What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-06-30 compared with 2020-07-29 · 274 added, 323 removed, 605 unchanged (50% of the section changed)

5 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Frequency Electronics, Inc.

and Subsidiaries (the “Company”) as of April 30, 2020, the related consolidated statements of operations and compressive loss, changes in stockholders’ equity, and cash flows for the year then ended and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

On May 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic 842, Leases.

The effects of the adoption are described in Note 1 to the consolidated financial statements.

We have audited the accompanying consolidated balance sheets of Frequency Electronics, Inc.

and Subsidiaries (the “Company”) as of April 30, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years then ended and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter that arose from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognized Over Time Using Percentage-of-Completion

As described in Note 1 to the consolidated financial statements, the Company generates the majority of its revenue from contracts with customers by units sold with specific specifications and frequencies that are used by a specific customer and contracts where the end user is the United States Government.

Control over these performance obligations passes to the customer over time and therefore these revenues are reported in operating results over time using the cost-to-cost method.

Under this method, the Company measures progress towards completion and records revenue based on the ratio of costs incurred to date to the estimated total costs.

We identified revenue recognized over time using the percentage-of-completion cost-to cost method as a critical audit matter.

Given the judgment necessary to make estimates regarding the revenue and total costs associated with such contracts, specifically, the estimation of costs required to complete such contracts, auditing these estimates required extensive audit effort due to the complexity of the underlying programs and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included selecting a sample of contracts for testing and performing the following procedures:

Agreeing the key terms to contract documentation and testing costs incurred to date and comparing costs incurred to date to the costs estimated to be incurred to date as of the prior year-end.

Testing the mathematical accuracy of management’s calculation of revenue recognized during the year for the performance obligation.

Testing the accuracy and reasonableness of the Company’s estimated costs to complete the selected contract by performing a retrospective review to identify changes in contract gross margin and assess the reasonableness of the explanation for such changes.

Testing the accuracy and reasonableness of the Company’s estimated costs to complete the selected contract by evaluating subsequent events activity for changes in conditions that may result in significant changes to estimated costs to complete the contracts selected for testing.

In addition, for certain contracts evaluated management’s ability to prepare and estimate the remaining costs to complete projects in process as of the balance sheet date by performing corroborating inquiries with the Company’s program and business management.

/s/ BDO USA, LLP

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Melville, New York

July 29, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Frequency Electronics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Frequency Electronics, Inc.

and Subsidiaries (the "Company") as of April 30, 2019, and the related consolidated statements of operations and comprehensive loss, cash flows, and changes in stockholders' equity for the year then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of April 30, 2019, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit includes performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ EisnerAmper LLP

We have served as the Company's auditor from 2008 through 2019.

EISNERAMPER LLP

New York, New York

July 26, 2019

June 30, 2021

FREQUENCY ELECTRONICS, INC.

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Consolidated Balance Sheets

April 30, 2020 and 2019

(In thousands, except par value)

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Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $183 in 2020 and $183 in 2019

Accounts receivable, net of allowance for doubtful accounts of $111 at April 30, 2021 and $183 at April 30, 2020

Costs and estimated earnings in excess of billings, net

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Prepaid expenses and other

Current assets held for sale

Total current assets

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Right-of-Use assets – operating leases

Non-current assets held for sale

LIABILITIES AND STOCKHOLDERS ’ EQUITY:

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Loss provision accrual

Operating lease liability

Current liabilities held for sale

Operating lease liability, current portion

Total current liabilities

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Operating lease liability – non-current

Deferred rent and other liabilities

Non-current liabilities held for sale

Other liabilities

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 16)

Stockholders’ equity:

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Common stock - $1.00 par value;

authorized 20,000 shares, 9,164 shares issued and

9,121 outstanding in 2020;

8,980 outstanding in 2019

authorized 20,000 shares, 9,226 shares issued and 9,225 shares outstanding at April 30, 2021;

9,164 shares issued and 9,121 shares outstanding at April 30, 2020

Additional paid-in capital

Accumulated deficit

Common stock reacquired and held in treasury - at cost (43 shares in 2020 and 184 shares in 2019)

Common stock reacquired and held in treasury -

at cost (1 share at April 30, 2021 and 43 shares at April 30, 2020)

Accumulated other comprehensive income

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and SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss

Years ended April 30, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share data)

Years Ended April 30,

Consolidated Statements of Operations

Cost of revenues

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Research and development expenses

Loss from operations

Operating loss

Other income (expense):

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Interest expense

Other (expense)/income, net

Loss before (benefit) provision for income taxes

(Benefit) provision for income taxes

Net loss per common share:

Basic and diluted loss per share

Weighted average number of shares outstanding:

Basic and diluted

Consolidated Statements of Comprehensive Loss

Other comprehensive income:

Foreign currency translation adjustment

Unrealized gain on marketable securities:

Change in market value of marketable securities before reclassification, net of tax of ($1) in fiscal 2019

Reclassification adjustment for realized gains included in net income, net of tax of $1 in fiscal 2019

Total unrealized gain on marketable securities, net of tax

Total other comprehensive income

Comprehensive loss

Other income (expense), net

Income (loss) before benefit from income taxes

Benefit from income taxes

Net income (loss)

Net income (loss) per common share:

Basic and diluted earnings (loss) per share

Weighted average shares outstanding:

Consolidated Statements of Comprehensive Income (Loss)

Net income (loss)

Unrealized (loss) gain on marketable securities:

Change in market value of marketable securities before

reclassification, net of tax

Reclassification adjustment for realized gains included in

net income, net of tax

Total unrealized (loss) gain on marketable securities, net of tax

Comprehensive income (loss)

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

Years ended April 30, 2020 and 2019

(In thousands)

Years Ended April 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Deferred income taxes

Depreciation and amortization

Deferred rent

Non-cash lease expense

Provision for losses on accounts receivable, inventories, other assets and warranty reserve

Loss (gain) on marketable securities

(Gain) loss on marketable securities

Loss on sale of fixed and other assets, net

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Stock-based compensation expense

Investment in Asia

Changes in operating assets and liabilities:

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Other liabilities

Cash used in operating activities – continuing operations

Cash provided by operating activities – assets held for sale

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

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Cash flows from financing activities:

Proceeds from PPP loan

Net cash provided by financing activities

(Repayment of) Proceeds from PPP loan

Net cash (used in) provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and equivalents at end of year

The accompanying notes are an integral part of these consolidated financial statements

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Consolidated Statements of Cash Flows

Years ended April 30, 2020 and 2019

(In thousands)

Net increase (decrease) in cash and cash equivalents before effect of exchange rate changes

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and equivalents at end of year

Less cash and equivalents of assets held for sale at end of year

Cash and cash equivalents of continuing operations at end of year

Years Ended April 30,

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Cash refund during the year for:

The accompanying notes are an integral part of these consolidated financial statements.

