What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-09-13 compared with 2024-03-18 · 150 added, 264 removed, 268 unchanged (61% of the section changed)

6 unchanged sentences

Cash and cash equivalents

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

Accounts receivable, net of allowances of $ 110 at July 31, 2024 and April 30, 2024

Contract assets

8 unchanged sentences

Current liabilities:

Accounts payable

Accounts payable – trade

Accrued liabilities

Loss provision accrual

Dividend payable

Income taxes payable

Operating lease liability – current portion

4 unchanged sentences

Operating lease liability – non-current portion

Other liabilities

Total liabilities

3 unchanged sentences

Common stock - $ 1.00 par value;

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

authorized 20,000 shares, 9,568 shares issued and 9,562 shares outstanding at July 31, 2024;

9,512 shares issued and 9,511 shares outstanding at April 30, 2024

1 unchanged sentence

Accumulated deficit

Common stock reacquired and held in treasury -

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

Common stock reacquired and held in treasury - at cost ( 5 shares at July 31, 2024 and 1 share at April 30, 2024)

Total stockholders’ equity

3 unchanged sentences

and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share data)

Three Months Ended January 31,

Nine Months Ended January 31,

Three Months Ended July 31,

Condensed Consolidated Statements of Operations

2 unchanged sentences

Research and development expenses

Operating (loss) income

Operating income

Other income (expense):

Investment income (expense), net

Income on investments

Interest expense

Other income, net

Income (loss) before provision for income taxes

Income before provision for income taxes

Provision for income taxes

Net income (loss)

Net income (loss) per common share:

Basic and diluted income (loss) per share

Net income per common share:

Basic and diluted income per share

Weighted average shares outstanding:

Basic and diluted

Condensed Consolidated Statements of Comprehensive Income (Loss)

Net 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 included in net income (loss), net of tax

Total unrealized gain on marketable securities, net of tax

Comprehensive income (loss)

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Nine Months Ended January 31,

Three Months Ended July 31,

Cash flows from operating activities:

Net income (loss)

Non-cash charges to earnings

Net changes in operating assets and liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Proceeds on redemption of marketable securities

Purchase of marketable securities

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

Net cash (used in) provided by investing activities

Purchase of fixed assets

Net cash used in investing activities

Cash flows from financing activities:

Payment of dividend

Net cash used in financing activities

Net increase in cash and cash equivalents and restricted cash

Net decrease in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

2 unchanged sentences

Cash paid during the period for:

Cash refunded during the period for:

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine months ended January 31, 2024

Three months ended July 31, 2024 and 2023

(In thousands, except share data)

6 unchanged sentences

Stock-based compensation expense

Shares withheld on employee taxes on vested equity awards

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

Dividends payable

Balance at July 31, 2024

Contribution of stock to 401(k) plan

Stock-based compensation expense

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

5 unchanged sentences

Stock-based compensation expense

Other comprehensive income, net of tax

Balance at July 31, 2023

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 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 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 “Company”), the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly, in all material respects, the condensed consolidated financial position of the Company as of July 31, 2024 and the results of its operations, changes in stockholders’ equity for the three months ended July 31, 2024 and 2023, and cash flows for the three months ended July 31, 2024 and 2023.

The April 30, 2024 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 (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 nine months ended January 31, 2024 and 2023, respectively, were as follows:

Periods ended January 31,

NOTE B – EARNINGS PER SHARE

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

Three months ended July 31,

Weighted average shares outstanding:

2 unchanged sentences

Diluted EPS shares outstanding

** 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.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE C – CONTRACT (LIABILITIES) ASSETS

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

Contract Assets

Contract Liabilities

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

Amounts are billed to customers pursuant to contract terms.

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 over time using the percentage-of-completion (“POC”) method.

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

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.

** For the three months ended July 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 months ended July 31, 2024 were 76,000 shares.

The exercisable shares excluded for the three months ended July 31, 2023 were 155,000 shares.

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 was paid on August 29, 2024 , to stockholders of record as of the close of business on August 8, 2024 .

The total amount of the special dividend payment was approximately $ 9.6 million.

NOTE C – CONTRACT ASSETS AND LIABILITIES

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.

During the three months ended July 31, 2024, we recognized $ 7.7 million of our contract liabilities at April 30, 2024 as revenue.

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

Total contract losses for three months ended July 31, 2024 and 2023 were approximately $ 6,000 and $ 139,000 , respectively.

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

NOTE D –EMPLOYEE BENEFIT PLANS

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.

During the three months ended July 31, 2024, the Company made contributions of 26,457 shares of its common stock to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code.

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

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 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 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.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Deferred compensation expense charged to selling and administrative expenses during the three months ended July 31, 2024, was approximately $ 143,000 , inclusive of approximately $ 27,000 of interest expense.

Payments made related to deferred compensation were approximately $ 179,000 for the same period.

