UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 orFor the Quarterly Period ended JanuaryJuly 31, 20182023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 orFor 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, | 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 | Smaller reporting | |
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, 2018September 11, 2023 – 8,729,6829,390,046
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
TABLE OF CONTENTS
Page No. | |
Part I. Financial Information: | |
3 | |
4 | |
5 | |
6 | |
Notes to Condensed Consolidated Financial Statements (unaudited) | 7-12 |
13-17 | |
18 | |
18 | |
Part II. Other Information: | |
19 | |
19 | |
20 |
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, | |||||||
| 2018 | 2017 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,984 | $ | 2,163 | ||||
| Marketable securities | 6,240 | 7,815 | ||||||
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 | ||||||
| Inventories, net | 25,899 | 29,051 | ||||||
| Prepaid income taxes | 2,112 | 2,606 | ||||||
| Prepaid expenses and other | 1,141 | 1,105 | ||||||
| Current assets of discontinued operations | 8,477 | 8,165 | ||||||
| Total current assets | 62,810 | 69,855 | ||||||
Property, plant and equipment, at cost, net of accumulated depreciation and amortization | 13,868 | 14,813 | ||||||
| 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 | ||||||
| Other assets | 2,310 | 2,187 | ||||||
| Non-current assets of discontinued operations | 531 | 569 | ||||||
| Total assets | $ | 104,341 | $ | 113,319 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable - trade | $ | 2,858 | $ | 2,437 | ||||
| Accrued liabilities | 3,934 | 3,425 | ||||||
| Current liabilities of discontinued operations | 2,121 | 2,249 | ||||||
| Total current liabilities | 8,913 | 8,111 | ||||||
| Deferred compensation | 13,546 | 13,252 | ||||||
| Deferred rent and other liabilities | 1,436 | 1,409 | ||||||
| Non-current liabilities of discontinued operations | 1,795 | 1,215 | ||||||
| Total liabilities | 25,690 | 23,987 | ||||||
| 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 | ||||||
| Additional paid-in capital | 56,289 | 55,767 | ||||||
| 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 other comprehensive income | 2,174 | 2,281 | ||||||
| Total stockholders’ equity | 78,651 | 89,332 | ||||||
| Total liabilities and stockholders’ equity | $ | 104,341 | $ | 113,319 | ||||
July 31, | April 30, | |||||||
2023 | 2023 | |||||||
(UNAUDITED) | ||||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9,061 | $ | 12,049 | ||||
Accounts receivable, net of allowance for doubtful accounts of $111 at July 31, 2023 and April 30, 2023 | 6,385 | 4,622 | ||||||
Contract assets | 11,028 | 10,009 | ||||||
Inventories | 22,604 | 20,526 | ||||||
Prepaid income taxes | 27 | 30 | ||||||
Prepaid expenses and other | 1,158 | 1,071 | ||||||
Total current assets | 50,263 | 48,307 | ||||||
Property, plant, and equipment, net | 6,778 | 7,093 | ||||||
Goodwill | 617 | 617 | ||||||
Cash surrender value of life insurance | 10,375 | 10,220 | ||||||
Other assets | 876 | 877 | ||||||
Right-of-Use assets – operating leases | 7,062 | 7,382 | ||||||
Total assets | $ | 75,971 | $ | 74,496 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,214 | $ | 1,464 | ||||
Accrued liabilities | 3,967 | 3,934 | ||||||
Loss provision accrual | 1,577 | 1,544 | ||||||
Operating lease liability – current portion | 1,766 | 1,753 | ||||||
Contract liabilities | 18,356 | 18,586 | ||||||
Total current liabilities | 26,880 | 27,281 | ||||||
Deferred compensation | 8,267 | 8,314 | ||||||
Deferred taxes | 8 | 8 | ||||||
Operating lease liability – non-current portion | 5,518 | 5,883 | ||||||
Other liabilities | 129 | 124 | ||||||
