UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


(Mark one)


☒QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended January 31, 20182023

OR

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File No. 1-8061


FREQUENCY ELECTRONICS, INC.

(Exact name of Registrant as specified in its charter)

Delaware

11-1986657

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

55 CHARLES LINDBERGH BLVD., MITCHEL FIELD, N.Y.

11553

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 516-794-4500


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock (par value $1.00 per share)

FEIM

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an “emergingemerging growth company”.company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

☒ 

Smaller Reporting Company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrantregistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of Registrant’sregistrant’s Common Stock, par value $1.00 per share, as of March 12, 201814, 2023 – 8,729,6829,353,440



FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

TABLE OF CONTENTS

Page No.

Part I. Financial Information:

Page No.

Item 1 - Financial Statements:

Condensed Consolidated Balance Sheets – January 31, 20182023 (unaudited) and April 30, 20172022 (as revised)

3

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)Income (Loss) Three and Nine Months Ended January 31, 20182023 and 20172022 (unaudited)

4

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (unaudited) Three Months Ended January 31, 2018 and 2017
5

Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ended January 31, 20182023 and 20172022 (unaudited)

6

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity Three and Nine Months Ended January 31, 2023 and 2022 (unaudited)

6-7

Notes to Condensed Consolidated Financial Statements (unaudited)

7-14

8-15

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

15-21

16-22

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

21

23

Item 4 - Controls and Procedures

21

23

Part II. Other Information:

Item 1A – Risk Factors

25

  
Part II. Other Information:

Item 6 - Exhibits

22

25

Signatures

23

26



 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands except par value)

 January 31,  April 30,  

January 31,

  

April 30,

 
 2018  2017  

2023

  

2022

 
 (UNAUDITED)     

(UNAUDITED)

  

(As Revised)

 
ASSETS:              
Current assets:              
Cash and cash equivalents $6,984  $2,163  $12,854  $11,561 
Marketable securities  6,240   7,815   -   9,964 
Accounts receivable, net of allowance for doubtful accounts
of $187 at January 31, 2018 and at April 30, 2017
  7,835   10,986 
Costs and estimated earnings in excess of billings, net  4,122   7,964 

Accounts receivable, net of allowance for doubtful accounts of $111 at

January 31, 2023 and April 30, 2022

  5,129   4,291 

Contract assets

  8,266   8,857 
Inventories, net  25,899   29,051   20,562   19,906 
Prepaid income taxes  2,112   2,606   98   269 
Prepaid expenses and other  1,141   1,105   1,056   1,162 
Current assets of discontinued operations  8,477   8,165 
Total current assets  62,810   69,855   47,965   56,010 
Property, plant and equipment, at cost, net of
accumulated depreciation and amortization
  13,868   14,813   7,733   8,564 
Deferred income taxes  10,352   11,902 
Goodwill and other intangible assets  617   617 
Cash surrender value of life insurance and cash held in trust  13,853   13,376 

Goodwill

  617   617 

Cash surrender value of life insurance

  10,295   9,855 
Other assets  2,310   2,187   888   909 
Non-current assets of discontinued operations  531   569 

Right-of-Use assets – operating leases

  7,745   8,805 
Total assets $104,341  $113,319  $75,243  $84,760 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY:        

LIABILITIES AND STOCKHOLDERS’ EQUITY:

        
Current liabilities:                
Accounts payable - trade $2,858  $2,437 

Accounts payable – trade

 $1,556  $1,080 
Accrued liabilities  3,934   3,425   3,396   3,696 
Current liabilities of discontinued operations  2,121   2,249 

Loss provision accrual

  2,678   4,243 

Operating lease liability, current portion

  1,751   1,744 

Contract liabilities

  18,737   11,098 
Total current liabilities  8,913   8,111   28,118   21,861 
        
Deferred compensation  13,546   13,252   8,357   8,730 
Deferred rent and other liabilities  1,436   1,409 
Non-current liabilities of discontinued operations  1,795   1,215 

Deferred taxes

  8   8 

Operating lease liability – non-current

  6,261   7,353 

Other liabilities

  125   120 
Total liabilities  25,690   23,987   42,869   38,072 
Commitments and contingencies                
Stockholders’ equity:                
Preferred stock - $1.00 par value authorized 600 shares, no shares issued  -   - 
Common stock - $1.00 par value; authorized 20,000 shares, 9,164 shares issued,
8,853 shares outstanding at January 31, 2018; 8,817 shares outstanding at April 30, 2017
  9,164   9,164 

Preferred stock - $1.00 par value; authorized 600 shares, no shares issued

  -   - 

Common stock - $1.00 par value; authorized 20,000 shares, 9,354 shares issued and 9,353 shares outstanding at January 31, 2023; 9,298 shares issued and 9,297 shares outstanding at April 30, 2022

  9,354   9,298 
Additional paid-in capital  56,289   55,767   48,893   57,956 
Retained earnings  12,449   23,712 
  77,902   88,643 
Common stock reacquired and held in treasury -
at cost (311 shares at January 31, 2018 and 347 shares at April 30, 2017)
  (1,425)  (1,592)

Accumulated deficit

  (25,867)  (20,120)

Common stock reacquired and held in treasury -

at cost (1 share at January 31, 2023 and April 30, 2022)

  (6)  (6)
Accumulated other comprehensive income  2,174   2,281   -   (440)
Total stockholders’ equity  78,651   89,332   32,374   46,688 
Total liabilities and stockholders’ equity $104,341  $113,319 

Total liabilities and stockholders’ equity

 $75,243  $84,760 

See accompanying notes to condensed consolidated financial statements.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive LossIncome (Loss)

Nine Months Ended January 31,

(In thousands except per share data)

(Unaudited)

(Unaudited)

  2018  2017 
Condensed Consolidated Statements of Operations
      
Revenues $31,932  $34,411 
Cost of revenues  28,060   23,590 
Gross margin  3,872   10,821 
Selling and administrative expenses  7,796   8,483 
Research and development expense  5,071   4,832 
Operating loss  (8,995)  (2,494)
         
Other income (expense):        
Investment income  1,236   387 
Interest expense  (61)  (128)
Other income, net  4   50 
Loss before provision (benefit) for income taxes  (7,816)  (2,185)
Provision (benefit) for income taxes  2,750   (1,392)
Net loss from continuing operations  (10,566)  (793)
Loss from discontinued operations, net of tax  (697)  (599)
Net loss $(11,263) $(1,392)
         
Net loss per common share:        
Basic loss from continued operations $(1.20) $(0.09)
Basic loss from discontinued operations  (0.07)  (0.07)
Basic loss per share  (1.27)  (0.16)
Diluted loss from continued operations  (1.20)  (0.09)
Diluted loss from discontinued operations  (0.07)  (0.07)
Diluted loss per share $(1.27) $(0.16)
         
Weighted average shares outstanding:        
Basic  8,836   8,780 
Diluted  8,836   8,780 
         
         
Condensed Consolidated Statements of Comprehensive Loss
        
Net loss $(11,263) $(1,392)
Other comprehensive loss:        
Foreign currency translation adjustment  623   86 
Unrealized (loss) gain on marketable securities:        
Change in market value of marketable securities before
 reclassification, net of tax of $8 and ($112)
  (54)  215 
Reclassification adjustment for realized gains included in
 net income, net of tax of $355 and $5
  (688)  (9)
Total unrealized (loss) gain on marketable securities, net of tax  (742)  206 
         
Total other comprehensive (loss) income  (119)  292 
Comprehensive loss $(11,382) $(1,100)
  

Three Months Ended January 31,

  

Nine Months Ended January 31,

 
  

2023

  

2022

  

2023

  

2022

 

Condensed Consolidated Statements of Operations

                

Revenues

 $10,620  $12,245  $27,773  $38,136 

Cost of revenues

  7,155   9,005   23,963   26,744 

Gross margin

  3,465   3,240   3,810   11,392 

Selling and administrative expenses

  2,357   2,832   6,383   9,637 

Research and development expenses

  783   1,129   2,492   3,861 

Operating income (loss)

  325   (721)  (5,065)  (2,106)
                 

Other income (expense):

                

Investment (expense) income, net

  (625)  4   (600)  195 

Interest expense

  (18)  (19)  (81)  (59)

Other income (expense), net

  5   2   5   160 

Loss before provision for income taxes

  (313)  (734)  (5,741)  (1,810)

Provision for income taxes

  3   1   6   3 

Net loss

 $(316) $(735) $(5,747) $(1,813)
                 

Net loss per common share:

                

Basic and diluted loss per share

 $(0.03) $(0.08) $(0.62) $(0.20)
                 

Weighted average shares outstanding:

                

Basic and diluted

  9,349   9,279   9,328   9,257 
                 

Condensed Consolidated Statements of Comprehensive Income (Loss)

                

Net loss

 $(316) $(735) $(5,747) $(1,813)
                 

Unrealized gain (loss) on marketable securities:

                

Change in market value of marketable securities before

reclassification, net of tax

  388   (211)  (179)  (283)

Reclassification adjustment for realized gains

(losses) included in net income, net of tax

  603   2   619   (4)

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

  991   (209)  440   (287)
                 

Comprehensive income (loss)

 $675  $(944) $(5,307) $(2,100)

See accompanying notes to condensed consolidated financial statements.



