Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures .
The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on their evaluation, the Company’s chief executive officer and chief financial officer have concluded that, because of the material weaknesses in internal control over financial reporting disclosed below, as of April 30, 2022, the Company’s disclosure controls and procedures were not effective at a reasonable assurance level.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of April 30, 2022. In making this assessment, management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management initially concluded and disclosed in the Original Form 10-K that the Company’s internal control over financial reporting was effective as of April 30, 2022.
However, for the reasons discussed below, management conducted a re-assessment of the effectiveness of the Company’s internal control over financial reporting. In conducting its re-assessment of the effectiveness of the Company’s internal control over financial reporting, management concluded that the Company’s internal control over financial reporting was not effective as of April 30, 2022, because of the material weaknesses in internal control over financial reporting discussed below.
As disclosed in the Current Report on Form 8-K filed on December 16, 2022, in the course of preparing the unaudited condensed consolidated financial statements for the second quarter of fiscal 2023, ended October 31, 2022, the Company identified errors related to the calculations and presentation of contract assets and contract liabilities in the Original Form 10-K.
Following the identification of these prior errors, management re-evaluated the Company’s internal control over financial reporting as of April 30, 2022 and identified material weaknesses in the following areas:
1. While previously corrected as of April 30, 2022, historically, through April 30, 2022, the Company had presented contract assets and contract liabilities on a net basis on the consolidated balance sheets whereas ASC 606-10-45-1 requires gross presentation. In addition, a formula error was identified whereby the Company had not been grouping contracts assets and contract liabilities properly on a project-by-project basis. As a result, management has concluded that the Company did not effectively design and maintain controls over the completeness and accuracy of the gross presentation of contract assets and contract liabilities and thus a material weakness was identified; and
2. In connection with the above, as of April 30, 2021 the Company had presented contract assets and contract liabilities on a net basis on the consolidated balance sheets whereas ASC 606-10-45-1 requires gross presentation. During the process of completing the Company’s Original Form 10-K, management corrected the contract assets and contract liabilities balances in the April 30, 2021 column of the consolidated balance sheet to present them gross as opposed to net as previously filed. However, this should have been identified as a correction of a prior period error and assessed accordingly to determine whether or not a restatement was needed and whether the error was the result of a deficiency in the Company’s internal control over financial reporting. As a result, management has concluded that the Company did not have an adequate control in place for identifying and assessing financial statement errors and thus a material weakness was identified.
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As disclosed in the Current Report on Form 8-K filed on December 16, 2022, by the Company, on December 14, 2022, the Company concluded that items noted above constituted material weaknesses in the Company’s internal control over financial reporting as of April 30, 2022 and continued to exist as of the three months ended July 31, 2022.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
The Company’s management have concluded that the audited consolidated financial statements included in the Original Form 10-K were materially misstated as a result of the material weaknesses. Accordingly, the Company filed this Form 10-K/A in order to correct the audited consolidated financial statements for the fiscal year ended April 30, 2022.
Remediation Plan
To remediate the material weaknesses described above, the Company plans to pursue the following remediation steps:
1.
Review and update, as necessary, the design and documentation of its internal control policies and procedures with respect to its internal control over financial reporting. The Company plans to implement additional formulas and comparative reviews of financial information as a result of issues identified in its policies and procedures as promptly as practical and to satisfy documentation requirements under Section 404 of the Sarbanes-Oxley Act.
2.
Ensure that its internal control over financial reporting is properly designed, documented and operating effectively by (i) enhancing the design of existing control activities and/or implementing additional control activities, as needed, (ii) monitoring the operating effectiveness of those controls, and (iii) ensuring that documentation exists to evidence the performance of those controls.
The Company believes that its remediation plan will be sufficient to remediate the identified material weaknesses and strengthen its internal control over financial reporting. However, by April 30, 2023, the Company’s next annual reporting date, there may not be sufficient time for the Company to remediate all material weaknesses or, if remediated, to test the operating effectiveness of the remediated controls. As the Company continues to evaluate, and works to improve, its internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. The Company cannot assure you, however, when it will remediate such weaknesses, nor can it be certain whether additional actions will be required or the costs of any such actions. Moreover, the Company cannot assure you that additional material weaknesses will not arise in the future.
Financial Reporting
As of result of a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which, among other things, permanently exempted non-accelerated filers, such as us, from complying with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires an issuer to include an attestation report from an issuer’s independent registered public accounting firm on the issuer’s internal control over financial reporting, this annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting.
Changes in Internal Control over Financial Reporting .