Total liabilities | 40,802 | 41,610 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock - $1.00 par value; authorized 600 shares, no shares issued | - | - | ||||||
Common stock - $1.00 par value; authorized 20,000 shares, 9,391 shares issued and 9,390 shares outstanding at July 31, 2023; 9,374 shares issued and 9,373 shares outstanding at April 30, 2023 | 9,391 | 9,374 | ||||||
Additional paid-in capital | 49,360 | 49,136 | ||||||
Accumulated deficit | (23,579 | ) | (25,621 | ) | ||||
Common stock reacquired and held in treasury - at cost (1 share at July 31, 2023 and April 30, 2023) | (3 | ) | (3 | ) | ||||
Total stockholders’ equity | 35,169 | 32,886 | ||||||
Total liabilities and stockholders’ equity | $ | 75,971 | $ | 74,496 | ||||
See accompanying notes to condensed consolidated financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive LossIncome (Loss)
(In thousands except per share data)
(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 July 31, | ||||||||
2023 | 2022 | |||||||
Revenues | $ | 12,408 | $ | 8,204 | ||||
Cost of revenues | 7,540 | 8,209 | ||||||
Gross margin | 4,868 | (5 | ) | |||||
Selling and administrative expenses | 2,302 | 1,992 | ||||||
Research and development expenses | 506 | 1,110 | ||||||
Operating income (loss) | 2,060 | (3,107 | ) | |||||
Other income (expense): | ||||||||
Investment income | 20 | 36 | ||||||
Interest expense | (31 | ) | (45 | ) | ||||
Income (loss) before provision for income taxes | 2,049 | (3,116 | ) | |||||
Provision for income taxes | 7 | 1 | ||||||
Net Income (loss) | $ | 2,042 | $ | (3,117 | ) | |||
Net income (loss) per common share: | ||||||||
Basic and diluted income (loss) per share | $ | 0.22 | $ | (0.33 | ) | |||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 9,384 | 9,308 | ||||||
Condensed Consolidated Statements of Comprehensive Income (loss) | ||||||||
Net Income (loss) | $ | 2,042 | $ | (3,117 | ) | |||
Unrealized gain (loss) on marketable securities: | ||||||||
Change in market value of marketable securities before reclassification, net of tax | - | (2 | ) | |||||
Reclassification adjustment for realized gains included in net income, net of tax | - | 16 | ||||||
Total unrealized gain on marketable securities, net of tax | - | 14 | ||||||
Comprehensive income (loss) | $ | 2,042 | $ | (3,103 | ) | |||
See accompanying notes to condensed consolidated financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive (Loss) IncomeCash Flows
(In thousands except per share data)thousands)
(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: | ||||||||
| $ | (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 | |||
Three Months Ended July 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 2,042 | $ | (3,117 | ) | |||
Non-cash charges to earnings | 1,462 | 816 | ||||||
Net changes in operating assets and liabilities | (6,305 | ) | (1,273 | ) | ||||
Net cash used in operating activities | (2,801 | ) | (3,574 | ) | ||||
Cash flows from investing activities: | ||||||||
Proceeds on redemption of marketable securities | - | 1,027 | ||||||
Purchase of marketable securities | - | (1,303 | ) | |||||
Purchase of fixed assets | (187 | ) | (465 | ) | ||||
Net cash used in investing activities | (187 | ) | (741 | ) | ||||
Cash flows from financing activities: | ||||||||
Net cash used in financing activities | - | - | ||||||
Net decrease in cash and cash equivalents | (2,988 | ) | (4,315 | ) | ||||
Cash and cash equivalents at beginning of period | 12,049 | 11,561 | ||||||
Cash and cash equivalents at end of period | $ | 9,061 | $ | 7,246 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 30 | $ | 17 | ||||
Income Taxes | $ | 4 | $ | - | ||||
Cash refunded during the period for: | ||||||||
Income Taxes | $ | - | $ | 2 | ||||
See accompanying notes to condensed consolidated financial statements.