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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive (Loss) IncomeCash Flows

Three Months Ended January 31,

(In thousands except per share data)thousands)

(Unaudited)

(Unaudited)

  2018  2017 
Condensed Consolidated Statements of Operations
      
Revenues $10,572  $11,383 
Cost of revenues  13,424   8,116 
Gross margin  (2,852)  3,267 
Selling and administrative expenses  2,749   2,834 
Research and development expense  1,708   1,337 
Operating loss  (7,309)  (904)
         
Other expense:        
Investment income  68   108 
Interest expense  (19)  (61)
Other income, net  1   49 
Loss before provision (benefit) for income taxes  (7,259)  (808)
Provision (benefit) for income taxes  2,848   (1,188)
Net loss from continuing operations  (10,107)  380 
Loss from discontinued operations, net of tax  (289)  (42)
Net (loss) income $(10,396) $338 
         
Net loss per common share:        
Basic (loss) income from continued operations
 $(1.15) $0.04 
Basic loss from discontinued operations  (0.03)  0.00 
Basic (loss) income per share  (1.18)  0.04 
Diluted (loss) income from continued operations  (1.15)  0.04 
Diluted (loss) income from discontinued operations  (0.03)  0.00 
Diluted (loss) income per share $(1.18) $0.04 
         
Weighted average shares outstanding:        
Basic  8,846   8,797 
Diluted  8,846   8,980 
         
         
Condensed Consolidated Statements of Comprehensive Loss
        
Net (loss) income $(10,396) $338 
Other comprehensive income:        
Foreign currency translation adjustment  48   (284)
Unrealized (loss) gain on marketable securities:        
Change in market value of marketable securities before
 reclassification, net of tax of $27 and ($161)
  (88)  98 
Reclassification adjustment for realized gains included in
 net income, net of tax of $5 in 2017
  -   (9)
Total unrealized (loss) gain on marketable securities, net of tax  (88)  89 
         
Total other comprehensive loss  (40)  (195)
Comprehensive (loss) income $(10,436) $143 
  

Nine Months Ended January 31,

 
  

2023

  

2022

 

Cash flows from operating activities:

        

Net loss

 $(5,747) $(1,813)

Non-cash charges to earnings

  2,667   2,870 

Net changes in operating assets and liabilities

  5,028   2,913 

Net cash provided by operating activities

  1,948   3,970 
         

Cash flows from investing activities:

        

Proceeds on redemption of marketable securities

  10,967   1,739 

Purchase of marketable securities

  (1,382)  (1,846)

Purchase of fixed assets and other assets

  (886)  (1,534)

Net cash provided by (used in) investing activities

  8,699   (1,641)
         

Cash flows from financing activities:

        

Payment of Dividend

  (9,354)  - 

Net cash used in financing activities

  (9,354)  - 
         
         

Net increase in cash and cash equivalents

  1,293   2,329 
         

Cash and cash equivalents at beginning of period

  11,561   9,807 
         

Cash and cash equivalents at end of period

 $12,854  $12,136 
         
         

Supplemental disclosures of cash flow information:

        

Cash paid during the period for:

        

Interest

 $54  $59 

Income taxes

 $-   15 
         

Cash refunded during the period for:

        

Income taxes

 $176  $- 

See accompanying notes to condensed consolidated financial statements.



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FREQUENCY ELECTRONICS, INC. andAND SUBSIDIARIES

Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity

Three and Nine Months Ended January 31, 2023

(In thousands)thousands except share data)

(Unaudited)

(Unaudited)

  2018  2017 
Cash flows from operating activities:      
Net loss from continuing operations $(10,566) $(793)
Net loss from discontinued operations  (697)  (599)
Net loss  (11,263)  (1,392)
Non-cash charges to earnings  8,285   3,752 
Net changes in operating assets and liabilities  5,771   (856)
Cash provided by operating activities – continuing operations  2,793   1,504 
Cash provided by operating activities – discontinued operations  1,217   1,048 
   Net cash provided by operating activities  4,010   2,552 
         
Cash flows from investing activities:        
Proceeds on redemption of marketable securities  6,477   3,852 
Purchase of marketable securities  (4,961)  - 
Purchase of fixed assets and other assets  (1,032)  (3,767)
Cash provided by investing activities – continuing operations  484   85 
Cash used in investing activities – discontinued operations  (44)  (32)
Net cash provided by investing activities  440   53 
         
Cash flows from financing activities:        
Tax benefit from exercise of stock-based compensation  1   25 
Proceeds from credit line borrowings  -   280 
Payment of credit line borrowings  -   (6,280)
Cash provided by financing activities – continuing operations  1   (5,975)
Cash used in financing activities – discontinued operations  -   - 
Net cash provided by (used in) financing activities  1   (5,975)
         
Net increase (decrease) in cash and cash equivalents before effect of exchange rate changes  4,451   (3,370)
         
Effect of exchange rate changes on cash and cash equivalents  738   397 
         
Net increase (decrease) in cash and cash equivalents  5,189   (2,973)
         
Cash and cash equivalents at beginning of period  2,738   6,082 
         
Cash and cash equivalents at end of period  7,927   3,109 
         
Less cash and equivalents of discontinued operations at end of period  943   549 
         
Cash and cash equivalents of continuing operations at end of period $6,984  $2,560 
         
         
Supplemental disclosures of cash flow information:        
Cash paid during the period for:        
Interest $61  $115 
Income Taxes $325  $335 
          

Additional

      

Treasury stock

  

Accumulated other

     
  

Common Stock

  

paid in

  

Accumulated

  

(at cost)

  

comprehensive

     
  

Shares

  

Amount

  

capital

  

Deficit

  

Shares

  

Amount

  

Income (loss)

  

Total

 

Balance at April 30, 2022

  9,298,178  $9,298  $57,956  $(20,120)  1,375  $(6) $(440) $46,688 

Contribution of stock to

401(k) plan

  16,708   17   105   -   -   -   -   122 

Stock-based

compensation expense

  -   -   (25)  -   -   -   -   (25)

Other comprehensive

income, net of tax

  -   -   -   -   -   -   14   14 

Net loss

  -       -   (3,117)  -   -   -   (3,117)

Balance at July 31, 2022

  9,314,886  $9,315  $58,036  $(23,237)  1,375  $(6) $(426) $43,682 

Contribution of stock to

401(k) plan

  18,632   18   89   -   -   -   -   107 

Stock-based

compensation expense

  750   1   28   -   -   -   -   29 

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

                              - 

Other comprehensive

loss, net of tax

  -   -   -       -   -   (565)  (565)

Net loss

  -       -   (2,314)  -   -   -   (2,314)

Balance at October 31, 2022

  9,334,268  $9,334  $58,153  $(25,551)  1,375  $(6) $(991) $40,939 

Contribution of stock to

401(k) plan

  7,597   8   46   -   -   -   -   54 

Stock-based

compensation expense

  12,076   12   48   -   -   -   -   60 

Other comprehensive

income, net of tax

  -   -   -       -   -   991   991 

Dividends paid

          (9,354)  -               (9,354)

Net loss

  -       -   (316)  -   -   -   (316)

Balance at January 31, 2023

  9,353,941  $9,354  $48,893  $(25,867)  1,375  $(6) $-  $32,374 

See accompanying notes to condensed consolidated financial statements.



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FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine Months Ended January 31, 2022

(In thousands except share data)

(Unaudited)

          

Additional

      

Treasury stock

  

Accumulated other

     
  

Common Stock

  

paid in

  

Accumulated

  

(at cost)

  

comprehensive

     
  

Shares

  

Amount

  

capital

  

Deficit

  

Shares

  

Amount

  

Income (loss)

  

Total

 

Balance at April 30, 2021

  9,226,268  $9,226  $57,355  $(11,457)  1,375  $(6) $291  $55,409 

Contribution of stock to

401(k) plan

  13,251   13   117   -   -   -   -   130 

Stock-based

compensation expense

  7,500   8   61   -   -   -   -   69 

Other comprehensive

income, net of tax

  -   -   -   -   -   -   79   79 

Net loss

  -   -   -   (1,575)  -   -   -   (1,575)

Balance at July 31, 2021

  9,247,019  $9,247  $57,533  $(13,032)  1,375  $(6) $370  $54,112 

Contribution of stock to

401(k) plan

  10,779   11   100   -   -   -   -   111 

Stock-based

compensation expense

  250   -   66   -   -   -   -   66 

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

  6,278   6   (6)  -   -   -   -   - 

Other comprehensive

loss, net of tax

  -   -   -   -   -   -   (157)  (157)

Net income

  -   -   -   497   -   -   -   497 

Balance at October 31, 2021

  9,264,326  $9,264  $57,693  $(12,535)  1,375  $(6) $213  $54,629 

Contribution of stock to

401(k) plan

  7,045   7   63   -   -   -   -   70 

Stock-based

compensation expense

  7,953   8   83   -   -   -   -   91 

Exercise of stock options

and stock appreciation

rights - net of shares

tendered for exercise price

  5,192   6   (5)  -   -   -   -   1 

Other comprehensive

loss, net of tax

  -   -   -   -   -   -   (209)  (209)

Net loss

  -   -   -   (735)  -   -   -   (735)

Balance at January 31, 2022

  9,284,516  $9,285  $57,834  $(13,270)  1,375  $(6) $4  $53,847 

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Unaudited)


NOTE A – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


In the opinion of management of Frequency Electronics, Inc. (“the Company”(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, 20182023 and the results of its operations, changes in stockholders’ equity for the three and nine months ended January 31, 2023 and 2022, and cash flows for the nine and three months ended January 31, 20182023 and January 31, 2017.2022. The April 30, 20172022 condensed consolidated balance sheet was derived from audited financial statements. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP’). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principlesU.S. GAAP have been condensed or omitted. It is suggested that theseThese condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report and Amended Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended April 30, 2017,2022, filed on July 31, 2017,14, 2022 and December 20, 2022, respectively, with the Securities and Exchange Commission (the “Form 10-K” and the financial statements and notes thereto.“Form 10-K/A”). The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.

COVID-19 Pandemic, and Other Macroeconomic Factors

NOTE B – DISCONTINUED OPERATIONS

In December 2016,

The full impact of the Company entered into a share purchase agreement with certain foreign counterparties with respectCOVID-19 pandemic continues to a potential saleevolve as of Gillam-FEI (“Gillam”),the date of this report. As such, it is uncertain as to the full magnitude that the pandemic may ultimately have on the Company’s Belgian subsidiary.  However, these counterparties have not yet performed their obligations under that agreement.  Becausefinancial condition, liquidity, and future financial results. For three and the counterparties have failed to perform their obligations under the share purchase agreementnine months ended January 31, 2023, the Company has a rightbeen impacted by employee absenteeism related to terminate that share purchase agreement.  The Company continues to negotiate with these counterparties to effectuate a closingdirect or indirect effects of the transaction contemplatedCOVID-19 pandemic, delays in the receipt of anticipated new contracts from customers administratively affected by the share purchase agreement, but the Company is also discussing a salepandemic and limited availability or delivery delays of the Gillam business with other potential buyers.  In April 2017, the Company decided to sell its Gillam business as soon as practicable,parts and began contacting potential buyers other than the counterparty to the stock purchase agreement.  The Company believes that the divestment should be completedmaterials from vendors affected by the end ofpandemic. FEI-Zyfer’s operations were particularly affected as evidenced by decreases in sales and gross margin during fiscal year 2018. Accordingly, the Company determined that the assets and liabilities of this reportable segment met the discontinued operations criteria in Accounting Standards Codification 205-20-45 for the year ended April 30, 2017, and Gillam’s results have been classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.


Summarized operating results for the Gillam discontinued operations, for2022, which continued during the three and nine months ended January 31, 20182023. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and 2017 respectively, are as follows:

  Nine months  Three months 
  Periods ended January 31, 
  2018  2017  2018  2017 
  (UNAUDITED)  (UNAUDITED)  (UNAUDITED)  (UNAUDITED) 
  (In thousands except par value) 
Revenues $3,018  $3,707  $1,063  $1,413 
Cost of Revenues  2,089   2,577   699   956 
  Gross Margin  929   1,130   364   457 
Selling and administrative expenses  1,285   1,411   582   461 
Research and development expenses  334   315   66   38 
  Operating Loss  (690)  (596)  (284)  (42)
Other income (expense):                
  Investment (loss) income                
  Other income (expense), net  (7)  (3)  (4)  - 
Loss before provision for income taxes  (697)  (599)  (288)  (42)
Provision for income taxes  -   -   1   - 
Net Loss $(697) $(599) $(289) $(42)




FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notesthe COVID-19 pandemic the Company is not able to Condensed Consolidated Financial Statements
(Unaudited)

The carrying amounts of assets and liabilitiesestimate the potential adverse effects on its operations, financial condition, or liquidity for the Gillam discontinuedremainder of fiscal year 2023. The Company has returned to essentially normal operations at its various locations; however, the Company continues to follow federal and state guidelines with an emphasis on employee safety.

