What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-08-02 compared with 2023-07-27 · 300 added, 300 removed, 519 unchanged (54% of the section changed)

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Frequency Electronics, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Frequency Electronics, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of April 30, 2024, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended April 30, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2024, and the results of its operations and its cash flows for the year ended April 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognized using the percentage-of-completion cost-to-cost method

As described in Note 1 to the financial statements, the Company generates a majority of its revenue from contracts with its customers where revenue is recognized over time using the percentage-of-completion cost-to-cost method.

Under this method, the Company measures progress towards completion based on the ratio of costs incurred to date to total estimated costs to satisfy the Company’s performance obligation.

The percentage-of-completion cost-to-cost method requires management to use significant estimates and assumptions to estimate costs associated with its contracts with customers.

These costs are estimated at contract inception and are monitored and updated throughout the duration of the contract.

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

The principal consideration for our determination that revenue recognized using the percentage-of-completion cost-to-cost method is a critical audit matter is management’s use of significant estimates and assumptions in determining the total estimated costs at completion.

Auditing these estimates and assumptions required our especially challenging, subjective, and complex auditor judgment.

Our audit procedures related to cost estimates used in recognizing revenue under the percentage-of-completion cost-to-cost method included the following, among others:

We gained an understanding of the Company’s process to develop the estimates and assumptions used in determining the total estimated costs at completion.

We evaluated the reasonableness of significant estimates and assumptions used by management to develop its cost estimates through reviewing key terms of the contracts, comparing margin estimates with actual margins generated by similar contracts that have been completed, evaluating costs incurred to date relative to the contracts’ remaining tasks and timeline, and inspecting analyses and documentation used to support the cost estimates, as applicable.

We inquired with project management, engineers, and others directly involved with the execution of contracts to evaluate management’s ability to satisfy the requirements of the contract, as well as to evaluate project status and challenges which may affect the cost estimates.

We evaluated contract activity during the period subsequent to April 30, 2024, but before the financial statements were issued, to identify changes in conditions or events that may result in significant changes to the Company’s cost estimates as of April 30, 2024.

We evaluated the appropriateness of the timing of the incorporation of changes to cost estimates, including evaluating the timeline of key events and knowledge points that led to management’s determination that a change in estimate was necessary.

We performed retrospective reviews when evaluating management’s estimation process by comparing actual outcomes to previous estimates.

We recalculated revenue and gross profit recognized during the year based on the Company’s measurement of its progress towards completion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2023.

Melville, New York

August 2, 2024

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Frequency Electronics, Inc.

(the “Company”) as of April 30, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Frequency Electronics, Inc.

(the “Company”) as of April 30, 2023, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognized Over Time Using Percentage-of-Completion

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

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

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

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

We identified estimated costs to complete for contracts where revenue is recognized over time using the POC cost-to-cost method as a critical audit matter.

The determination of the total estimated costs to complete requires management to make significant estimates and assumptions regarding labor, outside services, materials and overhead costs.

Changes in the estimates of these costs can have a significant impact on the revenue recognized each period.

Auditing these elements involved especially challenging auditor judgment in evaluating the reasonableness of management’s assumptions and estimates over the duration of these contracts.

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

Agreeing the key terms to contracts and comparing estimated costs at completion as of the current year-end to the estimated costs at completion as of the prior year-end.

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

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

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

Testing the mathematical accuracy of management’s calculation of the estimated costs at completion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, P.A.

We have served as the Company’s auditor since 2020.

We served as the Company's auditor from 2020 to 2023.

Melville, New York

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Cash and cash equivalents

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 111 at April 30, 2023 and April 30, 2022

Accounts receivable, net of allowances of $ 110 at April 30, 2024 and $ 111 at April 30, 2023

Contract assets

Inventories, net

Prepaid income taxes

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Right-of-use assets – operating leases

Restricted cash

LIABILITIES AND STOCKHOLDERS ’ EQUITY:

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Deferred taxes

Operating lease liability – non-current

Operating lease liability, non-current portion

Other liabilities

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Preferred stock - $ 1.00 par value;

authorized 600 shares, no shares issued

authorized 600 shares, no shares issued and outstanding

Common stock - $ 1.00 par value;

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Common stock reacquired and held in treasury -

at cost ( 1 share at April 30, 2023 and April 30, 2022)

at cost ( 1 shares at April 30, 2024 and April 30, 2023)

Accumulated other comprehensive income (loss)

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Research and development expenses

Operating loss

Operating income (loss)

Other income (expense):

(Loss) income on Investments

Loss on disposal of asset

Loss on impairment of Morion

Income (loss) on investments

Interest expense

Other income (expense), net

Loss before provision from income taxes

Provision from income taxes

Net loss per common share:

Basic and diluted loss per share

Income (loss) before (benefit) provision from income taxes

(Benefit) provision from income taxes

Net income (loss)

Net income (loss) per common share:

Basic and diluted earnings (loss) per share

Weighted average shares outstanding:

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Consolidated Statements of Comprehensive Income (Loss)

Unrealized gain (loss) on marketable securities:

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

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

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

Comprehensive loss

Net income (loss)

