What changed in this filing

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Item 1. Financial Statements

2021-09-14 compared with 2021-03-12 · 204 added, 273 removed, 431 unchanged (53% of the section changed)

7 unchanged sentences

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $183 at January 31, 2021 and April 30, 2020

Accounts receivable, net of allowance for doubtful accounts of $ 111 at July 31, 2021 and April 30, 2021

Costs and estimated earnings in excess of billings, net

1 unchanged sentence

Prepaid income taxes

Cash surrender value of life insurance - current

Prepaid expenses and other

1 unchanged sentence

Property, plant and equipment, at cost, net of accumulated depreciation and amortization

Cash surrender value of life insurance

Cash surrender value of life insurance, net of current portion

Right-of-Use assets – operating leases

5 unchanged sentences

Operating lease liability

Billings in excess of costs and estimated earnings, net

Deferred compensation - current

Total current liabilities

9 unchanged sentences

Common stock - $ 1.00 par value;

authorized 20,000 shares, 9,194 shares issued and 9,193 shares outstanding at January 31, 2021;

authorized 20,000 shares, 9,247 shares issued and 9,246 shares outstanding at July 31, 2021;

9,226 shares issued and 9,225 shares outstanding at April 30, 2021

1 unchanged sentence

Accumulated deficit

Common stock reacquired and held in treasury - at cost (1 share at January 31, 2021 and 43 shares at April 30, 2020)

Common stock reacquired and held in treasury -

at cost ( 1 share at July 31, 2021 and 1 share at April 30, 2021)

Accumulated other comprehensive income

6 unchanged sentences

(In thousands except per share data)

Three Months Ended January 31,

Nine Months Ended January 31,

Three Months Ended July 31,

Condensed Consolidated Statements of Operations

14 unchanged sentences

Condensed Consolidated Statements of Comprehensive 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

Unrealized gain (loss) 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 gain on marketable securities, net of tax

Comprehensive loss

4 unchanged sentences

(In thousands)

Nine Months Ended January 31,

Three Months Ended July 31,

Cash flows from operating activities:

1 unchanged sentence

Net changes in operating assets and liabilities

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

2 unchanged sentences

Purchase of fixed assets and other assets

Net cash used in investing activities

Net cash (used in) provided by investing activities

Net cash used in financing activities:

1 unchanged sentence

Proceeds from UBS line of credit

Repayment of UBS line of credit

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Cash paid during the period for:

Cash refunded during the period for:

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine Months Ended January 31, 2021

Three Months Ended July 31, 2021 and 2020

(In thousands except share data)

13 unchanged sentences

Balance at July 31, 2021

Contribution of stock to

compensation expense

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

Other comprehensive

loss, net of tax

Balance at October 31, 2020

Contribution of stock to

compensation expense

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

Other comprehensive

loss, net of tax

Balance at January 31, 2021

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine Months Ended January 31, 2020

(In thousands except share data)

Treasury stock

12 unchanged sentences

Balance at July 31, 2020

Contribution of stock to

compensation expense

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

Other comprehensive

income, net of tax

Balance at October 31, 2019

Contribution of stock to

compensation expense

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

Other comprehensive

income, net of tax

Balance at January 31, 2020

See accompanying notes to condensed consolidated financial statements.

4 unchanged sentences

In the opinion of management of Frequency Electronics, Inc.

(the “Company”), the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of the Company as of January 31, 2021 and the results of its operations, changes in Stockholders’ Equity for the three and nine months ended January 31, 2021 and 2020, and cash flows for the nine months ended January 31, 2021 and 2020.

(the “Company”), the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 2021 and the results of its operations, changes in Stockholders’ Equity for the three months ended July 31, 2021 and 2020, and cash flows for the three months ended July 31, 2021 and 2020.

The April 30, 2021 condensed consolidated balance sheet was derived from audited financial statements.

2 unchanged sentences

GAAP have been condensed or omitted.

These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission.

These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed on June 30, 2021 with the Securities and Exchange Commission.

The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.

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 spread 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.

COVID-19 Pandemic

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 have on the Company’s financial condition, liquidity, and future results of operations.

For the three months ended January 31, 2021, the Company was impacted by employee absenteeism related to direct or indirect effects of the COVID pandemic and delays in the receipt of anticipated new contracts from customers administratively affected by the pandemic, particularly in Zyfer’s operations as evidenced by the related decrease in sales and gross margin during the quarter.

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 potential adverse 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.

For the three months ended July 31, 2021, the Company was impacted by employee absenteeism related to direct or indirect effects of the COVID-19 pandemic and delays in the receipt of anticipated new contracts from customers due to COVID-19 related administrative delays.

Management has taken steps to minimize COVID-19 related impacts to our workforce.

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

As of July 30, 2021, the Company has returned 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, state and/or other customers or supplier 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 may be impacted.

In this scenario, 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.

The Company did experience some disruption due to the need to vacate certain areas of the facilities as some employees had been potentially exposed to COVID or following positive COVID test results to allow for cleaning and disinfecting.