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Balance at April 30, 2019

Opening balance sheet

Adjustment for ASU 2014-09

Contributions of stock to

Contribution of stock to 401(k) plan

Stock-based compensation expense

Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price

Change in unrealized gains and losses on marketable debt securities, net of taxes

Foreign currency translation adjustment

Other comprehensive income, net of tax

Balance at April 30, 2020

Contributions of stock to

Contribution of stock to 401(k) plan

Stock-based compensation expense

Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price

Change in unrealized gains and losses on marketable debt securities, net of taxes

Other comprehensive loss, net of tax

Balance at April 30, 2021

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(“FEI-Zyfer”).

Intercompany accounts and significant intercompany transactions are eliminated in consolidation.

These financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S.

Intercompany accounts and transactions are eliminated in consolidation.

These consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S.

GAAP”) and require management to make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes.

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COVID-19 Pandemic and the CARES Act

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.

As such, it is uncertain as to the full magnitude that the pandemic may have on the Company’s financial condition, liquidity, and future results of operations.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (“COVID-19”) and the risks to the international community as the virus spread globally beyond its point of origin.

In March 2020, the WHO classified COVID-19 as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report.

As such, it is uncertain as to the full magnitude that the pandemic may ultimately have on the Company’s financial condition, liquidity, and future financial results.

For the fiscal year ended April 30, 2021, the Company had been impacted by employee absenteeism related to direct or indirect effects of the COVID pandemic, delays in the receipt of anticipated new contracts from customers administratively affected by the pandemic and limited availability or delivery delays of parts and materials from vendors affected by the pandemic.

FEI-Zyfer’s operations were particularly affected as evidenced by decreases in sales and gross margin during the fiscal year.

Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

The Company faces various risks related to COVID-19 outbreak.

The Company is dependent on its workforce to deliver its products primarily to the U.S.

Given the changing dynamics of the pandemic the Company is not able to estimate the potential adverse effects on its operations, financial condition, or liquidity for fiscal year 2022.

As of April 30, 2021, the Company has begun a return to normal operations and will continue to follow CDC and state guidelines with an emphasis on employee safety.

The Company faces various future COVID-19 related risks.

The Company is dependent on its workforce to design and manufacture its products.

If significant portions of the Company’s workforce are unable to work effectively, or if the U.S.

Government and/or other customers’ operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic, the Company’s operations will likely be impacted.

The Company may be unable to perform fully on its contracts and costs may increase as a result of the COVID-19 outbreak.

Government, state and/or other customers or supplier operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions, the Company’s operations may be impacted.

If so, the Company may be unable to perform fully on its contracts and costs may increase.

These cost increases may not be fully recoverable or adequately covered by insurance.

Additionally, since the COVID-19 outbreak began, no facilities have been fully shut down (other than temporarily for disinfecting) and such measures to disinfect facilities have not had a significant impact on production.

Certain of the Company’s vendors have been unable to deliver materials on time due to the COVID-19 outbreak.

Such delays have negatively impacted the Company’s production, and the Company plans to continue to monitor these and its other vendors and, if necessary, seek alternative suppliers.

At this time, the Company’s management cannot predict the impact of the COVID-19 pandemic, but management continues to monitor the situation, to assess further possible implications to operations, the supply chain, and customers, and to take actions in an effort to mitigate adverse consequences.

Further, the pandemic may have an adverse effect on the Company’s results of operations, financial position, and liquidity in fiscal year 2021.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

See Notes 9 and 13.

In the latter part of FY2021, the Company did experience some operational disruptions due to the need to vacate certain areas of the facilities for cleaning and disinfecting resulting from employees being potentially exposed to COVID-19 or following positive COVID-19 test results.

Also, certain Company vendors have been unable to deliver materials on time due to COVID-19 related impacts to their workforces or their supply chains.

These delays impacted the Company’s production costs and schedules.

Vendor delivery performance is being closely monitored and alternate sources of supply are generally available and, in some cases, are being established.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.” The CARES Act, among other things, included provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act also appropriated funds for the Small Business Administration (SBA) Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by the COVID-19 pandemic.

The Company received a loan under the Paycheck Protection Program (“PPP”) in April 2020, which it repaid in full in May 2020.

For more detail regarding the Company’s PPP Loan, see Notes 8 and 12 below.

FREQUENCY ELECTRONICS, INC.

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April 30, 2021 and 2020

Liquidity and Capital Resources :

The Company has incurred operating losses in its last four completed fiscal years, as well as cash used in operating activities in its last two completed fiscal years.

As of April 30, 2020, the Company had an accumulated deficit of $12.1 million.

The Company believes that its cash and cash equivalents, as well as marketable securities as of April 30, 2020 and cash flows from operations will provide sufficient liquidity to meet its operating needs in the normal course of business through the next twelve months from the date of issuance of these consolidated financial statements.

However, changing circumstances, including COVID-19 uncertainties, some of which may be beyond its control, could cause the Company to consume capital faster than it currently anticipates, and it may need to seek additional funding through equity offerings, debt financings, or other sources.

Cash Equivalents:

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Property, Plant and Equipment:

Property, plant and equipment are recorded at cost and include interest on funds borrowed to finance construction.

Property, plant and equipment is recorded at cost and include interest on funds borrowed to finance construction.

Expenditures for renewals and betterments are capitalized;

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Depreciation and Amortization:

Depreciation of fixed assets is computed on the straight-line method based upon the estimated useful lives of the assets (40 years for buildings and 3 to 10 years for other depreciable assets).

Depreciation of property, plant and equipment is computed on the straight-line method based upon the estimated useful lives of the assets (40 years for buildings and 3 to 10 years for other depreciable assets).

Leasehold improvements and equipment acquired under capital leases are amortized on the straight-line method over the shorter of the term of the lease or the useful life of the related asset.

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The transaction price is allocated to each performance obligation and is recognized as revenue upon satisfaction of that performance obligation.

The Company derives revenue from contracts with customers by units sold with specific specifications and frequencies that are used by a specific customer and contracts where the end user is the government.

The Company’s contracts typically include one performance obligation which is satisfied by shipped projects and completed services/reports required in the contract.

Control over these performance obligations passes to the customer over time and therefore these revenues are reported in operating results over time using the cost-to-cost method.

Control over these performance obligations passes to the customer over time and therefore these revenues are reported in operating results over time using the percentage-of completion (“POC”) 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.

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Provisions for the full amount of anticipated losses on contracts are made in the period in which they become determinable.

For smaller contracts or orders 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.

For smaller contracts or orders sales of products and services to customers are reported in operating results based upon passage-of-title (“POT”) (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.

The Company’s products generally carry a one-year warranty, but may vary based on the contract terms.

Some judgment is used in evaluating the financial information for certain contracts related to the adoption of this ASU to determine an appropriate budget and estimated cost.

Some 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.

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Disaggregation of Revenue

Total revenue recognized over time as POC was approximately $38.0 million and $45.3 million of the $41.5 million and $49.5 million reported for the years ended April 30, 2020 and 2019, respectively.