Unrealized gain 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

Comprehensive income (loss)

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

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Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss)

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

Depreciation and amortization

Non-cash lease expense

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

Loss (gain) on marketable securities

Loss on sale of fixed and other assets, net

Loss on impairment of Morion

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

Provision for inventory reserve

Loss provision accrual

Loss on marketable securities

Loss on sale of fixed and other assets

Employee benefit plans expense

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Contract liabilities

Loss provision accrual

Income taxes refundable

Prepaid income taxes

Other liabilities

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Capital expenditures

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

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Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and equivalents at end of year

Net increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of year

Cash and equivalents and restricted cash at end of year

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

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Balance at April 30, 2022

Contribution of stock to 401(k) plan

Stock-based compensation expense

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

Other comprehensive loss, net of tax

Balance at April 30, 2022

Contribution of stock to 401(k) plan

Stock-based compensation expense

Other comprehensive income, net of tax

Contribution of stock to

compensation expense

Other comprehensive

income, net of tax

Dividends paid

Balance at April 30, 2023

Contribution of stock to

compensation expense

Balance at April 30, 2024

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

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Summary of Accounting Policies

The Company is principally engaged in the design, development and manufacture of precision time and frequency control products and components for microwave integrated circuit applications.

Basis of Presentation and Principles of Consolidation :

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References to “FEI” are to the parent company alone and do not refer to any of its subsidiaries.

The Company is principally engaged in the design, development and manufacture of precision time and frequency control products and components for microwave integrated circuit applications.

See Note 14 for information regarding the Company’s business segments:

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Intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates:

These consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S.

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Actual results could differ from these estimates.

COVID-19 Pandemic and the CARES Act

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.

Significant estimates include, but are not limited to, accounting for revenue recognition using a cost-to-cost input model, inventory reserves, deferred compensation plans, impairment of goodwill and other long-lived assets, stock-based compensation, and income taxes including deferred income taxes.

Cash Equivalents:

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Government agencies.

All marketable securities were held in the custody of one financial institution during the fiscal year ended April 30, 2023.

No marketable securities were held during the fiscal year ended April 30, 2024.

Investments in debt securities were categorized as available-for-sale and were carried at fair value, with unrealized gains and losses excluded from income and recorded directly to stockholders’ equity.

The Company recognized gains or losses when securities were sold using the specific identification method.

The Company recognizes gains or losses when securities are sold using the specific identification method.

The Company liquidated all holdings related to marketable securities during the fiscal year ended April 30, 2023.

Allowance for Doubtful Accounts:

Losses from uncollectible accounts receivable are provided for by utilizing the allowance for doubtful accounts method based upon management’s estimate of uncollectible accounts.

Management analyzes accounts receivable and the potential for bad debts, customer concentrations, credit worthiness, current economic trends and changes in customer payment terms when evaluating the amount recorded for the allowance for doubtful accounts.

Accounts Receivable and Allowance for Credit Losses:

Accounts receivable, net, consists of amounts collectible from customers recorded at the original invoiced amount.

Management analyzes accounts receivable and the potential for credit losses based on customer concentrations, credit worthiness, current economic trends and changes in customer payment terms.

Accounts receivable are recorded at their stated amount, less allowance for credit losses.

When it is determined amounts are not recoverable, the receivable is written off against the allowance.

Property, Plant and Equipment:

Property, plant and equipment is recorded at cost and include interest on funds borrowed to finance construction.

Expenditures for renewals and betterments are capitalized;

Property, plant and equipment is recorded at cost, net of accumulated depreciation and amortization.

Expenditures for betterments are capitalized;

maintenance and repairs are charged to operations when incurred.

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If events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition.

If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized.

If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the long-lived asset.

No impairment losses have been recognized in the years ended April 30, 2024 and 2023.

Inventories, which consist of raw materials and components, work-in-process and finished goods are accounted for at the lower of cost (specific and average) and net realizable value.

Depreciation and Amortization:

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Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the estimated useful life of the asset.

Inventories, which consist of raw materials, work-in-process and finished goods are accounted for at the lower of cost (specific and average) and net realizable value.

The cost of work-in-process and finished goods generally include the cost of materials, labor, overhead and other costs that are directly related to their production.

The Company reviews its inventories quarterly to determine reserves for excess or obsolete inventory based upon historical sales trends, expected production usage, and other factors.

Changes to inventory are charged to cost of revenues in the period when such changes are identified.

Inventories represent raw materials, work-in-process, and finished goods that relate to non-customized products sold to customers at a point in time.

Inventories also represent raw materials and in-process and completed components parts that are used in multiple customer projects but have not been allocated to a specific customer project or incorporated in the creation of customized products that are sold to specific customers over a period of time.

The Company records goodwill as the excess of purchase price over the fair value of identifiable net assets acquired.

Goodwill is tested for impairment, on a reporting unit level qualitatively, on at least an annual basis at fiscal year end to determine whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount.

If it is determined that the carrying value of goodwill may not be recoverable, the Company will write down the goodwill to an amount to commensurate with the revised value of the acquired assets.

