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

The statements in this Annual Report on Form 10-K regarding future earnings and operations and other statements relating to the future constitute "forward-looking" statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, consumer spending trends, reliance on key customers, continued acceptance of the Company's products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, competitive developments, changes in manufacturing and transportation costs, the availability of capital, and the outcome of any litigation and arbitration proceedings. The factors listed above are not exhaustive. Other sections of this 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 10-K and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies and Estimates

The Company's significant accounting policies are described in Note 1 to the consolidated financial statements. The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory. Each of these areas requires the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory or the market value of its products. Changes in estimates can have a material impact on the Company's financial position and results of operations.

Revenue Recognition

Revenues under larger, long-term contracts which generally require billings based on achievement of milestones rather than delivery of product, are reported in operating results using the percentage of completion method. On fixed-price contracts, which are typical for commercial and U.S. Government satellite programs and other long-term U.S. Government projects, and which require initial design and development of the product, revenue is recognized on 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 sales 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 and status of the contract. The effect of any change in the estimated gross margin percentage for a contract is reflected in revenues in the period in which the change is known. Provisions for anticipated losses on contracts are made in the period in which they become determinable.

On production-type orders, revenue is recorded as units are delivered with the related cost of sales recognized on each shipment based upon a percentage of estimated final program costs.

Changes in job performance on long-term contracts and production-type orders may result in revisions to costs and income and are recognized in the period in which revisions are determined to be required. Provisions for anticipated losses on customer orders are made in the period in which they become determinable.

For customer orders in the Company's Gillam-FEI and FEI-Zyfer segments or smaller contracts or orders in the FEI-NY segment, sales of products and services to customers are reported in operating results based upon (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order. When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed.

Costs and Expenses

Contract costs include all direct material, direct labor costs, manufacturing overhead and other direct costs related to contract performance. Selling, general and administrative costs are charged to expense as incurred.

Inventory

In accordance with industry practice, inventoried costs contain amounts relating to contracts and programs with long production cycles, a portion of which will not be realized within one year. Inventory write downs are established for slow-moving and obsolete items and are based upon management's experience and expectations for future business. Any changes arising from revised expectations are reflected in cost of sales in the period the revision is made.

Marketable Securities

All of the Company's investments in marketable securities are Level 1 securities which trade on public markets and have current prices that are readily available. In general, investments in fixed price securities are only in the commercial paper of financially sound corporations or the bonds of U.S. Government agencies. Although the value of such investments may fluctuate significantly based on economic factors, the Company's own financial strength enables it to wait for the securities to either recover their value or to mature such that any interim unrealized gains or losses are deemed to be temporary.

RESULTS OF OPERATIONS

SIGNIFICANT MATTERS: ACQUISITION OF ELCOM AND REDUCTION IN DEFERRED TAX VALUATION ALLOWANCE

Acquisition of FEI-Elcom Tech Inc.

During the fourth quarter of fiscal year 2012, the Company completed the purchase of all remaining capital stock of Elcom Technologies, Inc. ("Elcom" or, after the acquisition, "FEI-Elcom") that it did not previously own, resulting in 100% ownership. Prior to this transaction, the Company held a minority interest in Elcom. (See Note 11 to the accompanying financial statements.) This transaction is a "step acquisition" under generally accepted accounting principles. Such an acquisition required the Company to remeasure its previously held interest in Elcom to fair value. The difference between the fair value of Elcom and the Company's carrying value of its investment resulted in the recognition of a gain of approximately $730,000. This gain partially offset previously recorded impairment charges and equity losses in Elcom incurred during fiscal year 2012 prior to the acquisition, FEI-Elcom's fiscal year 2012 fourth quarter operating loss and costs incurred by the Company in acquiring Elcom. For fiscal year 2012, these Elcom-related transactions reduced the Company's consolidated pretax income by approximately $1.2 million. The Company anticipates that FEI-Elcom Tech will make a positive contribution to fiscal year 2013 profits.

