What changed in this filing

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Item 1. Financial Statements

2023-12-15 compared with 2023-09-14 · 158 added, 133 removed, 325 unchanged (47% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 111 at July 31, 2023 and April 30, 2023

Accounts receivable, net of allowance for doubtful accounts of $ 111 at October 31, 2023 and April 30, 2023

Contract assets

22 unchanged sentences

Common stock - $ 1.00 par value;

authorized 20,000 shares, 9,391 shares issued and 9,390 shares outstanding at July 31, 2023;

authorized 20,000 shares, 9,404 shares issued and 9,403 shares outstanding at October 31, 2023;

9,374 shares issued and 9,373 shares outstanding at April 30, 2023

1 unchanged sentence

Accumulated deficit

Common stock reacquired and held in treasury - at cost ( 1 share at July 31, 2023 and April 30, 2023)

Common stock reacquired and held in treasury -

at cost ( 1 share at October 31, 2023 and April 30, 2023)

Accumulated other comprehensive income

Total stockholders’ equity

5 unchanged sentences

(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

Cost of revenues

3 unchanged sentences

Other income (expense):

Investment income

Investment (expense) income

Interest expense

8 unchanged sentences

Net income (loss)

Unrealized gain (loss) on marketable securities:

Unrealized loss on marketable securities:

Change in market value of marketable securities before reclassification, net of tax

Reclassification adjustment for realized gains included in net income, net of tax

Total unrealized gain on marketable securities, net of tax

Reclassification adjustment for realized gains included in net income (loss), net of tax

Total unrealized loss on marketable securities, net of tax

Comprehensive income (loss)

4 unchanged sentences

(In thousands)

Three Months Ended July 31,

Six Months Ended October 31,

Cash flows from operating activities:

6 unchanged sentences

Purchase of marketable securities

Purchase of fixed assets

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

Net cash used in investing activities

11 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended July 31, 2023 and 2022

Three and Six Months Ended October 31, 2023 and 2022

(In thousands, except share data)

4 unchanged sentences

Balance at April 30, 2023

Contribution of stock to

compensation expense

Contribution of stock to 401(k) plan

Stock-based compensation expense

Balance at July 31, 2023

Contribution of stock to 401(k) plan

Stock-based compensation expense

Balance at October 31, 2023

Treasury stock

3 unchanged sentences

Balance at April 30, 2022

Contribution of stock to

compensation expense

Other comprehensive

income, net of tax

Contribution of stock to 401(k) plan

Stock-based compensation expense

Other comprehensive income, net of tax

Balance at July 31, 2022

Contribution of stock to 401(k) plan

Stock-based compensation expense

Other comprehensive loss, net of tax

Balance at October 31, 2022

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 condensed consolidated financial position of the Company as of July 31, 2023 and the results of its operations, changes in stockholders’ equity for the three months ended July 31, 2023 and 2022, and cash flows for the three months ended July 31, 2023 and 2022.

(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 condensed consolidated financial position of the Company as of October 31, 2023 and the results of its operations, changes in stockholders’ equity for the three and six months ended October 31, 2023 and 2022, and cash flows for the six months ended October 31, 2023 and 2022.

The April 30, 2023 condensed consolidated balance sheet was derived from audited financial statements.

4 unchanged sentences

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

COVID-19 Pandemic, and Other Macroeconomic Factors

On May 5, 2023, the World Health Organization (“WHO”) announced an end to the global health emergency related to the coronavirus originating in Wuhan, China (“COVID-19”).

Additionally, on May 11, 2023 the Public Health Emergency declared by the U.S.

Department of Health and Human Services expired.

Certain Company vendors continue to deliver materials with longer lead times due to COVID-19 related impacts to their workforces or their supply chains.

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

The Company continues to monitor these and its other vendors and, if necessary, seek alternative suppliers, or, in certain cases, re-design products using alternative parts and materials.