The Company measures fair value based on revenue projections, recent transactions involving similar businesses and price/revenue multiples at which they were bought and sold, price/revenue multiples of competitors, and the present market value of publicly-traded companies in the Company’s industry.

Management has determined that goodwill was not impaired as of April 30, 2023 and 2022.

The Company performs a qualitative evaluation of events and circumstances impacting each reporting unit to determine the likelihood of goodwill impairment.

Based on this evaluation, if it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary.

Otherwise, the Company will perform a quantitative impairment test to compare the fair value of a reporting unit to its carrying value, including goodwill.

If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired.

If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss will be recognized in an amount equal to that excess.

Management has determined that goodwill was not impaired as of April 30, 2024 and 2023, based on its qualitative assessment of impairment for each period.

Revenue and Cost Recognition:

Revenue is recognized when a performance obligation is satisfied, which is when the expected goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to receive.

Revenue is recognized when or as performance obligations are satisfied, which is when control over goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to receive.

A performance obligation is a distinct product or service that is transferred to the customer based on the contract.

The transaction price is allocated to each performance obligation and is recognized as revenue upon satisfaction of that performance obligation.

The Company derives revenue from contracts with customers by units sold with specific specifications and frequencies that are used by a specific customer and contracts where the end user is the U.S.

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

Under this method, revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs with related cost of revenues recorded as the costs are incurred.

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

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

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

For smaller contracts or orders sales of products and services to customers are reported in operating results based upon passage-of-title (“POT”) (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order.

When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed.

The Company’s products generally carry a one-year warranty, but may vary based on the contract terms.

Some judgment is used in evaluating the financial information for certain contracts to determine an appropriate budget and estimated cost.

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

FREQUENCY ELECTRONICS, INC.

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April 30, 2024 and 2023

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

The Company derives a majority of its revenue through contracts with customers that involve the sale of goods and services with specifications, frequencies and significant customization to address the requirements of a specific customer and contracts where the end user is the U.S.

These contracts generally include one performance obligation, which is typically a customized product or a series of distinct customized products.

Control over this performance obligation transfers to the customer over time as the Company creates the customized product because such product does not have an alternative use to the Company and the contract provides the Company with an enforceable right to payment for performance completed to date.

In certain cases, the customer also controls the product as it is being created by the Company.

Accordingly, revenue is reported in operating results over time using the percentage-of-completion (“POC”) cost-to-cost method.

Under this method, revenue is recorded based on the ratio of costs incurred over total estimated contract costs.

This method provides a faithful depiction of the transfer of the customized product to the customer because the costs incurred represent the Company’s inputs towards satisfying the performance obligation.

Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to complete based on current available information, project status, historical experience with similar contracts, changes to product specifications, and other factors.

The estimation of total costs through completion is complicated and subject to many variables.

Total cost estimates can be affected by a number of factors such as changes in the assessment of the nature and complexity of the work;

design challenges including changes to design specifications;

technical challenges including those related to quality control;

production challenges including those resulting from the timeliness of customer funding, and the unavailability or reduced productivity of qualified labor;

supplier challenges including the cost, availability, and quality of raw materials and subcontractor services;

changes in laws or regulations;

actions necessary for long-term customer satisfaction;

and natural disasters or other matters.

Changes in these cost estimates could result in the recognition of unfavorable cumulative catch-up adjustments to the Company’s operating results of the period when such changes are made.

Costs to satisfy the performance obligation, which include direct materials, direct labor, manufacturing overhead and other direct costs, are expensed as incurred except when the Company determines that the total estimated costs through completion will exceed total revenue, resulting in a contract loss.

Such contract loss is accrued for immediately in the period when the loss is identified.

The Company also derives its revenue through contracts or purchase orders from customers that involve the sale of goods and services that are not significantly customized and therefore, such goods and services have an alternative use to the Company because they can be resold to other customers.

These contracts typically include one performance obligation, which is a non-customized product or service ordered by the customer.

Control over this performance obligation transfers to the customer and revenue is recorded at a point time when passage-of-title (“POT”) occurs as reflected by either (i) shipment of the product or (ii) performance of the services, which are generally completed within a very short period.

When payment is contingent upon customer acceptance, revenue is deferred until such acceptance is received.

Costs directly related to the production of a non-customized product are capitalized in inventory and are generally expensed when the product is shipped to or accepted by the customer.

Cost of services are expensed as incurred.

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

Selling, general and administrative costs are charged to expense as incurred.

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The Company expenses costs, other than sales commissions, to obtain a contract in the period for which they are incurred as these amounts would have been incurred even if the contract had not been obtained.

The Company elected the practical expedient to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than as a promised service.

The Company elected the practical expedient not to disclose the transaction price allocated to the remaining performance obligations because the duration of the Company’s contracts is typically one year or less in consideration of the customer’s option to terminate the contract for convenience without incurring a substantive termination penalty.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2024 and 2023

Payments under long-term contracts may be received before or after revenue is recognized.

Government customer typically withholds payment of a small portion of the contract price until contract completion.

Therefore, long-term contracts typically generate unbilled receivables (contract assets) but may generate advances and progress billings (contract liabilities).