FREQUENCY ELECTRONICS, INC. andAND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity
Three Months Ended JanuaryJuly 31, 2023 and 2022
(In thousands)thousands except share data)
(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, 2023 | 9,373,776 | $ | 9,374 | $ | 49,136 | $ | (25,621 | ) | 741 | $ | (3 | ) | $ | - | $ | 32,886 | ||||||||||||||||
Contribution of stock to 401(k) plan | 17,013 | 17 | 96 | - | - | - | - | 113 | ||||||||||||||||||||||||
Stock-based compensation expense | - | - | 128 | - | - | - | - | 128 | ||||||||||||||||||||||||
Net income | - | - | - | 2,042 | - | - | - | 2,042 | ||||||||||||||||||||||||
Balance at July 31, 2023 | 9,390,789 | $ | 9,391 | $ | 49,360 | $ | (23,579 | ) | 741 | $ | (3 | ) | $ | - | $ | 35,169 | ||||||||||||||||
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 | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(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 JanuaryJuly 31, 20182023 and the results of its operations, changes in stockholders’ equity for the three months ended July 31, 2023 and 2022, and cash flows for the nine and three months ended JanuaryJuly 31, 20182023 and January 31, 2017.2022. The April 30, 20172023 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 on Form 10-K for the fiscal year ended April 30, 2017,2023, filed on July 31, 2017,27, 2023 with the Securities and the financial statements and notes thereto.Exchange Commission (the “Form 10-K”). The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.
COVID-19 Pandemic, and Other Macroeconomic Factors
On May 5, 2023, the World Health Organization (“WHO”) announced an end to the global health emergency related to the coronavirus originating in Wuhan, China (“COVID-19”). Additionally, on May 11, 2023 the Public Health Emergency declared by the U.S. Department of Health and Human Services expired.
Certain Company entered into a share purchase agreementvendors continue to deliver materials with certain foreign counterparties with respectlonger lead times due to a potential sale of Gillam-FEI (“Gillam”),COVID-19 related impacts to their workforces or their supply chains. These delays have impacted the Company’s Belgian subsidiary. However, these counterparties have not yet performed their obligations under that agreement. Because the counterparties have failed to perform their obligations under the share purchase agreement the Company has a right to terminate that share purchase agreement.production schedules, and increased costs associated with procurement of materials and services. The Company continues to negotiate withmonitor these counterparties to effectuate a closing of the transaction contemplated by the share purchase agreement, but the Company is also discussing a sale of the Gillam business withand its other potential buyers. In April 2017, the Company decided to sell its Gillam business as soon as practicable,vendors and, began contacting potential buyers other than the counterparty to the stock purchase agreement. The Company believes that the divestment should be completed by the end of fiscal year 2018. Accordingly, the Company determined that the assetsif necessary, seek alternative suppliers, or, in certain cases, re-design products using alternative parts 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.
| 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 | ) | ||||
| 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 | ||||
NOTE CB – EARNINGS (LOSS) PER SHARE
Reconciliation of the weighted average shares outstanding for basic and diluted Earnings Per Share areincome (loss) per share (“EPS”) for the three months ended July 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 | ||||||||||||
Three months ended July 31, | ||||||||
2023 | 2022 | |||||||
Weighted average shares outstanding: | ||||||||
Basic EPS shares outstanding (weighted average) | 9,384,375 | 9,307,939 | ||||||
Effect of dilutive securities | ** | ** | ||||||
Diluted EPS shares outstanding | 9,384,375 | 9,307,939 | ||||||
** For the ninethree months ended July 31, 2023 and three month periods ended January 31, 2018,2022, 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 the periods.antidilutive. The exercisable shares excluded are 1,260,250. The effect of dilutive securities for the periods would have been 131,638 and 136,424, respectively. For the nine month period 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. The exercisable shares excluded are 1,261,875. The effect of dilutive securities for the period would have been 184,119.
