What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-12-14 compared with 2021-09-14 · 199 added, 144 removed, 491 unchanged (41% of the section changed)

7 unchanged sentences

Marketable securities

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

Accounts receivable, net of allowance for doubtful accounts of $ 111 at October 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, net of current portion

Cash surrender value of life insurance

Right-of-Use assets – operating leases

6 unchanged sentences

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

authorized 20,000 shares, 9,264 shares issued and 9,263 shares outstanding at October 31, 2021;

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

2 unchanged sentences

Common stock reacquired and held in treasury -

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

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

Accumulated other comprehensive income

4 unchanged sentences

and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands except per share data)

Three Months Ended July 31,

Three Months Ended October 31,

Six Months Ended October 31,

Condensed Consolidated Statements of Operations

2 unchanged sentences

Research and development expenses

Operating loss

Operating income (loss)

Other income (expense):

2 unchanged sentences

Other income (expense), net

Loss before provision for income taxes

Income (loss) before provision for income taxes

Provision for income taxes

Net loss per common share:

Basic and diluted loss per share

Net income (loss)

Net income (loss) per common share:

Basic and diluted income (loss) per share

Weighted average shares outstanding:

Basic and diluted

Condensed Consolidated Statements of Comprehensive Loss

Unrealized gain (loss) on marketable securities:

Condensed Consolidated Statements of Comprehensive Income (Loss)

Net income (loss)

Unrealized (loss) gain on marketable securities:

Change in market value of marketable securities before

2 unchanged sentences

net income, net of tax

Total unrealized gain on marketable securities, net of tax

Comprehensive loss

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

Comprehensive income (loss)

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three Months Ended July 31,

Six Months Ended October 31,

Cash flows from operating activities:

Net (loss) income

Non-cash charges to earnings

Net changes in operating assets and liabilities

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

Purchase of marketable securities

Purchase of fixed assets and other assets

Net cash (used in) provided by investing activities

Purchase of property, plant, and equipment, and other assets

Net cash used in investing activities

Net cash used in financing activities:

2 unchanged sentences

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase (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 Months Ended July 31, 2021 and 2020

Three and Six Months Ended October 31, 2021

(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, 2021

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended October 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

loss, net of tax

Balance at October 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 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 “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 October 31, 2021 and the results of its operations, changes in stockholders’ equity for the three and six months ended October 31, 2021 and 2020, and cash flows for the six months ended October 31, 2021 and 2020.

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

6 unchanged sentences

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

The current resurgence of COVID-19 variants may have additional, unforeseen, impacts.

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 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.

For the six months ended October 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.

As of July 31, 2021, the Company had returned to normal operations, and the Company will continue to follow CDC and state guidelines with an emphasis on employee safety.

The Company faces various future COVID-19 related risks, including the possibility of impact from the Omicron variant and other future mutations.

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

7 unchanged sentences

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 months ended July 31, 2021 and 2020, respectively, were as follows:

Three months ended July 31,

NOTE B – EARNINGS (LOSS) PER SHARE

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

Periods ended October 31,

Weighted average shares outstanding:

2 unchanged sentences

Diluted EPS Shares outstanding

** 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.

** For the six-months ended October 31, 2021 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 that period.

The exercisable shares excluded for the three- and six-months ended October 31, 2021 was 198,000 and 223,000 options, respectively.

The exercisable shares excluded for the three- and six-month periods ended October 31, 2020 was 303,000 and 436,000 options, respectively.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

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

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

At October 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:

October 31, 2021

April 30, 2021

7 unchanged sentences

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

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.

During the three and six months ended October 31, 2021, revenue recognized under POC contracts was approximately $ 12.2 million and $ 24.6 million, respectively.

During the three and six months ended October 31, 2020, revenue recognized under POC contracts was approximately $ 12.9 million and $ 24.6 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 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.

Contract losses of approximately $ 31,000 and $ 47,000 were recorded for the three and six months ended October 31, 2021, respectively.

Contract losses of approximately $ 121,000 and $ 731,000 were recorded for the three and six months ended October 31, 2020, respectively.

NOTE D –STOCK TRANSACTIONS

During the three and six-month periods ended October 31, 2021, the Company made contributions of 10,779 and 24,030 shares of its common stock, respectively, to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code.

