What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-07-14 compared with 2021-06-30 · 129 added, 190 removed, 689 unchanged (32% of the section changed)

27 unchanged sentences

Revenue Recognized Over Time Using Percentage-of-Completion

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

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

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

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

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

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

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

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

Under this method, revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs.

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

Given the judgment necessary to make estimates regarding the revenue and total costs associated with such contracts, specifically, the estimation of costs required to complete such contracts, auditing these estimates required a high degree of auditor judgment due to the subjectivity and judgment used in evaluating management’s estimate.

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

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

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

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

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

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

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

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

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

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

/s/ BDO USA, LLP

1 unchanged sentence

Melville, New York

June 30, 2021

July 14, 2022

FREQUENCY ELECTRONICS, INC.

5 unchanged sentences

Marketable securities

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

Costs and estimated earnings in excess of billings, net

Accounts receivable, net of allowance for doubtful accounts of $ 111 at April 30, 2022 and April 30, 2021

Contract assets

Inventories, net

11 unchanged sentences

Operating lease liability, current portion

Contract liabilities

Total current liabilities

14 unchanged sentences

Common stock reacquired and held in treasury -

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

Accumulated other comprehensive income

at cost ( 1 share at April 30, 2022 and April 30, 2021)

Accumulated other comprehensive income (loss)

Total stockholders’ equity

13 unchanged sentences

Investment income

Loss on disposal of asset

Loss on impairment of Morion

Interest expense

Other income (expense), net

Income (loss) before benefit from income taxes

Benefit from income taxes

Net income (loss)

Net income (loss) per common share:

Basic and diluted earnings (loss) per share

(Loss) income before provision (benefit) from income taxes

Provision (benefit) from income taxes

Net (loss) income

Net (loss) income per common share:

Basic and diluted (loss) earnings per share

Weighted average shares outstanding:

Consolidated Statements of Comprehensive Income (Loss)

Net income (loss)

Unrealized (loss) gain on marketable securities:

Net (loss) income

Unrealized loss on marketable securities:

Change in market value of marketable securities before

2 unchanged sentences

net income, net of tax

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

Comprehensive income (loss)

Total unrealized loss on marketable securities, net of tax

Comprehensive (loss) income

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

5 unchanged sentences

Cash flows from operating activities:

Net income (loss)

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

Deferred income taxes

Net (loss) income

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

Depreciation and amortization

1 unchanged sentence

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

(Gain) loss on marketable securities

Gain on marketable securities

Loss on sale of fixed and other assets, net

Loss on impairment of Morion

Employee benefit plans expense

2 unchanged sentences

Accounts receivable

Costs and estimated earnings in excess of billings

Contract assets

Prepaid expenses and other

1 unchanged sentence

Accrued liabilities

Contract liabilities

Loss provision accrual

1 unchanged sentence

Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

4 unchanged sentences

Cash flows from financing activities:

(Repayment of) Proceeds from PPP loan

Net cash (used in) provided by financing activities

Repayment of PPP loan

Net cash used in financing activities

Net increase in cash and cash equivalents

21 unchanged sentences

Balance at April 30, 2020

Contribution of stock to 401(k) plan

Stock-based compensation expense

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

Other comprehensive income, net of tax

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 April 30, 2021

Contribution of stock to 401(k) plan

Stock-based compensation expense

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

Other comprehensive loss, net of tax

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 April 30, 2022

26 unchanged sentences

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

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

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

Given the continuing changing dynamics of the pandemic the Company is not able to estimate the potential adverse effects on its operations, financial condition, or liquidity for fiscal year 2023.

As of April 30, 2022, the Company has returned to essentially 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.

4 unchanged sentences

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

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

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

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

4 unchanged sentences

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

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

FREQUENCY ELECTRONICS, INC.

5 unchanged sentences

The Company places its temporary cash investments with high credit quality financial institutions.

Such investments may at times be in excess of the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”) insurance limits.

Such investments may at times be in excess of the Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation insurance limits.