Long-term contract unbilled receivables and advances and progress billings are not considered a significant financing component because they are intended to protect either the customer or the Company in the event that some or all of the obligations under the contract are not completed.

In addition, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less.

Disaggregation of Revenue

Total revenue recognized over time as POC method was approximately $ 39.1 million and $ 46.4 million of the $ 40.8 million and $ 48.3 million reported for the years ended April 30, 2023 and 2022, respectively.

Total revenue recognized over time using the POC method was approximately $ 52.1 million and $ 39.1 million of the $ 55.3 million and $ 40.8 million reported for the years ended April 30, 2024 and 2023, respectively.

The amounts by segment and product line were as follows:

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(In thousands)

Total Revenue

Fiscal Year Ended April 30, 2023

(In thousands)

Total Revenue

Fiscal Years Ended April 30,

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Comprehensive income (loss) consists of net income or loss and other comprehensive income/loss.

Other comprehensive income/loss includes changes in unrealized gains or losses, net of tax, on securities (for fiscal year 2023 and fiscal year 2022, debt securities) available for sale during the year.

Research and Development Expenses:

Other comprehensive income/loss includes changes in unrealized gains or losses, net of tax, on securities available for sale during the year.

Research and Development:

The Company engages in R&D activities to identify new applications for its core technologies, to improve existing products and to improve manufacturing processes to achieve cost reductions and manufacturing efficiencies.

R&D costs include direct labor, manufacturing overhead, direct materials and contracted services.

R&D costs include basic research, applied research, concept formulation studies, design, development, related test activities, and all associated direct labor, manufacturing overhead, direct materials and contracted services.

Such costs are expensed as incurred.

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The Company analyzes its tax positions under accounting standards which prescribe recognition thresholds that must be met before a tax benefit is recognized in the financial statements and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

An entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold.

Under these standards, the Company may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold.

Interest and penalties recognized on income taxes are recorded as income tax expense.

1 unchanged sentence

Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding.

Diluted earnings per share are computed by dividing net earnings by the sum of the weighted average number of shares of common stock and the if-converted effect of unexercised stock options and stock appreciation rights (“SARs”).

Diluted earnings per share are not computed where the if-converted effect of such items would be anti-dilutive.

Diluted earnings (loss) per share are computed by dividing net earnings (loss) by the sum of the weighted average number of shares of common stock and the if-converted effect of unexercised stock options and stock appreciation rights (“SARs”).

Diluted earnings (loss) per share are not computed where the if-converted effect of such items would be anti-dilutive.

Fair Values of Financial Instruments:

Cash and cash equivalents, marketable securities, short-term credit obligations and debt and cash surrender value of life insurance are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value based upon the nature of the instrument and current market conditions.

Cash and cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable, short-term credit obligations, and cash surrender value of life insurance are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value based upon the nature of the instrument and current market conditions.

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

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(“Morion”), see Note 10 for additional information.

Equity-based Compensation:

The cost of employee services received in exchange for awards of equity instruments are based on the grant-date fair value of the award.

We recognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for the award.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

April 30, 2024 and 2023

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

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

The levels of the fair value hierarchy are described below:

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities.

Inputs to the valuation methodology include:

-Inputs other than quoted prices that are observable for the asset or liability;

-Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Equity-based Compensation:

The cost of employee services received in exchange for awards of equity instruments are based on the grant-date fair value of the award.

We recognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for the award.

For awards with performance conditions, we recognize the fair value of the award as compensation expense when it is probable that the performance condition will be achieved.

The Company has elected an accounting policy to account for award forfeitures as they occur, with no adjustment for estimated forfeitures.

Concentration of Credit Risk:

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New Accounting Pronouncements:

In January 2017, the 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.

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.

The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in fiscal year 2024.

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 is evaluating the effect on its consolidated financial statements when adopted in fiscal year 2025 but does not expect the effect to be material.

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 is in the process of evaluating the impact that the adoption of ASU No.

2023-09 will have to the financial statements and related disclosures.

Out of Period Adjustment:

As of and for the year ended April 30, 2024, the Company recorded an out of period adjustment related to its loss provision accrual to account for its contracts where the expected costs exceed the total expected revenues.

The out of period adjustment resulted in a decrease to cost of revenues and a decrease to loss provision accrual of $ 0.9 million.

The adjustment did not have any impact on cash flows for the Company and does not have any continuing impact on future cash flows or earnings.

The Company has evaluated the effects of this error, both qualitatively and quantitatively, and does not believe the correction was material to any current or prior interim or annual periods that were affected.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Earnings per Share

Reconciliations of the weighted average shares outstanding for basic and diluted (loss) earnings per share for the fiscal years ended April 30, 2023 and 2022, respectively, were as follows:

Reconciliations of the weighted average shares outstanding for basic and diluted earnings (loss) per share for the fiscal years ended April 30, 2024 and 2023, respectively, were as follows:

For the Fiscal Years Ended April 30,

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Diluted EPS Shares outstanding

** For the fiscal years ended April 30, 2023 and 2022, dilutive securities noted in the above table are excluded from the calculation of (loss) earnings per share since the inclusion of such shares would be antidilutive due to the net loss for the period.