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

1 unchanged sentence

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

July 31, 2021

October 31, 2021

April 30, 2021

3 unchanged sentences

Finished Goods

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.

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

NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

9 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 balance sheet.

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

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

Classification

July 31, 2021

October 31, 2021

April 30, 2021

(in thousands)

Operating lease ROU assets

Right-of-Use assets - operating leases

Right-of-Use assets leases

Operating lease liabilities (short-term)

Operating lease liability

Lease liability, current

Operating lease liabilities (long-term)

Operating lease liability - non-current

Lease liability, non-current

Total lease liabilities

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,

Total operating lease expense was $ 500,000 and $ 1.0 million for the three and six months ended October 31, 2021, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses in the condensed consolidated statements of operations.

Total operating lease expense was $ 500,000 and $ 1.2 million for the three and six months ended October 31, 2020, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses in the condensed consolidated statements of operations.

Fiscal Year Ending April 30,

( in thousands )

5 unchanged sentences

Long-term lease obligations

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

As of October 31, 2021, the weighted-average remaining lease term for all operating leases was 7.0 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 July 31, 2021 was 6.20 %.

The weighted average discount rate for operating leases as of October 31, 2021 was 6.22 %.

FREQUENCY ELECTRONICS, INC.

22 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):

Three Months Ended July 31,

Periods ended October 31,

less intersegment revenues

Consolidated revenues

Operating (loss) income:

Operating income (loss):

less intersegment revenues

Consolidated operating loss

July 31, 2021

Consolidated operating income (loss)

October 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 $ 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.

Total revenue recognized over time as POC and Passage of Title (“POT”) were approximately $ 12.2 million and $ 0.7 million, respectively, of the $ 12.9 million reported for the three months ended October 31, 2021.

Total revenue recognized over time as POC and POT were approximately $ 24.6 million and $ 1.3 million, respectively, of the $ 25.9 million reported for the six months ended October 31, 2021.

The amounts recognized over time as POC and POT were approximately $ 12.9 million and $ 1.1 million, respectively, of the $ 14.0 million reported for the three months ended October 31, 2020.

The amount recognized over time as POC and POT were approximately $ 24.6 million and $ 2.3 million, respectively, of the $ 26.9 million for the six months ended October 31, 2020.

The amounts by segment and product line were as follows:

Three Months Ended July 31,

Three Months Ended October 31,

(In thousands)

Three Months Ended July 31,

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Six Months Ended October 31,

(In thousands)

Periods ended October 31,

(in thousands)

Revenues by Product Line:

3 unchanged sentences

Consolidated revenues

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE H – INVESTMENT IN MORION, INC.

4 unchanged sentences

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.

During the three and six months ended October 31, 2021, the Company acquired product from Morion in the aggregate amount of approximately $ 34,000 and $ 120,000 , respectively.

During the three and six months ended October 31, 2020, the Company acquired product from Morion in the aggregate amount of approximately $ 118,000 and $ 268,000 , respectively.

During the six months ended October 31, 2021 and 2020, the Company received dividends from Morion in the amount of approximately $ 123,000 and $ 105,000 , 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.

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

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 July 31, 2021 and April 30, 2021, respectively, were as follows (in thousands):

July 31, 2021

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

October 31, 2021

Gross Unrealized Gains

10 unchanged sentences

12 Months or more

July 31, 2021

October 31, 2021

Fixed Income Securities

1 unchanged sentence

Fixed Income Securities

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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):

The Company does not believe that its investments in marketable securities with unrealized losses at October 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 and six months ended October 31, 2021, the Company sold or redeemed available-for-sale securities of approximately $ 325,000 and $ 1.4 million, respectively, realizing gains of approximately $ 7,000 for the six months ended October 31, 2021.

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

Due after one year through five years

2 unchanged sentences

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

The levels of the fair value hierarchy are described below:

25 unchanged sentences

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

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE K – CREDIT FACILITY

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.

As of October 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.

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

As of October 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.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE M – COMMITMENTS AND CONTINGENCIES

29 unchanged sentences

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.

31 unchanged sentences

Bloch’s claims are not arbitrable.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

30 unchanged sentences

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 three months ended July 31, 2021.

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

Revenue Recognition

16 unchanged sentences

The Company evaluates this information continuously and bases its judgments on historical experience, design specifications, and expected costs for material and labor.