No losses have been experienced on such investments.

38 unchanged sentences

Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information and status of the contract.

The effect of any change in the estimated gross margin rate (“GM Rate”) for a contract is reflected in revenues in the period in which the change is known.

The effect of any change in the estimated gross margin rate for a contract is reflected in revenues in the period in which the change is known.

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

56 unchanged sentences

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

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

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

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

28 unchanged sentences

Earnings per Share

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

Reconciliations of the weighted average shares outstanding for basic and diluted (loss) income per share for the years ended April 30, 2022 and 2021, respectively, were as follows:

For the Years Ended April 30,

5 unchanged sentences

Additionally, there are anti-dilutive shares excluded in the above table for fiscal years ended April 30, 2022 and 2021 of 193,000 and 345,800 , respectively.

Costs and Estimated Earnings in Excess of Billings, Net

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

Contract (Liabilities) Assets, Net

At April 30, 2022 and 2021, contract assets (liabilities), net, consisted of the following (in thousands):

April 30, 2022

April 30, 2021

Costs and estimated earnings in excess of billings

Billings in excess of costs and estimated earnings

Contract Assets

Contract Liabilities

Net (liability) asset

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

1 unchanged sentence

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

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

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

During the years ended April 30, 2022 and 2021, revenue recognized under POC contracts was approximately $ 46.4 million and $ 50.2 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.

If contract losses are anticipated, a loss provision is recorded for the full amount of such losses when they are determinable.

Total contract losses for the fiscal years ended April 30, 2022 and 2021 were approximately $ 4.2 million and $ 1.0 million, respectively.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2022 and 2021

Inventories, Net

5 unchanged sentences

Finished Goods

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2021 and 2020

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

Inventory reserves included in inventory were $ 7.5 million and $ 7.3 million for the fiscal years ended April 30, 2022 and 2021, respectively.

Property, Plant and Equipment, Net

5 unchanged sentences

Less accumulated depreciation

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

Depreciation and amortization expense were $ 2.8 million and $ 2.9 million for the fiscal years ended April 30, 2022 and 2021, respectively.

Maintenance and repairs charged to operations was approximately $ 677,000 and $ 827,000 for the fiscal years ended April 30, 2022 and 2021, respectively.

7 unchanged sentences

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

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2022 and 2021

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

11 unchanged sentences

Total operating lease expense was approximately $ 1.6 million for the fiscal years ended April 30, 2022 and 2021, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the consolidated statements of operations.

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

In addition, we made cash payments of $ 2.0 million for operating leases during the fiscal years ended April 30, 2022 and 2021, which are included in cash flows from operating activities in our consolidated statement of cash flows.

As of April 30, 2022, the Company had no operating lease liabilities that had not commenced.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2021 and 2020

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 consolidated balance sheet as of April 30, 2022:

9 unchanged sentences

The weighted average discount rate for operating leases as of April 30, 2022 was 6.16 %.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2022 and 2021

Marketable Securities

17 unchanged sentences

Fixed Income Securities

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2021 and 2020

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

4 unchanged sentences

Gross realized losses

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2022 and 2021

Maturities of fixed income securities classified as available-for-sale at April 30, 2022 were as follows (at cost, in thousands):

18 unchanged sentences

Debt Obligations

As of April 30, 2021, the Company had available credit with UBS Bank USA at variable terms based on its securities holdings under an advisory arrangement, under which no borrowings have been made.

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

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

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

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2021 and 2020

As of April 30, 2022 and 2021, the Company had available credit with UBS Bank USA at variable terms based on its securities holdings under an advisory arrangement, under which no borrowings have been made.

Accrued Liabilities

5 unchanged sentences

Deferred compensation payable

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2022 and 2021

Investment in Morion, Inc.

1 unchanged sentence

The Company has also licensed certain technology to Morion.

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 consolidated balance sheets.

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

During the fiscal years ended April 30, 2022 and 2021, the Company acquired product from Morion in the aggregate amount of approximately $ 215,000 and $ 710,000 , respectively.