The Company may continue to face future COVID-19 related risks, and risks resulting from geopolitical conflicts. The Company is dependent on its workforce to design and manufacture its products. If significant portions of the Company’s workforce are unable to work effectively, or if the U.S. Government, and/or other customers or supplier operations are as follows:curtailed due to illness, quarantines, government actions, facility closures, or other restrictions, the Company’s operations may be negatively impacted. If faced with any of these factors, the Company may be unable to perform fully on its contracts and costs may increase. These cost increases may not be fully recoverable or adequately covered by insurance. For example, in the latter part of fiscal year 2021, the Company experienced some operation disruptions due to the need to vacate certain areas of the facilities for cleaning and disinfecting resulting from employees being potentially exposed to COVID-19 or following positive COVID-19 test results. Also, certain Company vendors have been unable to deliver materials on time due to COVID-19 related impacts to their workforces or their supply chains. These delays impacted the Company’s production costs and schedules. Vendor delivery performance is being closely monitored and alternate sources of supply are generally available and, in some cases, are being established.


  January 31,  April 30, 
  2018  2017 
       
     Cash and cash equivalents $943  $575 
     Accounts receivable, net of allowance for doubtful accounts  2,773   3,202 
     Inventories, net  4,608   3,980 
     Prepaid expenses and other  153   408 
          Total current assets of discontinued operations $8,477  $8,165 
     Property, plant and equipment, at cost, net of accumulated depreciation and amortization $520  $555 
     Investments  11   14 
          Total non-current assets of discontinued operations $531  $569 
         
     Accounts payable – trade $788  $949 
     Accrued liabilities  1,333   1,300 
          Total current liabilities of discontinued operations  2,121   2,249 
     Deferred rent and other liabilities  1,795   1,215 
          Total non-current liabilities of discontinued operations $1,795  $1,215 

In addition to the impacts of the COVID-19 pandemic, the Company’s financial condition, liquidity, and future financial results may also be affected by other macroeconomic factors. For example, due to continuing geopolitical circumstances resulting in increased inflation, energy and commodity prices may continue escalating which may adversely affect the Company’s financial results.


NOTE CB – EARNINGS (LOSS) PER SHARE


Reconciliation of the weighted average shares outstanding for basic and diluted Earnings Per Share areearnings (loss) per share (“EPS”) for the three and nine months ended January 31, 2023 and 2022, respectively, were as follows:

  Nine months  Three months 
  Periods ended January 31, 
  2018  2017  2018  2017 
Weighted average shares outstanding:            
Basic  8,835,685   8,780,069   8,846,083   8,797,218 
Effect of dilutive securities  **   **   **   182,769 
Diluted  8,835,685   8,780,069   8,846,083   8,979,987 
  

Periods ended January 31,

 
  

Three months

  

Nine months

 
  

2023

  

2022

  

2023

  

2022

 

Weighted average shares outstanding:

                

Basic EPS Shares outstanding (weighted average)

  9,349,198   9,278,840   9,327,828   9,257,107 

Effect of Dilutive Securities

  **   **   **   ** 

Diluted EPS Shares outstanding

  9,349,198   9,278,840   9,327,828   9,257,107 

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

** For the three and nine and three month periodsmonths ended January 31, 2018,2023 and 2022, dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for thethose periods. The exercisable shares excluded are 1,260,250. The effect of dilutive securities for the periods would have been 131,638three and 136,424, respectively.  For the nine month periodmonths ended January 31, 2017, dilutive securities are excluded since the inclusion of such shares would be antidilutive due to the net loss for the period.2023 was 243,625 options, respectively. The exercisable shares excluded are 1,261,875. The effect of dilutive securities for the period would have been 184,119.

The computation of diluted earnings per share in the three and nine months endingended January 31, 2017 excludes those2022 was 223,000 options, and stock appreciation rights (“SARS”) with an exercise price in excess of the average market price of the Company’s common shares during the periods presented.  The inclusion of such options and SARS in the computation of earnings per share would have been antidilutive.  The number of excluded options and SARS were:respectively.


  Nine months  Three months 
  Periods ended January 31, 
  2018  2017  2018  2017 
Outstanding options and SARS excluded  **   **   **   546,625 

NOTE C – CONTRACT (LIABILITIES) ASSETS, NET

8

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE D – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET

At January 31, 20182023 and April 30, 2017, costs and estimated earnings in excess of billings,2022, contract (liabilities) assets, net, consistconsisted of the following:


   January 31, 2018  April 30, 2017 
  (In thousands) 
Costs and estimated earnings in excess of billings $4,806  $8,890 
Billings in excess of costs and estimated earnings  (684)  (926)
Net asset $4,122  $7,964 
  

January 31, 2023

  

April 30, 2022

 
      

(As Revised)

 
  

(In thousands)

 

Contract Assets

 $8,266  $8,857 

Contract Liabilities

  (18,737)  (11,098)

Net (liability) asset

 $(10,471) $(2,241)

Such amounts represent revenue recognized on long-term contracts that hadhave not been billed at the balance sheet dates or represent a liability for amounts billed in excess of the revenue recognized. Amounts are billed to customers pursuant to contract terms, whereas the related revenue is recognized on the percentage of completion basis at the measurement date.terms. In general, the recorded amounts will be billed and collected or revenue recognized within twelve months of the balance sheet date.dates. Revenue on these long-term contracts isare accounted for on the percentage of completionpercentage-of-completion (“POC”) basis. During the ninethree and threenine months ended January 31, 2018,2023, revenue recognized under percentage of completionPOC contracts was approximately $13.7$10.2 million and $2.8$26.8 million, respectively. During the ninethree and threenine months ended January 31, 2017, such2022, revenue recognized under POC contracts was approximately $19.5$11.8 million and $7.1$36.4 million, respectively. If contract losses are anticipated, costs and estimated earnings in excess of billings are reduceda loss provision is recorded for the full amount of such losses when they are determinable.


NOTE E – TREASURY STOCK TRANSACTIONS
During Contract losses of approximately $537,000, offset by a loss reduction of approximately $1.0 million, mostly related to additional funding, were recorded for the nine and three months period ended January 31, 2018,2023. Contract losses of approximately $1.5 million were recorded for the nine months ended January 31, 2023. Contract losses of approximately $171,000 and $218,000 were recorded for the three and nine months ended January 31, 2022, respectively.

NOTE D –STOCK TRANSACTIONS

During the three and nine-month periods ended January 31, 2023, the Company made contributions of 32,757 shares7,597 and 7,48742,937 shares, respectively, of its common stock held in treasury to the Company’s profit sharingprofit-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.  During

On December 20, 2022, the nine months ended January 31, 2018, the Company issued 3,711 shares from treasury upon the exerciseBoard of SARS by certain officers and employeesDirectors of the Company and employee awards for service calculated atdeclared a special cash dividend of $1.00 per share of common stock. The dividend was paid on January 26, 2023, to stockholders of record as of the Company’s discretion.close of business on January 6, 2023. The total amount of the special dividend payment was $9.4 million.

NOTE FE – INVENTORIES, NET

Inventories, which are reported at the lower of cost or market, consistand net realizable value, consisted of the following:


  January 31, 2018  April 30, 2017 
  (In thousands)    
Raw Materials and Component Parts $14,477  $17,702 
Work in Progress  7,868   7,340 
Finished Goods  3,554   4,009 
  $25,899  $29,051 
  

January 31, 2023

  

April 30, 2022

 
  

(In thousands)

 

Raw materials and component parts

 $12,264  $11,683 

Work in progress

  7,675   7,746 

Finished goods

  623   477 
  $20,562  $19,906 

As

Inventory reserves included in inventory were $8.0 million and $7.5 million as of January 31, 20182023 and April 30, 2017, approximately $24.8 million2022, respectively. Reserve amounts relate to raw materials and $28.2 million, respectively, of total inventory is locatedcomponent parts and work in the United States and $1.1 million and $0.8 million, respectively, is located in China. The Company buys inventory in bulk quantities which may be used over significant time periods; due to its nature the inventory does not deteriorate.progress.


The $5.0 million inventory write down recorded in the current fiscal quarter ending January 31, 2018 was taken in anticipation of the enforcement of recent mandates by European and U.S. space governing agencies restricting the use of older space qualified materials.  In addition the Company anticipates the rate of use of other identified legacy space parts will decline due to obsolescence and evolution of current designs.


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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

(Unaudited)

The Company’s leases primarily represent offices, warehouses, vehicles, and manufacturing and Research and Development (“R&D”) facilities which expire at various times through 2029 and are operating leases. Contractual arrangements are evaluated at inception to determine if the agreement contains a lease. Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. Right-of-use (“ROU”) assets and lease liabilities are recorded based on the present

value of future lease payments which will factor in certain qualifying initial direct costs incurred as well as any lease incentives that may have been received. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term. Lease terms may factor in options to extend or terminate the lease.


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:

 

Classification

 

January 31, 2023

  

April 30, 2022

 
   

(unaudited)

     

Assets

         

Operating lease ROU assets

Right-of-Use assets leases

 $7,745  $8,805 
          

Liabilities

         

Operating lease liabilities (short-term)

Lease liability, current

  1,751   1,744 

Operating lease liabilities (long-term)

Lease liability, non-current

  6,261   7,353 

Total lease liabilities

 $8,012  $9,097 

Total operating lease expense was $472,000 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. Total operating lease expense was $500,000 and $1.5 million for the three and nine months ended January 31, 2022, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses in the condensed consolidated statements of operations.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, 2023:

Fiscal Year Ending April 30,

(in thousands)

    

Remainder of 2023

 

$

            312

2024

  

         1,993

2025

  

         1,832

2026

  

         1,317

2027

  

            937

Thereafter

 

 

         3,238

Total lease payments

  

         9,629

Less imputed interest

 

 

        (1,617)

Present value of future lease payments

  

         8,012

Less current obligations under leases

 

 

        (1,751)

Long-term lease obligations

 

$

         6,261

As of January 31, 2023, the weighted-average remaining lease term for all operating leases was 5.79 years. The Company does not generally have access to the rate implicit in the leases and therefore utilized the Company’s borrowing rate as the discount rate. The Company selected a rate that is reflective of companies with similar credit ratings for secured debt. The weighted average discount rate for operating leases as of January 31, 2023 was 6.21%.