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

Such delays have had a minor impact on the Company’s production schedules to date, but vendor delivery performance is being closely monitored and alternate sources of supply are generally available if necessary.

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 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 outbreak.

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 Note K below.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

In the latter part of fiscal year 2021, the Company did experience some disruption due to the need to vacate certain areas of its facilities for cleaning and disinfecting as a result of employees potentially being exposed to COVID-19 or following positive COVID-19 test results.

Also, certain of the Company’s 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.

NOTE B – EARNINGS PER SHARE

Reconciliation of the weighted average shares outstanding for basic and diluted loss per share for the three and nine months ended January 31, 2021 and 2020, respectively, were as follows:

Periods ended January 31,

Reconciliation of the weighted average shares outstanding for basic and diluted loss per share for the three months ended July 31, 2021 and 2020, respectively, were as follows:

Three months ended July 31,

Weighted average shares outstanding:

2 unchanged sentences

Diluted EPS Shares outstanding

**For the three and nine-month periods ended January 31, 2021 and 2020 dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for those periods.

The exercisable shares excluded for the three and nine months ended January 31, 2021 are 229,000 and 331,000 options, respectively.

The effect of dilutive securities would have been 74,684 options and 59,154 options for the three- and nine-month periods ended January 31, 2021, respectively.

** For the three-month periods ended July 31, 2021 and 2020 dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for those periods.

The anti-dilutive exercisable shares excluded for the three-month periods ended July 31, 2021 and 2020 were 372,000 shares and 676,000 shares, respectively.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE C – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET

At January 31, 2021 and April 30, 2020, costs and estimated earnings in excess of billings, net, consisted of the following:

January 31, 2021

At July 31, 2021 and April 30, 2021, billings in excess of costs and estimated earnings and costs and estimated earnings in excess of billings, net, respectively, consisted of the following:

July 31, 2021

April 30, 2021

2 unchanged sentences

Billings in excess of costs and estimated earnings

Net (liability) asset

Such amounts represent revenue recognized on long-term contracts that had not been billed at the balance sheet dates or represent a liability for amounts billed in excess of the revenue earned.

2 unchanged sentences

Revenue on these long-term contracts is accounted for on the percentage of completion (“POC”) basis.

During the three and nine months ended January 31, 2021, revenue recognized under POC contracts was approximately $10.8 million and $35.6 million, respectively.

During the three and nine months ended January 31, 2020, revenue recognized under POC contracts was approximately $8.5 million and $28.5 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.

Contract losses of approximately $144,000 and $876,000 were recorded for the three and nine months ended January 31, 2021, respectively.

Contract losses recognized for the three and nine months ended January 31, 2020 were approximately $290,000 and $2.4 million, respectively.

During the three months ended July 31, 2021 and 2020, revenue recognized under POC contracts was approximately $ 12.4 million and $ 11.7 million, respectively.

Anticipated contract losses, if any, are accrued for in the period such determination is made.

Contract losses of approximately $ 16,000 and $ 611,000 were recorded for the three months ended July 31, 2021 and 2020, respectively.

NOTE D – TREASURY STOCK TRANSACTIONS

During the nine-month period ended January 31, 2021, the Company made contributions of 30,538 shares of its common stock and common stock held in treasury to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code.

Commencing in the second quarter of the current fiscal year the Company began issuing newly issued shares to satisfy contributions to the 401(k).

During the three-month period ended July 31, 2021, the Company made contributions of 13,251 shares of its common stock and common stock held in treasury to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code.

Commencing in the second quarter of fiscal year 2021 the Company began issuing newly issued shares to satisfy contributions to the 401(k).

Previously the Company issued treasury stock to satisfy these contributions.

Such contributions are in accordance with the Company’s discretionary match of employee voluntary contributions to this plan.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE E – INVENTORIES, NET

Inventories, which are reported at the lower of cost and net realizable value, consisted of the following:

January 31, 2021

July 31, 2021

April 30, 2021

3 unchanged sentences

Finished Goods

The amounts above are net of reserves of $7.2 million and $6.6 million as of January 31, 2021 and April 30, 2020, respectively.

The amounts above are net of reserves of $ 7.0 million and $ 7.3 million as of July 31, 2021 and April 30, 2021, respectively.

NOTE F – 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.

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

3 unchanged sentences

Lease terms may factor in options to extend or terminate the lease.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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 balance sheet.

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

The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets, related to ASU 2016-02 (in thousands):

The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets as follows (in thousands):

Classification

January 31, 2021

July 31, 2021

April 30, 2021

Operating lease ROU assets

Right-of-Use assets leases

Right-of-Use assets - operating leases

Operating lease liabilities (short-term)

Lease liability, current

Operating lease liability

Operating lease liabilities (long-term)

Lease liability, non-current

Operating lease liability - non-current

Total lease liabilities

Total operating lease expense was $500,000 and $1.5 million for the three and nine months ended January 31, 2021, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses in the unaudited condensed consolidated statements of operations.