Total revenue recognized over time as POC method was approximately $50.2 million and $38.0 million of the $54.3 million and $41.5 million reported for the years ended April 30, 2021 and 2020, respectively.

The amounts by segment and product line were as follows:

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(in thousands)

Revenue by Product Line:

Revenues by Product Line:

Satellite Revenue

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Consolidated revenues

Comprehensive Loss:

Comprehensive loss consists of net loss and other comprehensive income/loss.

Other comprehensive income/loss includes changes in unrealized gains or losses, net of tax, on securities (for Fiscal 2020, debt securities) available for sale during the year.

Other comprehensive income/loss includes changes in foreign currency translation and unrealized gains or losses, net of tax, on securities (for Fiscal 2019, debt securities) available for sale during the year.

Comprehensive Income (Loss):

Comprehensive income (loss) consists of net income or loss and other comprehensive income/loss.

Other comprehensive income/loss includes changes in unrealized gains or losses, net of tax, on securities (for Fiscal 2021 and Fiscal 2020, debt securities) available for sale during the year.

Research and Development Expenses:

The Company engages in research and development (“R&D”) activities to identify new applications for its core technologies, to improve existing products and to improve manufacturing processes to achieve cost reductions and manufacturing efficiencies.

The Company engages in R&D activities to identify new applications for its core technologies, to improve existing products and to improve manufacturing processes to achieve cost reductions and manufacturing efficiencies.

R&D costs include direct labor, manufacturing overhead, direct materials and contracted services.

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Management is not aware of any factors that would significantly affect the value of these amounts.

The Company also has an investment in a privately-held Russian company, Morion, Inc.

The Company also has an investment in a privately-held Russian company, Morion.

The Company is unable to reasonably estimate a fair value for this investment.

Foreign Operations and Foreign Currency Adjustments:

For the year ended April 30, 2019, the Company’s wholly-owned subsidiary, FEI-Asia, which was reported under the FEI-NY segment, was classified as held-for-sale (see Note 2) and is shown in these consolidated financial statements for comparative purposes only.

Equity-based Compensation:

The Company values its share-based payment transactions using the Black-Scholes valuation model.

Such value is recognized as expense on a straight-line basis over the service period of the awards, which is generally the vesting period, net of estimated forfeitures.

The weighted average fair value of each option or SAR has been estimated on the date of grant using the Black-Scholes option pricing model with the following range of weighted average assumptions used for grants:

Years ended April 30

Expected volatility

Dividend yield

Risk-free interest rate

Expected lives

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2020 and 2019

There were no grants of options or SARs in fiscal year 2020.

The expected life assumption was determined based on the Company’s historical experience as well as the term of recent SAR agreements.

The expected volatility assumption was based on the historical volatility of the Company’s common stock.

The dividend yield assumption was determined based upon the Company’s past history of dividend payments and the Company’s current decision to suspend payment of dividends.

The risk-free interest rate assumption was determined using the implied yield currently available for zero-coupon U.S.

Government issues with a remaining term equal to the expected life of the stock options or SARs.

The cost of employee services received in exchange for awards of equity instruments are based on the grant-date fair value of the award.

We recognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for the award.

Concentration of Credit Risk:

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents and trade receivables.

The Company maintains accounts at several commercial banks at which the balances exceed FDIC limits.

The Company maintains cash accounts at several commercial banks at which the balances exceed FDIC limits.

The Company has not experienced any losses on such amounts.

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New Accounting Pronouncements:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2018-13 Fair Value Measurement (Topic 820) (“ASU 2018-13”) which modifies the disclosure requirement on fair value measurements.

The new guidance is effective for fiscal years beginning after December 15, 2019.

The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in Fiscal 2021.

In January 2017, the FASB issued ASU No.

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The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2022, with early adoption permitted.

The Company does not plan to adopt ASU 2017-04 early and is in the process of determining the effect that ASU 2017-04 may have;

however, the Company expects the new standard to have an immaterial effect on its consolidated financial statements when adopted in Fiscal 2021.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which replaces the incurred loss impairment methodology in current generally accepted accounting principles U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The new guidance is effective for fiscal years beginning after December 15, 2022.

The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in Fiscal 2023.

Newly Adopted Accounting Standards

Leases (Topic 842)

In the first quarter of fiscal 2020 the Company adopted ASU No.

2016-02 Leases (Topic 842) (“ASU 2016-02”) and recognized on its condensed consolidated balance sheets $12.1 million of lease liabilities with corresponding Right-of-Use (“ROU”) assets for operating leases.

The Company elected a prospective application for the new guidance, as permitted under ASU 2016-02, and therefore prior periods continue to be presented in accordance with Topic 840.

The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.

The Company will not be adopting ASU 2017-04 early, and is in the process of determining the effect that ASU 2017-04 may have.

However, the Company expects the new standard to have an immaterial effect on its consolidated financial statements.

FREQUENCY ELECTRONICS, INC.

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April 30, 2021 and 2020

Assets Held for Sale and Note Receivable for Sale of Subsidiaries

For the year ended April 30, 2019, the Company’s wholly-owned subsidiary, FEI-Asia, which is reported under the FEI-NY segment, was classified as held-for-sale.

The table below represents FEI-Asia’s assets and liabilities as of April 30, 2019 (in thousands):

Cash and cash equivalents

Accounts receivable, net

Inventories, net

Other current assets

Property, plant and equipment, net

Total assets held for sale

Accounts payable – trade

Accrued liabilities

Other current liabilities

Other liabilities

Total liabilities held for sale

On May 21, 2019 the Company completed the sale of its wholly-owned subsidiary FEI-Asia to an Asian corporation.

FEI-Asia was sold for $130,000 in addition to all rights, benefits and obligations attached thereto, free and clear from any encumbrance.

The results of this transaction, including approximately $85,000 of income for the twenty-one days in May 2019, are included in the consolidated financial statements for the fiscal year ended April 30, 2019.

The above transaction resulted in a consolidated loss of approximately $1 million recorded in SG&A on the consolidated statement of operations in fiscal year 2019.

On April 26, 2018, the Company sold its Gillam-FEI s.a.

(“Gillam”) Belgium subsidiary to a European entity, in a stock purchase agreement, for $1 million in cash received on April 27, 2018, and a note receivable payable in three years for $1 million, included in other assets in the accompanying consolidated balance sheets.

In fiscal 2020 it was determined that the note receivable would not likely be collected and thus a reserve was recorded for $1 million, recorded in other expense on the consolidated statement of operations for the year ended April 30, 2020.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The new guidance is effective for fiscal years beginning after December 15, 2022.

The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in fiscal year 2023.