The Company evaluates the amount of development risk associated with new contracts which entail the development of new or significantly modified products and incorporates additional costs to cover these risks.

These are estimates based on the company’s best judgement, but because this entails estimations based on products not heretofore developed, there is risk that the estimates may ultimately prove to be incorrect and that costs are impacted.

Contract costs include all direct material, direct labor costs, manufacturing overhead and other direct costs related to contract performance.

4 unchanged sentences

Any changes arising from revised expectations are reflected in cost of revenues in the period the revision is made.

Marketable Securities

Marketable securities consist of corporate debt securities, certificates-of-deposit, and debt securities of U.S.

Government agencies.

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 Pandemic Update and CARES Act

5 unchanged sentences

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.

As of October 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.

8 unchanged sentences

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.

and SUBSIDIARIES

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.

2 unchanged sentences

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.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

RESULTS OF OPERATIONS

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,

The table below sets forth for the three and six months ended October 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 October 31,

Less intersegment revenues

2 unchanged sentences

Research and development expenses

Operating loss

Operating income (loss)

Other income (loss), net

Provision for income taxes

Three months ended July 31,

Net income (loss)

Periods ended October 31,

(in thousands)

Intersegment revenues

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

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

Government satellite programs accounted for approximately 51% of consolidated revenues compared to approximately 54% of consolidated revenues during this same period in fiscal year 2021.

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

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

1 unchanged sentence

Revenues from non-space U.S.

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.

Government/Department of Defense customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 39% of consolidated revenues for both the three months ended October 31, 2021 and 2020.

Other commercial and industrial revenues for the three months ended October 31, 2021 were $1.2 million and represented approximately 10% of consolidated revenues compared to $0.9 million, or 6% of consolidated revenues, in the same period of the prior fiscal year.

For the six months, ended October 31, 2021 revenues from commercial and U.S.

Government satellite programs accounted for approximately 52% of consolidated revenues compared to approximately 53% of consolidated revenues during this same period in fiscal year 2021.

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/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments accounted for approximately 40% of consolidated revenues for the six months ended October 31, 2021 and 2020.

Other commercial and industrial revenues for the six months ended October 31, 2021 were $2.0 million and represented approximately 8% of consolidated revenues compared to $1.9 million, or 7% of consolidated revenues, in the same period of the prior fiscal year.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Three Months ended July 31,

Periods ended October 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.

For the three and six-month periods ended October 31, 2021, gross margin and GM Rate decreased as compared to the same periods in fiscal year 2021.

The decrease in gross margin and GM Rate was due to increased engineering costs on development phase programs that experienced particularly complex technical challenges, as well as cost impacts on several programs resulting from supply chain problems.

Lack of availability of parts and materials and/or quality problems with traditional vendors resulted in the need to redesign certain electronic units to replace unavailable parts with different parts that were available in order to maintain contract delivery schedules.

In several cases, re-procurement of circuit boards and mechanical parts was necessitated by quality issues in the supply chain, further contributing to increased costs.

Selling and Administrative Expenses

Three Months ended July 31,

Periods ended October 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.

For the three months ended October 31, 2021 and 2020, SG&A expenses were approximately 19% and 30%, respectively, of consolidated revenues.

For the six months ended October 31, 2021 and 2020, selling and administrative (“SG&A”) expenses were approximately 26% and 27%, respectively, of consolidated revenues.

The decrease in SG&A expenses is mainly due to the decrease in professional fees.

With the previously announced settlement of litigation with the Company’s former Chief Scientist and former members of the Board of Directors, we expect this trend to continue as expenses normalize.

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,

Periods ended October 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.

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 October 31, 2021 was 11% of sales compared to 7% of sales for the same period of the previous fiscal year.

The R&D rate for the six-month period ended October 31, 2021 was 11% of sales compared to 8% of sales for the same period of the previous fiscal year.

R&D increases in the first and second quarters of fiscal 2022 were due to higher than usual level of internal R&D associated with investments the Company is making in new technology developments related to atomic clocks and low-noise oscillators that are intended to produce long-term increases in revenue and position the Company to compete in the market place with next generation products.

