What changed in this filing

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Item 1. Financial Statements

2024-12-16 compared with 2024-09-13 · 167 added, 116 removed, 302 unchanged (48% of the section changed)

6 unchanged sentences

Cash and cash equivalents

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

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

Contract assets

8 unchanged sentences

Current liabilities:

Accounts payable – trade

Accounts payable

Accrued liabilities

Loss provision accrual

Dividend payable

Income taxes payable

10 unchanged sentences

Common stock - $ 1.00 par value;

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

authorized 20,000 shares, 9,621 shares issued and 9,604 shares outstanding at October 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 ( 5 shares at July 31, 2024 and 1 share at April 30, 2024)

Common stock reacquired and held in treasury -

at cost ( 13 shares at October 31, 2024 and 1 share at April 30, 2024)

Total stockholders’ equity

5 unchanged sentences

(In thousands, except per share data)

Three Months Ended July 31,

Three Months Ended October 31,

Six Months Ended October 31,

Condensed Consolidated Statements of Operations

4 unchanged sentences

Other income (expense):

Income on investments

Investment income (expense)

Interest expense

Other expense, net

Income before provision for income taxes

9 unchanged sentences

(In thousands)

Three Months Ended July 31,

Six Months Ended October 31,

Cash flows from operating activities:

1 unchanged sentence

Net changes in operating assets and liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Purchase of fixed assets

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

Net cash used in investing activities

Cash flows from financing activities:

Payment of dividend

Purchase of Treasury stock

Net cash used in financing activities

8 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three months ended July 31, 2024 and 2023

Three and Six months ended October 31, 2024 and 2023

(In thousands, except share data)

4 unchanged sentences

Balance at April 30, 2024

Contribution of stock to 401(k) plan

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

Contribution of stock to

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

compensation expense

Shares withheld on

employee taxes on

vested equity awards

Dividends payable

Dividends paid

Balance at October 31, 2024

Treasury stock

3 unchanged sentences

Balance at April 30, 2023

Contribution of stock to 401(k) plan

Stock-based compensation expense

Contribution of stock to

compensation expense

Balance at July 31, 2023

Contribution of stock to

compensation expense

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

The April 30, 2024 condensed consolidated balance sheet was derived from audited financial statements.

5 unchanged sentences

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,

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

Periods ended October 31,

Weighted average shares outstanding:

2 unchanged sentences

Diluted EPS shares outstanding

** For the three months ended July 31, 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.

** For the three and six months ended October 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 six months ended October 31, 2024 were 76,000 shares.

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

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

5 unchanged sentences

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.

During the three and six months ended October 31, 2024, we recognized $ 8.3 million and $ 16.0 million, respectively, of our contract liabilities at April 30, 2024 as revenue.

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

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

Contract losses for three and six months ended October 31, 2024 were approximately $ 0.2 million in both periods, offset by a loss reduction of approximately $ 0.3 million, mostly related to additional funding.

Total contract losses for three and six months ended October 31, 2023 were approximately $ 1.4 million and $ 1.5 million, 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 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.

FREQUENCY ELECTRONICS, INC.

1 unchanged sentence

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 D – EMPLOYEE BENEFIT PLANS

During the three and six months ended October 31, 2024, the Company made contributions of 17,577 shares and 44,034 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 six months ended October 31, 2023, the Company made contributions of 12,885 shares and 29,898 shares, respectively, of its common stock to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code.

Such contributions are in accordance with the Company’s discretionary match of employee voluntary contributions to this plan.

Deferred compensation expense charged to selling and administrative expenses during the three and six months ended October 31, 2024, was approximately $ 140,000 and $ 283,000 , respectively.

Payments made related to deferred compensation, inclusive of approximately $ 26,000 and $ 53,000 , respectively, of interest expense, were approximately $ 179,000 and $ 358,000 for the same periods.