| Nine months | Three months | |||||||||||||||
| Periods ended January 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Outstanding options and SARS excluded | ** | ** | ** | 546,625 | ||||||||||||
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE DC – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET
At JanuaryJuly 31, 20182023 and April 30, 2017, costs2023, contract assets and estimated earnings in excess of billings, net, consistcontract liabilities, consisted 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 | ||||
July 31, 2023 | April 30, 2023 | |||||||
Contract assets | $ | 11,028 | $ | 10,009 | ||||
Contract liabilities | (18,356 | ) | (18,586 | ) | ||||
Contract assets represent revenue recognized on long-term contracts that hadhave not been billed at the balance sheet dates orand contract liabilities represent a liability for amounts billed in excess of the revenue recognized.recognized, contract liabilities. 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 onover time using the percentagepercentage-of-completion (“POC”) method. Fluctuations of completion basis. Duringcontract assets and contract liabilities are due to the ninetiming of funding, amounts billed and revenue recorded. Contract assets increased $1.0 million during the three months ended JanuaryJuly 31, 2018,2023, primarily due to revenue recognized during the three months ended July 31, 2023 for which we have not yet billed our customers. Contract liabilities increased $0.2 million during the three months ended July 31, 2023, primarily due to payments received in excess of revenue recognized on these performance obligations. During the three months ended July 31, 2023, we recognized $3.7 million of our contract liabilities at April 30, 2023 as revenue. During three months ended July 31, 2022, we recognized $2.5 million of our contract liabilities at April 30, 2022 as revenue. During the three months ended July 31, 2023 and 2022, revenue recognized under percentage of completionPOC contracts was approximately $13.7$11.7 million and $2.8 million, respectively. During the nine and three months ended January 31, 2017, such revenue was approximately $19.5 million and $7.1$7.9 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. Total contract losses, recorded in cost of revenue, for the three months ended July 31, 2023 and 2022 were approximately $139,000 and $1.2 million, respectively.
NOTE ED – TREASURY STOCK TRANSACTIONS
During the nine and three months period ended JanuaryJuly 31, 2018,2023, the Company made contributions of 32,75717,013 shares, and 7,487 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
Deferred compensation expense charged to selling and administrative expenses during the ninethree months ended JanuaryJuly 31, 2018,2023, were approximately $138,000, inclusive of approximately $38,000 of interest expense. Payments made related to deferred compensation were approximately $185,000 for the Company issued 3,711 shares from treasury uponsame period. Deferred compensation expense charged to selling and administrative expenses during the exercisethree months ended July 31, 2022, were approximately $127,000, inclusive of SARS by certain officers and employeesapproximately $17,000 of interest expense. Payments made related to deferred compensation were approximately $161,000 for the Company and employee awards for service calculated at the Company’s discretion.same period.
NOTE FE – INVENTORIES
Inventories, which are reported at the lower of cost or market, consistand net realizable value, consisted of the following: following (in thousands):
July 31, 2023 | April 30, 2023 | |||||||
Raw Materials and Component Parts | $ | 14,173 | $ | 12,460 | ||||
Work in Progress | 7,914 | 7,547 | ||||||
Finished Goods | 517 | 519 | ||||||
| $ | 22,604 | $ | 20,526 | |||||
| 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 | |||||
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The Company’s leases primarily represent offices, warehouses, vehicles, manufacturing facilities 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.
New York lease. In February 2019, the Company entered into an agreement to lease a building to be used as a corporate headquarters office and manufacturing facility in Mitchell Field, NY (“New York lease”). The New York lease expires September 30, 2029 and contains renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. We include options to extend or terminate leases in the Right-of-Use (ROU) operating lease asset and liability when it is reasonably certain we will exercise these options. As of July 31, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability. ROU assets and lease liabilities are recorded based on the present value of future lease payments which will factor in certain qualifying initial direct costs incurred as well as any lease incentives that may have been received. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term.
California lease. In October 2017, the Company entered into an agreement to lease a building to be used as an office and manufacturing facility in Garden Grove, CA (“California Lease”). The California lease expires January 31, 2025 and contains renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. We include options to extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these options. As of July 31, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability. ROU assets and lease liabilities are recorded based on the present value of future lease payments which will factor in certain qualifying initial direct costs incurred as well as any lease incentives that may have been received. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term.
New Jersey lease. In February 2022, the Company entered into an agreement to lease a building to be used as an office and manufacturing facility in Northvale, NJ (“New Jersey lease”). The New Jersey lease expires January 31, 2025 and contains renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. We include options to extend or terminate leases in the ROU operating lease asset and liability when it is reasonably certain we will exercise these options. As of July 31, 2023 lease options were not included in the calculation of the ROU operating lease asset and liability. ROU assets and lease liabilities are recorded based on the present value of future lease payments which will factor in certain qualifying initial direct costs incurred as well as any lease incentives that may have been received. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term.