Additionally, there are anti-dilutive shares excluded in the above table for fiscal years ended April 30, 2023 and 2022 of 243,625 and 193,000 , respectively.

Contract (Liabilities) Assets

At April 30, 2023 and 2022, contract (liabilities) assets, consisted of the following (in thousands):

** Dilutive securities above exclude any such securities whose affect would be anti-dilutive.

For the fiscal year ended April 30, 2024 all securities would be anti-dilutive because the current stock price is below the exercise price.

For the fiscal year ended April 30, 2023, all securities would be anti-dilutive due to the Company’s net loss position.

The anti-dilutive shares excluded in the above table for fiscal years ended April 30, 2024 and 2023 were 86,000 and 243,625 , respectively.

Contract Assets and Liabilities

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

April 30, 2024

3 unchanged sentences

Contract assets and contract liabilities at April 30, 2022, were $ 8,857 and ($ 11,098 ), respectively.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

April 30, 2023 and 2022 amounts represent revenue recognized on long-term contracts that have not been billed at the balance sheet dates or represent a liability for amounts billed in excess of the revenue recognized.

Amounts are billed to customers pursuant to contract terms.

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

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

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

Contract assets increased $ 1.1 million during fiscal year 2023, primarily due to recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during fiscal year 2023 for which we have not yet billed out customers.

Contract liabilities increased $ 7.5 million during fiscal year 2023, primarily due to payments received in excess of revenue recognized on these performance obligations.

During fiscal year 2023, we recognized $ 7.1 million of our contract liabilities at April 30, 2022 as revenue.

During fiscal year 2022, we recognized $ 17.2 million of our contract liabilities at April 30, 2021 as revenue.

During the fiscal years ended April 30, 2023 and 2022, revenue recognized under POC contracts was approximately $ 39.1 million and $ 46.4 million, respectively.

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers.

Contract assets are transferred to accounts receivable when the rights become unconditional.

Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied, and therefore, revenue has not been recognized.

In fiscal year 2024, we recognized $ 15.8 million of our contract liabilities at April 30, 2023 as revenue.

In fiscal year 2023, we recognized $ 7.1 million of our contract liabilities at April 30, 2022 as revenue.

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

Total contract losses for the fiscal years ended April 30, 2023 and 2022 were approximately $ 429,000 and $ 4.2 million, respectively.

Inventories, Net

Inventories, net, at April 30, 2023 and 2022, consisted of the following (in thousands):

Total contract losses for the fiscal years ended April 30, 2024 and 2023 were approximately $ 3.1 million and $ 429,000 , respectively.

The liability for contract losses is presented as loss provision accrual within the consolidated balance sheets.

Inventories at April 30, 2024 and 2023, consisted of the following (in thousands):

April 30, 2024

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Inventory reserves included in inventory were $ 9.1 million and $ 8.1 million for the fiscal years ended April 30, 2024 and 2023, respectively.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2024 and 2023

Property, Plant and Equipment, net

6 unchanged sentences

Depreciation and amortization expense was $ 2.1 million and $ 2.4 million for the fiscal years ended April 30, 2024 and 2023, respectively.

Maintenance and repairs charged to operations was approximately $ 409,000 and $ 677,000 for the fiscal years ended April 30, 2023 and 2022, respectively.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2023 and 2022

Right-of-Use Assets and Lease Liabilities

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Contractual arrangements are evaluated at inception to determine if the agreement contains a lease.

New York lease.

In February 2019, the Company entered into an agreement to lease a building to be used as a corporate headquarters office and manufacturing facility in Mitchell Field, NY (“New York lease”).

The New York lease expires 9/30/2029 and contains renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.

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 April 30, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability.

Right-of-Use (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.

Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term.

Lease terms may factor in options to extend or terminate the lease.

California lease.

In October 2017, the Company entered into an agreement to lease a building to be used as an office and manufacturing facility in Garden Grove, CA (“California Lease”).

The California lease expires 1/31/2025 and contains renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.

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 April 30, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability.

Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term.

Lease terms may factor in options to extend or terminate the lease.

New Jersey lease.

In February 2022, the Company entered into an agreement to lease a building to be used as an office and manufacturing facility in Northvale, NJ (“New Jersey lease”).

The New Jersey lease expires 1/31/2025 and contains renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.

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.

The leases contain renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.

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 April 30, 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.

Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term.

Lease terms may factor in options to extend or terminate the lease.

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

The Company has also elected the practical expedient to account for lease and non-lease components as a single component.

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

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(In thousands)

Operating lease ROU assets

Right-of-use assets - operating leases

Right-of-use assets leases

Operating lease liabilities (short-term)

Operating lease liabilities, current portion

Lease liability, current

Operating lease liabilities (long-term)

Operating lease liabilities, non-current portion

Lease liability, non-current

Total lease liabilities

Total operating lease expense was approximately $ 1.9 million and $ 1.6 million for the fiscal years ended April 30, 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 consolidated statements of operations.

Total operating lease expense was approximately $ 1.9 million, of which approximately $ 0.4 million was attributable to variable lease expenses, for both the fiscal years ended April 30, 2024 and 2023, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the consolidated statements of operations.