NOTE B – EARNINGS (LOSS) PER SHARE

Reconciliation of the weighted average shares outstanding for basic and diluted income (loss) per share (“EPS”) for the three months ended July 31, 2023 and 2022, respectively, were as follows:

Three months ended July 31,

Reconciliation of the weighted average shares outstanding for basic and diluted income (loss) per share (“EPS”) for the three and six months ended October 31, 2023 and 2022, respectively, were as follows:

Periods ended October 31,

Weighted average shares outstanding:

2 unchanged sentences

Diluted EPS shares outstanding

** For the three months ended July 31, 2023 and 2022, dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive.

The exercisable shares excluded for the three months ended July 31, 2023 and 2022 were 155,000 options and 357,125 options, respectively.

** For the three and six months ended October 31, 2023 and 2022, dilutive securities are excluded from the calculation of EPS since the inclusion of such shares would be antidilutive.

The exercisable shares excluded for the three and six months ended October 31, 2023 was 97,000 shares.

The exercisable shares excluded for the three and six months ended October 31, 2022 was 243,625 shares.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

NOTE C – CONTRACT (LIABILITIES) ASSETS

At July 31, 2023 and April 30, 2023, contract assets and contract liabilities, consisted of the following (in thousands):

July 31, 2023

At October 31, 2023 and April 30, 2023, contract assets and contract liabilities, consisted of the following (in thousands):

October 31, 2023

April 30, 2023

1 unchanged sentence

Contract liabilities

Contract assets represent revenue recognized on long-term contracts that have not been billed at the balance sheet dates and contract liabilities represent a liability for amounts billed in excess of the revenue recognized, contract liabilities.

Contract assets represent revenue recognized on long-term contracts that have not been billed at the balance sheet dates, and contract liabilities represent a liability for amounts billed in excess of the revenue recognized.

Amounts are billed to customers pursuant to contract terms.

2 unchanged sentences

Fluctuations of contract assets and contract liabilities are due to the timing of funding, amounts billed and revenue recorded.

Contract assets increased $ 1.0 million during the three months ended July 31, 2023, primarily due to revenue recognized during the three months ended July 31, 2023 for which we have not yet billed our customers.

Contract liabilities increased $ 0.2 million during the three months ended July 31, 2023, primarily due to payments received in excess of revenue recognized on these performance obligations.

During the three months ended July 31, 2023, we recognized $ 3.7 million of our contract liabilities at April 30, 2023 as revenue.

During three months ended July 31, 2022, we recognized $ 2.5 million of our contract liabilities at April 30, 2022 as revenue.

During the three months ended July 31, 2023 and 2022, revenue recognized under POC contracts was approximately $ 11.7 million and $ 7.9 million, respectively.

Contract assets increased $ 2.5 million during the six months ended October 31, 2023, primarily due to revenue recognized during the six months ended October 31, 2023 for which we have not yet billed our customers.

Contract liabilities decreased $ 2.2 million during the six months ended October 31, 2023, primarily due to revenue recognized on these performance obligations.

During the three and six months ended October 31, 2023, we recognized $ 4.4 million and $ 8.1 million, respectively, of our contract liabilities at April 30, 2023 as revenue.

During the three and six months ended October 31, 2022, we recognized $ 1.9 million and $ 4.4 million, respectively, of our contract liabilities at April 30, 2022 as revenue.

During the three and six months ended October 31, 2023, revenue recognized under POC contracts was approximately $ 12.3 million and $ 24.0 million, respectively.

During the three and six months ended October 31, 2022, revenue recognized under POC contracts was approximately $ 8.7 million and $ 16.6 million, respectively.

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

Total contract losses, recorded in cost of revenue, for the three months ended July 31, 2023 and 2022 were approximately $ 139,000 and $ 1.2 million, respectively.

Total contract losses, recorded in cost of revenue, for the three and six months ended October 31, 2023 were approximately $ 1.4 million and $ 1.5 million, respectively.

Total contract losses, recorded in cost of revenue, for the three and six months ended October 31, 2022 were approximately $ 0.7 million and $ 2.0 million, respectively.