Earnings per Share

Reconciliations of the weighted average shares outstanding for basic and diluted loss per share for the years ended April 30, 2020 and 2019, respectively, were as follows (in thousands):

Reconciliations of the weighted average shares outstanding for basic and diluted income (loss) per share for the years ended April 30, 2021 and 2020, respectively, were as follows:

For the Years Ended April 30,

Weighted average shares outstanding:

Basic EPS Shares outstanding (weighted average)

1 unchanged sentence

Diluted EPS Shares outstanding

For the years ended April 30, 2020 and 2019, dilutive securities noted in the above table are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for both periods.

Basic and diluted shares outstanding for the fiscal years ended April 30, 2020 and 2019 are 9,073,609 and 8,916,250, respectively.

Additionally, there are anti-dilutive exercisable shares excluded in the above table for fiscal years ended April 30, 2020 and 2019 of 896,375 and 1,216,000, respectively.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2020 and 2019

For the year ended April 30, 2020, dilutive securities noted in the above table are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for the period.

Additionally, there are anti-dilutive shares excluded in the above table for fiscal years ended April 30, 2021 and 2020 of 345,800 and 896,375, respectively.

Costs and Estimated Earnings in Excess of Billings, Net

At April 30, 2021 and 2020, costs and estimated earnings in excess of billings, net, consisted of the following (in thousands):

April 30, 2021

April 30, 2020

Costs and estimated earnings in excess of billings

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Amounts are billed to customers pursuant to contract terms.

In general, the recorded amounts will be billed and collected or revenue recognized within twelve months of the balance sheet date.

In general, the recorded amounts will be billed and collected or revenue recognized within twelve months of the balance sheet dates.

Revenue on these long-term contracts is accounted for on the POC basis.

During the years ended April 30, 2021 and 2020, revenue recognized under POC contracts was approximately $50.2 million and $38.0 million, respectively.

If contract losses

are anticipated, costs and estimated earnings in excess of billings are reduced for the full amount of such losses when they are determinable.

Total contract losses for the fiscal years ended April 30, 2020 and 2019 were approximately $2.4 million and $136,000, respectively.

If contract losses are anticipated, costs and estimated earnings in excess of billings are reduced for the full amount of such losses when they are determinable.

Total contract losses for the fiscal years ended April 30, 2021 and 2020 were approximately $1.0 million and $2.4 million, respectively.

Inventories, Net

Inventories, net at April 30, 2021 and 2020, respectively, consisted of the following (in thousands):

April 30, 2021

April 30, 2020

Raw Materials and Component Parts

1 unchanged sentence

Finished Goods

The Company’s inventory reserve policy resulted in a charge of $1.1 million in the fiscal year ended April 30, 2019.

Inventory reserves included in inventory were $6.6 million for each of the fiscal years ended April 30, 2020 and 2019.

Property, Plant and Equipment , Net

Property, plant and equipment, net at April 30, 2020 and 2019, consisted of the following (in thousands):

Buildings and building improvements

Machinery, equipment and furniture

Less, accumulated depreciation and amortization

Depreciation and amortization expense for the years ended April 30, 2020 and 2019 was $3.3 million and $2.8 million, respectively.

Maintenance and repairs charged to operations for the years ended April 30, 2020 and 2019 was approximately $706,000 and $309,000, respectively.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

April 30, 2021 and 2020

Inventory reserves included in inventory were $7.3 and $6.6 million for the fiscal years ended April 30, 2021 and 2020, respectively.

Property, Plant and Equipment, Net

Property, plant and equipment, net at April 30, 2021 and 2020, consisted of the following (in thousands):

April 30, 2021

April 30, 2020

Buildings and building improvements

Machinery, equipment and furniture

Less accumulated depreciation

Depreciation and amortization expense was $2.9 million and $3.0 million for the fiscal years ended April 30, 2021 and 2020, respectively.

Maintenance and repairs charged to operations was approximately $827,000 and $706,000 for the fiscal years ended April 30, 2021 and 2020, respectively.

Right-of-Use Assets and Lease Liabilities

The Company’s leases primarily represent offices, warehouses, vehicles, and manufacturing and research and development facilities which expire at various times through 2029 and are generally operating leases.

The Company’s leases primarily represent offices, warehouses, vehicles, manufacturing and R&D facilities which expire at various times through 2029 and are operating leases.

Contractual arrangements are evaluated at inception to determine if the agreement contains a lease.

4 unchanged sentences

The Company elected the practical expedient for short-term leases which allows leases with terms of twelve months or less to be recorded on a straight-line basis over the lease term without being recognized on the consolidated balance sheet.

Effective May 1, 2019, the Company adopted ASU 2016-02.

The table below presents ROU assets and lease liabilities recorded on the consolidated balance sheet related to ASU 2016-02 as follows:

The table below presents ROU assets and lease liabilities recorded on the consolidated balance sheets as follows:

Classification

April 30, 2021

April 30, 2020

(In thousands)

Operating lease ROU assets

ROU assets - leases

Right-of-Use assets leases

Operating lease liabilities (short-term)

3 unchanged sentences

Total lease liabilities

Total operating lease expense was approximately $1.6 million and $1.2 million for the fiscal years ended April 30, 2020 and 2019, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the consolidated statements of operations.

There were no new leases entered into for the year ended April 30, 2020.

Under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining non-cancellable lease terms in excess of one year would have been as follows as of April 30, 2019 (in thousands):

Fiscal Year Ending

Operating Leases

(in thousands)

Total future minimum lease payments

Total operating lease expense was approximately $1.6 million for the fiscal years ended April 30, 2021 and 2020, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the consolidated statements of operations.

In addition, we made cash payments of $2.0 million and $1.7 million for operating leases during the fiscal years ended April 30, 2021 and 2020, respectively, which are included in cash flows from operating activities in our consolidated statement of cash flows.

As of April 30, 2021, the Company had no operating lease liabilities that had not commenced.

FREQUENCY ELECTRONICS, INC.

13 unchanged sentences

The weighted average discount rate for operating leases as of April 30, 2021 was 6.19%.

Supplemental cash flow information related to leases include operating cash flows for operating leases of $1.7 million and right-of-use assets obtained in exchange for lease obligations of $12.1 million, as of adoption, for the fiscal year ended April 30, 2020.

There have been no new leases since adoption.

Marketable Securities

1 unchanged sentence

April 30, 2021

Gross Unrealized Gains

Gross Unrealized Losses

Fair Market Value

Fixed income securities

April 30, 2020

Gross Unrealized Gains

Gross Unrealized Losses

Fair Market Value

Fixed income securities

12 unchanged sentences

The Company does not believe that its investments in marketable securities with unrealized losses at April 30, 2021 were other-than-temporary due to market volatility of the security’s fair value, analysts’ expectations and the Company’s ability to hold the securities for a period of time sufficient to allow for any anticipated recoveries in market value.

Proceeds from the sale or redemption of available-for-sale securities and the resulting gross realized gains and losses included in the determination of net loss for the years ended April 30, 2020 and 2019, respectively, were as follows (in thousands):

Proceeds from the sale or redemption of available-for-sale securities and the resulting gross realized gains and losses included in the determination of net income (loss) for the years ended April 30, 2021 and 2020, respectively, were as follows (in thousands):

For the years ended April 30,

3 unchanged sentences

Due after one year through five years

Due after five years through ten years

Due after five years

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

13 unchanged sentences

The Company’s fixed income corporate debt securities and certificates of deposit are valued on a Level 2 basis.