NOTE G – SEGMENT INFORMATION

The Company operates under two reportable segments:segments based on the geographic locations of its subsidiaries:


(1)

FEI-NY – operates out of New York and its operations consist principally of precision time and frequency control products used in three principal markets-markets: communication satellites (both commercial and U.S. Government-funded); terrestrial cellular telephone or other ground-based telecommunication stationsstations; and other components and systems for the U.S. military.

The FEI-NY segment also includes the operations of the Company’s wholly owned subsidiary, FEI-Elcom. FEI-Elcom, in addition to its own product line, provides design and technical support for the FEI-NY segment’s communication satellite business.


(2)

FEI-Zyfer – operates out of California and its products incorporate Global Positioning System (GPS) technologies into systems and subsystems for secure communications, both government and commercial, and other locator applications. This segment also provides sales and support for the Company’s wireline telecommunications family of products, including US5G, which are sold in the United StatesU.S. market.


The FEI-NY segment also includes the operations of the Company’s wholly-owned subsidiaries, FEI-Elcom and FEI-Asia.  FEI-Asia functions as a manufacturing facility for the FEI-NY segment with historically minimal sales to outside customers.  Beginning in late fiscal year 2014, FEI-Asia began shipping higher volumes of product to third parties as a contract manufacturer.  FEI-Elcom, in addition to its own product line, provides design and technical support for the FEI-NY segment’s satellite business.


The Company’s Chief Executive OfficerCompany measures segment performance based on total revenues and profits generated by each geographic location rather than on the specific types of customers or end-users. Consequently, the Company determined that the segments indicated above most appropriately reflect the way the Company’s management views the business.


The accounting policies of the two segments are the same as those described in the “Summary of Accounting Policies” in the fiscal year-end financial statements included in the Form 10-K/A. 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. All acquired assets, including intangible assets, are included in the assets of both reporting segments.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The tables below present information about reported segments with reconciliation of segment amounts to consolidated amounts as reported in the statementcondensed consolidated statements of incomeoperations or the consolidated balance sheetsheets for each of the periods (in thousands):

Nine months Three months  

Periods ended January 31,

 
Periods ended January 31,  

Three months

  

Nine months

 
2018 2017 2018 2017  

2023

  

2022

  

2023

  

2022

 
Revenues:                        
FEI-NY $22,184  $27,176  $6,444  $9,461  $8,420  $10,855  $22,954  $31,399 
FEI-Zyfer  12,378   9,473   4,514   2,877   2,480   1,558   5,772   7,341 
less intersegment revenues  (2,630)  (2,238)  (386)  (955)  (280)  (168)  (953)  (604)
Consolidated revenues $31,932  $34,411  $10,572  $11,383  $10,620  $12,245  $27,773  $38,136 

Operating loss:            
FEI-NY $(11,312) $(2,596) $(8,554) $(708)
FEI-Zyfer  2,629   444   1,354   (20)
Corporate  (312)  (342)  (109)  (176)
Consolidated operating loss $(8,995) $(2,494) $(7,309) $(904)
  January 31, 2018  April 30, 2017 
Identifiable assets:      
FEI-NY (approximately $1.9 and $1.7 million in China) $56,050  $64,828 
FEI-Zyfer  9,892   10,427 
less intersegment balances  (13,138)  (11,992)
Corporate  51,537   50,056 
Consolidated identifiable assets $104,341  $113,319 

Operating income (loss):

                

FEI-NY

 $288  $670  $(3,690) $(1,051)

FEI-Zyfer

  105   (674)  (1,125)  (773)

less intersegment revenues

  -   (646)  -   (20)

Corporate

  (68)  (71)  (250)  (262)

Consolidated operating income (loss)

 $325  $(721) $(5,065) $(2,106)


  

January 31, 2022

  

April 30, 2022

 
      

(As Revised)

 

Identifiable assets:

        

FEI-NY

 $39,899  $40,888 

FEI-Zyfer

  10,492   10,522 

less intersegment balances

  (126)  (126)

Corporate

  24,978   33,476 

Consolidated identifiable assets

 $75,243  $84,760 

Total revenue recognized over time as POC and Passage of Title (“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 POC and POT was approximately $11.8 million and $0.5 million, respectively, of the $12.2 million reported for the three months ended January 31, 2022. Total revenue recognized over time as POC and POT was approximately $36.4 million and $1.7 million, respectively, of the $38.1 million reported for the nine months ended January 31, 2022. The amounts by segment and product line were as follows:

  

Three Months Ended January 31,

 
  

2023

  

2022

 
  

(In thousands)

  

(In thousands)

 
  

POC

  

POT

  

Total

  

POC

  

POT Revenue

  

Total

 
  

Revenue

  Revenue  Revenue  

Revenue

  Revenue  Revenue 

FEI-NY

 $7,830  $590  $8,420  $10,462  $393  $10,855 

FEI-Zyfer

  2,387   93   2,480   1,316   242   1,558 

Intersegment

  -   (280)  (280)  (1)  (167)  (168)

Revenue

 $10,217  $403  $10,620  $11,777  $468  $12,245 

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

  

Nine Months Ended January 31,

 
  

2023

  

2022

 
  

(In thousands)

  

(In thousands)

 
  

POC

  

POT

  

Total

  

POC

  

POT

  

Total

 
  

Revenue

  Revenue  Revenue  

Revenue

  Revenue  Revenue 

FEI-NY

 $21,281  $1,673  $22,954  $29,991  $1,408  $31,399 

FEI-Zyfer

  5,542   230   5,772   6,416   925   7,341 

Intersegment

  -   (953)  (953)  (1)  (603)  (604)

Revenue

 $26,823  $950  $27,773  $36,406  $1,730  $38,136 

(Unaudited)
  

Periods ended January 31,

 
  

(in thousands)

 
  

Three months

  

Nine months

 
  

2023

  

2022

  

2023

  

2022

 

Revenues by Product Line:

                

Satellite Revenue

 $4,990  $7,525  $12,799  $20,868 

Government Non-Space Revenue

  4,978   4,315   12,961   14,905 

Other Commercial & Industrial Revenue

  652   405   2,013   2,363 

Consolidated revenues

 $10,620  $12,245  $27,773  $38,136 

NOTE H – INVESTMENT IN MORION, INC.

The Company has an investment in Morion, Inc., (“Morion”), a privately-heldprivately 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, 2023, the Company acquired product from Morion in the aggregate amount of approximately $55,000 and $86,000, respectively. During the three and nine months ended January 31, 2022, the Company acquired product from Morion in the aggregate amount of approximately $95,000 and $215,000, respectively. During the nine months ended January 31, 2022, the Company received dividends from Morion in the amount of approximately $123,000, which is included in other income, net in the condensed consolidated statements of operations as part of the FEI-NY segment.

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. ThisMorion is a less than wholly owned subsidiary of Gazprombank, a state-owned Russian bank. The U.S. Ukraine-related sanctions regime has since 2014 included a list of sectoral sanctions identifications (“SSI”) pursuant to Executive Order 13662, which prohibits certain transactions, including certain extensions of credit, with an entity designated as an SSI or certain affiliates of an entity designated as an SSI. On July 16, 2014, after the Company’s investment in Morion, Gazprombank was designated as an SSI.

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/A, the Company impaired its investment in Morion in full. The impairment of $796,000 is included in other assetsincome (expense), net, in the accompanying balance sheets. During the nine months ended January 31, 2018 and 2017, the Company acquired product from Morion in the aggregate amountconsolidated statements of approximately $279,000 and $249,000, respectively, and the Company sold product and training services to Morion in the aggregate amount of approximately $192,000 and $10,000, respectively. (See discussion of revenues recognized under the license agreement in the paragraph below.)  During the three months ended January 31, 2018 and 2017, the Company acquired product from Morion in the aggregate amount of approximately $108,000 and $45,000, respectively, and the Company sold product and training services to Morion in the aggregate amount of approximately $9,000operations for the same period in 2018.  The Company did not have sales of product nor training services to Morion for the three months ended January 31, 2017.  At January 31, 2018, approximately $38,000 was payable to Morion. At January 31, 2018 there was no receivable related to Morion. During the nine months ended January 31, 2018 and 2017, the Company received a dividend from Morion in the amount of approximately $85,000 and $100,000, respectively.


On October 22, 2012, the Company entered into an agreement to license its rubidium oscillator production technology to Morion.  The agreement required the Company to sell certain fully-depreciated production equipment previously owned by the Company and to provide training to Morion employees to enable Morion to produce a minimum of 5,000 rubidium oscillators per year.  Morion will pay the Company approximately $2.7 million for the license and the equipment plus 5% royalties on third party sales for a 5-year period following an initial production run.  During the same 5-year period, the Company commits to purchase from Morion a minimum of approximately $400,000 worth of rubidium oscillators per year although Morion is not obligated to sell that amount to the Company.  During the fiscal year ended April 30, 2016,2022. The likelihood of future sales to, purchases from, and dividend payments from Morion included $375,000 for productis questionable.

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FREQUENCY ELECTRONICS, INC. and training services under this agreement.  Per the amended agreement, the balance of $1 million for the transfer of the license will be due once the United States Department of State (the “State Department”) approves the removal of certain provisions of the original agreement.  The State Department has approved the technology transfer called for under the agreement.SUBSIDIARIES


On March 29, 2016, the Company renegotiated the $1 million amendment under the original agreement dated October 22, 2012

Notes to $602,000 due to the U.S. Government easing of export regulations.  Of this amount $392,500 was billed and paid during fiscal year 2016 and the balance of $210,000 was billed during fiscal year 2017 and was subsequently collected.  During the nine months ended January 31, 2018 and 2017, sales to Morion include $192,000 and $10,000, respectively, under this agreement.Condensed Consolidated Financial Statements

(Unaudited)


NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS

The cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale securities at January 31, 20182023 and April 30, 2017,2022, respectively, arewere as follows (in thousands):

  January 31, 2018 
  Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Market Value 
Fixed income securities $6,275  $46  $(81) $6,240 
Equity securities  -   -   -   - 
  $6,275  $46  $(81) $6,240 
  April 30, 2017 
  Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Market Value 
Fixed income securities $1,516  $60  $-  $1,576 
Equity securities  5,230   1,248   (239)  6,239 
  $6,746  $1,308  $(239) $7,815 

11
  

January 31, 2023

 
  

Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Market Value

 

Fixed income securities

 $-  $-  $-  $- 
                 
  

April 30, 2022

 
  

Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Market Value

 

Fixed income securities

 $10,403  $23  $(462) $9,964 


FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

  Less than 12 months  12 Months or more  Total 
  Fair Value  Unrealized Losses  Fair Value  Unrealized Losses  Fair Value  Unrealized Losses 
January 31, 2018                  
Fixed Income Securities $4,879  $(81) $98  $-  $4,977  $(81)
Equity Securities  -   -   -   -   -   - 
  $4,879  $(81) $98  $-  $4,977  $(81)
April 30, 2017                        
Fixed Income Securities $-  $-  $-  $-  $-  $- 
Equity Securities  219   (9)  1,024   (230)  1,243   (239)
  $219  $(9) $1,024  $(230) $1,243  $(239)
  

Less than 12 months

  

12 Months or more

  

Total

 
  

Fair Value

  

Unrealized
Losses

  

Fair Value

  

Unrealized
Losses

  

Fair Value

  

Unrealized
Losses

 

January 31, 2023

                        

Fixed Income Securities

 $-  $-  $-  $-  $-  $- 
                         

April 30, 2022

                        

Fixed Income Securities

 $2,349  $(146) $5,573  $(316) $7,922  $(462)


The Company regularly reviews its investment portfolioliquidated all holdings related to identify and evaluate investments that have indications of possible impairment.  The Company does not believe that its investments in marketable securities with unrealized losses atMarketable Securities during the three months ended January 31, 2018 are other-than-temporary due to market volatility of2023.

