What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-03-18 compared with 2023-12-15 · 183 added, 134 removed, 349 unchanged (48% of the section changed)

6 unchanged sentences

Cash and cash equivalents

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

Accounts receivable, net of allowance for doubtful accounts of $ 111 at January 31, 2024 and April 30, 2023

Contract assets

5 unchanged sentences

Right-of-use assets – operating leases

Restricted cash

LIABILITIES AND STOCKHOLDERS ’ EQUITY:

15 unchanged sentences

Common stock - $ 1.00 par value;

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

authorized 20,000 shares, 9,486 shares issued and 9,485 shares outstanding at January 31, 2024;

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

2 unchanged sentences

Common stock reacquired and held in treasury -

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

Accumulated other comprehensive income

at cost ( 1 share at January 31, 2024 and April 30, 2023)

Total stockholders’ equity

5 unchanged sentences

(In thousands, except per share data)

Three Months Ended October 31,

Six Months Ended October 31,

Three Months Ended January 31,

Nine Months Ended January 31,

Condensed Consolidated Statements of Operations

2 unchanged sentences

Research and development expenses

Operating income (loss)

Operating (loss) income

Other income (expense):

Investment (expense) income

Investment income (expense), net

Interest expense

Other income, net

Income (loss) before provision for income taxes

7 unchanged sentences

Net income (loss)

Unrealized loss on marketable securities:

Unrealized gain (loss) on marketable securities:

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

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

Total unrealized loss on marketable securities, net of tax

Total unrealized gain on marketable securities, net of tax

Comprehensive income (loss)

4 unchanged sentences

(In thousands)

Six Months Ended October 31,

Nine Months Ended January 31,

Cash flows from operating activities:

2 unchanged sentences

Net changes in operating assets and liabilities

Net cash used in operating activities

Net cash provided by operating activities

Cash flows from investing activities:

2 unchanged sentences

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

Net cash used in investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Payment of dividend

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

Cash and cash equivalents and restricted cash at end of period

Supplemental disclosures of cash flow information:

5 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended October 31, 2023 and 2022

Three and Nine months ended January 31, 2024

(In thousands, except share data)

10 unchanged sentences

Balance at October 31, 2023

Contribution of stock to 401(k) plan

Stock-based compensation expense

Other comprehensive income, net of tax

Dividends paid

Balance at January 31, 2024

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine months ended January 31, 2023

(In thousands, except share data)

Treasury stock

9 unchanged sentences

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

Balance at October 31, 2022

Contribution of stock to 401(k) plan

Stock-based compensation expense

Other comprehensive income, net of tax

Dividends paid

Balance at January 31, 2023

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 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 “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 January 31, 2024 and the results of its operations, changes in stockholders’ equity for the three and nine months ended January 31, 2024 and 2023, and cash flows for the nine months ended January 31, 2024 and 2023.

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

2 unchanged sentences

GAAP have been condensed or omitted.

These condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2023, filed on July 27, 2023 with the Securities and Exchange Commission (the “Form 10-K”).

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

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 and six months ended October 31, 2023 and 2022, respectively, were as follows:

Periods ended October 31,

Reconciliation of the weighted average shares outstanding for basic and diluted income (loss) per share (“EPS”) for the three and nine months ended January 31, 2024 and 2023, respectively, were as follows:

Periods ended January 31,

Weighted average shares outstanding:

2 unchanged sentences

Diluted EPS Shares outstanding

** 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.

** For the three and nine months ended January 31, 2024 and 2023, 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 nine months ended January 31, 2024 were 86,000 shares.

The exercisable shares excluded for the three and nine months ended January 31, 2023 were 243,625 shares.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

NOTE C – CONTRACT (LIABILITIES) ASSETS

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

October 31, 2023

At January 31, 2024 and April 30, 2023, contract assets and contract liabilities, consisted of the following (in thousands):

January 31, 2024

April 30, 2023

6 unchanged sentences

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

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.