NOTE D – EMPLOYEE BENEFIT PLANS

During the three months ended July 31, 2023, the Company made contributions of 17,013 shares, of its common stock to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code.

During the three and six months ended October 31, 2023, the Company made contributions of 12,885 and 29,898 shares, respectively, of its common stock 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.

Deferred compensation expense charged to selling and administrative expenses during the three months ended July 31, 2023, were approximately $ 138,000 , inclusive of approximately $ 38,000 of interest expense.

Payments made related to deferred compensation were approximately $ 185,000 for the same period.

Deferred compensation expense charged to selling and administrative expenses during the three months ended July 31, 2022, were approximately $ 127,000 , inclusive of approximately $ 17,000 of interest expense.

Payments made related to deferred compensation were approximately $ 161,000 for the same period.

Deferred compensation expense charged to selling and administrative expenses during the three and six months ended October 31, 2023, was approximately $ 109,000 and $ 217,000 , respectively.

Payments made related to deferred compensation, inclusive of approximately $ 29,000 and $ 60,000 , respectively, of interest expense, were approximately $ 175,000 and $ 361,000 for the same periods.

Deferred compensation expense charged to selling and administrative expenses during the three and six months ended October 31, 2022, was approximately $ 109,000 and $ 218,000 , respectively.

Payments made related to deferred compensation, inclusive of approximately $ 18,000 and $ 36,000 , respectively, of interest expense were approximately $ 159,000 and $ 320,000 for the same periods.

NOTE E – INVENTORIES

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

July 31, 2023

October 31, 2023

April 30, 2023

12 unchanged sentences

We include options to extend or terminate leases in the Right-of-Use (“ROU”) operating lease asset and liability when it is reasonably certain we will exercise these options.

As of July 31, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability.

As of October 31, 2023, lease options were not included in the calculation of the ROU operating lease asset and liability.

ROU assets and lease liabilities are recorded based on the present value of future lease payments which will factor in certain qualifying initial direct costs incurred as well as any lease incentives that may have been received.

4 unchanged sentences

We include options to extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these options.

As of July 31, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability.

As of October 31, 2023, lease options were not included in the calculation of the ROU operating lease asset and liability.

4 unchanged sentences

We include options to extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these options.

As of July 31, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability.

As of October 31, 2023, lease options were not included in the calculation of the ROU operating lease asset and liability.

3 unchanged sentences

Classification

July 31, 2023

October 31, 2023

April 30, 2023

6 unchanged sentences

Total lease liabilities

Total operating lease expense was $ 454,000 and $ 481,000 for the three months ended July 31, 2023 and 2022, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.

Total operating lease expense was $ 466,000 and $ 921,000 for the three and six months ended October 31, 2023, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.

Total operating lease expense was $ 481,000 and $ 962,000 for the three and six months ended October 31, 2022, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.

FREQUENCY ELECTRONICS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

The table below reconciles the undiscounted cash flows for each of the first four 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, 2023:

Fiscal Year Ending April 30,

6 unchanged sentences

Long-term lease obligations

As of July 31, 2023 and 2022, the weighted-average remaining lease term for all operating leases was 5.43 years and 6.15 years, respectively.

As of October 31, 2023 and 2022, the weighted-average remaining lease term for all operating leases was 5.27 years and 5.97 years, respectively.

The Company does not generally have access to the rate implicit in the leases and therefore selected a rate that is reflective of companies with similar credit ratings for secured debt as the discount rate.

The weighted average discount rate for operating leases as of July 31, 2023 and 2022, was 6.23 % and 6.18 %, respectively.

The weighted average discount rate for operating leases as of October 31, 2023 and 2022, was 6.28 % and 6.19 %, respectively.