Reduction of Deferred Tax Asset Valuation Allowance

During the fourth quarters of fiscal years 2012 and 2011, the Company reduced its valuation allowance against deferred tax assets in the amount of $3.1 million and $3.6 million, respectively. This recognition was the result of a review of all available evidence as required by generally accepted accounting principles in the U.S., including the negative evidence of cumulative losses in prior years which required the recording of a substantial valuation allowance in fiscal year 2009. Management of the Company considered the profitable performance for fiscal years 2012 and 2011 as well as recent contract awards which have increased the Company's long-term backlog to a higher level. Such contracts will enable the Company to continue to generate operating profits in fiscal year 2013 and beyond. These adjustments were made in the fourth quarters of fiscal 2012 and 2011 as the Company waited until it had results for the full year to make final its determination, given the existence of a loss in recent years, that it met the accounting threshold for determination that the recovery of the deferred tax asset was more likely than not and to estimate the appropriate balance of the valuation allowance, based on all available information. The amount of the non-cash valuation allowance reductions in the fourth quarters was based on management's estimates of taxable income by reporting segment and taxing jurisdictions and the period over which the Company believes deferred tax assets will be realized.

The table below sets forth for the fiscal years ended April 30, 2012 and 2011, the percentage of consolidated net sales represented by certain items in the Company's consolidated statements of operations:

                                       2012        2011
Revenues
FEI-NY                                   70.3 %      62.3 %
Gillam-FEI                               20.1        24.7
FEI-Zyfer                                18.1        20.2
Less intersegment revenues               (8.5 )      (7.2 )
                                        100.0       100.0
Cost of Revenues                         61.3        62.5
                 Gross Margin            38.7        37.5
Selling and Administrative expenses      22.1        21.4
Research and Development expenses         6.1         9.5
               Operating Profit          10.5         6.6
Other Income (Expenses), net              0.2         0.2
Benefit for Income Taxes                  0.9         4.5
                  Net Income             11.6 %      11.3 %

Revenues

                                          Fiscal years ended April 30,
                                                 (in thousands)
                                                                  Change
                                     2012         2011          $          %
              FEI-NY               $ 44,711     $ 33,204     $ 11,507       35 %
              Gillam-FEI             12,811       13,165         (354 )     (3 )%
              FEI-Zyfer              11,494       10,737          757        7 %
              Intersegment sales     (5,421 )     (3,883 )     (1,538 )
                                   $ 63,595     $ 53,223     $ 10,372       20 %

Fiscal year 2012 compared to fiscal year 2011: The 20% increase in consolidated revenues in fiscal year 2012 over the prior year is primarily due to satellite payload revenues generated by the FEI-NY segment. For the year ended April 30, 2012, revenues from commercial and U.S. Government satellite programs accounted for approximately half of consolidated revenues compared to approximately 30% of revenues during fiscal year 2011. Revenues on these long-term contracts are recognized primarily under the percentage of completion method. Fiscal year 2012 revenues from FEI-Elcom, after the acquisition, were less than $1.0 million and are included in the FEI-NY segment's revenues. Increased network infrastructure revenues generated by the FEI-Zyfer segment were offset by declines in that business area in the Gillam-FEI segment and lower wireless infrastructure sales in the FEI-NY segment. Network infrastructure revenues were less than 20% of consolidated revenues for the year ended April 30, 2012 compared to approximately 25% for fiscal year 2011. In fiscal year 2012, revenues from the non-space U.S. Government/DOD business area, which are recorded in the FEI-NY and FEI-Zyfer segments, were approximately 20% of consolidated revenues compared to 25% for fiscal year 2011. Fiscal year 2012 revenues were lower due to completion of certain long-term programs and delays in new program awards.