1 unchanged sentence

During the fiscal years ended April 30, 2022 and 2021, 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.

Purchases of materials from Morion consist mainly of quartz crystal blanks which are used in the fabrication of quartz resonators.

In the event that these items become unavailable from Morion, the Company is in the process of establishing alternate sources of supply.

The Company is also capable of fabricating the crystal blanks in-house.

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

7 unchanged sentences

According to OFAC, the Cautionary Letter was issued instead of pursuing a civil monetary penalty or taking other enforcement action.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2021 and 2020

Due to the current Russia-Ukraine conflict and resulting sanctions, the future status of FEI’s equity investment in Morion is uncertain.

In response to these conditions, in connection with the preparation of the audited financial statements included in this annual report on Form 10-K, the Company impaired its investment in Morion in full.

The impairment of $ 796,000 is included in other income (expense), net, in the consolidated statements of operations for the fiscal year ended April 30, 2022.

The likelihood of future sales to, purchases, and dividend payments from Morion is questionable.

Employee Benefit Plans

9 unchanged sentences

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

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2022 and 2021

Income Incentive Pool:

2 unchanged sentences

The incentive bonus recorded for the fiscal year ended April 30, 2022 was $ 100,000 .

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

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

Employee Stock Plans:

1 unchanged sentence

The plans are Nonqualified Stock Options (“NQSO”) plans, Incentive Stock Option (“ISO”) plans, and SAR plans.

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

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

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

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

The options and SARs generally expire ten years after the date of grant (the most recent SARs awards, beginning in fiscal year 2017, expire in five years ) and are subject to certain restrictions on transferability of the shares obtained on exercise.

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

25 unchanged sentences

As of April 30, 2022, total unrecognized compensation cost related to non-vested options and SARs under the plans was approximately $ 7,000 .

These costs are expected to be recognized over a weighted average period of 1.0 years.

These costs are expected to be recognized over a weighted average period of less than 1.0 years.

During the years ended April 30, 2022 and 2021, 41,875 and 85,625 shares, respectively, vested, the fair value of which was approximately $ 123,000 and $ 274,000 , respectively.

11 unchanged sentences

As of April 30, 2021, there are no outstanding shares available for purchase.

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

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

Under the 2005 Stock Award Plan the Company begin issuing Restricted Stock Units (“RSUs”) to eligible employees in fiscal 2020.

The fair value of these awards is equivalent to the market value of the Company’s common stock on the grant date and vests over a period of time.

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

A portion of the RSUs awarded will vest annually until fiscal 2026.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

April 30, 2022 and 2021

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

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

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

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

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

During the year ended April 30, 2022 and 2021, the Company issued 1,150 shares from common stock and 950 shares from common stock, respectively, to select employees for milestone years of service to the Company.

These shares were issued under the 2005 Stock Award Plan, are shares of the Company’s common stock, and are fully vested at time of issuance.

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

3 unchanged sentences

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

A portion of the PSUs awarded will vest annually until fiscal 2025.

The following table summarizes activity for the RSUs and PSUs awards that reduce available capacity under the 2005 Stock Award Plan for the years ended April 30, 2022 and 2021:

9 unchanged sentences

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

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

Deferred compensation expense charged to selling and administrative expenses during the years ended April 30, 2022 and 2021 was approximately $ 1.1 million each fiscal year.

Life Insurance Policies and Cash Held in Trust:

4 unchanged sentences

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

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

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

FREQUENCY ELECTRONICS, INC.

18 unchanged sentences

Change in tax rate

Impact of CARES Act

Total (benefit) provision

33 unchanged sentences

As of April 30, 2022, the Company has U.S.

federal net operating losses of $24.3 million of which $16.4 million begins to expire in Fiscal 2026 through 2038, including $3.4 million which is subject to annual limitation under IRC § 382.

federal net operating losses of $ 29.6 million of which $ 15.9 million begins to expire in fiscal years 2026 through 2038, including $ 3.4 million which is subject to annual limitation under IRC § 382.