Total operating lease expense was approximately $504,000 and $1.5 million for the three and nine months, ended January 31, 2020, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited consolidated balance sheet as of January 31, 2021:

Fiscal Year Ending April 30,

Total operating lease expense was $ 506,000 and $ 478,000 for the three months ended July 31, 2021 and 2020, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses in the unaudited condensed consolidated statements of operations.

The table below reconciles the undiscounted cash flows for each of the first five fiscal years and total of the remaining fiscal years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of July 31, 2021:

Fiscal Year Ending July 31,

( in thousands )

5 unchanged sentences

Long-term lease obligations

As of January 31, 2021, the weighted-average remaining lease term for all operating leases was 7.6 years.

As of July 31, 2021, the weighted-average remaining lease term for all operating leases was 7.2 years.

The Company does not generally have access to the rate implicit in the leases and therefore utilized the Company’s borrowing rate as the discount rate.

The weighted average discount rate for operating leases as of January 31, 2021 was 6.17%.

The weighted average discount rate for operating leases as of July 31, 2021 was 6.20 %.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE G – SEGMENT INFORMATION

12 unchanged sentences

Consequently, the Company determined that the segments indicated above most appropriately reflect the way the Company’s management views the business.

The accounting policies of the two segments are the same as those described in the “Summary of Significant Accounting Policies” in the fiscal year-end financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission.

The accounting policies of the two segments are the same as those described in the “Summary of Significant Accounting Policies” in the fiscal year-end financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed on June 30, 2021 with the Securities and Exchange Commission.

The Company evaluates the performance of its segments and allocates resources to them based on operating profit which is defined as income before investment income, interest expense and taxes.

4 unchanged sentences

The tables below present information about reported segments with reconciliation of segment amounts to consolidated amounts as reported in the condensed consolidated statements of operations or the condensed consolidated balance sheets for each of the periods (in thousands):

Periods ended January 31,

Three Months Ended July 31,

less intersegment revenues

1 unchanged sentence

Operating (loss) income:

less intersegment revenues

Consolidated operating loss

January 31, 2021

July 31, 2021

April 30, 2021

2 unchanged sentences

Consolidated identifiable assets

Total revenue recognized over time as POC and Passage of Title (“POT”) were approximately $35.6 million and $3.1 million, respectively, for the nine months ended January 31, 2021.

The amounts recognized over time as POC and POT were approximately $28.5 million and $2.8 million, respectively, for the nine months ended January 31, 2020.

Total revenue recognized over time as POC and Passage of Title (“POT”) were approximately $ 12.4 million and $ 0.6 million, respectively, of the $ 13.0 million reported for the three months ended July 31, 2021.

The amounts recognized over time as POC and POT were approximately $ 11.7 million and $ 1.3 million, respectively, of the $ 13.0 million reported for the three months ended July 31, 2020.

The amounts by segment and product line were as follows:

Three Months Ended January 31,

(In thousands)

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Nine Months Ended January 31,

Three Months Ended July 31,

(In thousands)

Periods ended January 31,

Three Months Ended July 31,

(in thousands)

4 unchanged sentences

Consolidated revenues

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE H – INVESTMENT IN MORION, INC.

3 unchanged sentences

The Company’s investment consists of 4.6 % of Morion’s outstanding shares, accordingly, the Company accounts for its investment in Morion on the cost basis.

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

During the three months ended January 31, 2021 and 2020, the Company acquired product from Morion in the aggregate amount of approximately $199,000 and $332,000, respectively, included in cost of revenues in the condensed consolidated statements of operations as part of the FEI-NY segment.

During the nine months ended January 31, 2021 and 2020, the Company acquired product from Morion in the aggregate amount of approximately $467,000 and $712,000, respectively, and during the nine months ended January 31, 2020, the Company sold product and training services to Morion in the aggregate amount of approximately $49,000, included in revenues in the condensed consolidated statements of operations as part of the FEI-NY segment.

The Company did not receive dividends from Morion during the three months ended January 31, 2021.

During the three months ended January 31, 2020, the Company received a dividend from Morion in the amount of approximately 125,000, which is included in other income, net in the condensed consolidated statements of operations as part of the FEI-NY segment.

During the nine months ended January 31, 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 condensed consolidated statements of operations as part of the FEI-NY segment.

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

During the first quarters ended July 31, 2021 and 2020, the Company acquired product from Morion in the aggregate amount of approximately $ 85,000 and $ 150,000 , respectively.

During the first quarter ended July 31, 2020, the Company received dividends from Morion in the amount of approximately $ 105,000 , 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.

1 unchanged sentence

On July 16, 2014, after the Company’s investment in Morion, Gazprombank was designated as an SSI.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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 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.

NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS

The cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale securities at January 31, 2021 and April 30, 2020, respectively, were as follows (in thousands):

January 31, 2021

The cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale securities at July 31, 2021 and April 30, 2021, respectively, were as follows (in thousands):

July 31, 2021

Gross Unrealized Gains

10 unchanged sentences

12 Months or more

January 31, 2021

July 31, 2021

Fixed Income Securities

4 unchanged sentences

Notes to Condensed Consolidated Financial Statements

During the three and nine months ended January 31, 2021, the Company sold or redeemed available-for-sale securities of approximately $477,000 and $2.0 million, respectively, realizing gains of approximately $15,000 and $26,000, respectively.

Maturities of fixed income securities classified as available-for-sale at January 31, 2021 were as follows, at cost (in thousands):

The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment.

The Company does not believe that its investments in marketable securities with unrealized losses at July 31, 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.

During the three months ended July 31, 2021, the Company sold or redeemed available-for-sale securities of approximately $ 1,102,000 realizing gains of approximately $ 7,000 .

Maturities of fixed income securities classified as available-for-sale at July 31, 2021 were as follows, at cost (in thousands):

Due after one year through five years

16 unchanged sentences

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2017, the FASB issued ASU No.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2017-04, Intangibles – Goodwill and Other (Topic 350):

14 unchanged sentences

NOTE K – CREDIT FACILITY

As of January 31, 2021, the Company had available credit with UBS Bank USA at variable terms based on its securities holdings under an advisory arrangement.

On May 6, 2020 the Company borrowed $3 million under this arrangement and on January 4, 2021 this loan was repaid in full.

On April 12, 2020, the Company received proceeds from a PPP Loan in the amount of $4,964,810 from JPMorgan Chase Bank, N.A.

as the Lender, pursuant to the SBA Paycheck Protection Program under the CARES Act.

As of July 31, 2021, the Company had available credit with UBS Bank USA at variable terms based on its securities holdings under an advisory arrangement.

On April 12, 2020, the Company received proceeds from a loan under the Paycheck Protection Program (the “PPP Loan”) in the amount of $ 4,964,810 from JPMorgan Chase Bank, N.A.

as the Lender, pursuant to the Small Business Administration Paycheck Protection Program under the Coronavirus Aid Relief, and Economic Security (“CARES”) Act.

The PPP Loan was repaid in full on May 6, 2020.

5 unchanged sentences

In circumstances where there is sufficient negative evidence indicating that the deferred tax assets will not be realizable, we establish a valuation allowance.

As of January 31, 2021, and April 30, 2020, the Company maintained a full valuation allowance against its deferred tax assets.

As of July 31, 2021, and April 30, 2021, the Company maintained a full valuation allowance against its deferred tax assets.

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

7 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 that the Company and the Director Defendants discriminated against him based on his age.

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 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.

3 unchanged sentences

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’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.

6 unchanged sentences

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 single surviving claim is entirely without merit.

The Company intends to vigorously defend against all of Mr.

Bloch’s allegations.

At this time, the Company does not have sufficient information to determine whether liability, if any, arising out of these matters is probable or the possible loss, if any, which could result from an unfavorable outcome arising out of these matters.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

In addition, Mr.

1 unchanged sentence

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.

One arbitration was 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, 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.

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

He sought 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.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

3 unchanged sentences

filed June 2, 2020)).

The Company claims that Mr.

Bloch may not arbitrate his claims for deferred compensation because he did not timely appeal the Company’s denial of those claims, and because he failed to comply with the arbitration procedures in the applicable deferred compensation agreement.

The Company claimed that Mr.

Bloch could not arbitrate his claims for deferred compensation because he did not timely appeal the Company’s denial of those claims, and because he failed to comply with the arbitration procedures in the applicable deferred compensation agreement.

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.

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On February 16, 2021, the Company filed a Notice of Appeal of that order.

The Company intends to perfect its appeal in the coming months.

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 (“Respondents”), for the appointment of an arbitrator in one of the arbitration proceedings that Mr.

Bloch filed a petition against the Company, the Compensation Committee of the Company’s Board, 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 sought to initiate.

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On February 16, 2021, the Company filed a Notice of Appeal of those orders.

The Company intends to perfect its appeal in the coming months.

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

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 served 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.

On August 25, 2021, the Company settled the aforementioned disputes with Mr.

Under the Agreement on Material Terms of Settlement (the “Settlement Terms”), dated August 25, 2021, between and among the Company, the Director Defendants, and the Compensation Committee, in its capacity as administrator under the deferred compensation agreements, and Mr.

Bloch and certain members of Mr.

Bloch’s family, in full and complete settlement of all claims asserted and all sums sought by Mr.

Bloch in the litigation and arbitration proceedings, the Company has agreed to pay Mr.

Bloch $ 6 million on or before September 24, 2021.

Prior to the termination of Mr.

Bloch’s employment and commencement of the litigation and arbitration proceedings, the Company had been regularly accruing amounts pertaining to Mr.

Bloch’s post-employment deferred compensation retirement benefits.

As of July 31, 2021, the Company had accrued $ 6 million for deferred compensation and contingent liability in connection with the settlement with Mr.

