outbreaks create substantial risk to the Company.
Therefore, if an employee is infected with a communicable disease or suspected of being infected, other employees he or she has come in contact with may also be infected, with a cascading effect on the workforce.
The Company is not able to predict possible future health epidemics, pandemics, or similar outbreaks, but if they manifest, they could have significant adverse effects on our business, financial position, results of operations and/or cash flows.
Noncompliance with any of the covenants in the Company’s $10 million senior secured revolving credit facility (the “Credit Agreement”), which matures on June 12, 2029, could result in any debt outstanding thereunder becoming due, which could have a material adverse effect on its financial position, operations and liquidity.
The Credit Agreement contains customary restrictive covenants and financial covenants, including those related to total leverage and minimum fixed charge coverage, that, if violated, could restrict the Company’s operational and financial flexibility.
Failure to comply with these covenants could result in an event of default.
If any such event of default is not cured or waived, the lender could elect to declare any outstanding debt under the Credit Agreement at such time to be due and payable and could cease making further loans and institute foreclosure proceedings against the Company’s assets, all of which could have a material adverse effect on the Company’s financial position, operations and liquidity.
Violation of any of these regulations can result in significant consequences, including fines, debarments or other punitive measures by the U.S.
Ukraine-related sanctions regime has since 2014 included a list of sectoral sanctions identifications (“SSI”) pursuant to Executive Order 13662, which prohibits certain transactions, including certain extensions of credit, with an entity designated as an SSI or certain affiliates of an entity designated as an SSI.
On July 16, 2014, after the Company’s investment in Morion, Gazprombank was designated as an SSI.
As previously disclosed, in light of Morion’s relationship with Gazprombank, in 2020, the Company evaluated, with the assistance of external legal counsel, certain sales to Morion and the timing of payments by Morion to the Company in connection with those sales to determine whether payments by Morion may have inadvertently constituted extensions of credit in violation of Directive 1 under Executive Order 13662.
The Company determined that certain payments by Morion – the majority of which occurred more than five years ago – were not timely.
Following the evaluation, on May 7, 2020, the Company voluntarily disclosed its findings to OFAC.
The Company’s voluntary disclosure to OFAC related solely to delays in collection of accounts receivable that exceeded then-applicable payment windows set forth in sanctions regulations and did not relate to any other type of payment or transaction.
On February 17, 2021, the Company received a Cautionary Letter from OFAC indicating that OFAC has completed its review of the matter.
According to OFAC, the Cautionary Letter was issued instead of pursuing a civil monetary penalty or taking other enforcement action.
On October 30, 2024, OFAC designated Morion as a Specially Designated National, resulting in the blocking of all Morion property and property interests and the termination of all commercial relationships between the Company and Morion.
Although the Company’s prior voluntary disclosure to OFAC discussed above did not lead to any civil monetary penalty or other enforcement action and although the Company has terminated all commercial relationships with Morion following Morion’s designation as a Specially Designated National, the Company continues to hold a minority equity interest in Morion, and there can be no assurance that the Company’s historical or continuing relationship with Morion will not result in additional regulatory scrutiny or liability.
Any future violation of any of the requirements, governmental regulations discussed above, including OFAC sanctions, or other similar laws, regulations, terms or standards could have a material adverse effect on our financial position, results of operations and/or cash flows.
We have and may in the future become subject to investigations, claims, disputes, enforcement actions and administrative, civil or criminal litigation, arbitration or other legal proceedings across a broad array of matters, including government contracts, commercial transactions, false claims, false statements, compliance with government orders, mischarging, contract performance, fraud, procurement integrity, securities laws and requirements, products liability, warranties, hazardous materials, personal injury claims, environmental, stockholder derivative actions, acquisitions and divestitures, intellectual property, tax, corporate law and obligations, employment, export/import, anti-corruption, debt and equity, labor, health and safety, accidents, and employee benefits and plans, including plan administration, improper payments and issues related to privacy and security (cyber and physical).
The trading price of our common stock has been, and may continue to be volatile and subject to wide fluctuations in response to various factors, many of which we cannot control.
Approximately 38.5% of our outstanding common stock is held by 5 individuals or entities.

Gone since FY2025

Government programs, from which we derived approximately 94% and 98% of our sales in fiscal 2025 and fiscal 2024, respectively.