During the security’s fair value, analysts’ expectations,three and the Company’s ability to hold the securities for a period of time sufficient to allow for any anticipated recoveries in market value.

During the nine months ended January 31, 20182023, the Company sold or redeemed available-for-sale securities in the amounts of $6.5 million, realizing gains of approximately $1 million. During$9.8 million and $11.0 million, respectively, realizing losses of approximately $763,000 and $784,000, respectively, during the nine monthsrespective periods ended January 31, 2017, the Company sold or redeemed available-for-sale securities in the amount $3.9 million, realizing gains of approximately $14,000.2023.


Maturities of fixed income securities classified as available-for-sale at January 31, 2018 are as follows, at cost (in thousands):
Current $450 
Due after one year through five years  2,214 
Due after five years through ten years  3,611 
  $6,275 

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level(Level 1 measurements) and the lowest priority to unobservable inputs (level(Level 3 measurements).

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The three levels of the fair value hierarchy are described below:

Level 1

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

Level 2

Inputs to the valuation methodology include:

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

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

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

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

Level 3

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

Level 1       Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2       Inputs to the valuation methodology include:
  - Quoted prices for similar assets or liabilities in active markets;
  - Quoted prices for identical or similar assets or liabilities in inactive markets
  - Inputs other than quoted prices that are observable for the asset or liability; and
  - Inputs that are derived principally from or corroborated by observable market data by correlation or other   means.
Level 3       Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’sasset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. All of theThe Company’s investments in marketablemoney market, business account, and U.S. securities arewere valued on a Level 1 basis.



The Company’s fixed income corporate debt securities and certificates of deposit were valued on a Level 2 basis. Level 2 securities are valued at the closing prices and are consistent with quoted prices of similar assets reported in active markets.

12

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2017, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued Accounting Standards Update (“ASU”)ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under ASU 2017-04, goodwill impairment will be tested by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2019,2022, with early adoption permitted. The Company will not be adopting ASU 2017-04 early, and is in the process of determining the effect that ASU 2017-04 may have, however,have. However, the Company expects the new standard to have an immaterial effect on its financial statements.


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) which clarifies how certain cash receipts and payments should be presented in the statement of cash flows.  The guidance is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted. The update is not expected to have a material impact on the financial statements when it becomes effective in the first quarter of fiscal year 2019.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which replaces the incurred loss impairment methodology in current generally accepted accounting principles (“GAAP”) with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the effect, if any, the update will have on theconsolidated financial statements when adopted in fiscal year 2021.2024.


In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”). The objective of the update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The standard requires a modified retrospective transition approach for existing leases. The amendments of ASU 2016-02 are effective for fiscal years beginning after December 31, 2018 and early adoption is permitted.  While the Company is currently evaluating the impact of this standard on its consolidated financial statements, the Company has minimal leases and expects that when adopted, beginning in fiscal year 2019, the new standard will have an immaterial effect on the Company’s financials.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  (“ASU 2014-09”) ASU 2014-09 eliminates most of the existing industry-specific revenue recognition guidance and significantly expands related disclosures.  The required disclosures will include both quantitative and qualitative information about the amount, timing and uncertainty of revenue from contracts with customers and the significant judgments used.  Entities can retrospectively apply ASU 2014-09 or use an alternative transition method.  In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09.  ASU 2014-09 is effective for public companies for annual reporting periods beginning on or after December 15, 2017, and the Company, must adopt the ASU on May 1, 2018, for fiscal year 2019.  The Company is currently evaluating the impact that ASU 2014-09 may have on its financial statements when the statement is adopted for its fiscal year 2019.  The Company has completed an evaluation based upon our various contract types. If ASU 2014-09 does require adjustments to be made to the Company’s revenue recognition, the Company expects that the initial prospective adjustments to retained earnings required to bring its financial statements into compliance may be material.  While future differences, if any, between current GAAP accounting and under ASU 2014-09 are not expected to be material, the differences will depend on the timing of transactions in any single reporting period.

NOTE K – CREDIT FACILITY

On

As of January 30, 2017,31, 2023, the Company repaid the principal balance due onretired its credit facility dated June 6, 2013, with JPMorgan ChaseUBS Bank N.A.  Subsequently, the Company voluntarily terminated this credit facility with JPMorgan Chase Bank, N.A to reduce the fees and expenses associated with maintaining that facility.USA. The Company did not incur any early termination fees associated withis considering a new facility, but has sufficient cash to fund its voluntary termination of this credit facility.  If, in the future, the Company determines that it would be beneficial to have a credit facility in place, the Company believes that alternative facilities are available.  As at January 31, 2018, the Company had available credit at variable terms based on its securities holdings under an advisory arrangement, under which no borrowings have been made.



operations.

13

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE L – VALUATION ALLOWANCE ON DEFERRED TAX ASSETS–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. In evaluating our ability to recover

As required by the authoritative guidance on accounting for income taxes, we evaluate the realization of deferred tax assets in the jurisdiction from which they arise, weon a jurisdictional basis at each reporting date. We consider all positive and negative evidence, including the reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. The carrying valueAccounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the Company’s net deferred tax assets assumeswill not be realized. 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, 2023, and April 30, 2022, the Company will be able to generate sufficient future taxable income in certain jurisdictions, based on estimates and assumptions.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 record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the consolidated statement of operations, or conversely, to further reduceadjust its existing valuation allowance resulting in lesschanges to deferred income tax expense. The Company evaluates the realizability of deferred tax assets and assesses the need for additional valuation allowance quarterly. The valuation allowance of approximately $6.8 million as of January 31, 2018 is intended to provide for uncertainty regarding the ultimate realization of U.S. state investment credits carryovers, and foreign net operating loss and tax credit carryovers.

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA” or the “Tax Act”) was enacted into law. The Tax Act makes comprehensive changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing the rules related to uses and limitations of net operating loss (“NOLs”) carryforwards created in tax years beginning after December 31, 2017 as well as the repeal of the current carryback provisions for NOLs arising in tax years ending after December 31, 2017; (3) immediate full expensing of certain qualified property; (4) creation of a new limitation on deductible interest expense; (5) elimination of the corporate minimum tax and (6) repeal of the deduction for income attributable to domestic production activities.

In accordance with ASC 740, “Income Taxes”, the Company is required to record the effects of tax law changes in the period enacted. During the three months ended January 31, 2018, we revalued our U.S. deferred tax assets at the lower federal corporate tax rate of 21%, which resulted in a noncash charge to income tax expense of approximately $4.8 million. For fiscal year taxpayers, the rate change is administratively effective at the beginning of the Company’s fiscal year, using a blended rate for the annual period. As such, the Company’s blended U.S. statutory tax rate for fiscal 2018 is approximately 29.7%. However, our U.S. deferred tax assets inclusive of the fiscal 2018 tax losses will be realized in future tax years at the lower corporate tax rate of 21%.

The SEC issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. We have recorded a provisional reduction to our U.S. deferred tax assets to reflect the new U.S. federal corporate tax rate.

15
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES


Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations


“Safe Harbor”Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

The statements in this quarterly report on Form 10-Q regarding future earnings and operations and other statements relating to the future constitute “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1933 orpursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “objective,” “seek,” “strive,” “might,” “likely result,” “build,” “grow,” “plan,” “goal,” “expand,” “position,” or similar words, or the negatives of these words, or similar terminology, identify forward-looking statements.  AllForward-looking statements by the Company that address activities, events or developments that the Company expects or anticipates will occur in the future, including all statements by the Company regarding its expected financial position, revenues, cash flows and other operating results, business position, legal proceedings or similar matters, are forward-looking statements.  These statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range ofinherently involve risks and uncertainties and a number of factorsthat could cause the Company’s actual results to differ materially from those expressed in the forward-looking statements referred to above.statements. Factors that would cause or contribute to such differences include but are not limited to, the risks associated with health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, such as their impact on our financial condition and results of operations and on our ability to continue manufacturing and distributing our products, and the impact of health epidemics and pandemics on general economic conditions, including any resulting recession, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, competitive developments, changes in manufacturing and transportation costs, changes in contractual terms, the availability of capital, and other risks detailedthe outcome of any litigation and arbitration proceedings. The factors listed above are not exhaustive. Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Form 10-K/A include additional factors that could materially and adversely impact the Company’s periodic report filings withbusiness, financial condition and results of operations. Moreover, the SecuritiesCompany operates in a very competitive and Exchange Commission.  Readers are cautionedrapidly changing environment. New factors emerge from time to time and it is not possible for management to place undue reliancepredict the impact of all these factors on the Company’s business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements which relate only to events as a prediction of actual results. Any or all of the date on which the statements are made and which reflect management’s analysis, judgments, belief, or expectation only as of such date.  By making these forward-looking statements contained in this Form 10-Q and any other public statement made by the Company undertakes noor its management may turn out to be incorrect. The Company expressly disclaims any obligation to update theseor revise any forward-looking statements, after the date such statement was first made.whether as a result of new information, future events or otherwise, except as required by law.


Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2017, filed on July 31, 2017.  

The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts, income taxes, and the valuation of inventory. Each of these areas requires the Company to make use of reasonedreasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory orand the market value of its products. Changes in estimates can have a material impact on the Company’s financial position and results of operations. The Company’s significant accounting policies did not change during the three and nine months ended January 31, 2023.