The settlement resulted in a net expense of $ 650,000 to the Company and will eliminate further legal expenses with respect to the dispute between Mr.

Bloch and the Company.

This net expense for financial statement purposes has been recognized in selling and administrative expenses on the Condensed Consolidated Statements of Operations for the three months ended July 31, 2021.

FREQUENCY ELECTRONICS, INC.

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The factors listed above are not exhaustive.

Other sections of this Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission include additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations.

Other sections of this Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed on June 30, 2021 with the Securities and Exchange Commission 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.

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Any or all of the forward-looking statements contained in this Form 10-Q and any other public statement made by the Company or its management may turn out to be incorrect.

The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission.

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed on June 30, 2021 with the Securities and Exchange Commission.

The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts, income taxes, and the valuation of inventory.

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Changes in estimates can have a material impact on the Company’s financial position and results of operations.

The Company’s significant accounting policies did not change during the nine and three months ended January 31, 2021.

The Company’s significant accounting policies did not change during the three months ended July 31, 2021.

Revenue Recognition

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Government agencies.

All marketable securities were held in the custody of one financial institution at January 31, 2021 and April 30, 2020.

All marketable securities were held in the custody of one financial institution at July 31, 2021 and April 30, 2021.

Investments in debt securities are categorized as available-for-sale and are carried at fair value, with unrealized gains and losses excluded from income and recorded directly to stockholders’ equity.

The Company recognizes gains or losses when securities are sold using the specific identification method.

COVID-19 Outbreak Update

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

The Company’s priority during the COVID-19 outbreak has been to protect the health and safety of its employees while remaining operational.

COVID-19 Pandemic Update and CARES Act

The Company’s priority during the COVID-19 pandemic has been to protect the health and safety of its employees while remaining operational.

Within the limitations imposed by governmental health and safety procedures, the Company has continued to manufacture its full range of products at its facilities.

The Company has educated employees about COVID-19 symptoms and hygiene best practices.

The Company’s policies also include taking an employee’s temperature before entering facilities; mandating handwashing and use of hand sanitizer; requiring social distancing and, requiring face coverings; encouraging, and in some cases, requiring remote work for those employees who can work from home; and disinfecting facilities.

As of March 15, 2021, the Company was aware of fourteen employees that have had confirmed cases of COVID-19 since the COVID-19 outbreak began, with one fatality.

The Company’s policies also include taking an employee’s temperature before entering facilities; mandating handwashing and use of hand sanitizer; requiring social distancing and face coverings; encouraging, and in some cases, requiring remote work for those employees who can work from home; and disinfecting facilities.

In addition, unvaccinated employees are required to be tested weekly and show negative results in order to work in the facility.

Visitors, contractors, customers and other personnel are required to show proof of vaccination in order to be admitted.

As of July 31, 2021, the Company was aware of fifteen employees that have had confirmed cases of COVID-19 since the pandemic began, with one fatality.

Additional employees have been absent or self-quarantined due to possible COVID-19 exposure, although not having tested positive.

Since the COVID-19 outbreak began, facilities have remained open except for needing to temporarily vacate certain areas for cleaning and disinfecting) following employees either testing positive for COVID or because they had been exposed or possibly exposed to third parties who were positive.

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.

The Company also believes the pandemic has impacted customers, resulting in delays with respect to anticipated new orders.

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

Since the COVID-19 pandemic began, facilities have remained open except for needing to temporarily vacate certain areas for cleaning and disinfecting following employees either testing positive for COVID-19 or because they had been exposed or possibly exposed to third parties who were positive.

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 have impacted the Company’s production schedules and increased costs associated with procurement of materials and services.

The Company continues to monitor these and its other vendors and seek alternative sources of supply, which, in some cases, are being established.

The Company also believes the pandemic has impacted customers, resulting in delays with respect to anticipated new orders due to COVID-19 related administrative delays.

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 have on the Company’s financial condition, liquidity, and future results of operations.

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 future effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity.

Given the changing dynamics of the pandemic, it is not possible for the Company to estimate potential future effects on its operations, financial condition, or liquidity.

FREQUENCY ELECTRONICS, INC.

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

For more detail regarding the Company’s PPP Loan, see Note K in Part I, Item I of this Quarterly Report on Form 10-Q.

The Company received a PPP Loan in April 2020, which it repaid in full in May 2020.

For more detail regarding the Company’s PPP Loan, see Note 8 in Part II, Item 8 of the Annual Report on Form 10-K for the fiscal year ended April 30, 2021.

RESULTS OF OPERATIONS

The table below sets forth for the three and nine months ended January 31, 2021 and 2020, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements:

Periods ended January 31,

The table below sets forth for the three months ended July 31, 2021 and 2020, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements:

Three Months ended July 31,

Less intersegment revenues

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Provision for income taxes

Periods ended January 31,

Three months ended July 31,

(in thousands)

Intersegment revenues

For the three months ended January 31, 2021 revenues from commercial and U.S.