In addition, the Company made cash payments of $ 1.8 million and $ 1.9 million for operating leases during the fiscal years ended April 30, 2024 and 2023, respectively, which are included in cash flows from operating activities in our consolidated statements of cash flows.

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Marketable Securities

The cost, gross unrealized gains, gross unrealized losses and fair market value of available-for-sale securities at April 30, 2023 and 2022, respectively, were as follows (in thousands):

April 30, 2023

Gross Unrealized Gains

Gross Unrealized Losses

Fair Market Value

Fixed income securities

April 30, 2022

Gross Unrealized Gains

Gross Unrealized Losses

Fair Market Value

Fixed income securities

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2023 and 2022

The following table presents the fair value and unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

Less than 12 months

12 Months or more

April 30, 2023

Fixed Income Securities

April 30, 2022

Fixed Income Securities

During the fiscal year ended April 30, 2024, the Company had no holdings related to Marketable Securities.

The Company liquidated all holdings related to Marketable Securities during the fiscal year ended April 30, 2023.

Proceeds from the sale or redemption of available-for-sale securities and the resulting gross realized gains and losses included in the determination of net income (loss) for the years ended April 30, 2023 and 2022, respectively, were as follows (in thousands):

For the years ended April 30,

Proceeds from the sale or redemption of available-for-sale securities and the resulting gross realized gains and losses included in the determination of net income (loss) for the year ended April 30, 2023, were as follows (in thousands):

For the year ended April 30,

Gross realized gains

Gross realized losses

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The levels of the fair value hierarchy are described below:

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Inputs to the valuation methodology include:

-Quoted prices for similar assets or liabilities in active markets;

-Quoted prices for identical or similar assets or liabilities in inactive markets;

-Inputs other than quoted prices that are observable for the asset or liability;

-Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company’s money market, business account, and U.S.

securities were valued on a Level 1 basis.

The Company’s fixed income corporate debt securities and certificates of deposit were valued on a Level 2 basis.

Level 2 securities were valued at the closing prices and are consistent with quoted prices of similar assets reported in active markets.

Debt Obligations

As of April 30, 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.

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

April 30, 2024 and 2023

Debt Obligations

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

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.

Accrued Liabilities

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The Company has also licensed certain technology to Morion.

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

The Company’s investment consists of 4.6 % of Morion’s outstanding shares.

However, due to the Russia Ukraine conflict and resulting sanctions the future status of FEI’s investment in Morion became uncertain and accordingly, such investment was written of in fiscal year 2022.

The carrying value of this investment is $ 0 as of April 30, 2024 and 2023.

During the fiscal years ended April 30, 2024 and 2023, the Company acquired product from Morion in the aggregate amount of approximately $ 89,000 and $ 196,000 , respectively.

During the fiscal years ended April 30, 2022, the Company sold product and training services to Morion in the aggregate amount of approximately $ 23,000 , included in revenues in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal year ended April 30, 2022, the Company received dividends from Morion in the amount of approximately $ 123,000 , which is included in other income, net in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal year ended April 30, 2023, the Company sold no product and training devices to Morion, and the Company received no dividends from Morion.

During the fiscal years ended April 30, 2024 and 2023, the Company sold no product and no training devices to Morion, and the Company received no dividends from Morion.

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

1 unchanged sentence

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

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

Ukraine-related sanctions regime has since 2014 included a list of 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.

As previously disclosed, in light of Morion’s relationship with Gazprombank, in 2020, the Company evaluated, with the assistance of external legal counsel, certain sales to Morion and the timing of payments by Morion to the Company in connection with those sales to determine whether payments by Morion may have inadvertently constituted extensions of credit in violation of Directive 1 under Executive Order 13662.

The Company determined that certain payments by Morion – the majority of which occurred more than five years ago – were not timely.

Following the evaluation, on May 7, 2020, the Company voluntarily disclosed its findings to the OFAC.

The Company’s voluntary disclosure to OFAC related solely to delays in collection of accounts receivable that exceeded then-applicable payment windows set forth in sanctions regulations and did not relate to any other type of payment or transaction.

On February 17, 2021, the Company received a Cautionary Letter from OFAC indicating that OFAC has completed its review of the matter.

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

Restricted Cash

As of April 30, 2024 restricted cash consisted of approximately $ 945,000 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):

April 30, 2024

April 30, 2023

Cash and cash equivalents

Restricted cash

Total cash and cash equivalents and restricted cash

FREQUENCY ELECTRONICS, INC.

2 unchanged sentences

April 30, 2024 and 2023

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

In response to these conditions, in connection with the preparation of the audited financial statements included in the 2022 Form 10-K, the Company impaired its investment in Morion in full.

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

Employee Benefit Plans

Profit Sharing Plan:

The Company provides its U.S.-based employees with a profit-sharing plan and trust under § 401(k) of the IRC.

The Company provides its U.S.-based employees with a profit-sharing plan and trust under § 401(k) of the Internal Revenue Code.

This plan allows all eligible employees to defer a portion of their income through voluntary contributions to the plan.