NOTE G – SEGMENT INFORMATION

19 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 consolidated balance sheets for each of the periods (in thousands):

Three Months Ended July 31,

Periods ended October 31,

less intersegment revenues

1 unchanged sentence

Operating income (loss):

less intersegment margin

less intersegment profit

Consolidated operating income (loss)

July 31, 2023

October 31, 2023

April 30, 2023

2 unchanged sentences

Consolidated identifiable assets

Total revenue recognized over time as POC and Passage of Title (“POT”) was approximately $ 11.7 million and $ 0.7 million, respectively, of the $ 12.4 million reported for the three months ended July 31, 2023.

Total revenue recognized over time as POC and POT was approximately $ 8.0 million and $ 0.3 million, respectively, of the $ 8.2 million reported for the three months ended July 31, 2022.

Total revenue recognized over time as POC and Passage of Title (“POT”) was approximately $ 12.3 million and $ 1.3 million, respectively, of the $ 13.6 million reported for the three months ended October 31, 2023.

Total revenue recognized over time as POC and POT was approximately $ 24.0 million and $ 2.0 million, respectively, of the $ 26.0 million reported for the six months ended October 31, 2023.

Total revenue recognized over time as POC and POT was approximately $ 8.7 million and $ 0.3 million, respectively, of the $ 9 .0 million reported for the three months ended October 31, 2022.

Total revenue recognized over time as POC and POT was approximately $ 16.6 million and $ 0.5 million, respectively, of the $ 17.2 million reported for the six months ended October 31, 2022.

The amounts by segment and product line were as follows (in thousands):

Three Months Ended July 31,

Three Months Ended October 31,

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Six Months Ended October 31,

Periods ended October 31,

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.

2 unchanged sentences

The Company has also licensed certain technology to Morion.

During the three months ended July 31, 2023 and 2022, the Company did not acquire any product from Morion.

During the three months ended July 31, 2023 and 2022, the Company did not receive dividends from Morion,

During the three and six months ended October 31, 2023, the Company did not acquire any product from Morion.

During the three and six months ended October 31, 2022, the Company acquired product from Morion in the aggregate amount of approximately $ 31,000 for both periods.

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.

6 unchanged sentences

NOTE I – RECENT ACCOUNTING PRONOUNCEMENTS

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

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

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

Under ASU 2017-04, goodwill impairment will be tested by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

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

ASU 2017-04 was adopted, effective May 1, 2023, with no material impact to the consolidated financial statements.

In June 2016, the FASB issued ASU No.

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

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

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

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

ASU 2016-13 was adopted, effective May 1, 2023, with no material impact to the consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands on the required disclosure of incremental segment information.

The new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company expects the new standard to have an immaterial effect on its consolidated financial statements when adopted in fiscal year 2025.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE J – CREDIT FACILITY

As of July 31, 2023, the Company had no borrowings pursuant to a credit facility.

As of October 31, 2023, the Company neither had any borrowings nor any borrowing capacity pursuant to a credit facility.

As of April 30, 2023, the Company retired its advisory credit arrangement with UBS Bank USA.

6 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, 2023, and April 30, 2023, the Company maintained a full valuation allowance against its deferred tax assets.

As of October 31, 2023, and April 30, 2023, 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.

5 unchanged sentences

Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

Factors that would cause or contribute to such differences include but are not limited to, the risks associated with health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, such as their impact on our financial condition and results of operations and on our ability to continue manufacturing and distributing our products, and the impact of health epidemics and pandemics on general economic conditions, including any resulting recession, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, competitive developments, changes in manufacturing and transportation costs, the availability of capital, and the outcome of any litigation and arbitration proceedings.

Factors that would cause or contribute to such differences include but are not limited to, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, including the U.S government, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, competitive developments, changes in manufacturing and transportation costs, the availability of capital, and the outcome of any litigation and arbitration proceedings.

The factors listed above are not exhaustive.

Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Form 10-K include additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations.

Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2023 (the “Form 10-K”) include additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations.

Moreover, the Company operates in a very competitive and rapidly changing environment.

5 unchanged sentences

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

Each of these areas requires the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory and the market value of its products.

Both of these areas require the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory and the market value of its products.

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, 2023.