Fiscal year 2011 compared to fiscal year 2010: Revenues for fiscal year 2011 increased by 8% compared to fiscal year 2010, due primarily to growth in all business areas served by the FEI-NY segment: satellite payloads for both U.S. Government and commercial applications, U.S. Government/DOD non-space products and wireless telecommunications networks. Revenue increases in the first two business areas were anticipated based on recently awarded contracts by satellite manufacturers for payload time and frequency systems and from U.S. Government contractors for low g-sensitivity products. Certain telecommunication network infrastructure OEM's unexpectedly increased their orders for components for use in wireless networks, including replacing systems destroyed by the March 2011 earthquake and tsunami in Japan. Revenues for the Gillam-FEI segment which are derived from wireline telecommunications networks and network management systems, were relatively flat year-over-year, while sales at FEI-Zyfer declined 6%. The decrease in FEI-Zyfer's sales volume reflected some of the impact from the U.S. Government budgetary issues which prevented certain DOD programs from obtaining funding, causing either program delays or cancellations.

Based on the Company's current backlog, over two-thirds of which represent satellite payload business, potential for additional new orders, as well as the Company's recent acquisition of FEI-Elcom Tech, fiscal year 2013 revenues are expected to grow. Satellite payload revenues will remain the dominant portion of the Company's business but revenues from the other major business areas, U.S. Government/DOD non-space and network infrastructure, are also expected to increase over fiscal year 2012 levels.

Gross Margin Rates

                                      Fiscal years ended April 30,
                                             (in thousands)
                                                              Change
                                 2012         2011          $         %

                               $ 24,618     $ 19,969     $ 4,649       23 %

                     GM Rate       38.7 %       37.5 %

For each of the years ended April 30, 2012 and 2011, gross margin increased both in total and as a percentage of revenues as compared to the respective prior year. The improvement is due both to increased revenues and product mix. The largest gross margin rate improvement occurred in the Company's FEI-NY segment as a higher volume of business covered more of that segment's fixed costs. The 38.7% and 37.5% gross margin rates in fiscal years 2012 and 2011 approach the Company's expected rate of 40% at current revenue levels. During fiscal year 2012, cost of sales included increases to warranty reserves and inventory write downs which aggregated approximately $1.1 million. During fiscal year 2011, cost of sales included inventory write downs of $1.4 million. These charges reduced gross margin rates by 1.8% in fiscal year 2012 and by 2.6% in fiscal year 2011. Fiscal year 2012 gross margin was also reduced by the fourth quarter acquisition of FEI-Elcom whose operating results are included in the FEI-NY segment. With the current mix of programs and orders in its backlog, the Company expects to realize gross margin rates at or near its target rate of 40%. As revenues increase in future periods, the Company expects to realize a higher gross margin as more of its fixed costs are covered.

Selling and Administrative Expenses



                                Fiscal years ended April 30,
                                       (in thousands)
                                                        Change
                           2012         2011          $         %

                         $ 14,055     $ 11,398     $ 2,657       23 %

In the fiscal years ended April 30, 2012 and 2011, selling and administrative costs were 22% and 21%, respectively, of consolidated revenues. In both years, the increase in expenses over the prior year is due primarily to increased deferred and incentive compensation expenses resulting from greater profitability. Fiscal year 2012 expenses also include selling and administrative expenses incurred by newly-acquired FEI-Elcom as well as transaction costs related to the acquisition which aggregated approximately $230,000. For the years ended April 30, 2012 and 2011, selling and administrative expenses include stock compensation expense of $359,000 and $186,000, respectively. Expenses during fiscal year 2012 also include approximately $140,000 related to a stock award to its employees in celebration of the Company's 50th anniversary. The Company expects fiscal year 2013 selling and administrative expenses to be incurred at approximately the same rate relative to revenues.