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

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

NOTE E – INVENTORIES

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

January 31, 2024

July 31, 2024

April 30, 2024

2 unchanged sentences

Finished goods

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

1 unchanged sentence

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 September 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 Right-of-Use (“ROU”) operating lease asset and liability when it is reasonably certain we will exercise these options.

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.

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

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 January 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 January 31, 2024, 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.

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 January 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 January 31, 2024, 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.

The Company elected the practical expedient for short-term leases which allows leases with terms of 12 months or less to be recorded on a straight-line basis over the lease term without being recognized on the consolidated balance sheets.

The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets as follows (in thousands):

Classification

January 31, 2024

July 31, 2024

April 30, 2024

Operating lease ROU assets

ROU assets - operating leases

Operating lease liabilities (short-term)

Operating lease liability - current portion

Operating lease liabilities (long-term)

Operating lease liability - non-current portion

Right-of-use assets - operating leases

Operating lease liabilities, current portion

Operating lease liabilities, non-current portion

Total lease liabilities

Total operating lease expense was $ 0.5 million for both the three months ended July 31, 2024 and 2023, 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

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.

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 January 31, 2024:

Fiscal Year Ending April 30,

6 unchanged sentences

Long-term lease obligations

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.

As of July 31, 2024 and 2023, the weighted-average remaining lease term for all operating leases was 4.81 years and 5.43 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 January 31, 2024 and 2023, was 6.31 % and 6.21 %, respectively.

The weighted average discount rate for operating leases as of July 31, 2024 and 2023, was 6.34 % and 6.23 %, respectively.

NOTE G – SEGMENT INFORMATION

16 unchanged sentences

Summary of Accounting Policies” to the consolidated financial statements included in the Form 10-K.

The Company evaluates the performance of its segments and allocates resources to them based on operating profit (loss), which is defined as income before investment (expense) income, interest expense, other income (expense), and taxes.

The Company evaluates the performance of its segments and allocates resources to them based on operating profit (loss), which is defined as income before income on investments, interest expense, and taxes.

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

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 January 31,

Three Months Ended July 31,

less intersegment revenues

Consolidated revenues

Operating income (loss):

less intersegment revenues

Consolidated operating (loss) income

January 31, 2024

Operating income:

less intersegment margin

Consolidated operating income

July 31, 2024

April 30, 2024

2 unchanged sentences

Consolidated identifiable assets

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.

Total revenue recognized over time as Percentage of Completion (“POC”) and Passage of Title (“POT”) was approximately $ 14.5 million and $ 0.6 million, respectively, of the $ 15.1 million reported for the three months ended July 31, 2024.

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

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

Three Months Ended January 31,

Three Months Ended July 31,

FREQUENCY ELECTRONICS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Nine Months Ended January 31,

Periods ended January 31,

Three Months Ended July 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.

The Company has an investment in Morion, Inc.

(“Morion”), a privately held Russian company, which manufactures high precision quartz resonators and crystal oscillators.

The Company has an investment in Morion, a privately-held Russian company, which manufactures high precision quartz resonators and crystal oscillators.

The Company has also licensed certain technology to Morion.

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.

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 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 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.

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

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 July 31, 2024 and April 30, 2024.

During the three months ended July 31, 2024 and 2023, the Company did not acquire any product from Morion.

During the three months ended July 31, 2024 and 2023, the Company did not receive dividends from Morion.

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

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

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

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.

As of July 31, 2024 restricted cash consisted of approximately $ 1.2 million related to a letter of credit required for contractual restrictions during the period of performance for one of the Company’s contracts.

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.

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

July 31, 2024

April 30, 2024

2 unchanged sentences

Total cash and cash equivalents and restricted cash

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

3 unchanged sentences

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

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

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.

2 unchanged sentences

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 L – DEFERRED INCOME TAXES

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.

NOTE K – 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 January 31, 2024, and April 30, 2023, the Company maintained a full valuation allowance against its deferred tax assets.

As of July 31, 2024, and April 30, 2024, 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.

It is reasonably possible the existing valuation allowance will be reduced within the next 12 months.

FREQUENCY ELECTRONICS, INC.

16 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 nine months ended January 31, 2024.

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

Revenue Recognition

13 unchanged sentences

RESULTS OF OPERATIONS

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,

The table below sets forth for the three months ended July 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:

Three Months ended July 31,

Less intersegment revenues

2 unchanged sentences

Research and development expenses

Operating (loss) income

Other income (loss), net

Operating income

Other expense, net

Provision for income taxes

Net income (loss)

Periods ended January 31,

Three months ended July 31,

(in thousands)

Intersegment revenues

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

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

Government communication satellite programs accounted for approximately 55% of consolidated revenues compared to approximately 39% of consolidated revenues during this same period in the prior fiscal year.

2 unchanged sentences

Revenues from non-space U.S.

Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 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/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 42% of consolidated revenues for the three months ended July, 31, 2024 compared to approximately 55% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the three months ended July 31, 2024 accounted for approximately 3% of consolidated revenue compared to 5% 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 an increase of approximately $3.4 million in sales from space U.S.