Government satellite programs increased approximately $0.5 million, as compared to the same period of fiscal year 2020, and accounted for approximately 50% of consolidated revenues compared to approximately 55% of consolidated revenues during this same period in fiscal year 2020.

For the three months ended July 31, 2021 revenues from commercial and U.S.

Government satellite programs accounted for approximately 52% of consolidated revenues compared to approximately 51% of consolidated revenues during this same period in fiscal year 2020.

The change in revenue is related to timing of contract awards.

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Revenues from non-space U.S.

Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, increased $2.3 million as compared to the same period of fiscal year 2020, and accounted for approximately 47% of consolidated revenues compared to approximately 33% of consolidated revenues during this same period in fiscal year 2020.

Other commercial and industrial revenues for the three months ended January 31, 2021 were $0.4 million and represented approximately 3% of consolidated revenues compared to $1.2 million, or 12% of consolidated revenues, in the same period of the prior fiscal year.

Government/Department of Defense customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 42% of consolidated revenues for the three months ended July 31, 2021 compared to approximately 41% of consolidated revenues during this same period in fiscal year 2020.

Other commercial and industrial revenues for the three months ended July 31, 2021 were $0.7 million and represented approximately 6% of consolidated revenues compared to $1.0 million, or 7% of consolidated revenues, in the same period of the prior fiscal year.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

For the nine months ended January 31, 2021 revenues from commercial and U.S.

Government satellite programs increased approximately $5.3 million, as compared to the same period of fiscal year 2020, and accounted for approximately 52% of consolidated revenues compared to approximately 47% of consolidated revenues during this same period in fiscal year 2020.

The change in revenue is related to timing of contract awards.

Revenues on these contracts are recognized primarily under the POC method.

Revenues from the satellite market are recorded in the FEI-NY segment.

Revenues from non-space U.S.

Government/DOD customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, increased $3.6 million as compared to the same period of fiscal year 2020, and accounted for approximately 42% of consolidated revenues compared to approximately 41% of consolidated revenues during this same period in fiscal year 2020.

Other commercial and industrial revenues for the nine months ended January 31, 2021 were $2.2 million and represented approximately 6% of consolidated revenues compared to $3.9 million, or 12% of consolidated revenues, in the same period of the prior fiscal year.

Periods ended January 31,

The GM rate for the three-month period ended January 31, 2021, was impacted by engineering cost increases on programs in the development phase and correction of technical issues discovered during testing, as well as COVID related delays in production that impacted revenue, particularly in our Zyfer segment.

The December holiday season also affected revenue during the three-month period ended January 31, 2021.

For the nine-month period ended January 31, 2021, gross margin and GM Rate increased significantly as compared to the same periods in fiscal year 2020.

The increase in gross margin and GM Rate was due to several programs identified in prior periods that had higher engineering costs incurred that were in the development phase that have since been completed or are near completion.

Three Months ended July 31,

(in thousands)

The gross margin and the GM rate for the three-month period ended July 31, 2021 and 2020, were fairly consistent on a quarter-to-quarter comparison basis.

As is typical, gross margin was affected by variations in engineering costs associated with programs in their development versus production phase development and external issues such as COVID-19 related supply chain impacts.

Selling and Administrative Expenses

Periods ended January 31,

For the three months ended January 31, 2021 and 2020, selling and administrative (“SG&A”) expenses were approximately 21% and 38%, respectively, of consolidated revenues.

For the nine months ended January 31, 2021 and 2020, SG&A expenses were approximately 25% and 27%, respectively, of consolidated revenues.

The decrease in SG&A expenses for the three-month period ended January 31, 2021 was mainly due to decreased professional fees, depreciation expense and other expenses.

For the nine-month period ended January 31, 2021, the increase in SG&A expenses was mainly due to increase in professional fees (relating to litigation for which the Company has received insurance reimbursement for a portion of such legal fees).

Research and Development Expense

Periods ended January 31,

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 future competitiveness.

The R&D rate for the three-month period ended January 31, 2021 and 2020 was 11% of sales.

The R&D rate for the nine-month period ended January 31, 2021 was 9% of sales, compared to 15% of sales for the same period of the previous fiscal year.

The Company’s R&D expense decreased year over year as previous R&D efforts have ended and turned into production;

however, the Company plans to continue to invest in R&D to keep its products at the state of the art.

Three Months ended July 31,

(in thousands)

For the three months ended July 31, 2021 and 2020, selling and administrative (“SG&A”) expenses were approximately 34% and 25%, respectively, of consolidated revenues.

The increase in SG&A expenses for the three-month period ended July 31, 2021 was mainly due to increase in professional fees, particularly legal fees associated with ongoing litigation and fluctuation in other expenses.

The Company anticipates that SG&A will decrease following settlement of the Bloch litigation issue.

Research and Development Expenses

Three Months ended July 31,

(in thousands)

Research and development (“R&D”) expenditures represent investments intended to keep the Company’s products at the leading edge of technology and enhance future competitiveness.