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended April 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required to be furnished pursuant to this item with respect to Directors of the Company, compliance with Section 16(a) of the Exchange Act, the Company’s code of ethics and certain corporate governance matters is incorporated herein by reference from the Company’s definitive proxy statement filed on August 30, 2022, for the annual meeting of stockholders held on October 6, 2022 (the “2022 Proxy Statement”). See “Election of Directors,” “Delinquent Section 16(a) Reports,” “Corporate Governance Matters – Code of Ethics,” and “Certain Information as to Committees and Meetings of the Board” from the Company’s 2022 Proxy Statement. The information required to be furnished pursuant to this item with respect to Executive Officers is set forth, pursuant to General Instruction G(3) of Form 10-K, under Part I of this annual report on Form 10-K.
Item 11. Executive Compensation
This item is incorporated herein by reference from the Company’s 2022 Proxy Statement under “Election of Directors” and “Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This item is incorporated herein by reference from the Company’s 2022 Proxy Statement under “Executive Compensation” and “Stock Ownership of Certain Beneficial Owners and Management.”
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
Number of securities
to be issued upon exercise
remaining available for
of outstanding options,
Weighted-average
future issuance under
warrants and rights
exercise price of
equity compensation plans
and vesting of
outstanding options,
(excluding securities
Plan Category
RSU's and PSU's
warrants and rights
reflected in column (a))
(a)
(b)
(c)
Equity Compensation Plans
Approved by Security Holders (1)
494,734
$
9.94
906,653
(1)
The Company’s equity compensation plans are described in Note 11 to the Consolidated Financial Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
This item is incorporated herein by reference from the Company’s 2022 Proxy Statement under “Election of Directors.”
Item 14. Principal Accountant Fees and Services
This item is incorporated herein by reference from the Company’s 2022 Proxy Statement under “Appointment of Independent Registered Public Accounting Firm” and “Report of the Audit Committee.”
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Index to Financial Statements and Exhibits
The financial statements and exhibits are listed below and are filed as part of this report.
(1) FINANCIAL STATEMENTS
Included in Part II of this report:
Page(s)
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Melville, NY; PCAOB ID# 243 )
26-27
Consolidated Balance Sheets
- April 30, 2022 and 2021
28
Consolidated Statements of Operations and Comprehensive Income (Loss)
- Years ended April 30, 2022 and 2021
29
Consolidated Statements of Cash Flows
- Years ended April 30, 2022 and 2021
30-31
Consolidated Statements of Changes in Stockholders’ Equity
- Years ended April 30, 2022 and 2021
32
Notes to Consolidated Financial Statements
33-54
(2) EXHIBITS
Exhibit No. in
this Form 10-K
Description of Exhibit
NOTE
2.1
Stock Purchase Agreement, dated as of February 21, 2012, by and among the Registrant, Elcom Technologies Inc. and the stockholders of Elcom Technologies Inc. identified on the signature pages thereto
(11)
3.1
Copy of Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware
(1)
3.2
Amendment to Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on March 27, 1981
(2)
3.3
Amendment to Certificate of Incorporation of the Registrant filed with Secretary of State of Delaware on October 26, 1984
(5)
3.4
Amendment to Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on October 22, 1986
(7)
3.5
Amended and Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on October 26, 1987
(9)
3.6
Amended Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on November 2, 1989
(9)
3.7
Amended and Restated By-Laws of the Registrant, as amended
(13)
4.1
Specimen of Common Stock certificate
(1)
4.2
Description of Capital Stock
(24)
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Exhibit No. in
this Form 10-K
Description of Exhibit
NOTE
10.1
Settlement Agreement dated as of September 13, 2016, by and among Registrant, Privet Fund LP, Privet Fund Management LLC, Ryan J. Levenson and General Lance W. Lord
(14)
10.2*
Frequency Electronics, Inc. 2005 Stock Plan
(16)
10.3
Lease Agreement between Registrant and Reckson Operating Partnership, L.P. dated January 6, 1998
(15)
10.4
First Amendment to Lease Amendment between Registrant and RA 55 CLB LLC (as successor-in-interest to Reckson Operating Partnership, L.P.) dated July 25, 2018
(17)
10.5*
Registrant’s Cash or Deferral Profit Sharing Plan and Trust under Internal Revenue Code Section 401, dated April 1, 1985
(6)
10.6
Amendment dated Jan. 1, 1988 to Registrant’s Cash or Deferred Profit Sharing Plan and Trust under Section 401 of Internal Revenue Code
(8)
10.7*
Form of Deferred Compensation Agreement
(18)
10.8*
Form of Stock Appreciation Rights Agreement
(19)
10.9*
Employment Agreement effective as of May 1, 2018, between Stanton Sloane and the Registrant
(21)
10.10
Promissory Note, dated April 12, 2020, by and between Registrant and JPMorgan Chase Bank, N.A.