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

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

NOTE E – INVENTORIES

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

July 31, 2024

October 31, 2024

April 30, 2024

6 unchanged sentences

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):

July 31, 2024

The table below presents right-of-use (“ROU”) assets and liabilities recorded on the respective consolidated balance sheets as follows (in thousands):

October 31, 2024

April 30, 2024

Right-of-use assets - operating leases

Operating lease liabilities, current portion

Operating lease liabilities, non-current portion

Operating lease ROU assets

Operating lease liabilities (short-term)

Operating lease liabilities (long-term)

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.

Total operating lease expense was $ 0.5 million and $ 0.9 million for the three and six months ended October 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 $ 0.9 million for the three and six months ended October 31, 2023, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.

FREQUENCY ELECTRONICS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

The table below reconciles the undiscounted cash flows for each of the first four fiscal years and total of the remaining fiscal years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of July 31, 2024:

The maturities of lease liabilities at October 31, 2024 are as follows:

Fiscal Year Ending April 30,

6 unchanged sentences

Long-term lease obligations

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.

As of October 31, 2024 and 2023, the weighted-average remaining lease term for all operating leases was 4.70 years and 5.27 years, respectively.

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

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

The weighted average discount rate for operating leases as of October 31, 2024 and 2023, was 6.38 % and 6.28 %, 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 income on investments, interest expense, and taxes.

The Company evaluates the performance of its segments and allocates resources to them based on operating profit (loss).

Investment income (expense), interest expense, and other expense, net, as reported in the Condensed Consolidated Statement of Operations and Comprehensive Income, are not allocated to or disclosed for each reportable segment and reconcile segment operating income (loss) to income before provision of income 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):

Three Months Ended July 31,

Periods ended October 31,

less intersegment revenues

1 unchanged sentence

Operating income:

less intersegment margin

less intersegment profit

Consolidated operating income

July 31, 2024

October 31, 2024

April 30, 2024

2 unchanged sentences

Consolidated identifiable assets

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.

Total revenue recognized over time as Percentage of Completion (“POC”) and Passage of Title (“POT”) was approximately $ 15.1 million and $ 0.7 million, respectively, of the $ 15.8 million reported for the three months ended October 31, 2024.

Total revenue recognized over time as POC and POT was approximately $ 29.6 million and $ 1.3 million, respectively, of the $ 30.9 million reported for the six months ended October 31, 2024.

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

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

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

Three Months Ended July 31,

Three Months Ended October 31,

FREQUENCY ELECTRONICS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Three Months Ended July 31,

Six Months Ended October 31,

Periods ended October 31,

Revenues by product line:

5 unchanged sentences

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.

The Company has also previously licensed certain technology to Morion.

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.

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 entirely written of in fiscal year 2022.

Accordingly, the carrying value of this investment was $ 0 as of October 31, 2024 and April 30, 2024.

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

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

Prior purchases of materials from Morion consisted mainly of quartz crystal blanks, which were used in the fabrication of quartz resonators.

However, on October 30, 2024, the U.S.

Department of Treasury’s Office of Foreign Assets Control designated Morion as a Specially Designated National, resulting in the blocking of all Morion property and property interests.

As a result, the Company has terminated all commercial relationships with Morion, including the licensing of technology to Morion and the purchase of any products from Morion.

The Company has established alternate sources of supply with respect to items previously acquired from Morion.

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

NOTE I – RESTRICTED CASH

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 October 31, 2024 restricted cash consisted of approximately $ 1.3 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.

1 unchanged sentence

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):

July 31, 2024

October 31, 2024

April 30, 2024

23 unchanged sentences

In circumstances where there is sufficient negative evidence indicating that the deferred tax assets will not be realizable, we establish a valuation allowance.

As of July 31, 2024, and April 30, 2024, the Company maintained a full valuation allowance against its deferred tax assets.

As of October 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.