Level 2 securities are valued at the closing prices and are consistent with quoted prices of similar assets reported in active markets.

Debt Obligations

13 unchanged sentences

Warranty reserve

Deferred compensation payable

Investment in Morion, Inc.

3 unchanged sentences

This investment of approximately $800,000 is included in other assets in the accompanying consolidated balance sheets.

During the fiscal years ended April 30, 2020 and 2019, the Company acquired product from Morion in the aggregate amount of approximately $888,000 and $437,000, respectively, and the Company sold product to Morion in the aggregate amount of approximately $85,000 and $2,000, respectively.

At April 30, 2020 and 2019, there was no accounts receivable balance due from Morion.

At April 30, 2020, there was no accounts payable balance owed to Morion.

At April 30, 2019, approximately $38,000 was payable to Morion.

During the fiscal years 2020 and 2019, the Company received dividends from Morion of approximately $250,000 and $105,000, respectively.

During the fiscal years ended April 30, 2021 and 2020, the Company acquired product from Morion in the aggregate amount of approximately $710,000 and $888,000, respectively.

During the fiscal years ended April 30, 2021 and 2020, the Company sold product and training services to Morion in the aggregate amount of approximately $94,000 and $85,000, respectively, included in revenues in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal years ended April 30, 2021 and 2020, the Company received dividends from Morion in the amount of approximately $105,000 and $250,000, respectively, which is included in other income, net in the consolidated statements of operations as part of the FEI-NY segment.

Morion is a less than wholly-owned subsidiary of Gazprombank, a state-owned Russian bank.

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.

Ukraine-related sanctions regime has since 2014 included a list of 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.

In light of Morion’s relationship with Gazprombank, the Company recently 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.

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 the Office of Foreign Assets Control (“OFAC”).

The Company’s voluntary disclosure to OFAC relates solely to delays in collection of accounts receivable that exceeded then-applicable payment windows set forth in sanctions regulations and do not relate to any other type of payment or transaction.

On July 22, 2020, OFAC informed the Company that it is conducting a civil investigation of the matter.

The ongoing OFAC civil investigation subjects the Company to a number of financial and business risks.

OFAC has broad enforcement discretion, and the imposition of sanctions, fines or remedial measures could have a material adverse effect on the Company’s business, prospects, reputation, financial condition, liquidity, results of operations or cash flows.

Given the matter is in an early stage, however, the Company does not have sufficient information to (i) determine whether any liability (including penalties, sanctions, or remedial actions) as a result of the voluntary disclosure is probable or (ii) estimate the magnitude of any liability.

While we are currently unable to predict what if any actions OFAC might take, or what the likely outcome of any such actions might be, or estimate the range of reasonably possible fines or penalties, such outcome may be material.

Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, including legal fees.

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.

FREQUENCY ELECTRONICS, INC.

4 unchanged sentences

Profit Sharing Plan:

The Company provides its U.S.-based employees with a profit-sharing plan and trust under § 401(k) of the Internal Revenue Code (“IRC”).

The Company provides its U.S.-based employees with a profit-sharing plan and trust under § 401(k) of the IRC.

This plan allows all eligible employees to defer a portion of their income through voluntary contributions to the plan.

2 unchanged sentences

The approximate value of these shares at the date of contribution was $419,000 and $417,000 in fiscal years 2021 and 2020, respectively.

[Contributed shares are drawn from the Company’s common stock held in treasury] and are removed at the Company’s original cost of acquisition of such shares on a specific identification basis.

Contributed shares are drawn from the Company’s common stock held in treasury, and are removed at the Company’s original cost of acquisition of such shares on a specific identification basis, and from the Company’s common stock.

In addition to changes in the treasury stock accounts, during fiscal years 2021 and 2020, such transactions increased additional paid in capital by $325,000 and $236,000, respectively.

As of April 30, 2020, the plan held a total of 507,204 shares, which are allocated to the accounts of the individual participants.

As of April 30, 2021, the plan held a total of 498,115 shares, which were allocated to the accounts of the individual participants.

As of April 30, 2020, the plan held a total of 507,204 shares, which were allocated to the accounts of the individual participants.

Income Incentive Pool:

The Company maintains incentive bonus programs for certain employees which are based on operating profits of the individual subsidiaries to which the employees are assigned.

The Company also adopted a plan for the President and Chief Executive Officer of the Company, which formula is based on consolidated pre-tax profits.

Under these plans, the Company charged $195,000 to selling and administrative expenses for the fiscal year ended April 30, 2019.

The Company also adopted a plan for the President and Chief Executive Officer of the Company, which the formula is based on consolidated pre-tax profits.

The incentive bonus recorded for the fiscal year ended April 30, 2021 was $550,000.

There was no incentive bonus recorded for the fiscal year ended April 30, 2020.

3 unchanged sentences

Under these plans, options or SAR are granted at the discretion of the Stock Option Committee at an exercise price not less than the fair market value of the Company’s common stock on the date of grant.

Typically, options and SAR vest over a four-year period from the date of grant.

The options and SAR generally expire ten years after the date of grant (the most recent SAR awards expire in five years) and are subject to certain restrictions on transferability of the shares obtained on exercise.

Typically, options and SARs vest over a four-year period from the date of grant.

The options and SARs generally expire ten years after the date of grant (the most recent SARs awards expire in five years) and are subject to certain restrictions on transferability of the shares obtained on exercise.

Under the Company’s 2005 Stock Award Plan (“Plan”) the Company provided option holders the opportunity to exercise stock options either by paying the exercise price for the shares or to do a cashless exercise whereby the individual receives the net number of shares of stock equal in value to the exercised number of shares times the difference between the current market value of the Company’s stock and the exercise price.

Under the Plan, instruments granted under other plans which expire, are canceled, or are tendered in the exercise of such instruments, increase the shares available under the Plan.

As of April 30, 2020, eligible employees and directors had been granted SAR representing approximately 2,384,000 shares of Company stock, of which approximately 1,060,000 shares were outstanding and approximately 900,000 shares with a weighted average exercise price of $9.85 were exercisable.

As of April 30, 2019, eligible employees and directors had been granted SAR representing approximately 2,384,000 shares of Company stock, of which approximately 1,500,000 shares were outstanding and approximately 1,216,000 shares with a weighted average exercise price of $9.12 were exercisable.

When the SAR become exercisable, the Company will settle the SAR by issuing to exercising recipients the number of shares of stock from treasury stock, if available, equal to the appreciated value of the Company’s stock between the grant date and exercise date.

At the time of exercise, the quantity of shares under the SAR grant equal to the exercise value divided by the then market value of the shares will be returned to the pool of available shares for future grant under the Plan.