(23)
10.11*
Settlement and Release Agreement, dated September 21, 2021, by and among Martin B. Bloch, Tatiana Bloch, Anna Sophia Bloch, a minor, by her guardian Martin B. Bloch, Anna Kochurova, Valery Kacharau, Jerry Bloch, Helen Bloch, Marlon Bishop, Chloe Bishop, Megan Wylie, the Company, the Compensation Committee of the Board of Directors of the Company, Dr. Stanton D. Sloane, Richard Schwartz, Gen. Lance W. Lord, USAF (ret.), Jonathan Brolin, and Russell M. Sarachek
(25)
21
List of Subsidiaries of Registrant
(26)
23.1
Consent of BDO USA, LLP
Filed herewith
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101
The following materials from the Frequency Electronics, Inc. Annual Report on Form 10-K for the fiscal year ended April 30, 2022 formatted in Inline eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (loss), (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Changes in Stockholders’ Equity and (v) Notes to Consolidated Financial Statements
104
Cover Page Interaction Data File (formatted as inline XBRL and contained in Exhibit 101)
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* Denoted compensatory plans or arrangements or management contracts
NOTES:
(1)
Filed with the SEC as an exhibit, numbered as indicated above, to the registration statement of Registrant on Form S-1, File No. 2-29609, which exhibit is incorporated herein by reference.
(2)
Filed with the SEC as Exhibit 3.2 to the registration statement of Registrant on Form S-1, File No. 2-71727, which exhibit is incorporated herein by reference.
(3)
[Intentionally Omitted]
(4)
[Intentionally Omitted]
(5)
Filed with the SEC as Exhibit 3.3 to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 1985, which exhibit is incorporated herein by reference.
(6)
Filed with the SEC as Exhibit 10.16 to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 1986, which exhibit is incorporated herein by reference.
(7)
Filed with the SEC as Exhibit 3.4 to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 1987, which exhibit is incorporated herein by reference.
(8)
Filed with the SEC as Exhibit 10.24 to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 1989, which exhibit is incorporated herein by reference.
(9)
Filed with the SEC as an exhibit, numbered as indicated above, to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 1990, which exhibit is incorporated herein by reference.
(10)
[Intentionally Omitted]
(11)
Filed with the SEC as Exhibit 2.1 to the current report of Registrant on Form 8-K, File No. 1-8061, on February 27, 2012, which exhibit is incorporated herein by reference.
(12)
[Intentionally Omitted]
(13)
Filed with the SEC as Exhibit 3.1 to a current report of the Registrant on Form 8-K, File No. 1-8061, on June 25, 2020, which exhibit is incorporated herein by reference.
(14)
Filed with the SEC as Exhibit 10.1 to a current report of the Registrant on Form 8-K, File No. 1-8061, on September 16, 2016, which exhibit is incorporated herein by reference.
(15)
Filed with the SEC as Exhibit 10.13 to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 1998, which exhibit is incorporated herein by reference.
(16)
Filed with the SEC as Exhibit 10.1 to a current report of the Registrant on Form 8-K, File No. 1-8061, on October 4, 2005, which exhibit is incorporated herein by reference.
(17)
Filed with the SEC as Exhibit 10.13 to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2018, which exhibit is incorporated herein by reference.
(18)
Filed with the SEC as Exhibit 10.17 to Amendment No. 1 on Form 10-K/A to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2018, which exhibit is incorporated herein by reference.
(19)
Filed with the SEC as Exhibit 10.18 to Amendment No. 1 on Form 10-K/A to the annual report of Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2018, which exhibit is incorporated herein by reference.
(20)
[Intentionally Omitted]
(21)
Filed with the SEC as Exhibit 10.11 to the annual report of the Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2019, which exhibit is incorporated herein by reference.
(22)
Filed with the SEC as Exhibit 16.1 to a current report of the Registrant on Form 8-K, File No. 1-8061, on July 30, 2019, which exhibit is incorporated herein by reference.
(23)
Filed with the SEC as Exhibit 10.11 to the annual report of the Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2020, which exhibit is incorporated herein by reference.
(24)
Filed with the SEC as Exhibit 4.2 to the annual report of the Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2021, which exhibit is incorporated herein by reference.
(25)
Filed with the SEC as Exhibit 10.1 to the quarterly report of the Registrant on Form 10-Q, File No. 1-8061, for the quarter ended October 31, 2021, which exhibit is incorporated herein by reference.
(26)
Filed with the SEC as Exhibit 21 to the annual report of the Registrant on Form 10-K, File No. 1-8061, for the year ended April 30, 2022, which exhibit is incorporated herein by reference.
Item 16. Form 10-K Summary.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FREQUENCY ELECTRONICS, INC.
By:
/s/ Steven L. Bernstein
Steven L. Bernstein
Chief Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
Dated: December 20, 2022
61
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.