6 unchanged sentences

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

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

Factors that would cause or contribute to such differences include but are not limited to, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, including the U.S government, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, other supply chain related issues, increasing costs for materials, operating related expenses, competitive developments, changes in manufacturing and transportation costs, the availability of capital, the outcome of any litigation and arbitration proceedings, and failure to maintain an effective system of internal controls over financial reporting..

The factors listed above are not exhaustive.

9 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 months ended July 31, 2024.

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

Revenue Recognition

13 unchanged sentences

RESULTS OF OPERATIONS

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,

The table below sets forth for the three and six months ended October 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 October 31,

Less intersegment revenues

5 unchanged sentences

Provision for income taxes

Three months ended July 31,

Periods ended October 31,

(in thousands)

Intersegment revenues

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

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

Government communication satellite programs accounted for approximately 59% of consolidated revenues compared to approximately 34% 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 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.

Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 37% of consolidated revenues for the three months ended October, 31, 2024 compared to approximately 60% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the three months ended October 31, 2024 accounted for approximately 4% 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 the FEI-NY segment and was related an increase of approximately $3.8 million in sales to U.S.

Government space customers.

For the six months ended October 31, 2024, revenues from commercial and U.S.

Government communication satellite programs accounted for approximately 57% of consolidated revenues compared to approximately 37% of consolidated revenues during this same period in the prior fiscal year.

Revenues from non-space U.S.

Government/DOD customers accounted for approximately 39% of consolidated revenues for the six months ended October, 31, 2024 compared to approximately 58% of consolidated revenue during the same period in the prior fiscal year.

Other commercial and industrial revenues for the six months ended October 31, 2024 accounted for approximately 4% of consolidated revenue compared to 5% in the same period of the prior fiscal year.

The significant increase in revenue for this six month period, compared to the same period in the previous fiscal year, was reflected in the satellite segment and primarily related to an increase in contract awards from prior periods that moved into production during the six months ended October 31, 2024.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

Three Months ended July 31,

Periods ended October 31,

(in thousands)

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.

Gross margin rate

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

The increase in GM was mainly due to an increase in revenue and the GM rate increase was mainly attributable to a large space program that completed a major milestone in its production.

As a result of the completed milestone, risk was mitigated, allowing the release of costs relating to this program, which caused a higher GM for the quarter.

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

This is partially due to the program mentioned above that completed a major milestone during the quarter ended October 31, 2024, as well as a significant number of smaller jobs that were completed at higher margins during the six months ended October 31, 2024.

As a result, the residual older low margin programs had a smaller impact on results.

Selling, General, and Administrative Expenses

Three Months ended July 31,

Periods ended October 31,

(in thousands)

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.

For the three months ended October 31, 2024 and 2023, selling, general, and administrative (“SG&A”) expenses were approximately 21% and 19%, respectively, of consolidated revenues.

For the six months ended October 31, 2024 and 2023, SG&A expenses were approximately 20% and 19%, respectively, of consolidated revenues.

The increase in SG&A expense during the three and six months ended October 31, 2024, was mainly related to an increase in payroll related expenses, costs from the re-alignment of employees from overhead to SG&A, and costs related to Frequency Electronics’ first Quantum Summit in October 2024.

The Company believes the costs related to SG&A will remain fairly consistent throughout the remainder of fiscal year 2025.

Research and Development Expenses

Three Months ended July 31,

Periods ended October 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 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 change in R&D expenditures for the three and six months ended October 31, 2024, as compared to the prior year periods, 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 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

Operating Income

Periods ended October 31,

(in thousands)

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

The increase is partially due to a large space program that completed a major milestone in its production during the three months ended October 31, 2024, as discussed above, however, the increase is also the result of the successful efforts of the Company to complete complex programs and to work more efficiently in bidding, building and testing our products.

The Company believes the improved operating income results for the first half of this fiscal year are a tangible outcome of these efforts.

The Company seeks to continue to implement changes to further improve its performance.