The Company’s significant accounting policies did not change during the three and six months ended October 31, 2023.

Revenue Recognition

13 unchanged sentences

RESULTS OF OPERATIONS

The table below sets forth for the three months ended July 31, 2023 and 2022, 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, 2023 and 2022, 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

3 unchanged sentences

Operating income (loss)

Other expense, net

Other loss, net

Provision for income taxes

Net income (loss)

Three months ended July 31,

Periods ended October 31,

(in thousands)

Intersegment revenues

For the three months ended July 31, 2023, revenues from commercial and U.S.

For the three months ended October 31, 2023, revenues from commercial and U.S.

Government communication satellite programs accounted for approximately 34% of consolidated revenues compared to approximately 48% of consolidated revenues during this same period in the prior fiscal year.

2 unchanged sentences

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 55% of consolidated revenues for the three months ended July, 31, 2023 compared to approximately 50% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the three months ended July 31, 2023 accounted for approximately 5% of consolidated revenue compared to 8% in the same period of the prior fiscal year.

The increase in revenue for the three months ended July 31, 2023 was in both segments and primarily related to government non-space programs.

Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 60% of consolidated revenues for the three months ended October, 31, 2023 compared to approximately 44% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the three months ended October 31, 2023 accounted for approximately 5% of consolidated revenue compared to 8% in the same period of the prior fiscal year.

The significant increase in revenue for this quarter, compared to the same quarter in the previous fiscal year, was in both segments and primarily related to contract awards coming in, resolution of technical problems from the previous fiscal year, and improvements made by management.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Three Months ended July 31,

For the six months ended October 31, 2023, revenues from commercial and U.S.

Government communication satellite programs accounted for approximately 37% of consolidated revenues compared to approximately 46% of consolidated revenues during this same period in the prior fiscal year.

Revenues are recognized primarily over time under the POC method.

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

Revenues from non-space U.S.

Government/DOD customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 58% of consolidated revenues for the six months ended October, 31, 2023 compared to approximately 47% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the six months ended October 31, 2023 accounted for approximately 5% of consolidated revenue compared to 8% in the same period of the prior fiscal year.

The significant increase in revenue for this period, compared to the same period in the previous fiscal year, was in both segments and primarily related to contract awards coming in, resolution of technical problems from the previous fiscal year, and improvements made by management.

Periods ended October 31,

(in thousands)

For the three months ended July 31, 2023, gross margin and GM Rate increased compared to the same period in the prior fiscal year.

Gross margin rate

For the three and six months ended October 31, 2023, gross margin (“GM”) and GM Rate increased compared to the same period in the prior fiscal year.

The gross margin dollars increased as a direct result of the increase in revenue.

The GM Rate increased significantly due to two primary factors.

First, many of the technical challenges faced in the early part of last fiscal year have been resolved and, as a result, the related programs are now moving forward.

Second, during the three months ended July 31, 2023, there were one-time contractual and other adjustments that also benefited the GM Rate by approximately 8%.

The GM Rate increased significantly due to the fact that many of the technical challenges faced in the prior fiscal year have been resolved and, as a result, the related programs are now moving forward and running more efficiently.

Previous programs that sustained lower margins due to technical issues are near completion, or have been completed.

Selling, General, and Administrative Expenses

Three Months ended July 31,

Periods ended October 31,

(in thousands)

For the three months ended July 31, 2023 and 2022, selling, general, and administrative (“SG&A”) expenses were approximately 19% and 24%, respectively, of consolidated revenues.

The percentage of consolidated revenue decreased 5% due to an increase in sales for the three months ended July 31, 2023 as compared to the three months ended July 31, 2022.

The increase in SG&A expenses for the three months ended July 31, 2023 as compared to the prior year period was largely due to an increase in payroll and associated costs.

For the three months ended October 31, 2023 and 2022, selling, general, and administrative (“SG&A”) expenses were approximately 19% and 23%, respectively, of consolidated revenues.