Revenue Recognition

Revenues under larger, long-term contracts

Revenue is recognized when a performance obligation is satisfied, which generally require billingsis when the expected goods or services are transferred to the customer in an amount that reflects the consideration to which the Company expects to receive. A performance obligation is a distinct product or service that is transferred to the customer based on achievementthe contract. The transaction price is allocated to each performance obligation and is recognized as revenue upon satisfaction of milestones rather than delivery of product,that performance obligation. The Company derives revenue from contracts with customers by units sold with specific specifications and frequencies that are used by a specific customer and contracts where the end user is the government. The Company’s contracts typically include one performance obligation which is satisfied by shipped projects and completed services/reports required in the contract. Control over these performance obligations passes to the customer over time and therefore these revenues are reported in operating results over time using the percentage of completion method.  On fixed-price contracts, which are typical for commercial and U.S. Government satellite programs and other long-term U.S. Government projects, and which require initial design and development of the product, revenue is recognized on the cost-to-cost method. Under this method, revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs with related cost of salesrevenues recorded as the costs are incurred. Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information and status of the contract. The effect of any change in the estimated gross margin percentagerate (“GM Rate”) for a contract is reflected in revenues in the period in which the change is known. Provisions for the full amount of anticipated losses on contracts are made in the period in which they become determinable.


On production-type orders, revenue is recorded as units are delivered with the related cost of sales recognized on each shipment based upon a percentage of estimated final program costs.

Changes in job performance on long-term contracts and production-type orders may result in revisions to costs and income and are recognized in the period in which revisions are determined to be required.  Provisions for anticipated losses on customer orders are made in the period in which they become determinable.

For customer orders in the Company’s FEI-Zyfer segment or smaller contracts or orders, in the FEI-NY segment, sales of products and services to customers are reported in operating results based upon (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order. When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed. The Company’s products generally carry a one-year warranty, but may vary based on the contract terms.


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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

(Continued)


Costs

Significant judgment is used in evaluating the financial information for certain contracts to determine an appropriate budget and Expensesestimated cost. The Company evaluates this information continuously and bases its judgments on historical experience, design specifications, and expected costs for material and labor. The Company evaluates the amount of development risk associated with new contracts which entail the development of new or significantly modified products and incorporates additional costs to cover these risks. These are estimates based on the Company’s best judgement, but because this entails estimations based on products not heretofore developed, there is risk that the estimates may ultimately prove to be incorrect and that costs are impacted.

Contract costs include all direct material, direct labor, costs, manufacturing overhead and other direct and indirect costs related to contract performance. Selling, general and administrative costs are expensedcharged to expense as incurred.


Inventory

Inventory

In accordance with industry practice, inventoried costs contain amounts relating to contracts and programs with long production cycles, a portion of which will not be realized within one year. Inventory write downs are established for slow-moving materials based on percentage of usage over a ten-year period, obsolete items on a gradual basis over five years with no usage and costs incurred on programs for which production-level orders cannot be determined as probable. Such write downswrite-downs are based upon management’s experience and expectationsestimates for future business. Any changes arising from revised expectationsestimates are reflected in cost of salesrevenues in the period the revision is made.

Marketable Securities
All of the Company’s investments in marketable securities are Level 1 securities which trade on public markets

COVID-19 Pandemic Update, and have current prices that are readily available.  In general, investments in fixed income securities are onlyOther Macroeconomic Factors

Refer to Footnote A in the commercial paperaccompanying financial statements.

17
Table of financially sound corporations or the bonds of U.S. Government agencies.  Although the value of such investments may fluctuate significantly based on economic factors, the Company’s own financial strength enables it to wait for the securities to either recover their value or to mature such that any interim unrealized gains or losses are deemed to be temporary.Contents

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

RESULTS OF OPERATIONS

The table below sets forth for the respective periods of fiscal years 2018three and 2017 (which end on April 30, 2018nine months ended January 31, 2023 and 2017, respectively)2022, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations:

  Nine months  Three months 
  Periods ended January 31, 
  2018  2017  2018  2017 
Revenues            
FEI-NY  69.5%  79.0%  61.0%  83.1%
FEI-Zyfer  38.8   27.5   42.7   25.3 
Less intersegment revenues  (8.3)  (6.5)  (3.7)  (8.4)
   100.0   100.0   100.0   100.0 
Cost of revenues  87.9   68.6   127.0   71.3 
   Gross margin  12.1   31.4   (27.0)  28.7 
Selling and administrative expenses  24.4   24.6   26.0   24.9 
Research and development expenses  15.9   14.0   16.2   11.7 
   Operating loss  (28.2)  (7.2)  (69.2)  (7.9)
Other income, net  3.7   0.9   0.5   0.8 
Provision (benefit) for income taxes  8.6   (4.0)  27.0   (10.4)
(Loss) from continued operations  (33.1)  (2.3)  (95.7)  3.3 
(Loss) from discontinued operations, net assets  (2.2)  (1.7)  (2.7)  (0.3)
   Net (loss) income  (35.3)%  (4.0)%  (98.4)%  3.0%


operations or notes to the condensed consolidated financial statements:

16
  

Three months

  

Nine months

 
  

Periods ended January 31,

 
  

2023

  

2022

  

2023

  

2022

 

Revenues

                

FEI-NY

  79.3

%

  88.6

%

  82.6

%

  82.3

%

FEI-Zyfer

  23.4   12.7   20.8   19.2 

Less intersegment revenues

  (2.7)  (1.3)  (3.4)  (1.5)
   100.0   100.0   100.0   100.0 

Cost of revenues

  67.4   73.5   86.3   70.1 

Gross margin

  32.6   26.5   13.7   29.9 

Selling and administrative expenses

  22.2   23.2   23.0   25.3 

Research and development expenses

  7.4   9.2   9.0   10.1 

Operating income (loss)

  3.0   (5.9)  (18.3)  (5.5)

Other income (loss), net

  (6.0)  (0.1)  (2.4)  0.7 

Provision for income taxes

  -   -   -   - 

Net loss

  (3.0

)%

  (6.0

)%

  (20.7

)%

  (4.8

)%

Revenues


  

Three months

  

Nine months

 
  

Periods ended January 31,

 
  

(in thousands)

 

Segment

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

FEI-NY

 $8,420  $10,855  $(2,435)  (22.4

)%

 $22,954  $31,399  $(8,445)  (26.9

)%

FEI-Zyfer

  2,480   1,558   922   59.2   5,772   7,341   (1,569)  (21.4)

Intersegment revenues

  (280)  (168)  (112)  66.7   (953)  (604)  (349)  57.8 
  $10,620  $12,245  $(1,625)  (13.3

)%

 $27,773  $38,136  $(10,363)  (27.2

)%

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

Revenues
  Nine months Three months 
  Periods ended January 31, 
Segment 2018  2017  Change 2018 2017  Change 
FEI-NY $22,184  $27,176  $(4,992)  (18.4)% $6,444  $9,461  $(3,017)  (31.9)%
FEI-Zyfer  12,378   9,473   2,905   30.7   4,514   2,877   1,637   56.9 
Intersegment revenues  (2,630)  (2,238)  (392)  17.6   (386)  (955)  569   (59.6)
  $31,932  $34,411  $(2,479)  (7.2)% $10,572  $11,383  $(811)  (7.1)%

For the ninethree months ended January 31, 2018,2023 revenues from commercial and U.S. Government communication satellite programs decreased approximately $5.4 million over the same period of fiscal year 2017, and accounted for approximately 36%47% of consolidated revenues compared to approximately 49%62% of consolidated revenues during this same period in the prior fiscal 2017.year. Revenues on these contracts are recognized primarily under the percentage of completionPOC method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, increased $1.0 million over the same period of fiscal 2017, and accounted for approximately 44%47% of consolidated revenues compared to approximately 37% in fiscal 2017.  Other commercial and industrial revenues in the fiscal year 2018 period accounted for approximately 20% of consolidated revenues compared to 14% in the prior year.  Intersegment revenues are eliminated in consolidation.


For the three months ended January, 31, 2018 revenues from commercial and U.S. Government satellite programs decreased2023 compared to approximately $3.8 million over35% of consolidated revenue during the same period ofin the prior fiscal year 2017, and accounted for approximately 23% of consolidated revenues compared to approximately 55% in fiscal 2017.  Revenues from non-space U.S. Government/DOD customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, increased $2.3 million over the same period of fiscal 2017, and accounted for approximately 59% of consolidated revenues compared to approximately 34% in fiscal 2017.year. Other commercial and industrial revenues for the three months ended January 31, 20172023 accounted for approximately 18%6% of consolidated revenuesrevenue compared to 11%3% in the same period of the prior fiscal year.
Based on current backlog, satellite payload The decrease in revenue for FY2018 is expected to be lower when compared to FY2017, both in total revenue and as a percent of overall revenue. The Company anticipates a significant increase in satellite related bookings and accordingly, with increasing revenues to follow in the coming fiscal year. For the foreseeable future satellite payloads will continue to be a major business area for the Company and represent a significant portion of the company’s overall revenue. Revenues from non-space programs are also anticipated to increase in the coming fiscal year as a result of bids either in progress or from proposals previously submitted. 

Gross margin
  Nine months Three months 
  Periods ended January 31, 
  2018  2017  Change 2018 2017 Change 
  $3,872  $10,821  $(6,949)  (64.2)% $(2,852) $3,267  $(6,119)  (187.3)%
GM Rate  12.1%  31.4%          (27.0%)  28.7%        
For the nine and three month periodmonths ended January 31, 2017 gross margin and gross margin rate decreased over the same period in fiscal 2017. The gross margin and gross margin rate decrease is primarily2023 was mainly due to a $5.0 million inventory write downs, lower revenues, increased repair costs and unabsorbed manufacturing overhead costs.timing of the various production phases for products in the satellite market.

18
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

(Continued)


Selling and administrative expenses
Nine months  Three months 
Periods ended January 31, 
2018  2017  Change  2018  2017  Change 
$7,796  $8,483  $(687)  (8.1)% $2,749  $2,834  $(85)  (3.0)%

For the nine months ended January 31, 20182023 revenues from commercial and 2017,U.S. Government communication satellite programs accounted for approximately 46% of consolidated revenues compared to approximately 55% of consolidated revenues during this same period in the prior fiscal year. Revenues from non-space U.S. Government/DOD customers accounted for approximately 47% of consolidated revenues for the nine months ended January 31, 2023 compared to approximately 39% of consolidated revenue during the same period of fiscal year 2022. Other commercial and industrial revenues for the nine months ended January 31, 2023 accounted for approximately 7% of consolidated revenue compared to approximately 6% for the nine months ended January 31, 2022. The decrease in revenue for the nine months ended January 31, 2023 was predominately in the satellite market, however, the decline in revenue from non-space U.S. Government/DOD customers also contributed to the decrease in revenue. The decrease is partly due to timing of awards of contracts as well as technical difficulties that were reported at the end of our prior fiscal year, which have been mostly resolved.