Other Income (Expense), net

Three Months ended July 31,

Periods ended October 31,

(in thousands)

Income on investments

Investment (expense) income

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

The majority of the approximately $0.2 million and $0.4 million of investment income for the three and six months ended October 31, 2024, respectively, was from unrealized gains on assets held in the Frequency Electronics, Inc.

Deferred Compensation Trust.

Provision for Income Tax

Three Months ended July 31,

Periods ended October 31,

(in thousands)

Three Months ended July 31,

Effective tax rate on pre-tax book loss:

Periods ended October 31,

Effective tax rate on pre-tax book income:

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

The estimated annual effective tax rate for the fiscal year ending April 30, 2025 is 5.15%.

2 unchanged sentences

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.

For the three months ended October 31, 2024, the Company recorded an income tax provision of $138,592 which includes a discrete tax income benefit of $9,577.

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.

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

For the six months ended October 31, 2024, the Company recorded an income tax provision of $271,522 which includes a discrete tax benefit of $4,222.

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

federal and state income taxes.

For the six months ended October 31, 2023, the Company recorded an income tax provision of $13,000.

The effective tax rate for the three months ended October 31, 2024 was an income tax provision of 4.96% on pretax income of $2.8 million compared to an income tax provision of .7% on pretax income of $0.8 million in the comparable prior fiscal year period.

The effective tax rate for the three months ended October 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

The effective six months ended October 31, 2024 was an income tax provision of 5.07% on pretax income of $5.4 million compared to an income tax provision of 0.5% on pretax income of $2.9 million in the comparable prior fiscal year period.

The effective tax rate for the six months ended October 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.

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’s consolidated balance sheets continue to reflect a strong working capital position of approximately $23.4 million at October 31, 2024 and $27.3 million at April 30, 2024.

Included in working capital at October 31, 2024 and April 30, 2024 was $9.7 million and $18.3 million, respectively, of cash and cash equivalents.

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

Net cash provided by operating activities for the six months ended October 31, 2024 was approximately $2.4 million and net cash used in operating activities for the six months ended October 31, 2023 was $2.9 million.

The increase in net cash provided by operating activities in the first six months of fiscal 2025 as compared to the prior fiscal year period was mainly due to an increase in operating income partially offset by increases in inventories levels.

For the six months ended October 31, 2024 and 2023, the Company incurred approximately $2.5 million and $2.2 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 six months ended October 31, 2024 and 2023 was approximately $0.8 million and $0.4 million, respectively.

The Company acquired property, plant, and equipment in the amount of approximately $0.8 million and $0.4 million for the six month periods ended October 31, 2024 and 2023, respectively.

Net cash used in financing activities for the six months ended October 31, 2024 was $9.7 million, of which $9.6 million was related to a dividend payout special cash dividend of $1.00 per share of common stock paid on August 29, 2024.

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

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.

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.

During the six months ended October 31, 2024, the Company repurchased 4,569 shares and 7,893 shares of outstanding common stock at $13.60 per share and $12.62 per share, respectively.

As of October 31, 2024, the Company has repurchased approximately $3.6 million of its common stock out of the $5 million authorization, the majority of which has since been reissued.

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

The Company will continue to expend resources for R&D to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems that management believes will result in future growth and profitability.

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The Company may also pursue acquisitions to expand its range of products and may use internally generated cash and external funding in connection with such acquisitions.

As of July 31, 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.

FREQUENCY ELECTRONICS, INC.

and SUBSIDIARIES

As of October 31, 2024, the Company’s consolidated funded backlog was approximately $81 million compared to approximately $78 million at April 30, 2024.

Approximately 65% of the backlog, as of October 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.

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Accordingly, the backlog is not necessarily indicative of future revenues or profits (losses) which may be realized when the results of such contracts are reported.

The Company believes that its liquidity is adequate to meet its short-term operating and investment needs through at least September 16, 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 December 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