Contract assets increased $ 0.6 million during the nine months ended January 31, 2024, primarily due to revenue recognized during the nine months ended January 31, 2024 for which we have not yet billed our customers.

Contract liabilities decreased $ 0.2 million during the nine months ended January 31, 2024, primarily due to revenue recognized on these performance obligations.

During the three and nine months ended January 31, 2024, we recognized $ 8.6 million and $ 12.3 million, respectively, of our contract liabilities at April 30, 2023 as revenue.

During the three and nine months ended January 31, 2023, we recognized $ 3.6 million and $ 6.1 million, respectively, of our contract liabilities at April 30, 2022 as revenue.

During the three and nine months ended January 31, 2024, revenue recognized under POC contracts was approximately $ 12.9 million and $ 37.0 million, respectively.

During the three and nine months ended January 31, 2023, revenue recognized under POC contracts was approximately $ 10.2 million and $ 26.8 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 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.

Total contract losses, recorded in cost of revenues, for the three and nine months ended January 31, 2024 were approximately $ 0.6 million and $ 2.1 million, respectively.

Contract losses of approximately $ 0.5 million, offset by a loss reduction of approximately $ 1.0 million, mostly related to additional funding, were recorded for the three months ended January 31, 2023.

Contract losses of approximately $ 1.5 million were recorded for the nine months ended January 31, 2023.

NOTE D – EMPLOYEE BENEFIT PLANS

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.

During the three and nine months ended January 31, 2024, the Company made contributions of 5,364 and 35,262 shares, respectively, 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 nine months ended January 31, 2023, the Company made contributions of 7,597 and 42,937 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 and six months ended October 31, 2023, was approximately $ 109,000 and $ 217,000 , respectively.

Deferred compensation expense charged to selling and administrative expenses during the three and nine months ended January 31, 2024, was approximately $ 109,000 and $ 325,000 , respectively.

Payments made related to deferred compensation, inclusive of approximately $ 28,000 and $ 88,000 , respectively, of interest expense, were approximately $ 175,000 and $ 536,000 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.

Deferred compensation expense charged to selling and administrative expenses during the three and nine months ended January 31, 2023, was approximately $ 110,000 and $ 329,000 , respectively.

Payments made related to deferred compensation, inclusive of approximately $ 18,000 and $ 54,000 , respectively, of interest expense were approximately $ 159,000 and $ 479,000 for the same periods.

1 unchanged sentence

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

October 31, 2023

January 31, 2024

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

As of January 31, 2024, 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 October 31, 2023, lease options were not included in the calculation of the ROU operating lease asset and liability.

As of January 31, 2024, 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 October 31, 2023, lease options were not included in the calculation of the ROU operating lease asset and liability.

As of January 31, 2024, lease options were not included in the calculation of the ROU operating lease asset and liability.

3 unchanged sentences

Classification

October 31, 2023

January 31, 2024

April 30, 2023

6 unchanged sentences

Total lease liabilities

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 October 31, 2023:

Total operating lease expense was $ 0.5 million and $ 1.4 million for the three and nine months ended January 31, 2024, 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 $ 0.5 million and $ 1.4 million for the three and nine months ended January 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.

Fiscal Year Ending April 30,

6 unchanged sentences

Long-term lease obligations

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.

As of January 31, 2024 and 2023, the weighted-average remaining lease term for all operating leases was 5.12 years and 5.79 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 October 31, 2023 and 2022, was 6.28 % and 6.19 %, respectively.

The weighted average discount rate for operating leases as of January 31, 2024 and 2023, was 6.31 % and 6.21 %, respectively.

NOTE G – SEGMENT INFORMATION

11 unchanged sentences

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

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

The accounting policies of the two segments are the same as those described in “Note 1.

2 unchanged sentences

All acquired assets, including intangible assets, are included in the assets of the applicable reporting segment.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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):

Periods ended October 31,

Periods ended January 31,

less intersegment revenues

1 unchanged sentence

Operating income (loss):

less intersegment profit

Consolidated operating income (loss)

October 31, 2023

less intersegment revenues

Consolidated operating (loss) income

January 31, 2024

April 30, 2023

2 unchanged sentences

Consolidated identifiable assets

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.