The R&D rate for the three-month period ended July 31, 2021 was 10% of sales compared to 9% of sales for the same period of the prior fiscal year.

The Company’s R&D expense increased year over year as R&D efforts have begun on new product development.

The Company plans to continue to invest in R&D to keep its products at the state of the art as well as work on developing new technologies.

Operating Loss

Three Months ended July 31,

(in thousands)

The Company’s results for the three-month period ended July 31, 2021 reflect its continued efforts to control costs, however increased professional fees associated with the Bloch litigation significantly contributed to the Company’s operating loss for the period.

Other factors that contributed were the continuing effects of the COVID-19 pandemic and additional engineering costs.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Operating Loss

Periods ended January 31,

The Company’s results for the three and nine-month periods ended January 31, 2021 reflect improvements in revenues, gross margin and GM rate.

As referenced above by the percentages for the three and nine-month periods ended January 31, 2021, operating loss has made a significant improvement from the same period of the prior fiscal year.

Based upon our bookings and backlog we are expecting the improving trend to continue.

Operating loss for the quarter reflects the confluence of several factors.

COVID related delays in expected bookings was significant and resulted from both delays in the award of anticipated orders by several customers, as well as employee absenteeism related to either direct or indirect effects of COVID.

Certain technical issues resulted in increased engineering costs in the three-months period ended January 31, 2021, as well.

Other Income (Expense), net

Periods ended January 31,

Three Months ended July 31,

(in thousands)

Investment income

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Earnings on securities may vary based on fluctuating interest rates, dividend payout levels, and the timing of purchases, sales, redemptions or maturities of securities.

For the nine-month period ended January 31, 2021 investment income included a $105,000 dividend from Morion, compared to a $250,000 dividend from Morion in the same period in fiscal 2020.

The fluctuation in other income (expenses) was due to less interest expense and higher other income compared to the same period of the prior fiscal year.

Income Tax Provision

Periods ended January 31,

Effective tax rate on pre-tax book income (loss):

Three Months ended July 31,

(in thousands)

Three Months ended

Effective tax rate on pre-tax book loss:

The estimated annual effective tax rate for the fiscal year ending April 30, 2022 is 0.2%.

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The Company maintains a full valuation allowance against its deferred tax assets.

For the three months ended January 31, 2021, the Company recorded an income tax provision of $12,000, which included a discrete income tax provision of $12,000 primarily related to an accrual of interest for unrecognized tax benefits.

For the three months ended January 31, 2020, the Company also recorded a discrete income tax provision of $19,000, which primarily consisted of an accrual of interest for unrecognized tax benefits.

For the nine months ended January 31, 2021, the Company recorded a discrete income tax provision of $37,000, which primarily consisted of an accrual of interest for unrecognized tax benefits.

For the nine months ended January 31, 2020, the Company also recorded a discrete income tax provision of $48,000, which primarily consisted of an accrual of interest for unrecognized tax benefits.

For the three months ended July 31, 2021, the Company recorded an income tax provision of $1,000, which includes a discrete income tax provision of $2,000.

For the three months ended July 31, 2020, the Company recorded an income tax provision of $9,000, which includes a discrete income tax provision of $16,000 primarily related to an accrual of interest for unrecognized tax benefits.

The effective tax rate for the three months ended July 31, 2021 is an income tax provision of (0.1)% on a pretax loss of $1.6 million compared to an income tax provision of (3.6)% on a pretax loss of $253,000 in the comparable prior fiscal year period.

The effective tax rate for the three months ended July 31, 2021 differs from the U.S.

statutory rate of 21% primarily due to state taxes and domestic losses for which the Company is not recognizing an income tax benefit.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

The effective tax rate for the three months ended January 31, 2021 is an income tax provision of (1.5)% on pretax loss of $788,000 compared to an income tax provision of (1.3) % on a pretax loss of $1,527,000 in the comparable prior fiscal year period.

The effective tax rate for the three months ended January 31, 2021 differs from the U.S.

statutory rate of 21% primarily due to state taxes, a discrete income tax provision related to the accrual of interest for unrecognized tax benefits, and domestic losses for which the Company is not recognizing an income tax benefit.

The effective tax rate for the nine months ended January 31, 2021 is an income tax provision of (5.4)% on pretax loss of $696,000 compared to an income tax provision of (0.7)% on a pretax loss of $6,998,000 in the comparable prior fiscal year period.

The effective tax rate for the nine months ended January 31, 2021 differs from the U.S.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s consolidated balance sheet continues to reflect a strong working capital position of $39.3 million at January 31, 2021 and $38.3 million at April 30, 2020.

Included in working capital at January 31, 2021 and April 30, 2020 is $17.7 million and $14.4 million, respectively, consisting of cash, cash equivalents, and marketable securities.

The Company’s current ratio at January 31, 2021 was 6.6 to 1 compared to 3.9 to 1 as of April 30, 2020.

Net cash provided by operating activities for the nine months ended January 31, 2021 was $9.3 million compared to net cash used in operating activities of $760,000 in the comparable prior fiscal 2020 period.