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

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Operating Income (Loss)

Periods ended October 31,

(in thousands)

During the three-month period ended October 31, 2021, the Company reported an operating profit based upon reduced professional fees as a result of previously announced settlement of litigation with the Company’s former Chief Scientist and former members of the Board of Directors.

The Company’s results for the six-month period ended October 31, 2021 reflects the increased professional fees and charges related to litigation.

During both periods the Company experienced increased supply chain costs and delays.

Other Income (Expense), net

Three Months ended July 31,

Periods ended October 31,

(in thousands)

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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.

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.

For the six-month period ended October 31, 2021 investment income includes a $123,000 dividend from Morion, compared to a $105,000 dividend from Morion in the same period in fiscal 2021.

Income Tax Provision

Three Months ended July 31,

Periods ended October 31,

(in thousands)

Three Months ended

Effective tax rate on pre-tax book loss:

Periods ended October 31,

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

The estimated annual effective tax rate for the fiscal year ending April 30, 2022 is 0%.

1 unchanged sentence

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

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

For the three months ended October 31, 2021, the Company recorded an income tax provision of $1,504.

For the three months ended October 31, 2020, the Company recorded an income tax provision of $17,000, which includes a discrete income tax provision of $9,000 primarily related to an accrual of interest for unrecognized tax benefits.

For the six months ended October 31, 2021, the Company recorded an income tax provision of $2,250.

For the six months ended October 31, 2020, the Company recorded a discrete income tax provision of $25,000, primarily related to an accrual of interest for unrecognized tax benefits.

The effective tax rate for the three months ended October 31, 2021 is an income tax provision of 0.4% on pretax income of $499,000 compared to an income tax provision of 4.9% on pretax income of $346,000 in the comparable prior fiscal year period.

The effective tax rate for the three months ended October 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.

The effective tax rate for the six months ended October 31, 2021 is an income tax provision of (0.2) % on a pretax loss of $1.1 million compared to an income tax provision of 27.2% on pretax income of $92,000 in the comparable prior fiscal year period.

The effective tax rate for the six months ended October 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.

LIQUIDITY AND CAPITAL RESOURCES

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’s consolidated balance sheet continues to reflect a strong working capital position of $40.5 million at October 31, 2021 and $40.6 million at April 30, 2021.

Included in working capital at October 31, 2021 and April 30, 2021 was $20.6 million and $20.1 million, respectively, consisting of cash, cash equivalents, and marketable securities.

The Company’s current ratio at October 31, 2021 was 5.0 to 1 compared to 6.0 to 1 as of April 30, 2021.

Net cash provided by operating activities for the six-month periods ended October 31, 2021 and 2020 was $1.7 million and $1.9 million, respectively.

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

For the six-month periods ended October 31, 2021 and 2020, the Company incurred approximately $2.8 million and $2.6 million, respectively, of non-cash operating expenses including ROU assets and liabilities for leases, loss provision accrual, depreciation and amortization, inventory reserve adjustments, deferred compensation, and accruals for employee benefit programs.

During the fiscal year the Company billed milestones on certain newer contracts that require longer lead times to procure materials and parts required to complete the projects.

It has not been determined if this will occur going forward on new contracts or if it is specifically related to the current projects.

Net cash used in investing activities for the six-month periods ended October 31, 2021 and 2020 was $845,000 and $169,000, respectively.

During the six months ended October 31, 2021 marketable securities were sold or redeemed in the amount of $1.4 million compared to $1.5 million for the same period of fiscal year 2021.

During the six months ended October 31, 2021 approximately $1.2 million of marketable securities were purchased compared to $900,000 for the same period of fiscal year 2021.

The Company acquired property, plant and equipment in the amount of approximately $1.1 million and $800,000 for the six-month periods ended October 31, 2021 and 2020, respectively.

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

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.

There was no cash used in financing activities for the six months ended October 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 six months ended October 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 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.

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

For the three and six months ended October 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 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.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

As of October 31, 2021, the Company’s consolidated funded backlog was approximately $38 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 July 31, 2021, there were no amounts included in backlog under cost-plus fixed-fee contracts that have not been funded.

As of October 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.

3 unchanged sentences

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 September 14, 2022 and the foreseeable future.

The Company believes that its liquidity is adequate to meet its operating and investment needs through at least December 15, 2022 and the foreseeable future.

Off-Balance Sheet Arrangements

5 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