Gross Margin

  

Three months

  

Nine months

 
  

Periods ended January 31,

 
  

(in thousands)

 
  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 
  $3,465  $3,240  $225   6.9

%

 $3,810  $11,392  $(7,582)  (66.6

)%

GM Rate

  32.6

%

  26.5

%

          13.7

%

  29.9

%

        

For the three months ended January 31, 2023, gross margin and GM Rate increased compared to the same respective periods in the prior fiscal year. The increase in the gross margin and GM Rate was due to higher engineering costs associated with programs in their development phase in the prior year period versus their production phase during the current year period. For the nine months ended January 31, 2023, gross margin and GM Rate decreased compared to the same period in the prior fiscal year. The decrease in gross margin and GM Rate was due to increased engineering costs on development phase programs that experienced particularly complex technical challenges that have since been resolved, minor technical challenges that have been, or will be, resolved reasonably quickly, and the negative cost impacts on some programs due to supply chain delays, influenced by COVID during the nine months ended January 31, 2023. Gross margin was also negatively affected by under absorption of costs due to the decrease in sales during the three month and nine month periods ended January 31, 2023.

Selling, General, and Administrative Expenses

Three months

  

Nine months

 

Periods ended January 31,

 

(in thousands)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 
$2,357  $2,832  $(475)  (16.8

)%

 $6,383  $9,637  $(3,254)  (33.8

)%

For the three months ended January 31, 2023 and 2022, selling, general, and administrative (“SG&A”) expenses were approximately 24%22% and 23%, respectively, of consolidated revenues. The decrease in SG&A expenses for the three months ended January 31, 2023 as compared to the prior year period was largely due to a decrease in payroll and associated costs related to the previously announced workforce reduction.

For the nine months ended January 31, 2023 and 2022, SG&A expenses were approximately 23% and 25%, respectively, of consolidated revenues. ForThe decrease in SG&A expenses for the threenine months periods ended January 31, 2018 and 2017, SG&A expenses were approximately 26% and 25% respectively, of consolidated revenues.  The majority of2023 as compared to the prior year period was largely due to decrease in professional fees, as well as a one-time reduction occurred in corporateto deferred compensation expense, professional fees,expense. The Company continues to monitor expenses looking for additional cost-effective reductions going forward.

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FREQUENCY ELECTRONICS, INC. and stock option expense.SUBSIDIARIES

(Continued)


Research and development expenseDevelopment Expenses

Nine months  Three months 

Three months

Three months

  

Nine months

 
Periods ended January 31,Periods ended January 31, 

Periods ended January 31,

 
2018  2017  Change  2018  2017  Change 

(in thousands)

(in thousands)

 

2023

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 
$5,071  $4,832  $239   4.9% $1,708  $1,337  $371   27.7%783  $1,129  $(346)  (30.6

)%

 $2,492  $3,861  $(1,369)  (35.5

)%

Research and development (“

R&D”)&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 R&D rate for the nine monththree-month period endingended January 31, 20182023 was 16%7% of sales compared to 14%9% of sales for the same period of the previousprior fiscal year. The R&D rate for the three monthnine-month period endingended January 31, 20182023 was 16%9% of sales compared to 12%10% of sales for the same period of the previousprior fiscal year. The Company expects the level of activity related todecrease in R&D expenditures for both periods of fiscal year 2023 was primarily due to the resolution of fiscal 2022 technical challenges to projects that are now in the production phase. The Company plans to continue throughto invest in R&D in the current yearfuture to keep its products at the state of the art.

Operating Income (Loss)

Three months

  

Nine months

 

Periods ended January 31,

 

(in thousands)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 
$325  $(721) $1,046   NM  $(5,065) $(2,106) $(2,959)  NM 

For the three months ended January 31, 2023, operating income increased due to a combination of increased gross margin, and beyond to address new large opportunities in secure communications/command and control applications, next generation satellite payload product and additional DOD and commercial markets.


Operating loss

Nine months  Three months 
Periods ended January 31, 
2018  2017  Change  2018  2017  Change 
$(8,995) $(2,494) $(6,501)  260.7% $(7,309) $(904) $(6,405)  708.5%
The Company reported approximately $8.3 millionthe effects of non-cash charges to earnings compared to $3.8 million of non-cash charges, duringthe changes management has instituted. For the nine months ended January 31, 2018 and 2017 respectively. The nine and three month periods ending January 31, 2018 include a $5.0 million inventory write down.  The Company recorded2023, operating income decreased revenue, gross margin,due to the previously disclosed decrease in sales and gross margin rate in the three months ending January 31, 2018 leading to increased losses for the nine months ending January 31, 2018 compared to the same periodsfirst two quarters of the precedingcurrent fiscal year.


FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)

Other incomeIncome (Expense), net

  Nine months  Three months 
  Periods ended January 31, 
  2018  2017  Change  2018  2017  Change 
Investment income $1,236  $387  $849   219.4% $68  $108  $(40)  (37.0)%
Interest expense  (61)  (128)  67   (52.3)%  (19)  (61)  42   (68.9)%
Other income, net  4   50   (46)  (92.0)%  1   49   (48)  (98.0)%
  $1,179  $309  $870   281.6% $50  $96  $(46)  (47.9)%
  

Three months

  

Nine months

 
  

Periods ended January 31,

 
  

(in thousands)

 
  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Investment (expense) income, net

 $(625) $4  $(629)  NM  $(600) $195  $(795)  NM 

Interest expense

  (18)  (19)  1   (5.3

)%

  (81)  (59)  (22)  37.3

%

Other income (expense), net

  5   2   3   NM   5   160   (155)  (96.9

)%

  $(638) $(13) $(625)  NM  $(676) $296  $(972)  NM 

Investment (expense) income is derived primarily from the Company’s holdings and sale of marketable securities. Earnings on these securities may varyDuring the three months ended January 31, 2023, the Company liquidated its holdings and as a result there was an approximate $784,000 loss recognized.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

Income Tax Provision

Three months

  

Nine months

 

Periods ended January 31,

 

(in thousands)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 
$3  $1  $2   200.0

%

 $6  $3  $3   100.0

%

  

Three months

  

Nine months

 
  

Periods ended January 31,

 
  

2023

  

2022

  

2023

  

2022

 

Effective tax rate on pre-tax book loss:

  (1.1

)%

  (0.1

)%

  (0.1

)%

  (0.2

)%

The estimated annual effective tax rate for the fiscal year ending April 30, 2023 is 0.01%. This calculation reflects estimated income tax expense based on fluctuating interest rates, dividend payout levels, andour current year annual pretax income forecast which is offset by the timing of purchases or sales of securities.  estimated change in the current year valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.

For the three months endingended January 31, 2018 investment income was lower than in the same period of fiscal year 2017, mainly due to in the quarter ending July 31, 2017 the Company divested of all its holdings in equities securities in its investment account, which were converted to cash.  The Company has re-invested approximately $4.9 million of the cash generated from the sale of equities into fixed income securities. As a result,2023, the Company recorded gainsa discrete income tax provision of approximately $1.0 million during$3,345 primarily related to an accrual of interest for unrecognized tax benefits. For the three months ended JulyJanuary 31, 2017 as compared to no gain or loss in2022, the same periodCompany recorded an income tax provision of fiscal year 2017.$894.

The decrease in interest expense for

For the nine months ended January 31, 2017 compared2023, the Company recorded a discrete income tax provision of $5,812 primarily related to the same periodan accrual of fiscal year 2017 is the result of there being no credit line borrowings duringinterest for unrecognized tax benefits. For the nine months endingended January 31, 2017.


Income tax (benefit)

  Nine months Three months 
  Periods ended January 31, 
  2018  2017  Change 2018  2017  Change 
  $2,750  $(1,392) $4,142   NM% $2,848  $(1,188) $4,036   NM%
Effective tax rate on pre-tax book income:                                
   (35.2)%  63.7%          (39.2)%  147%        
We have2022, the Company recorded a provisional reduction to our U.S. deferred tax assets to reflect the new U.S. federal corporate tax rate. As a result,an income tax expenseprovision of $3,144.

The effective tax rate for the three months ended January 31, 2018 includes a discrete2023 was an income tax expenseprovision of approximately $4.8 million(1.1)% on pretax loss of $313,000 compared to an income tax provision of (0.1)% on pretax loss of $734,000 in the comparable prior fiscal year period. The effective tax rate for the reduction in our net deferredthree months ended January 31, 2023 differs from the U.S. federal statutory rate of 21% primarily due to domestic losses for which the Company is not recognizing an income tax assets.benefit.


The effective tax rate for the nine months ended January 31,201831, 2023 was (35.2) an income tax provision of (0.1)% on pretax loss of $5.7 million compared to 63.7%an income tax provision of (0.2)% on pretax loss of $1.8 million in the nine months ended January 31, 2017. For the three months ended January 31, 2018 and 2017, thecomparable prior fiscal year period. The effective tax rates were (39.2) % and 147%, respectively. The current year effective tax rate primarily reflects the impact of the TCJA, deductible permanent differences and R&D credits included in the computation of U.S. federal and state income taxes.


The change in the effective tax rates in the nine and three months ended January 31, 2018 compared to prior periods is primarily due to changes in the earnings mix between U.S. and non-domestic operations, and discrete deferred income tax provisions related to the enactment of the TCJA and stock compensation in connection with the adoption of ASU 2016-09 in the first quarter of fiscal 2018. The new guidance requires all of the tax effects related to stock compensation be recorded discretely through income tax expense. Consequently, for the nine months ended January 31, 2018,2023 differs from the U.S. federal statutory rate of 21% primarily due to domestic losses for which the Company recorded a continuing operations income tax provision of $2,750, which includes a current year tax benefit of $2,255 which is reduced by a discrete income tax provision of $5,005. For the three months ended January 31, 2018, the Company recordednot recognizing an income tax provisionbenefit.

The Inflation Reduction Act of $2,848, which2022 (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 currentcorporate alternative minimum tax benefitthat generally applies to U.S. corporations with average adjusted annual financial statement income over a three-year period in excess of $2,085 which is reduced by a discrete income tax provision of $4,933.





FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)

Discontinued Operations
  Nine months  Three months 
  Periods ended January 31, 
  2018  2017  Change  2018  2017  Change 
Net Loss $(697) $(599) $(98) 16.4% $(289) $(42) $(247)NM%

$1 billion. The above table representsCompany does not expect the net loss for the Gillam segment accounted for as discontinued operations as presented in Note BAct to thematerially impact its consolidated financial statements.  For the 9 months ended January 31, 2018, as compared to the same periods of fiscal year 2017, gross margin decreased approximately 18%.  SG&A expenses and R&D expenses decreased by approximately $126,000 and $19,000 respectively, compared to the prior fiscal year. 

LIQUIDITY AND CAPITAL RESOURCES

The Company’s consolidated balance sheet continuessheets continue to reflect a strong working capital position of $53.9approximately $20.0 million at January 31, 20182023 and $61.7$34.2 million at April 30, 2017.2022. Included in working capital at January 31, 20182023 and April 30, 2017, is $13.22022 was $12.9 million and $10.0$21.5 million, respectively, consisting of cash, cash equivalents, and marketable securities. The Company’s current ratio at January 31, 2018 is 7.12023 was 1.7 to 1.1 compared to 2.6 to 1 as of April 30, 2022.