Total revenue recognized over time as POC and Passage of Title (“POT”) was approximately $ 12.9 million and $ 0.8 million, respectively, of the $ 13.7 million reported for the three months ended January 31, 2024.

Total revenue recognized over time as POC and POT was approximately $ 37.0 million and $ 2.7 million, respectively, of the $ 39.7 million reported for the nine months ended January 31, 2024.

Total revenue recognized over time as POC and POT was approximately $ 10.2 million and $ 0.4 million, respectively, of the $ 10.6 million reported for the three months ended January 31, 2023.

Total revenue recognized over time as POC and POT was approximately $ 26.8 million and $ 1.0 million, respectively, of the $ 27.8 million reported for the nine months ended January 31, 2023.

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

Three Months Ended October 31,

Three Months Ended January 31,

FREQUENCY ELECTRONICS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Six Months Ended October 31,

Periods ended October 31,

Nine Months Ended January 31,

Periods ended January 31,

Revenues by Product Line:

3 unchanged sentences

Consolidated revenues

As of January 31, 2024, the Company’s consolidated unsatisfied performance obligations were approximately $ 67 million compared to $ 57 million at April 30, 2023, the end of fiscal year 2023.

Approximately 74 % of these unsatisfied performance obligations are expected to be realized in the next twelve months.

The Company excludes from the unsatisfied performance obligations any contracts or awards for which it has not received authorization to proceed.

NOTE H – INVESTMENT IN MORION, INC.

2 unchanged sentences

The Company has also licensed certain technology to 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.

During the three and nine months ended January 31, 2024, the Company acquired product from Morion in the aggregate amount of approximately $ 89,000 for both periods.

During the three and nine months ended January 31, 2023, the Company acquired product from Morion in the aggregate amount of approximately $ 55,000 and $ 86,000 , respectively.

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.

1 unchanged sentence

Ukraine-related sanctions regime has since 2014 included a list of sectoral sanctions identifications (“SSI”) pursuant to Executive Order 13662, which prohibits certain transactions, including certain extensions of credit, with an entity designated as an SSI or certain affiliates of an entity designated as an SSI.

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

On July 16, 2014, after the Company’s investment in Morion, Gazprombank was designated on the SSI list, per Directive 1 under Executive Order 13662.

Russian Harmful Foreign Activities sanctions regime has since 2021 included a variety of blocking and other sanctions pursuant to Executive Order 14024.

On February 24, 2022, Gazprombank was designated per Directive 3 under Executive Order 14024, which imposes restrictions on dealing in new debt or equity of designated entities and their property interests.

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

In response to these conditions, in connection with the preparation of the audited financial statements included in the Form 10-K for the fiscal year ended April 30, 2022, as amended, the Company impaired its investment in Morion in full.

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

NOTE I – RECENT ACCOUNTING PRONOUNCEMENTS

Future sales to, purchases from, and dividend payments from Morion are expected to be limited or non-existent going forward.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE I – RESTRICTED CASH

As of January 31, 2024 restricted cash consisted of approximately $ 941,000 related to a letter of credit required for contractual restrictions during the period of performance for one of the Company’s contracts.

There was no restricted cash in the prior fiscal year.

Restricted cash is classified as current or non-current based on the remaining performance period of the contract.

A reconciliation of cash and cash equivalents and restricted cash from the condensed consolidated balance sheets to the condensed consolidated statements of cash flows is shown below (in thousands):

January 31, 2024

April 30, 2023

Cash and cash equivalents

Restricted cash

Total cash and cash equivalents and restricted cash

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

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

3 unchanged sentences

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

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires companies to annually disclose categories in the effective tax rate reconciliation and additional information about income taxes paid.

The new guidance is effective for annual periods beginning after December 15, 2024, 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.

NOTE K – CREDIT FACILITY

As of January 31, 2024, 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.

Prior to retiring the advisory credit arrangement, no borrowings were made during fiscal 2023.