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The Company maintains incentive bonus programs for certain employees that are based on operating profits of the individual subsidiaries to which the employees are assigned.

The Company also adopted a plan for the President and Chief Executive Officer of the Company, which the formula is based on consolidated pre-tax profits.

The Company also adopted a plan for the President and Chief Executive Officer of the Company, which the formula is based on consolidated pre-tax profits, bookings, and revenue.

The incentive bonus recorded for the fiscal year ended April 30, 2024 was $ 489,000 .

2 unchanged sentences

The Company has various stock plans, some of which have been approved by the Company’s stockholders, for key management employees, including officers and directors who are employees, certain consultants and independent members of the Board of Directors.

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

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

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

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

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

22 unchanged sentences

Outstanding – April 30, 2022

429,125 $ 9.94 $ 4,264,749 1.3 years

Expired or canceled

( 185,500 ) 8.84 ( 1,639,970 )

Outstanding – April 30, 2023

243,625 $ 10.77 $ 2,624,779 0.8 years

Expired or canceled

( 157,625 ) 9.56 ( 1,506,139 )

Outstanding – April 30, 2024

86,000 $ 13.01 $ 1,118,640 0.9 years

Available for future grants

As of April 30, 2022, exercisable shares related to options and SARs under the plans totaled 393,500 , weighted-average exercise price was $ 10.06 , grant date fair value was $ 3,956,845 , weighted average remaining contractual term was 1.4 years, and the aggregate intrinsic value was $ 2,989,785 .

As of April 30, 2023, there was no unrecognized compensation cost related to non-vested options and SARs under the plans.

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

During the fiscal years ended April 30, 2023 and 2022, 35,625 shares and 41,875 shares, respectively, vested, the fair value of which was approximately $ 106,000 and $ 123,000 , respectively.

As of April 30, 2024 and 2023, respectively, there were no unrecognized compensation cost related to non-vested options and SARs under the plans.

During the fiscal year ended April 30, 2024 there were no shares that vested.

During the fiscal year ended April 30, 2023, 35,625 shares vested, the fair value of which was approximately $ 106,000 .

Stock-based compensation costs, for options and SARs, included in the cost of revenues of programs on which the Company recognizes revenue under the POC method were approximately $ 0 and $ 2,000 for the fiscal years ended April 30, 2024 and 2023, respectively.

Stock-based compensation expense included in selling and administrative expenses, related to options and SARs, during the fiscal years ended April 30, 2023 and 2022 were approximately $ 0 and $ 45,000 , respectively.

There was no stock-based compensation expense included in selling and administrative expenses related to options and SARs during the fiscal years ended April 30, 2024 and 2023, respectively.

The Company classifies cash flows resulting from the tax benefits from tax deductions recognized upon the exercise of stock options or SARs (tax benefits) as operating cash flows.

1 unchanged sentence

Restricted Stock Plan and Other Issuances:

During fiscal year 1990, the Company adopted a Restricted Stock Plan which provided that key management employees could be granted rights to purchase an aggregate of 375,000 shares of the Company’s common stock.

The grants, transferability restrictions and purchase price were determined at the discretion of a special committee of the Board of Directors.

The purchase price could not be less than the par value of the common stock.

Transferability of shares is restricted for a four-year period, except in the event of a change in control as defined therein.

As a result of the adoption by the Company’s stockholders of the 2005 Stock Award Plan, the Restricted Stock Plan was discontinued.

No additional grants will be made under this plan.

As of April 30, 2023, there are no outstanding shares available for purchase.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2023 and 2022

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

1 unchanged sentence

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

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

Forfeitures are recorded as they occur.

During the fiscal year ended April 30, 2023 and 2022, the Company issued 1,300 shares from common stock and 1,150 shares from common stock, respectively, to select employees for milestone years of service to the Company.

A portion of the RSUs awarded will vest annually until fiscal year 2028, the remaining represent awards that cliff vest in fiscal year 2029.

During the fiscal year ended April 30, 2024 and 2023, the Company issued 3,300 shares of common stock and 1,300 shares of common stock, respectively, to select employees for milestone years of service to the Company.

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

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

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

The fair value of these awards is equivalent to the market value of the Company’s common stock on the grant date and requires an assessment of the probability that the specified performance criteria will be achieved, which is updated at each reporting date.

2 unchanged sentences

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

A portion of the PSUs awarded will vest, subject to specified performance criteria, annually until fiscal year 2025.

Forfeitures are recorded as they occur.

The PSUs awarded will vest, subject to specified performance criteria, annually until fiscal year 2028.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2024 and 2023

Stock-based compensation costs, related to RSUs and PSUs, included in the cost of revenues of programs on which the Company recognizes revenue under the POC method were approximately $ 487,000 and $ 186,000 for the fiscal years ended April 30, 2024 and 2023, respectively.

7 unchanged sentences

Balance – April 30, 2024

As of April 30, 2024, all performance conditions related to substantially all outstanding PSUs have been met.

The PSU’s will continue to vest, the same as RSUs, annually over a four year period.

Deferred Compensation Agreements:

The Company has a series of agreements with key employees providing for the payment of benefits upon retirement or death.

Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, mortality rates, assumed rates of return compensation increases, and turnover rates.

The actuarial assumptions used to determine deferred compensation liabilities and expense are reviewed annually and modified based on current economic conditions and trends.

The discount rate used to measure obligations is based on a corporate bond rate yield curve that matches projected future benefit payments.

Under these agreements, each key employee receives specified retirement payments for the remainder of the employee’s life with a minimum payment of ten years’ benefits to either the employee or his or her beneficiaries.

2 unchanged sentences

Deferred compensation expense charged to selling and administrative expenses during the fiscal year ended April 30, 2024 was approximately $ 219,000 .

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

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2023 and 2022

Deferred compensation expense charged to selling and administrative expenses during the fiscal year ended April 30, 2023 was approximately $ 643,000 .

Life Insurance Policies and Cash Held in Trust:

4 unchanged sentences

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

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2024 and 2023

The provision for income taxes consisted of the following (in thousands):

Fiscal Year Ended April 30,

Current provision

Deferred tax provision

Total provision

The following table reconciles the reported income tax provision, recorded primarily due to the (i) recognition of previously unrecognized tax benefits, (ii) state and local taxes, (iii) and a change in the valuation allowance, with the amount computed using the federal statutory income tax rate (in thousands):

Current (benefit) provision

Deferred tax (benefit) provision

Total (benefit) provision

The following table reconciles the reported income tax provision with the amount computed using the federal statutory income tax rate (in thousands):

Fiscal Year Ended April 30,

8 unchanged sentences

Change in tax rate

Total provision

Total (benefit) provision

FREQUENCY ELECTRONICS, INC.

33 unchanged sentences

As of April 30, 2024, the Company has U.S.

federal net operating losses of $ 31.3 million of which $ 15.7 million begins to expire in fiscal years 2024 through 2038, including $ 3.1 million which is subject to annual limitation under IRC § 382.

federal net operating losses of $ 24.2 million of which $ 8.5 million begins to expire in fiscal years 2025 through 2038, including $ 2.0 million which is subject to annual limitation under Internal Revenue Code § 382.

The remaining U.S.

46 unchanged sentences

Consolidated revenues

Operating loss:

less intersegment revenues

Consolidated operating loss

Operating income (loss):

Less intersegment

Consolidated operating income (loss)

For the Fiscal Years Ended April 30,

22 unchanged sentences

Revenues in each of the Company’s segments include sales to foreign governments or to companies located in foreign countries.

For the fiscal years ended April 30, 2023 and 2022, revenues, based on the location of the procurement entity were derived from the following countries (in thousands):

For the fiscal years ended April 30, 2024 and 2023, revenues, based on the location of the procurement entity were derived from the following locations (in thousands):

For the Fiscal Years Ended April 30,

9 unchanged sentences

Balance at end of year

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2023 and 2022

Other Comprehensive Income (Loss)

Changes in Accumulated Other Comprehensive Income (Loss) (“AOCI”) by component and reclassifications from AOCI to Other income (expense), net, for the fiscal years ended April 30, 2023 and 2022, respectively, were as follows (in thousands):

Accumulated Other Comprehensive Income (Loss)

The Company did not have Accumulated Other Comprehensive Income (Loss) (“AOCI”) as of April 30, 2024 and 2023, and there was no change in AOCI during the fiscal year ended April 30, 2024.

Changes in the AOCI during the fiscal year ended April 30, 2023 were as follows (in thousands):

of Marketable

5 unchanged sentences

Balance April 30, 2023, net of taxes

Items of other comprehensive income (loss) before reclassification, pretax

Items of other comprehensive income (loss) before reclassification, net of taxes

Reclassification adjustments, pretax **

Total other comprehensive income (loss), net of taxes

Balance April 30, 2023, net of taxes

** The reclassification adjustments represent net realized (gains) losses on the sale or redemption of available-for-sale marketable securities that were reclassified from AOCI to Other income (expense), net.

FREQUENCY ELECTRONICS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

April 30, 2024 and 2023

Contingencies

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

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

Lord, Russell M.

Sarachek, Richard Schwartz and Stanton D.

Sloane, each in their capacity as members of the Board, and the Compensation Committee of the Company’s Board, in its capacity as administrator under the deferred compensation agreements, and Mr.

Bloch and certain members of Mr.

Bloch’s family, in full and complete settlement of all claims asserted and all sums sought by Mr.

Bloch in the litigation and arbitration proceedings, the Company agreed to pay Mr.

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

The final settlement occurred on September 21, 2021.

In the normal course of its business, the Company may be involved in various claims, negotiations and legal actions.

As of April 30, 2024, the Company was not a party to any litigation in which an unfavorable outcome or material claim is probable or in which losses associated with the litigation can be reasonably estimated.

Subsequent Event

On July 22, 2024 the Company’s Board of Directors declared a special cash dividend of $ 1.00 per share of common stock.

The special dividend is payable on August 29, 2024 , to stockholders of record as of the close of business on August 8, 2024 .

Based on the current number of shares outstanding, the total amount of the special dividend payment will be approximately $ 9.4 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data