During the year ended April 30, 2020, employees exercised SAR representing 171,250 shares of Company stock and received 92,212 shares of Company stock.

The 79,038 share difference was returned to the pool of available shares and may be used for future grants.

During the year ended April 30, 2019, employees exercised SAR representing 145,750 shares of Company stock and received 71,111 shares of Company stock.

The 74,639 share difference was returned to the pool of available shares and may be used for future grants.

As of April 30, 2021, eligible employees and directors had been granted total SARs representing approximately 2,445,000 shares of the Company’s common stock, of which approximately 615,000 shares were outstanding and approximately 538,000 shares with a weighted average exercise price of $10.06 were exercisable.

There were no SARs granted during the fiscal year 2021.

When the SARs become exercisable, the Company will settle the SARs by issuing to exercising recipients the number of shares of stock from common stock or treasury stock, if available, equal to the appreciated value of the Company’s stock between the grant date and exercise date.

At the time of exercise, the quantity of shares under the SARs grant equal to the exercise value divided by the then market value of the shares will be returned to the pool of available shares for future grant under the Plan.

During the year ended April 30, 2021, employees exercised SARs representing 247,500 shares of the Company’s common stock and received 58,331 shares of Company stock.

The difference of 189,169 shares was returned to the pool of available shares and may be used for future grants.

The excess of the consideration received over the par value of the common stock or cost of treasury stock issued under both types of option plans is recognized as an increase in additional paid-in capital.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

April 30, 2021 and 2020

The following table summarizes information about stock option and SARs activity for the years ended April 30, 2021 and 2020:

1 unchanged sentence

Weighted Average

Weighted-Average

Exercise Price

Contractual Term

Intrinsic Value

8 unchanged sentences

During the years ended April 30, 2021 and 2020, 85,625 and 100,625 shares, respectively, vested, the fair value of which was approximately $274,000 and $339,000, respectively.

There were no SARs granted during the fiscal year 2020.

The weighted average grant date fair value of SARs granted during the year ended April 30, 2019, was approximately $3.01.

Stock-based compensation costs capitalized as part of work in process inventory or included in the cost of sales of programs on which the Company recognizes revenue under the POC method were approximately $103,000 and $110,000 for the years ended April 30, 2021 and 2020, respectively.

Selling and administrative expenses included stock-based compensation expense of approximately $160,000 and $144,000 for the years ended April 30, 2021 and 2020, respectively.

The Company classifies cash flows resulting from the tax benefits from tax deductions recognized upon the exercise of stock options or SAR (tax benefits) as financing cash flows.

The Company did not recognize any tax benefits from the exercise of stock options and SAR for the fiscal years presented.

The Company classifies cash flows resulting from the tax benefits from tax deductions recognized upon the exercise of stock options or SARs (tax benefits) as operating cash flows.

The Company did not recognize any tax benefits from the exercise of stock options and SARs for the fiscal years presented.

Restricted Stock Plan and Other Issuances:

6 unchanged sentences

As of April 30, 2020, there are no outstanding shares available for purchase.

As of April 30, 2019, grants for 7,500 shares were available to be purchased at a price of $4.00 per share.

During the years ended April 30, 2020 and 2019 the Company issued 1,850 shares and 1,100 shares from treasury stock, respectively, to select employees for milestone years of service to the Company.

These shares are common stock and are fully vested at time of issuance.

During the year ended April 30, 2021 and 2020 the Company issued 950 shares from common stock and 1,850 shares from treasury stock, respectively, to select employees for milestone years of service to the Company.

These shares are shares of the Company’s common stock and are fully vested at time of issuance.

FREQUENCY ELECTRONICS, INC.

3 unchanged sentences

In fiscal year 2020 the Company elected to issue Restricted Stock Units (“RSUs”) to directors, officers, and other key employees pursuant to the 2005 Stock Award Plan.

The fair value of these awards is equivalent to the market value of our common stock on the grant date.

RSUs are not shares of our common stock and do not have any rights or privileges thereof, including voting or dividend rights.

On the applicable vesting date, the holder of an RSU becomes entitled to a share of our common stock.

The fair value of these awards is equivalent to the market value of the Company’s common stock on the grant date.

RSUs are not shares of the Company’s common stock and do not have any rights or privileges thereof, including voting or dividend rights.

On the applicable vesting date, the holder of an RSU becomes entitled to a share of the Company’s common stock.

RSUs are subject to certain restrictions and forfeiture provisions prior to vesting.

During the year ended April 30, 2020, the Company granted 13,000 RSUs, at a grant date fair value of $11.38, that will vest over a four-year period.

In fiscal year 2021 the Company elected to issue Performance Stock Units (“PSUs”) to an officer of the Company.

The fair value of these awards is equivalent to the market value of the Company’s common stock on the grant date and requires an assessment of the probability that the specified performance criteria will be achieved, which is updated at each reporting date.

PSUs are not shares of the Company’s common stock and do not have any rights or privileges thereof, including voting or dividend rights.

On the applicable vesting date, subject to the attainment of the specified performance criteria, the holder of a PSU becomes entitled to a share of the Company’s common stock.

PSUs are subject to certain restrictions and forfeiture provisions, in addition to performance vesting conditions, prior to vesting.

The following table summarizes activity for the RSUs and PSUs awards that reduce available capacity under the 2005 Stock Award Plan for the years ended April 30, 2021 and 2020:

Weighted-Average

Exercise Price

Balance – April 30, 2019

Balance – April 30, 2020

Balance – April 30, 2021

Deferred Compensation Agreements:

3 unchanged sentences

The Company pays the benefits out of its working capital but has also purchased whole life or term life insurance policies on the lives of certain of the participants to cover the optional lump sum obligations of the agreements upon the death of the participant.

Deferred compensation expense charged to selling and administrative expenses during the years ended April 30, 2020 and 2019 was approximately $640,000 and $1.3 million, respectively.

Deferred compensation expense charged to selling and administrative expenses during the years ended April 30, 2021 and 2020 was approximately $1.1 million and $640,000, respectively.

Life Insurance Policies and Cash Held in Trust:

4 unchanged sentences

Such funds will be used to continue the deferred compensation arrangements following a change of control.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic.

On March 27, 2020, the CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic.

The CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in tax years 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expense, and technical corrections so that qualified improvement property can be immediately expensed under IRC § 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and forward twenty years.

The Loss before (benefit) provision for income taxes consisted of (in thousands):

Year Ended April 30,

FREQUENCY ELECTRONICS, INC.