The Company elected the practical expedient for short-term leases which allows leases with terms of 12 months or less to be recorded on a straight-line basis over the lease term without being recognized on the consolidated balance sheets.
The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets as follows (in thousands):
Classification | July 31, 2023 | April 30, 2023 | ||||||||
Assets | ||||||||||
Operating lease ROU assets | ROU assets - operating leases | $ | 7,062 | $ | 7,382 | |||||
Liabilities | ||||||||||
Operating lease liabilities (short-term) | Operating lease liability - current portion | 1,766 | 1,753 | |||||||
Operating lease liabilities (long-term) | Operating lease liability - non-current portion | 5,518 | 5,883 | |||||||
Total lease liabilities | $ | 7,284 | $ | 7,636 | ||||||
Total operating lease expense was $454,000 and $481,000 for the three months ended July 31, 2023 and 2022, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.
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 July 31, 2023:
Fiscal Year Ending April 30, | ||||
(in thousands) | ||||
Remainder of 2024 | $ | 1,317 | ||
2025 | 1,844 | |||
2026 | 1,328 | |||
2027 | 937 | |||
2028 | 1,262 | |||
Thereafter | 1,976 | |||
Total lease payments | 8,664 | |||
Less imputed interest | (1,380 | ) | ||
Present value of future lease payments | 7,284 | |||
Less current obligations under leases | (1,766 | ) | ||
Long-term lease obligations | 5,518 | |||
As of July 31, 2023 and 2022, the weighted-average remaining lease term for all operating leases was 5.43 years and 6.15 years, respectively. The Company does not generally have access to the rate implicit in the leases and therefore selected a rate that is reflective of companies with similar credit ratings for secured debt as the discount rate. The weighted average discount rate for operating leases as of July 31, 2023 and 2022, was 6.23% and 6.18%, respectively.
NOTE G – SEGMENT INFORMATION
The Company operates under two reportable segments:
(1) | FEI-NY – operates out of New York and its operations consist principally of precision time and frequency control products used in three principal 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 |
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 accounting policies of the two segments are the same as those described in “Note 1. Summary of Accounting Policies” to the consolidated financial statements included in the Form 10-K. The Company evaluates the performance of its segments and allocates resources to them based on operating profit (loss), which is defined as income before investment (expense) income, interest expense, other income (expense), and taxes. All acquired assets, including intangible assets, are included in the assets of the applicable reporting segment.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(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):
Three Months Ended July 31, | ||||||||
2023 | 2022 | |||||||
Revenues: | ||||||||
FEI-NY | $ | 9,490 | $ | 6,854 | ||||
FEI-Zyfer | 3,267 | 1,732 | ||||||
less intersegment revenues | (349 | ) | (382 | ) | ||||
Consolidated revenues | $ | 12,408 | $ | 8,204 | ||||
Operating income (loss): | ||||||||
FEI-NY | $ | 1,481 | $ | (2,589 | ) | |||
FEI-Zyfer | 678 | (438 | ) | |||||
less intersegment margin | (61 | ) | - | |||||
Corporate | (38 | ) | (80 | ) | ||||
Consolidated operating income (loss) | $ | 2,060 | $ | (3,107 | ) |
July 31, 2023 | April 30, 2023 | |||||||
Identifiable assets: | ||||||||
FEI-NY | $ | 40,371 | $ | 39,005 | ||||
FEI-Zyfer | 12,288 | 10,699 | ||||||
less intersegment balances | (119 | ) | (58 | ) | ||||
Corporate | 23,431 | 24,850 | ||||||
Consolidated identifiable assets | $ | 75,971 | $ | 74,496 | ||||
Total revenue recognized over time as POC and Passage of Title (“POT”) was approximately $11.7 million and $0.7 million, respectively, of the $12.4 million reported for the three months ended July 31, 2023. Total revenue recognized over time as POC and POT was approximately $8.0 million and $0.3 million, respectively, of the $8.2 million reported for the three months ended July 31, 2022. The amounts by segment and product line were as follows (in thousands):
Three Months Ended July 31, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
POC | POT | Total | POC | POT | Total | |||||||||||||||||||
Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||
FEI-NY | $ | 8,675 | $ | 815 | $ | 9,490 | $ | 6,278 | $ | 576 | $ | 6,854 | ||||||||||||