Research and Development Expenses

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 enhance competitiveness for future revenues. R&D spending for the year ended April 30, 2012 was approximately 6% of revenues compared to approximately 10% of revenues for fiscal year 2011. R&D spending in fiscal year 2012 continued to facilitate development of new satellite payload products from DC to Ka band, development and improvement of miniaturized rubidium atomic clocks, development of new GPS-based synchronization products and further enhancement of the capabilities of its line of low g-sensitivity and ruggedized rubidium oscillators. The lower rate and lower R&D expenditures in fiscal year 2012 are due primarily to the dedication of resources to customer-funded programs rather than to internal research and development programs. The cost of this customer-funded development effort appears in cost of revenues, thus reducing the level of internal research and development spending. Although funding is obtained from customers, the rights to any products developed are retained by the Company. The Company will continue to devote significant resources to develop new products, enhance existing products and implement efficient manufacturing processes. For fiscal year 2013, the Company anticipates that internal research and development spending will be less than 10% of revenues. The Company believes that internally generated cash and cash reserves are adequate to fund these development efforts.

Operating Profit

                               Fiscal years ended April 30,
                                      (in thousands)
                                                       Change
                           2012        2011          $         %

                         $  6,703     $ 3,490     $ 3,213       92 %

Higher revenues, improved gross margin rates and operating expenses in line with expectations for both fiscal years 2012 and 2011 enabled the Company to record operating profit each year that was nearly twice the operating profit recorded in the respective preceding fiscal year. On a segment basis, the operating profit of FEI-NY increased as a result of a 35% increase in revenues and improved gross margin rates. The fiscal year 2012 operating profit at Gillam-FEI was favorably impacted by an improved product mix despite lower revenues than for fiscal year 2011. FEI-Zyfer realized an operating loss due to lower gross margins partially due to increased warranty reserves as well as product mix.

On anticipated increased revenues and favorable product mix, the Company expects to continue to improve its gross margin while maintaining other operating expenses within their targeted amounts. Thus, the Company expects to report higher operating profits in fiscal year 2013.

Other Income (Expense)

                                        Fiscal years ended April 30,
                                               (in thousands)
                                                               Change
                                    2012        2011        $          %
Investment income                 $    646     $  395     $  251         64 %
Gain on investment in affiliate        730          -        730         NM
Equity loss                           (650 )      (68 )     (582 )     (856 %)
Impairment charge                     (350 )        -       (350 )       NM
Interest expense                      (121 )     (118 )       (3 )       (3 %)
Other expense, net                    (144 )     (104 )      (40 )      (38 %)
                                  $    111     $  105     $    6          6 %

Investment income includes interest and dividend income on marketable securities. Earnings on these securities may vary based on fluctuating dividends and interest rates and the timing of purchases or sales of securities. During the year ended April 30, 2012, the Company broadened its investment portfolio to include higher yielding marketable securities. The greater yield plus more income-earning investments account for the year-over-year increase in investment income. During fiscal year 2012, investment income included approximately $20,000 of gains upon the sale or redemption of marketable securities. In fiscal year 2011, the Company recorded investment losses of approximately $48,000 upon the sale or redemption of certain marketable securities in its portfolio. During fiscal year 2013, the Company anticipates that investment income will be approximately the same as that earned in fiscal year 2012.

As described above, the fiscal year 2012 step acquisition of FEI-Elcom resulted in the recognition of a gain of approximately $730,000. Equity losses of $650,000 represent the Company's share of the losses recorded by FEI-Elcom prior to the Company's fourth quarter acquisition of that company (see Significant Matters above). In addition, during the second quarter of fiscal year 2012, based on comparisons to comparable companies as well as FEI-Elcom's forecasts of future financial results, the Company recorded an impairment charge in the amount of $350,000.

In fiscal years 2012 and 2011, interest expense was incurred on borrowings under short-term credit obligations, on deferred compensation payments and capital leases for equipment. During the year ended April 30, 2012, to complete the acquisition of FEI-Elcom, the Company decided to draw on its bank line of credit rather than liquidate any of its investment in marketable securities. As a result of this borrowing, the Company anticipates that interest expense in fiscal year 2013 will be higher than that incurred in fiscal year 2012.