5 unchanged sentences

Current (benefit) provision

Deferred tax (benefit)

Deferred tax (benefit) provision

Total (benefit) provision

The following table reconciles the reported income tax (benefit) expense, recorded primarily due to the (i) enactment of the CARES Act, which allowed the Company to recognize a tax benefit for a portion of its pretax loss, (ii) state and local taxes, (iii) and a change in the valuation allowance, with the amount computed using the federal statutory income tax rate (in thousands):

The following table reconciles the reported income tax (benefit) provision, recorded primarily due to the (i) recognition of previously unrecognized tax benefits, (ii) state and local taxes, (iii) and a change in the valuation allowance, with the amount computed using the federal statutory income tax rate (in thousands):

Year Ended April 30,

2 unchanged sentences

Valuation allowance on deferred tax assets

Effect of foreign operations

Nondeductible expenses

Sale of Subsidiary Stock

Uncertain tax positions

Nontaxable life insurance cash value increase

Taxable life insurance gain

Stock Compensation

Change in tax rate

Impact of CARES Act

Total (benefit) expense

Total (benefit) provision

FREQUENCY ELECTRONICS, INC.

28 unchanged sentences

If these estimates and assumptions change in the future, the Company may be required to reduce its existing valuation allowance resulting in less income tax expense.

For the year ended April 30, 2020, the valuation allowance increased by approximately $1.9 million from the prior year primarily due to the portion of the fiscal year ended April 30, 2020 pretax loss for which no tax benefit was provided.

The Company may amortize indefinite-lived intangible assets for tax purposes which are not amortizable for financial reporting purposes.

As a result of the technical correction to net operating losses in the CARES Act, the Company recorded a deferred tax liability related to the tax effect of differences between financial reporting and tax bases of intangible assets that are not expected to reverse within the Company’s net operating loss carryforward periods.

For the year ended April 30, 2021, the valuation allowance increased by approximately $1.0 million from the prior year primarily due an increase in the net deferred tax asset for which no tax benefit was provided.

The Company has a net deferred tax liability related to the tax effect of differences between financial reporting and tax basis of intangible assets that are not expected to reverse within the Company’s net operating loss carryforward periods.

The utilization of indefinite lived net operating losses are limited to 80% of taxable income in an annual period.

3 unchanged sentences

federal net operating losses of $7.9 million have an indefinite carry-forward period.

federal capital loss carry-forward of $10.0 million expires in 2023.

The Company also has state net operating loss carryforwards, U.S.

federal R&D tax credits, and state tax credits that expire in various years and amounts.

federal capital loss carry-forward of $10.0 million expires in Fiscal 2023.

federal R&D credits of $0.7 million begin to expire in Fiscal 2036 through 2040.

The Company also has state net operating loss carryforwards, and state tax credits that expire in various years and amounts.

FREQUENCY ELECTRONICS, INC.

4 unchanged sentences

Balance at the beginning of the fiscal year

Additions based on positions taken in the fiscal year ended April 30, 2020

Additions based on positions taken in the current year

Additions based on positions taken in prior years

2 unchanged sentences

Balance at the end of the fiscal year

The entire amount reflected in the table above at April 30, 2020, if recognized, would reduce our effective tax rate.

The effects of uncertain tax positions embedded in net operating losses would not affect the effective tax rate if the unrecognized tax benefits are resolved while a full valuation allowance is maintained.

The Company recognized $1.2 million of unrecognized benefits during the year ended April 30, 2021 in connection with the lapse of the statute of limitations.

Approximately $1.1 million of this amount increased the net operating loss carryforwards which attracted a valuation allowance.

The entire amount reflected in the above table at April 30, 2021, if recognized, would reduce our effective tax rate.

As of April 30, 2021, and 2020, the Company had $0 and $119,000, respectively, accrued for the payment of interest and penalties.

For the fiscal years ended April 30, 2020 and 2019, the Company recognized interest and penalties of $60,000 and $54,000, respectively.

Although it is difficult to predict or estimate the change in the Company’s unrecognized tax benefits over the next twelve months, the Company believes that it is reasonably possible that decreases in unrecognized tax benefits of up to $1.3 million may be recognized during the next twelve months.

For the fiscal years ended April 30, 2021 and 2020, the Company recognized interest (income) and expense of $(119,000) and $60,000, respectively.

Although it is difficult to predict or estimate the change in the Company’s unrecognized tax benefits over the next twelve months, the Company believes no additional amounts will be recognized in the next twelve months.

The Company is subject to taxation in the U.S.

24 unchanged sentences

The table below presents information about reported segments for each of the years ended April 30, 2021 and 2020, respectively, with reconciliation of segment amounts to consolidated amounts as reported in the consolidated statements of operations or the consolidated balance sheets for each of the years (in thousands):

Net revenues:

For the Years Ended April 30,

less intersegment revenues

Consolidated revenues

Operating loss:

Operating (loss) income:

less intersegment revenues

Consolidated operating loss

For the Years Ended April 30,

Identifiable assets:

FEI-NY (approximately $1.5 in China in 2019)

less intersegment receivables

less intersegment balances

Consolidated identifiable assets

6 unchanged sentences

Government end-use.

In Fiscal 2020 and 2019, revenues to four and two customers, respectively, of the FEI-NY segment accounted for more than 10% of that segment’s revenues.

These customers also exceeded 10% of the Company’s consolidated revenues each year.

In the FEI-Zyfer segment, two customers accounted for more than 10% of that segment’s revenues in Fiscal 2020.

In Fiscal 2021 and 2020, revenues to three and four customers, respectively, of the FEI-NY segment accounted for more than 10% of that segment’s revenues.

In Fiscal 2021 and 2020 two and four customers, respectively, also exceeded 10% of the Company’s consolidated revenues.

In the FEI-Zyfer segment, three and two customers, respectively, accounted for more than 10% of that segment’s revenues in Fiscal 2021 and 2020.

The loss by the Company of any one of these customers would have a material adverse effect on the Company’s business.

8 unchanged sentences

For the years ended April 30, 2021 and 2020, revenues, based on the location of the procurement entity and excluding intersegment sales, were derived from the following countries (in thousands):

United Kingdom

Product Warranties

28 unchanged sentences

On January 28, 2020, Martin B.

Bloch, the former Chief Scientist of the Company and a current member of the Company’s Board, filed a complaint against the Company and Jonathan Brolin, Lance W.

Bloch, the former Chief Scientist of the Company and a former member of the Company’s Board, filed a complaint against the Company and Jonathan Brolin, Lance W.

Lord, Russell M.

3 unchanged sentences

601369/2020 (N.Y.

Bloch seeks compensatory damages and costs and attorney’s fees, among other things, based on allegations that he was wrongfully terminated “for cause” pursuant to his employment agreement, dated March 17, 2008, and his deferred compensation agreements, in each case as amended, with the Company, and that the Company and the Director Defendants discriminated against him based on his age.

Bloch had originally also sought a declaratory judgment and claims for damage to his reputation and a derivative claim on behalf of the Company alleging that the Director Defendants breached their fiduciary duty in rendering their decision to terminate Mr.

Bloch sought compensatory damages and costs and attorney’s fees, among other things, based on allegations that he was wrongfully terminated “for cause” pursuant to his employment agreement, dated March 17, 2008 and that the Company and the Director Defendants discriminated against him based on his age.