The percentage of consolidated revenue decreased 4% due to an increase in sales for the three months ended October 31, 2023 as compared to the three months ended October 31, 2022.

The increase in SG&A expenses for the three months ended October 31, 2023 as compared to the prior year period was largely due to an increase in professional fees and payroll and associated costs.

For the six months ended October 31, 2023 and 2022 SG&A expenses were approximately 19% and 23%, respectively, of consolidated revenues.

The percentage of consolidated revenue decreased 5% due to an increase in sales for the six months ended October 31, 2023 as compared to the six months ended October 31, 2022.

The increase in SG&A expenses for the six months ended October 31, 2023 as compared to the prior year period was largely due to an increase in professional fees and payroll and associated costs.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Research and Development Expenses

Three Months ended July 31,

Periods ended October 31,

(in thousands)

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 decrease in R&D expenditures for the three months ended July 31, 2023, was primarily due to a shift of employees to production orders in order to meet schedule.

The change in R&D expenditures for the three and six months ended October 31, 2023, was primarily due to a shift of employees between production and development depending upon availability, scheduling and necessity.

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

Operating Income (Loss)

Three Months ended July 31,

Periods ended October 31,

(in thousands)

For the three months ended July 31, 2023, operating income increased due to a combination of increased revenue and gross margin, and the effects of certain cost cutting measures instituted by management beginning in fiscal year 2023.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

For the three and six months ended October 31, 2023, operating income increased due to a combination of increased revenue and gross margin, and the effects of certain cost cutting measures instituted by management that began in fiscal year 2023.

Other Income (Expense), net

Three Months ended July 31,

Periods ended October 31,

(in thousands)

Investment income

Investment (expense) income

Interest expense

2 unchanged sentences

Interest expense is related to the deferred compensation payments made to retired employees.

Income Tax Provision

Three Months ended July 31,

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Provision for Income Tax

Periods ended October 31,

(in thousands)

Three Months ended July 31,

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, 2024 is 0%.

1 unchanged sentence

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

For the three months ended July 31, 2023, the Company recorded an income tax provision of $6,894 primarily related to state income taxes and discrete income tax provision related to an accrual of interest for unrecognized tax benefits.

For the three months ended July 31, 2022, the Company recorded an income tax provision of $1,000.

The effective tax rate for the three months ended July 31, 2023 was an income tax provision of 0.3% on pretax income of $2.0 million compared to an income tax provision of (0.0)% on pretax loss of $3.1 million in the comparable prior fiscal year period.

The effective tax rate for the three months ended July 31, 2023 differs from the U.S.

For the three months ended October 31, 2023, the Company recorded an income tax provision of $6,000 primarily related to state income taxes and discrete income tax provision related to an accrual of interest for unrecognized tax benefits.

For the three months ended October 31, 2022, the Company recorded an income tax provision of $1,000.

For the six months ended October 31, 2023, the Company recorded an income tax provision of $13,000 primarily related to state income taxes and discrete income tax provision related to an accrual of interest for unrecognized tax benefits.

For the six months ended October 31, 2022, the Company recorded an income tax provision of $2,000.

The effective tax rate for the three months ended October 31, 2023 was an income tax provision of 0.7% on pretax income of $0.8 million compared to an income tax provision of 0.0% on pretax loss of $2.3 million in the comparable prior fiscal year period.

The effective tax rate for the three months ended October 31, 2023 differs from the U.S.

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

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

The effective tax rate for the six months ended October 31, 2023 was an income tax provision of 0.5% on pretax income of $2.9 million compared to an income tax provision of 0.0% on pretax loss of $5.4 million in the comparable prior fiscal year period.

The effective tax rate for the six months ended October 31, 2023 differs from the U.S.

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

The Inflation Reduction Act of 2022 (the “Act”) was signed into U.S.

law on August 16, 2022.

The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies to U.S.

The Act includes various tax provisions,

including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies to U.S.

corporations with average adjusted annual financial statement income over a three-year period in excess of $1 billion.