FEI-Zyfer | 3,047 | 220 | 3,267 | 1,674 | 58 | 1,732 | ||||||||||||||||||
Intersegment | - | (349 | ) | (349 | ) | - | (382 | ) | (382 | ) | ||||||||||||||
Revenue | $ | 11,722 | $ | 686 | $ | 12,408 | $ | 7,952 | $ | 252 | $ | 8,204 | ||||||||||||
Three Months Ended July 31, | ||||||||
2023 | 2022 | |||||||
Revenues by product line: | ||||||||
Satellite revenue | $ | 4,858 | $ | 3,476 | ||||
Government non-space revenue | 6,878 | 4,064 | ||||||
Other commercial & industrial revenue | 672 | 664 | ||||||
Consolidated revenues | $ | 12,408 | $ | 8,204 | ||||
| Nine months | Three months | |||||||||||||||
| Periods ended January 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues: | ||||||||||||||||
| FEI-NY | $ | 22,184 | $ | 27,176 | $ | 6,444 | $ | 9,461 | ||||||||
| FEI-Zyfer | 12,378 | 9,473 | 4,514 | 2,877 | ||||||||||||
| less intersegment revenues | (2,630 | ) | (2,238 | ) | (386 | ) | (955 | ) | ||||||||
| Consolidated revenues | $ | 31,932 | $ | 34,411 | $ | 10,572 | $ | 11,383 | ||||||||
| 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 | ||||
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 months ended July 31, 2023 and 2022, the Company did not acquire any product from Morion. During the three months ended July 31, 2023 and 2022, the Company did not receive dividends from Morion,
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 other assets in the accompanying balance sheets. During the nine months ended January 31, 2018 and 2017, the Company acquired product from Morion in the aggregate amount 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 $9,000Form 10-K 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.
NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS
| 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 | ||||||||
| 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 | ) | ||||||||||
| Current | $ | 450 | ||
| Due after one year through five years | 2,214 | |||
| Due after five years through ten years | 3,611 | |||
| $ | 6,275 |
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, the Company expects the new standard to have an immaterial effect on its financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss impairment methodology in current generally accepted accounting principles (“GAAP”)U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019. The Company is evaluating2022. ASU 2016-13 was adopted, effective May 1, 2023, with no material impact to the effect, if any, the update will have on theconsolidated financial statements when adopted in fiscal year 2021.statements.
NOTE J – CREDIT FACILITY
As 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 DecemberJuly 31, 2018 and early adoption is permitted. While2023, the Company is currently evaluating the impacthad no borrowings pursuant to a credit facility. As of this standard on its consolidated financial statements,April 30, 2023, the Company has minimal leases and expects that when adopted, beginning inretired its advisory credit arrangement with UBS Bank USA. Prior to retiring the advisory credit arrangement, no borrowings were made during fiscal year 2019, the new standard will have an immaterial effect on the Company’s financials.2023.
NOTE K – CREDIT FACILITY
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 July 31, 2023, and April 30, 2023, 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.
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 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 believes its most critical accounting policies to be the recognition of revenue and costs on production contracts, 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 months ended July 31, 2023.
Revenue Recognition
Revenues under larger, long-term contracts which generally require billings based on achievement of milestones rather than delivery of product, are reported in operating results predominantly 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 regarding labor, outside services, materials, overhead costs, 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.
Significant judgment is recorded as units are delivered withused in evaluating the related cost of sales recognizedfinancial information for certain contracts to determine an appropriate budget and estimated cost. The Company evaluates this information continuously and bases its judgments on each shipment based upon a percentage of estimated final program costs.
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.