The increase cash flow in the fiscal 2021 period resulted mainly due to a decrease in net loss, accounts receivable, and inventory amounts.

For the nine-month periods ended January 31, 2021 and 2020, the Company incurred approximately $3.4 million and $6.0 million, respectively, of non-cash operating expenses including ROU assets and liabilities for leases, loss provision accrual, depreciation and amortization, inventory reserve adjustments, and accruals for employee benefit programs.

Net cash used in investing activities for the nine months ended January 31, 2021 was $921,000 compared to $2.7 million for the nine months ended January 31, 2020.

During the nine months ended January 31, 2021 marketable securities were sold or redeemed in the amount of $2.0 million compared to $3.0 million for the same period of fiscal 2020.

During the nine months ended January 31, 2021 approximately $1.9 million of marketable securities were purchased compared to $4.1 million for the same period of fiscal 2020.

The Company acquired property, plant and equipment in the amount of approximately $971,000 for the nine-month period ended January 31, 2021 compared to $1.6 million for the nine-month period ended January 31, 2020.

The Company’s consolidated balance sheet continues to reflect a strong working capital position of $40.1 million at July 31, 2021 and $40.6 million at April 30, 2021.

Included in working capital at July 31, 2021 and April 30, 2021 was $18.9 million and $20.1 million, respectively, consisting of cash, cash equivalents, and marketable securities.

The Company’s current ratio at July 31, 2021 was 3.6 to 1 compared to 6.0 to 1 as of April 30, 2021.

Net cash used in operating activities for the three months ended July 31, 2021 was $828,000 compared to net cash provided by operating activities of $62,000 in the comparable prior fiscal 2021 period.

The decrease in cash flow in the fiscal 2022 period resulted mainly due to an increase in net loss partially offset by a decrease in non-cash adjustments.

For the three-month periods ended July 31, 2021 and 2020, the Company incurred approximately $708,000 and $1.2 million, respectively, of non-cash operating expenses including ROU assets and liabilities for leases, loss provision accrual, depreciation and amortization, inventory reserve adjustments, and accruals for employee benefit programs.

Net cash used in investing activities for the three months ended July 31, 2021 was $78,000 compared to $514,000 net cash provided by investing activities for the period ended July 31, 2020.

During the three months ended July 31, 2021 marketable securities were sold or redeemed in the amount of $1.1 million compared to $725,000 for the same period of fiscal year 2021.

During the three months ended July 31, 2021 approximately $676,000 of marketable securities were purchased.

There were no purchases for the same period of fiscal year 2021.

The Company acquired property, plant and equipment in the amount of approximately $504,000 for the three-month period ended July 31, 2021 compared to $211,000 for the three-month period ended July 31, 2020.

The Company may continue to invest in cash equivalents as dictated by its investment strategy.

Net cash used in financing activities for the nine months ended January 31, 2021 was approximately $5.0 million related to the repayment of the PPP Loan.

There was no cash used in financing activities for the nine months ended January 31, 2020.

There was no cash used in financing activities for the three months ended July 31, 2021 compared to approximately $2.0 million of net cash used in financing activities related to the repayment of the PPP Loan and the amounts borrowed against the Company’s line of credit with UBS Bank USA for the three months ended July 31, 2020.

The Company has been authorized by its Board to repurchase up to $5 million worth of shares of its common stock when appropriate opportunities arise.

As of January 31, 2021, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization.

For the nine months ended January 31, 2021 and 2020 there were no repurchases of shares.

As of July 31, 2021, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization.

For the three months ended July 31, 2021 and 2020 there were no repurchases of shares.

The Company will continue to expend resources to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems which management believes will result in future growth and profitability.

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The Company may also pursue acquisitions to expand its range of products and may use internally generated cash and external funding in connection with such acquisitions.

As of January 31, 2021, the Company’s consolidated funded backlog was approximately $41 million compared to $36 million at April 30, 2020, the end of fiscal 2020.

As of July 31, 2021, the Company’s consolidated funded backlog was approximately $37 million compared to $40 million at April 30, 2021, the end of fiscal year 2021.

Approximately 82% of this backlog is expected to be realized in the next twelve months.

As of January 31, 2021, there are no amounts included in backlog under cost-plus fixed-fee (“CPFF”) contracts that have not been funded.

As of July 31, 2021, there were no amounts included in backlog under cost-plus fixed-fee contracts that have not been funded.

The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed.

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Accordingly, the backlog is not necessarily indicative of the revenues or profits (losses) which may be realized when the results of such contracts are reported.

The Company believes that its liquidity is adequate to meet its operating and investment needs through at least March 12, 2022 and the foreseeable future.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

The Company believes that its liquidity is adequate to meet its operating and investment needs through at least September 14, 2022 and the foreseeable future.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

The Company does not have any off-balance sheet arrangements, that have or are reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

FREQUENCY ELECTRONICS, INC.

3 unchanged sentences

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-Q

Item 1. Financial Statements