Bloch originally also sought a declaratory judgment and asserted claims for defamation and a derivative claim, purportedly on behalf of the Company alleging that the Director Defendants breached their fiduciary duty in rendering their decision to terminate Mr.

Bloch’s employment with the Company.

Bloch removed those claims from a subsequently filed amended complaint after the Company and the Director Defendants moved to dismiss them.

Bloch withdrew these claims from a subsequently filed amended complaint after the Company and the Director Defendants moved to dismiss them.

On June 11, 2020, the Company and the Director Defendants filed their answer to the amended complaint.

Bloch filed a motion for summary judgment on June 23, 2020, which the Company and the Director Defendants opposed on July 10, 2020.

Bloch’s motion seeks an order that the Company is liable for breach of his employment agreement because he purportedly resigned from the Company before he was terminated.

Bloch filed a motion for summary judgment on June 23, 2020.

Bloch’s motion sought an order that the Company was liable for breach of his employment agreement because he purportedly resigned from the Company before he was terminated.

On July 10, 2020, the Company and the Director Defendants opposed Mr.

1 unchanged sentence

Bloch’s amended complaint.

The Company and the Director Defendants believe that the Board was justified in its decision to terminate Mr.

On September 23, 2020, the Court denied Mr.

Bloch’s motion for summary judgment.

It also granted the Company and the Director Defendants’ motion for summary judgment as to all claims, except for one claim for breach of contract against the Company.

On October 23, 2020, the Company filed a brief with the Appellate Division, Second Department, seeking a reversal of the lower court’s order to the extent that it denied the Company’s summary judgment motion on the breach of contract claim.

Bloch filed its responsive brief on November 20, 2020.

The appeal is currently pending.

The Company believes that the Board was justified in its decision to terminate Mr.

Bloch “for cause” and that Mr.

Bloch’s complaint is entirely without merit.

Bloch’s single surviving claim is entirely without merit.

The Company intends to vigorously defend against all of Mr.

6 unchanged sentences

In addition, Mr.

Bloch sought to initiate two arbitration proceedings under the AAA Rules ( Bloch v.

Bloch has initiated two arbitration proceedings under the AAA Rules ( Bloch v.

Frequency Electronics, Inc., the Compensation Committee of the Board of Directors of Frequency Electronics, Inc., and the Deferred Compensation Plan Agreement Dated March 7, 2008 ).

One arbitration is brought under a deferred compensation agreement dated March 27, 1980 and the other under a second amended and restated deferred compensation agreement, dated March 7, 2008.

Bloch submitted his Statements of Claim in both arbitrations on May 4, 2020.

In both proceedings, Bloch claims that defendants violated ERISA rules by denying him the benefits he was allegedly entitled to under the deferred compensation agreements.

One arbitration purports to be brought under a deferred compensation agreement dated March 27, 1980 and the other under a second amended and restated deferred compensation agreement, dated March 7, 2008.

Bloch submitted his Statement of Claim in one arbitration on May 4, 2020, and in the other arbitration on May 6, 2020.

In each proceeding, Mr.

Bloch claims that defendants violated ERISA rules by denying him deferred compensation benefits.

He seeks an award for allegedly past due deferred compensation benefits plus interest, clarification as to his future rights to deferred compensation benefits, and attorneys’ fees and costs.

On June 2, 2020, the Company filed a petition for a stay of arbitration and related declaratory relief against Mr.

6 unchanged sentences

Bloch filed a motion on June 16, 2020 seeking a change of venue to the County of Nassau, which the Company opposed on July 7, 2020.

The motion is currently pending.

At this time, the Company does not have sufficient information to determine the likelihood of success of this petition.

The Court granted Mr.

Bloch’s motion on September 8, 2020.

The case was therefore transferred to the County of Nassau, and assigned to the same Judge hearing the other cases between the parties (Frequency Electronics, Inc.

Bloch, Index No.

611405/2020).

In its order dated February 10, 2021 and entered on February 16, 2021, the Court denied the Company’s petition for a stay of arbitration and ordered the parties to proceed to arbitration.

The Company appealed the court’s denial of its petition to stay arbitration on May 7, 2021.

The appeal is currently pending.

At this time, the Company does not have sufficient information to determine the likelihood of success of this appeal.

On June 5, 2020, Mr.

Bloch filed a petition against the Company, the Compensation Committee of the Company’s Board of Directors, and the Deferred Compensation Plan Agreement Dated March 7, 2008, as amended, for the appointment of an arbitrator in one of the arbitration proceedings that Mr.

Bloch sought to initiate.

Bloch filed a petition against the Company, the Compensation Committee of the Company’s Board of Directors, and the Deferred Compensation Plan Agreement Dated March 7, 2008, as amended (“Respondents”), for the appointment of an arbitrator in one of the arbitration proceedings that Mr.

Bloch initiated.

The petition was filed in the Supreme Court of the State of New York, County of Nassau (Bloch v.

3 unchanged sentences

filed June 5, 2020)).

On June 22, 2020, the Company moved to dismiss Mr.

Bloch’s petition, and he opposed the Company’s motion on July 2, 2020.

The motion is currently pending.

Defendants dispute all of Bloch’s claims and intend to continue to vigorously defend the Company in this special proceeding.

The likelihood of any outcome of this proceeding cannot be determined at this time.

Subsequent Events

As previously reported, on April 12, 2020, the Company received proceeds from a loan in the amount of $4,964,810 (the “PPP Loan”) from JPMorgan Chase Bank, N.A.

as the Lender, pursuant to the Small Business Administration Paycheck Protection Program under the CARES Act.

On May 6, 2020, the Company elected to repay the PPP Loan in full.

On June 22, 2020, Respondents moved to dismiss Mr.

Bloch’s petition, and he opposed the motion on July 2, 2020.

In its orders dated February 10, 2021 and entered on February 16, 2021, the Court granted Mr.

Bloch’s petition for the appointment of an arbitrator, denied the Company’s motion to dismiss that petition, and denied a motion previously filed by the Company for an interim stay of arbitration.

On May 11, 2021, Respondents appealed the Court’s decision granting Mr.

Bloch’s petition for the appointment of an arbitrator and denying Respondents’ motion to dismiss that petition.

The appeal is currently pending.

Respondents dispute all of Bloch’s claims and intend to continue to vigorously defend the Company in the appeal.

The likelihood of any outcome of this appeal cannot be determined at this time.

The arbitration panel in the arbitrations initiated by Mr.

Bloch was constituted in March 2021.

The same panel serves in both arbitrations.

On May 6, 2021, Respondents submitted a motion to dismiss the arbitrations on the grounds that Mr.

Bloch’s claims are not arbitrable.

The motion is fully briefed.

The Panel heard oral argument on the motion on June 22, 2021, but has not yet ruled on it.

Respondents dispute Mr.

Bloch’s claims and intend to defend the arbitrations vigorously.

The likelihood of any outcome of these arbitration proceedings cannot be determined at this time.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data