FREQUENCY ELECTRONICS, INC. and have current prices that are readily available. In general, investments in fixed income securities are only in the commercial paper 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.SUBSIDIARIES
(Continued)
RESULTS OF OPERATIONS
The table below sets forth for the respective periods of fiscal years 2018three months ended July 31, 2023 and 2017 (which end on April 30, 2018 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 | % | ||||||||
Three Months ended July 31, | ||||||||
2023 | 2022 | |||||||
Revenues | ||||||||
FEI-NY | 76.5 | % | 83.6 | % | ||||
FEI-Zyfer | 26.3 | 21.1 | ||||||
Less intersegment revenues | (2.8 | ) | (4.7 | ) | ||||
| 100.0 | 100.0 | |||||||
Cost of revenues | 60.8 | 100.1 | ||||||
Gross margin | 39.2 | (0.1 | ) | |||||
Selling and administrative expenses | 18.6 | 24.3 | ||||||
Research and development expenses | 4.1 | 13.5 | ||||||
Operating income (loss) | 16.5 | (37.9 | ) | |||||
Other expense, net | (0.1 | ) | (0.1 | ) | ||||
Provision for income taxes | 0.1 | 0.0 | ||||||
Net income (loss) | 16.5 | % | (38.0 | )% | ||||
Revenues
Three months ended July 31, | ||||||||||||||||
(in thousands) | ||||||||||||||||
Segment | 2023 | 2022 | Change | |||||||||||||
FEI-NY | $ | 9,490 | $ | 6,854 | $ | 2,636 | 38.5 | % | ||||||||
FEI-Zyfer | 3,267 | 1,732 | 1,535 | 88.6 | ||||||||||||
Intersegment revenues | (349 | ) | (382 | ) | 33 | (8.6 | ) | |||||||||
| $ | 12,408 | $ | 8,204 | $ | 4,204 | 51.2 | % | |||||||||
| 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 JanuaryJuly 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%39% of consolidated revenues compared to approximately 49%42% of consolidated revenues during this same period in the prior fiscal 2017.year. Revenues on these contracts are recognized primarily over time 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%55% 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.
FREQUENCY ELECTRONICS, INC. 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. SUBSIDIARIES
(Continued)
Gross Margin
Three Months ended July 31, | ||||||||||||
(in thousands) | ||||||||||||
2023 | 2022 | Change | ||||||||||
| $ | 4,868 | $ | (5 | ) | $ | 4,873 | ||||||
GM Rate | 39.2 | % | (0.1 | )% | ||||||||
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.
| 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 | % | ||||||||||||||||||||||||
Selling, General, and SUBSIDIARIESAdministrative Expenses
Three Months ended July 31, | ||||||||||||||
(in thousands) | ||||||||||||||
2023 | 2022 | Change | ||||||||||||
| $ | 2,302 | $ | 1,992 | $ | 310 | 15.6 | % | |||||||
| 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 ninethree months ended JanuaryJuly 31, 20182023 and 2017,2022, selling, general, and administrative (“SG&A”) expenses were approximately 24%19% and 25%24%, respectively, of consolidated revenues. ForThe percentage of consolidated revenue decreased 5% due to an increase in sales for the three months periods ended JanuaryJuly 31, 2018 and 2017,2023 as compared to the three months ended July 31, 2022. The increase in SG&A expenses were approximately 26%for the three months ended July 31, 2023 as compared to the prior year period was largely due to an increase in payroll and 25% respectively, of consolidated revenues. The majority of the reduction occurred in corporate deferred compensation expense, professional fees, and stock option expense.associated costs.
Research and development expenseDevelopment Expenses
| Nine months | Three months | |||||||||||||||||||||||||||||
| Periods ended January 31, | ||||||||||||||||||||||||||||||
| 2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||||||||
| $ | 5,071 | $ | 4,832 | $ | 239 | 4.9 | % | $ | 1,708 | $ | 1,337 | $ | 371 | 27.7 | % | |||||||||||||||
Three Months ended July 31, | ||||||||||||||
(in thousands) | ||||||||||||||
2023 | 2022 | Change | ||||||||||||
| $ | 506 | $ | 1,110 | $ | (604 | ) | (54.4 | )% | ||||||
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 decrease in R&D rateexpenditures for the nine month period ending January 31, 2018 was 16% compared to 14% of sales for the same period of the previous fiscal year. The R&D rate for the three month period ending January 31, 2018 was 16% compared to 12% of sales for the same period of the previous fiscal year. The Company expects the level of activity related to R&D to continue through the current year 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.