NOTE K – DEFERRED INCOME TAXES

NOTE L – DEFERRED INCOME TAXES

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

3 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 October 31, 2023, and April 30, 2023, the Company maintained a full valuation allowance against its deferred tax assets.

As of January 31, 2024, 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.

17 unchanged sentences

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

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

The Company’s significant accounting policies did not change during the three and nine months ended January 31, 2024.

Revenue Recognition

13 unchanged sentences

RESULTS OF OPERATIONS

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,

The table below sets forth for the three and nine months ended January 31, 2024 and 2023, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements:

Periods ended January 31,

Less intersegment revenues

2 unchanged sentences

Research and development expenses

Operating income (loss)

Other loss, net

Operating (loss) income

Other income (loss), net

Provision for income taxes

Net income (loss)

Periods ended October 31,

Periods ended January 31,

(in thousands)

Intersegment revenues

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

For the three months ended January 31, 2024, revenues from commercial and U.S.

Government communication satellite programs accounted for approximately 50% of consolidated revenues compared to approximately 47% of consolidated revenues during this same period in the prior fiscal year.

Revenues are recognized primarily over time under the POC method.

Revenues are recognized primarily over time under the percentage-of-completion (“POC”) method.

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

Revenues from non-space U.S.

Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 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.

Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 44% of consolidated revenues for the three months ended January, 31, 2024 compared to approximately 47% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the three months ended January 31, 2024 accounted for approximately 7% of consolidated revenue compared to 6% 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 reflected in both segments and primarily related to increases in government space of approximately $1.8 million in sales from space U.S.

Government customers and approximately $1.0 million in sales from non-space U.S.

government customers.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

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

For the nine months ended January 31, 2024, revenues from commercial and U.S.

Government communication satellite programs accounted for approximately 41% 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 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,

Government/DOD customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 53% of consolidated revenues for the nine months ended January, 31, 2024 compared to approximately 47% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the nine months ended January 31, 2024 accounted for approximately 6% of consolidated revenue compared to 7% 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 reflected in both segments and primarily related to contract awards from prior periods that have moved into production.

Periods ended January 31,

(in thousands)

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 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.

For the three months ended January 31, 2024, gross margin (“GM”) decreased and GM Rate decreased compared to the same period in the prior fiscal year.

The GM dollars and the GM Rate decreased due to un-anticipated costs associated with fixed price and customer funded new product development.

For the nine months ended January 31, 2024, GM and GM Rate increased compared to the same period in the prior fiscal year.

Despite the issue noted above with respect to the new product development costs during the quarter ended January 31, 2024, the increase in GM and GM Rate during the nine months ended January 31, 2024 were due to the fact that many of the technical challenges faced in the prior fiscal year period 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

Periods ended October 31,

Periods ended January 31,

(in thousands)

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.

For the three months ended January 31, 2024 and 2023, selling, general, and administrative (“SG&A”) expenses were approximately 19% and 22%, respectively, of consolidated revenues.

The percentage of consolidated revenue decreased 3% due to an increase in sales for the three months ended January 31, 2024 as compared to the three months ended January 31, 2023.

Similarly, the absolute increase in SG&A expenses for the three months ended January 31, 2024, as compared to the prior year period, was driven by increased bid/proposal costs associated with the increased sales.

For the nine months ended January 31, 2024 and 2023, 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 nine months ended January 31, 2024 as compared to the nine months ended January 31, 2023.

Similarly, the absolute increase in SG&A expenses for the nine months ended January 31, 2024 as compared to the prior year period was largely due to bid/proposal cost associated with increased sales and an increase in professional fees and payroll associated costs.

FREQUENCY ELECTRONICS, INC.

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Research and Development Expenses

Periods ended October 31,

Periods ended January 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 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.

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

The change in R&D expenditures for the three and nine months ended January 31, 2024, as compared to the prior year quarter, was primarily due to a temporary shift of R&D focus.

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)

Periods ended October 31,

Periods ended January 31,

(in thousands)

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.

For the three months ended January 31, 2024, operating income decreased due to the design issue relating to a new product development.