The remaining U.S.

federal net operating losses of $ 13.7 million have an indefinite carry-forward period.

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

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

federal capital loss carry-forward of $ 9.9 million expires in fiscal year 2023.

federal R&D credits of $ 1.0 million begin to expire in fiscal years 2036 through 2040.

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

10 unchanged sentences

Balance at the end of the fiscal year

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

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

The entire amount reflected in the above table at April 30, 2022, if recognized, would reduce our effective tax rate.

7 unchanged sentences

The Company is no longer subject to examination by the taxing authorities in foreign jurisdictions for fiscal years 2018 and prior.

Net operating losses and tax attributes generated by domestic and foreign entities in closed years and utilized in open years are subject to adjustment by the tax authorities.

Net operating losses and tax attributes generated in closed years and utilized in open years are subject to adjustment by the tax authorities.

Segment Information

32 unchanged sentences

The Company’s products are sold to both commercial and governmental customers.

For the years ended April 30, 2021 and 2020, approximately 91% and 83%, respectively, of the Company’s sales were made under contracts to the U.S.

For the fiscal years ended April 30, 2022 and 2021, approximately 94 % and 91 %, respectively, of the Company’s sales were made under contracts to the U.S.

Government or subcontracts for U.S.

Government end-use.

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

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

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

In the fiscal years ended April 30, 2022 and 2021, revenues to four and three customers, respectively, of the FEI-NY segment accounted for more than 10% of that segment’s revenues.

In the FEI-Zyfer segment, two and three customers, respectively, accounted for more than 10% of that segment’s revenues in the fiscal years ended April 30, 2022 and 2021.

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

38 unchanged sentences

Contingencies

On January 28, 2020, Martin B.

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

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

Under the Agreement on Material Terms of Settlement (the “Settlement Terms”), dated August 25, 2021, between and among the Company, Jonathan Brolin, Lance W.

Lord, Russell M.

Sarachek, Richard Schwartz and Stanton D.

Sloane, each in their capacity as members of the Board (collectively, the “Director Defendants”), in the Supreme Court of the State of New York, County of Nassau ( Bloch v.

Frequency Electronics, Inc., et al ., Index No.

601369/2020 (N.Y.

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

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

Bloch’s employment with the Company.

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

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

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

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.

Bloch’s motion and also filed a motion for summary judgment seeking the dismissal of all claims in Mr.

Bloch’s amended complaint.

On September 23, 2020, the Court denied Mr.

Bloch’s motion for summary judgment.

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

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

Bloch filed its responsive brief on November 20, 2020.

The appeal is currently pending.

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

Bloch “for cause” and that Mr.

Bloch’s 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, that could result from an unfavorable outcome arising out of these matters.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2021 and 2020

In addition, Mr.

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

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

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

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

In each proceeding, Mr.

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

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

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

Bloch, in the Supreme Court of the State of New York, New York County ( Frequency Electronics, Inc.

Bloch , Index No.

652191/2020 (N.Y.

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.

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

The Court granted Mr.

Bloch’s motion on September 8, 2020.

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

Bloch, Index No.

611405/2020).

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

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

The appeal is currently pending.

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

On June 5, 2020, Mr.

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

Bloch initiated.

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

Frequency Electronics, Inc.

et al., Index No.

605380/2020 (N.Y.

filed June 5, 2020)).

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

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

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

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

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

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

The appeal is currently pending.

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

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

The arbitration panel in the arbitrations initiated by Mr.

Bloch was constituted in March 2021.

The same panel serves in both arbitrations.

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

Bloch’s claims are not arbitrable.

The motion is fully briefed.

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

Respondents dispute Mr.

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

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

Sloane, each in their capacity as members of the Board, and the Compensation Committee of the Company’s Board, 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 agreed to pay Mr.

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

The final settlement occurred on September 21, 2021.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data