During fiscal year 2025, only Northrop Grumman accounted for more than 10% of the Company’s consolidated revenues; however, the Company has other large customers that it relies on for significant portions of its consolidated revenues.
Reasons for increased estimated contract costs include: design issues; changes in estimates of the nature and complexity of the work, including technical or quality issues or requests for additional work; production challenges, including those resulting from the timeliness of customer funding, unavailability or reduced productivity of qualified labor; the availability, performance, and quality of significant subcontractors; supplier issues, including the costs, timeliness and availability of materials and components; changes in laws or regulations; actions necessary for long-term customer satisfaction; and natural disasters or other matters.
In fiscal 2025, 96% of our sales were derived from fixed-price contracts.
This may result in reduced market share, lower revenues and impact our business operations and financial conditions.
Accordingly, if we are unable to continue to compete successfully against our current or future competitors, we may experience declines in future revenues and market share, which could have a material adverse effect on our financial position, results of operations and/or cash flows.
Penalties and possible litigation may result from these types of problems, with potential significant impact to our financial position, results of operations and/or cash flows.
Our average employee tenure is approximately 14 years and the median age is approximately 51.
If we were to experience an unanticipated attrition with respect to these employees, it will be difficult for us to replace them on a timely basis.
Health epidemics, pandemics and similar outbreaks, such as COVID-19, create substantial risk to the Company.
Therefore, if an employee is infected with a communicable disease, such as COVID-19, or suspected of being infected, other employees he or she has come in contact with may also be infected, with a cascading effect on the workforce.
The Company is not able to predict possible future pandemics, but if they manifest, they could have significant adverse effects on our business, financial position, results of operations and/or cash flows.
Violation of any of these regulations can result in significant consequences, including fines, disbarments or other punitive measures by the U.S.
Violation of any of these requirements may have a material adverse effect on our financial position, results of operations and/or cash flows.
We have and may in the future become subject to investigations, claims, disputes, enforcement actions and administrative, civil or criminal litigation, arbitration or other legal proceedings across a broad array of matters, including government contracts, commercial transactions, false claims, false statements, compliance with government orders, mischarging, contract performance, fraud, procurement integrity, securities laws and requirements, products liability, warranties, hazardous materials, personal injury claims, environmental, stockholder derivative actions, acquisitions and divestitures, intellectual property, tax, corporate law and obligations, employment, export/import, anti-corruption, debt and equity, labor, health and safety, the COVID-19 pandemic and the Company’s response to it, accidents, and employee benefits and plans, including plan administration, improper payments and issues related to privacy and security (cyber and physical).
The Company has identified a material weakness in its internal control over financial reporting for the fiscal year ended April 30, 2024.
We may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations.
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial statements.
As more fully disclosed in Part II, Item 9A “Controls and Procedures,” in the course of preparing the audited consolidated financial statements for the prior Annual Report on Form 10-K, the Company identified an error related to the calculation of the provision for losses on contracts.
We determined that we did not maintain adequate controls over to the review of the calculation of the loss provision, which the Company concluded constituted a material weakness in the Company’s internal control over financial reporting as of April 30, 2024.
Under standards established by the PCAOB, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
A material weakness in the design of monitoring controls indicates that the Company has not sufficiently developed and/or documented internal controls by which management can review and oversee the Company’s financial information to detect and correct material errors or that the personnel responsible for performing the review did not have the sufficient skill set or knowledge of the subject matter to perform a proper assessment.
To remediate the material weakness, the Company has implemented changes to its loss provision calculation and enhanced its controls over the review of the loss provision calculation to ensure appropriateness.
The Company believes that its remediation plan was sufficient to remediate the identified material weakness and strengthen its internal control over financial reporting.
As of April 30, 2025, the Company’s management believes the identified material weakness have been remediated.
As the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan.
Moreover, the Company cannot assure you that additional material weaknesses will not arise in the future.
Failure to remediate the material weakness, or the development of new material weaknesses in the Company’s internal control over financial reporting, could result in future material misstatements in its consolidated financial statements and cause the Company to fail to meet its reporting and financial obligations, which in turn could have a negative impact on the Company’s financial condition.
The trading price of our common stock may continue to be volatile.
Approximately 41.2% of our outstanding common stock is held by 5 individuals or entities.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2025 ↗, FY2026 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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