For the nine months ended January 31, 2024, operating income increased despite the temporary design issue, due to a combination of increased revenue and GM, and the effects of certain cost cutting measures instituted by management that began in fiscal year 2023.

Other Income (Expense), net

Periods ended October 31,

Periods ended January 31,

(in thousands)

Investment (expense) income

Investment income (expense) , net

Interest expense

Other income (expense), net

Other income (expense), net is derived from various sources.

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

The majority of the approximately $0.6 million of investment income for the three months ended January 31, 2024 was from the proceeds from a life insurance plan.

The increase in investment income for the nine months ended January 31, 2024, likewise reflected the proceeds from this same life insurance plan.

FREQUENCY ELECTRONICS, INC.

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Provision for Income Tax

Periods ended October 31,

Periods ended January 31,

(in thousands)

Periods ended October 31,

Periods ended January 31,

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

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

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.

For the three months ended January 31, 2024, 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 January 31, 2023, the Company recorded an income tax provision of $3,000.

For the nine months ended January 31, 2024, the Company recorded an income tax provision of $19,000 primarily related to state income taxes and discrete income tax provision related to an accrual of interest for unrecognized tax benefits.

For the nine months ended January 31, 2023, the Company recorded an income tax provision of $6,000.

The effective tax rate for the three months ended January 31, 2024 was an income tax provision of 4.4% on pretax income of $0.1 million compared to an income tax provision of (1.1)% on pretax loss of $0.3 million in the comparable prior fiscal year period.

The effective tax rate for the three months ended January 31, 2024 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 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.

The effective tax rate for the nine months ended January 31, 2024 was an income tax provision of 0.6% on pretax income of $3.0 million compared to an income tax provision of (0.1)% on pretax loss of $5.7 million in the comparable prior fiscal year period.

The effective tax rate for the nine months ended January 31, 2024 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.

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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 $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.

The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $24.1 million at January 31, 2024 and $21.0 million at April 30, 2023.

Included in working capital at January 31, 2024 and April 30, 2023 was $11.7 million and $12.0 million, respectively, of cash and cash equivalents.

The Company’s current ratio was 1.9 to 1 at January 31, 2024 compared to 1.8 to 1 as of April 30, 2023.

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.

Net cash provided by operating activities for the nine months ended January 31, 2024 and 2023 was approximately $1.2 million and $1.9 million, respectively.

The decrease in net cash provided by operating activities in the first nine months of fiscal 2024 as compared to the prior fiscal year period was mainly due to operating income, offset by an increase in inventories.

For the nine months ended January 31, 2024 and 2023, the Company incurred approximately $3.1 million and $2.7 million, respectively, of non-cash operating expenses including amortization of ROU assets, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.

Net cash used in investing activities for the nine months ended January 31, 2024 was approximately $0.7 million compared to net cash provided by investing activities of approximately $8.7 million for the nine months ended January 31, 2023.

During the nine months ended January 31, 2024, no marketable securities were sold or redeemed compared to $11.0 million for the same period of fiscal year 2023.

During the nine months ended January 31, 2024, 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 $0.7 million and $0.9 million for the nine month periods ended January 31, 2024 and 2023, respectively.

There were no financing activities for the nine months ended January 31, 2024.

Net cash used in financing activities for the nine months ended January 31, 2023 was approximately $9.4 million related to a dividend payout.

The Company has been authorized by its Board of Directors to repurchase up to $5.0 million worth of shares of its common stock when appropriate opportunities arise.

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.

As of January 31, 2024, the Company has repurchased approximately $4.0 million of its common stock out of the $5 million authorization, the majority of which has since been reissued.

For the nine months ended January 31, 2024 and 2023, 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 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.

As of January 31, 2024, the Company’s consolidated funded backlog was approximately $67 million compared to $57 million at April 30, 2023, the end of fiscal year 2023.

Approximately 74% of this backlog is expected to be realized in the next twelve months.

4 unchanged sentences

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 December 15, 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 March 18, 2025 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