Government customers, partially offset by a decrease of approximately $0.5 million in sales from non-space U.S.

government customers.

1 unchanged sentence

and SUBSIDIARIES

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.

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 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,

Three Months ended July 31,

(in thousands)

Gross margin rate

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.

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

The GM increased mainly due to increased revenue and the GM Rate increased due to revenue from newer programs with higher margins as older programs with lower margins are near completion.

Additionally, during the three months ended July 31, 2024, there were a greater number of smaller jobs that were completed at higher margins, as compared to the prior fiscal year period.

Selling, General, and Administrative Expenses

Periods ended January 31,

Three Months ended July 31,

(in thousands)

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.

and SUBSIDIARIES

Selling, general, and administrative (“SG&A”) expenses were approximately 19% of consolidated revenues for both the three months ended July 31, 2024 and 2023.

The increase in SG&A expense during the three months ended July 31, 2024 was related to an increase in payroll related expenses.

Research and Development Expenses

Periods ended January 31,

Three Months ended July 31,

(in thousands)

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 January 31,

The change in R&D expenditures for the three months ended July 31, 2024, as compared to the prior year quarter, was primarily due to a focus on advances and modernization of products.

The Company plans to continue to invest in R&D in the future to keep its products at the state of the art, however we expect the actual quarterly spend to vary.

Operating Income

Three Months ended July 31,

(in thousands)

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.

For the three months ended July 31, 2024, operating income increased due to higher revenue and GM percentage, partially offset by higher R&D expenses.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Other Income (Expense), net

Periods ended January 31,

Three Months ended July 31,

(in thousands)

Investment income (expense) , net

Income on investments

Interest expense

Other income (expense), net

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

1 unchanged sentence

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.

and SUBSIDIARIES

The majority of the approximately $0.2 million of investment income for the three months ended July 31, 2024 was from unrealized gains on assets held in the Frequency Electronics, Inc.

Deferred Compensation Trust .

Provision for Income Tax

Periods ended January 31,

Three Months ended July 31,

(in thousands)

Periods ended January 31,

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

Three Months ended July 31,

Effective tax rate on pre-tax book loss:

The estimated annual effective tax rate for the fiscal year ending April 30, 2025 is 4.98%.

1 unchanged sentence

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

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 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.

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

law on August 16, 2022.

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

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

The Company does not expect the Act to materially impact its consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

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.

It is reasonably possible the existing valuation allowance will be reduced within the next 12 months.

For the three months ended July 31, 2024, the Company recorded an income tax provision of $132,930 which includes a discrete tax income expense of $5,355.

The calculation of the overall income tax provision consists of current U.S.

federal and state income taxes.

For the three months ended July 31, 2023, the Company recorded an income tax provision of $6,894.

The effective tax rate for the three months ended July 31, 2024 was an income tax provision of 5.19% on pretax income of $2.6 million compared to an income tax provision of .3% on pretax income of $2.0 million in the comparable prior fiscal year period.

The effective tax rate for the three months ended July 31, 2024 differs from the U.S.

federal statutory rate of 21% primarily due to the valuation allowance, permanent differences, a change in the uncertain tax position liability and state income taxes.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

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.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $20.5 million at July 31, 2024 and $27.3 million at April 30, 2024.

Included in working capital at July 31, 2024 and April 30, 2024 was $16.2 million and $18.3 million, respectively, of cash and cash equivalents.

The Company’s current ratio was 1.5 to 1 at July 31, 2024 compared to 1.9 to 1 as of April 30, 2024.

Net cash used in operating activities for the three months ended July 31, 2024 and 2023 was approximately $1.5 million and $2.8 million, respectively.

The decrease in net cash used in operating activities in the first three months of fiscal 2025 as compared to the prior fiscal year period was mainly due to increase in inventories partially offset by increased operating income.

For the three months ended July 31, 2024 and 2023, the Company incurred approximately $1.3 million and $1.5 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 three months ended July 31, 2024 was approximately $0.3 million compared to net cash provided by investing activities of approximately $0.2 million for the three months ended July 31, 2023.

The Company acquired property, plant, and equipment in the amount of approximately $0.3 million and $0.2 million for the three month periods ended July 31, 2024 and 2023, respectively.

There were no financing activities for the three months ended July 31, 2024 or the three months ended July 31, 2023.

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 was paid on August 29, 2024, to stockholders of record as of the close of business on August 8, 2024.

The total amount of the special dividend payment was approximately $9.6 million.

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 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.

On July 31, 2024, the Company repurchased 4,569 shares of outstanding common stock at $13.60 per share.

As of July 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 three months ended July 31, 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.

2 unchanged sentences

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 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.

As of July 31, 2024, the Company’s consolidated funded backlog was approximately $70 million compared to approximately $78 million at April 30, 2024.

Approximately 65% of the backlog, as of July 31, 2024, is expected to be realized in the next twelve months.

The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed.

3 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 March 18, 2025 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 September 16, 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