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Cash

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

Net cash provided by operationsoperating activities for the nine monthsnine-month period ended January 31, 2018 were $2.82023 was approximately $1.9 million compared to $1.5 millionand net cash provided by operating activities for the nine-month period ended January 31, 2022 was approximately $4.0 million. The decrease in the comparable fiscal year 2017 period.  The increaseoperating cash flow in the first nine months of fiscal year 2018 period resulted primarily from2023 was mainly due to an increase in accounts receivable collections, compared to the balances as of the end of the previous fiscal year.net loss and contract liabilities, partially offset by a decrease in non-cash adjustments and contract assets. For the nine-month periods ended January 31, 20182023 and 2017,2022, the Company incurred approximately $8.3$2.7 million and $3.8$2.9 million, respectively, of non-cash operating expenses including ROU assets and liabilities for leases, loss provision accrual, depreciation and amortization, inventory reserve adjustments, deferred compensation, and accruals for employee benefit programs and gain on sale of marketable securities.programs.


Net cash provided by investing activities for the nine-month period ended January 31, 2023 was approximately $8.7 million compared to net cash used in investing activities of approximately $1.6 million for the nine-month period ended January 31, 2022. During the nine months ended January 31, 2018, was $0.5 million compared to $85,000 in the same period of fiscal year 2017.    During the fiscal year 2018 period,2023, marketable securities were sold or redeemed in the amount of $6.5$11.0 million compared to $3.9$1.7 million of such redemptions during the fiscal year 2017 period. For the fiscal year 2018, $5.0 million of marketable securities were purchased. There were no marketable securities purchased for the same period in 2017. Inof fiscal year 2022. During the nine months ended January 31, 2018 and 2017,2023 approximately $1.4 million of marketable securities were purchased compared to $1.9 million for the same period of fiscal year 2022. The Company acquired property, plant, and equipment in the amount of approximately $1.0$886,000 and $1.5 million for the nine-month periods ended January 31, 2023 and $3.7 million,2022, respectively.  The Company may continue to invest cash equivalents as dictated by its investment and acquisition strategies.

Net cash used in financing activities for the nine months ended January 31, 2023 was approximately $9.4 million related to a dividend payout. There was no cash used in or provided by financing activities for the nine months ended January 31, 2018 and 2017 was $1,000 compared to approximately $6.0 million used in financing activities. During the three months ended January 31, 2017, the Company repaid the Note payable of $6 million related to the Line of Credit with JPMorgan that has subsequently been terminated.2022.

The Company has been authorized by its Board of Directors to repurchase up to $5 million worth of shares of its common stock for treasury wheneverwhen appropriate opportunities arise but it has neither a formal repurchase plan nor commitments to purchase additional shares in the future.arise. As of January 31, 2018,2023, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization. For the nine months ended January 31, 20182023 and 2017,2022 there were no repurchaserepurchases of shares.


The Company will continue to expend resources for research and development to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems which management believes will result in future growth and profitability. During fiscal year 2017, the Company secured partial customer funding for a portion of its R&D efforts. The customer funds received in connection therewith appear in revenues and are not included in R&D expenses. For fiscal year 2018, the Company anticipates securing additional customer funding for a portion of its research and developmentR&D activities and will allocate internal funds depending on market conditions and identification of new opportunities as in fiscal year 2017.opportunities. The Company expects internally generated cash will be adequate to fund these developmentR&D efforts. 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.




FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)

As of January 31, 2018,2023, the Company’s consolidated funded backlog iswas approximately $16$54 million compared to $28$40 million at April 30, 2017,2022, the end of fiscal year 2017.2022. Approximately 80%82% of this backlog is expected to be realized in the next twelve months. Included in the backlog atAs of January 31, 2018 is approximately $7.6 million2023, there were no amounts included in backlog under cost-plus-feecost-plus fixed-fee contracts which the Company believes represent firm commitments from its customers for which the Company hasthat have not received full funding to-date.been funded. The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed and onproceed. On fixed price contracts, the Company excludes any unfunded portion. The Company expects theseOver time, as partially funded contracts to become fully funded, over time andthe Company will add the additional funding to its backlog. The backlog at that time.is subject to change for various reasons, including possible cancellation of orders, change orders, terms of the contracts and other factors beyond the Company’s control. 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 operating and investment needs through at least March 19, 201917, 2024 and the foreseeable future.


Based upon the Company’s decision to sell its Gillam business and the associated presentation as Discontinued Operations, the Company believes that the effect on cash flow will be neutral. However, it is expected to have a positive cash effect when the intended sale is concluded. The Company is in active negotiation, with a potential foreign buyer, with a view toward completion of a transaction before April 30, 2018.

The Company’s international business is subject to changes in demand or pricing resulting from fluctuations in currency exchange rates, primarily in the Euro to U.S. Dollar exchange rate and in the Chinese Renminbi to U.S. Dollar exchange rate.

Off-Balance Sheet Arrangements

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


22
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk

Not applicable to smaller reporting companies.

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on their evaluation, the Company’s chief executive officer and chief financial officer have concluded that, because of the material weaknesses in internal control over financial reporting disclosed below, as of January 31, 2023, the Company’s disclosure controls and procedures were not effective at a reasonable assurance level.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.  Based

Management’s Report on their evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of January 31, 2018, the Company’s disclosure controls and procedures were effective to ensure that information relating to the Company, including its consolidated subsidiaries, required to be included in its reports that it filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting. There were no changes in the

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term isas defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) duringAct. The Company’s internal control system is designed to provide reasonable assurance regarding the three months ended January 31, 2018reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to which this report relatesfuture periods are subject to the risk that have materially affected,controls may become inadequate because of changes in conditions, or are reasonably likely to materially affect,that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of April 30, 2022. In making this assessment, management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management initially concluded and disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2022, filed on July 14, 2022 with the SEC (the “Form 10-K”) that the Company’s internal control over financial reporting was effective as of April 30, 2022.

However, for the reasons discussed below, management conducted a re-assessment of the effectiveness of the Company’s internal control over financial reporting. In conducting its re-assessment of the effectiveness of the Company’s internal control over financial reporting, management concluded that the Company’s internal control over financial reporting was not effective as of April 30, 2022, because of the material weaknesses in internal control over financial reporting discussed below.


As disclosed in the Company’s Current Report on Form 8-K filed on December 16, 2022, in the course of preparing the unaudited condensed consolidated financial statements for the fiscal quarter ended October 31, 2022, the Company identified errors related to the calculations and presentation of contract assets and contract liabilities in the Form 10-K.

Following the identification of these prior errors, management re-evaluated the Company’s internal control over financial reporting as of April 30, 2022 and identified material weaknesses in the following areas:

1.         While previously corrected as of April 30, 2022, historically, through April 30, 2022, the Company had presented contract assets and contract liabilities on a net basis on the consolidated balance sheets whereas ASC 606-10-45-1 requires gross presentation. In addition, a formula error was identified whereby the Company had not been grouping contracts assets and contract liabilities properly on a project-by-project basis. As a result, management has concluded that the Company did not effectively design and maintain controls over the completeness and accuracy of the gross presentation of contract assets and contract liabilities and thus a material weakness was identified; and

23
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

2.         In connection with the above, as of April 30, 2021 the Company had presented contract assets and contract liabilities on a net basis on the consolidated balance sheets whereas ASC 606-10-45-1 requires gross presentation. During the process of completing the Company’s Form 10-K, management corrected the contract assets and contract liabilities balances in the April 30, 2021 column of the consolidated balance sheet to present them gross as opposed to net as previously filed. However, this should have been identified as a correction of a prior period error and assessed accordingly to determine whether or not a restatement was needed and whether the error was the result of a deficiency in the Company’s internal control over financial reporting. As a result, management has concluded that the Company did not have an adequate control in place for identifying and assessing financial statement errors and thus a material weakness was identified.

As disclosed in the Current Report on Form 8-K filed on December 16, 2022, by the Company, on December 14, 2022, the Company concluded that the items noted above constituted material weaknesses in the Company’s internal control over financial reporting as of April 30, 2022 and continued to exist as of January 31, 2023.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Remediation Plan

To remediate the material weaknesses described above, the Company is pursuing the following remediation steps:

1.

Review and update, as necessary, the design and documentation of its internal control policies and procedures with respect to its internal control over financial reporting. The Company plans to implement additional formulas and comparative reviews of financial information as a result of issues identified in its policies and procedures as promptly as practical and to satisfy documentation requirements under Section 404 of the Sarbanes-Oxley Act.

2.

Ensure that its internal control over financial reporting is properly designed, documented and operating effectively by (i) enhancing the design of existing control activities and/or implementing additional control activities, as needed, (ii) monitoring the operating effectiveness of those controls, and (iii) ensuring that documentation exists to evidence the performance of those controls.

The Company believes that its remediation plan will be sufficient to remediate the identified material weaknesses and strengthen its internal control over financial reporting. However, by April 30, 2023, the Company’s next annual reporting date, there may not be sufficient time for the Company to remediate all material weaknesses or, if remediated, to test the operating effectiveness of the remediated controls. As the Company continues to evaluate, and works to improve, its internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. The Company cannot assure you, however, when it will remediate such weaknesses, nor can it be certain whether additional actions will be required or the costs of any such actions. Moreover, the Company cannot assure you that additional material weaknesses will not arise in the future.

Changes in Internal Control Over Financial Reporting

The Company is in the process of implementing certain changes in its internal control over financial reporting to remediate the material weaknesses described above. Other than the implementation of the remediation plan discussed above, which began in the fiscal quarter ended January 31, 2023, there has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended January 31, 2023, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

As disclosed in “Item 1A. Risk Factors” in the Form 10-K/A, there are a number of risks and uncertainties that could have a material adverse effect on the Company’s business, financial position, results of operations and/or cash flows. There are no material updates or changes to the Company’s risk factors since the filing of the Form 10-K/A.

Item 6. Exhibits

31.1 -

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 -

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 -

Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101-

The following materials from the Frequency Electronics, Inc. Quarterly Report on Form 10-Q for the quarter ended January 31, 20182023 formatted in eXtensible Business Reporting Language (XBRL): (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (ii)(iii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii)(iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity and (iv)(vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within Inline XBRL document.

104-

Cover Page Interaction Data File (formatted as inline XBRL and contained in Exhibit 101).


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



FREQUENCY ELECTRONICS, INC.

(Registrant)
Date:

Dated: March 19, 2018                                                                BY   /s/17, 2023

By: /s/ Thomas McClelland                               

Thomas McClelland

President and Chief Executive Officer

(Principal Executive Officer)

By: /s/ Steven L. Bernstein                                

Steven L. Bernstein

Chief Financial Officer, Secretary and Treasurer

(Principal Financial and Accounting Officer)

Signing on behalf of the registrant and as principal financial officer
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