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $23.4 million at July 31, 2023 and $21.0 million at April 30, 2023.

Included in working capital at July 31, 2023 and April 30, 2023 was $9.1 million and $12.0 million, respectively, of cash and cash equivalents.

The Company’s current ratio was 1.9 to 1 at July 31, 2023 compared to 1.8 to 1 as of April 30, 2023.

Net cash used in operating activities for the three months ended July 31, 2023 and 2022 was approximately $2.8 million and $3.6 million, respectively.

The increase in operating cash flow in the first three months of fiscal 2024 was mainly due to operating income, offset by an increase in inventory, accounts receivable, and contract assets.

For the three months ended July 31, 2023 and 2022, the Company incurred approximately $1.5 million and $816,000, respectively, of non-cash operating expenses including amortization of ROU assets, loss provision accrual, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.

Net cash used in investing activities for the three months ended July 31, 2023 and 2022 was approximately $187,000 and $741,000, respectively.

During the three months ended July 31, 2023, no marketable securities were sold or redeemed compared to $1.0 million for the same period of fiscal year 2023.

During the three months ended July 31, 2023 no marketable securities were purchased compared to $1.3 million for the same period of fiscal year 2023.

The Company acquired property, plant, and equipment in the amount of approximately $187,000 and $465,000 for the three months ended July 31, 2023 and 2022, respectively.

There was no financing activities for the three months ended July 31, 2023 or the three months ended July 31, 2022.

The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $24.7 million at October 31, 2023 and $21.0 million at April 30, 2023.

Included in working capital at October 31, 2023 and April 30, 2023 was $8.7 million and $12.0 million, respectively, of cash and cash equivalents.

The Company’s current ratio was 2.0 to 1 at October 31, 2023 compared to 1.8 to 1 as of April 30, 2023.

Net cash used in operating activities for the six months ended October 31, 2023 and 2022 was approximately $2.9 million and $0.5 million, respectively.

The increase in net cash used in operating activities in the first six months of fiscal 2024 as compared to the prior fiscal year period was mainly due to operating income, offset by an increase in inventory and a decrease in contract liabilities.

For the six months ended October 31, 2023 and 2022, the Company incurred approximately $2.2 million and $1.2 million, respectively, of non-cash operating expenses including amortization of ROU assets, loss provision accrual, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Net cash used in investing activities for the six months ended October 31, 2023 and 2022 was approximately $360,000 and $975,000, respectively.

During the six months ended October 31, 2023, no marketable securities were sold or redeemed compared to $1.1 million for the same period of fiscal year 2023.

During the six months ended October 31, 2023, no marketable securities were purchased compared to $1.4 million for the same period of fiscal year 2023.

The Company acquired property, plant, and equipment in the amount of approximately $360,000 and $729,000 for the six month periods ended October 31, 2023 and 2022, respectively.

There were no financing activities for the six months ended October 31, 2023 or the six months ended October 31, 2022.

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

As of July 31, 2023, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization, the majority of which have since been reissued.

For the three months ended July 31, 2023 and 2022 there were no repurchases of shares.

As of October 31, 2023, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization, the majority of which has since been reissued.

For the six months ended October 31, 2023 and 2022, there were no repurchases of shares.

The Company will continue to expend resources for R&D to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems that 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, 2023, the Company’s consolidated funded backlog was approximately $52 million compared to $57 million at April 30, 2023, the end of fiscal year 2023.

As of October 31, 2023, the Company’s consolidated funded backlog was approximately $50 million compared to $57 million at April 30, 2023, the end of fiscal year 2023.

Approximately 75% of this backlog is expected to be realized in the next twelve months.

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Accordingly, the backlog is not necessarily indicative of future 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 short-term operating and investment needs through at least September 14, 2024 and its long-term operation and investment needs for the foreseeable future thereafter.

The Company believes that its liquidity is adequate to meet its short-term operating and investment needs through at least December 15, 2024 and its long-term operation and investment needs for the foreseeable future thereafter.

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

4 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