Other expenses for the year ended April 30, 2012, consisted primarily of amortization of certain non-operating assets which was partially offset by gains of approximately $137,000 derived from the excess of proceeds over the cash values of life insurance policies covering a former employee. The Company anticipates that in future years items in this category will not be significant to pretax earnings.

Income Tax Benefit

As described above, during the fourth quarters of fiscal years 2012 and 2011, the Company reduced its valuation allowance against deferred tax assets in the amount of $3.1 million and $3.6 million, respectively. These reductions were based on a review of all available evidence, both positive and negative, and management's assessment that it is more likely than not that it will be able to realize the tax benefits from the future deductibility of most items included in its deferred tax assets. Excluding the valuation allowance reduction, for the years ended April 30, 2012 and 2011, the Company recorded a net tax provision of $2.5 million and $1.2 million, respectively, or effective tax rates of 37% and 34%, respectively. The Company is subject to taxation in several countries. The statutory federal rates are 34% in the United States, 33% in Europe and 25% in China. The Company utilizes the availability of research and development tax credits in the United States to lower its tax rate. The actual rate incurred may be impacted by the non-deductibility of losses incurred in overseas operations. (See Note 13 to the Consolidated Financial Statements for a reconciliation of the actual tax benefit to the expected tax provision at the federal statutory rate.)

The Company's European subsidiaries have available net operating loss carryforwards of approximately $1.2 million to offset future taxable income. These loss carryforwards have no expiration date. As a result of the acquisition of FEI-Elcom, the Company has a federal net operating loss carryforward of $6.6 million which may be applied in annually limited amounts to offset future U.S.-sourced taxable income over the next 20 years. For State of California income tax purposes, the Company has a tax loss carryforward of approximately $2.3 million which expires in 20 years.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet continues to reflect a highly liquid position with working capital of $63.3 million at April 30, 2012. Included in working capital at April 30, 2012 is $22.4 million consisting of cash, cash equivalents and short-term investments. The Company's current ratio at April 30, 2012 is 4.9 to 1 compared to 9.2 to 1 at the end of the prior fiscal year.

Net cash provided by operating activities for the year ended April 30, 2012, was $2.1 million compared to $1.9 million for the prior fiscal year. During fiscal years 2012 and 2011, the Company incurred $5.8 million and $4.7 million, respectively, in non-cash charges to earnings, including depreciation and amortization expense, the equity loss on its Elcom investment net of the gain on the investment, and certain employee benefit plan expenses, including accounting for stock-based compensation. In fiscal years 2012 and 2011, such non-cash charges were partially offset by the non-cash benefit of $3.1 million and $3.6 million, respectively, resulting from the Company's reduction of a portion of the valuation allowance on its deferred tax assets. For fiscal year 2012, operating cash was reduced by increases to accounts receivable and inventory. In fiscal year 2013, the Company anticipates that it will maintain positive cash flow from operations by continuing to generate operating profits.

Net cash used in investing activities was $8.0 million for the fiscal year ended April 30, 2012, resulting from the additional investment in FEI-Elcom for $4.5 million, net of acquired cash of $763,000, net purchase of marketable securities for $2.1 million and the acquisition of capital equipment for $1.4 million. For the year ended April 30, 2011, net cash used in investing activities was $6.7 million which consisted of the net purchase of marketable securities for $4.8 million and the purchase of property, plant and equipment for $1.9 million. The Company may continue to invest cash equivalents in longer-term securities or to convert short-term investments to cash equivalents as dictated by its investment and acquisition strategies. The Company will continue to acquire more efficient equipment to automate its production process. The Company intends to spend between $2.0 million and $3.0 million on capital equipment during fiscal year 2013. Internally generated cash is expected to be adequate to acquire this property, plant and equipment. . . .