| 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 | % | |||||||||
| 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 | )% | ||||||||||||||||
Operating Income tax (benefit)(Loss)
| 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 | % | |||||||||||||||||||||||||
Three Months ended July 31, | ||||||||||
(in thousands) | ||||||||||
2023 | 2022 | Change | ||||||||
| $ | 2,060 | $ | (3,107 | ) | $ | 5,167 | ||||
For the three months ended JanuaryJuly 31, 2018 includes2023, operating income increased due to a discretecombination of increased revenue and gross margin, and the effects of certain cost cutting measures instituted by management beginning in fiscal year 2023.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Other Income (Expense), net
Three Months ended July 31, | ||||||||||||||||
(in thousands) | ||||||||||||||||
2023 | 2022 | Change | ||||||||||||||
Investment income | $ | 20 | $ | 36 | $ | (16 | ) | (44.4 | )% | |||||||
Interest expense | (31 | ) | (45 | ) | 14 | (31.1 | )% | |||||||||
| $ | (11 | ) | $ | (9 | ) | $ | (2 | ) | 22.2 | % | ||||||
Other income tax(expense), net is derived from various sources. The income can come from reclaiming of metal, refunds, interest on deferred trust assets, or the sale of a fixed asset. Interest expense of approximately $4.8 million foris related to the reduction in our net deferred tax assets.compensation payments made to retired employees.
Income Tax Provision
Three Months ended July 31, | ||||||||||
(in thousands) | ||||||||||
2023 | 2022 | Change | ||||||||
| $ | 7 | $ | 1 | $ | 6 | |||||
Three Months ended July 31, | ||||||||
2023 | 2022 | |||||||
Effective tax rate on pre-tax book loss: | 0.3 | % | 0 | % | ||||
The estimated annual effective tax rate for the nine months ended January 31,2018 was (35.2) % compared to 63.7%fiscal year ending April 30, 2024 is 0%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by the estimated change in the nine months ended January 31, 2017. current year valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.
For the three months ended JanuaryJuly 31, 2018 and 2017, 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 effective tax rate for the three months ended July 31, 2023 was an income tax provision of 0.3% on pretax income of $2.0 million compared to an income tax provision of (0.0)% on pretax loss of $3.1 million in the comparable prior fiscal year period. The effective tax rate for the three months ended July 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 benefit.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
| 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 | % | ||||||||||
The above table representsInflation Reduction Act of 2022 (the “Act”) was signed into U.S. law on August 16, 2022. The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies to U.S. corporations with average adjusted annual financial statement income over a three-year period in excess of $1 billion. The Company does not expect the 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 $23.4 million at JanuaryJuly 31, 20182023 and $61.7$21.0 million at April 30, 2017.2023. Included in working capital at JanuaryJuly 31, 20182023 and April 30, 2017, is $13.22023 was $9.1 million and $10.0$12.0 million, respectively, consisting of cash and cash equivalents, and marketable securities.equivalents. The Company’s current ratio was 1.9 to 1 at JanuaryJuly 31, 2018 is 7.12023 compared to 1.1.8 to 1 as of April 30, 2023.
Net cash used in operating activities for the ninethree months ended JanuaryJuly 31, 2018 were2023 and 2022 was approximately $2.8 million compared to $1.5and $3.6 million, in the comparable fiscal year 2017 period.respectively. The increase in operating cash flow in the first three months of fiscal year 2018 period resulted primarily from2024 was mainly due to operating income, offset by an increase in inventory, accounts receivable, collections, compared to the balances as of the end of the previous fiscal year.and contract assets. For the nine-month periodsthree months ended JanuaryJuly 31, 20182023 and 2017,2022, the Company incurred approximately $8.3$1.5 million and $3.8 million,$816,000, respectively, of non-cash operating expenses including amortization of ROU assets, loss provision accrual, depreciation and amortization, inventory reservenet realizable value adjustments, deferred compensation, and accruals for employee benefit programs and gain on sale of marketable securities.programs.
Net cash provided byused in investing activities for the ninethree months ended JanuaryJuly 31, 2018,2023 and 2022 was $0.5 millionapproximately $187,000 and $741,000, respectively. During the three months ended July 31, 2023, no marketable securities were sold or redeemed compared to $85,000 in$1.0 million for the same period of fiscal year 2017.2023. During the fiscal year 2018 period,three months ended July 31, 2023 no marketable securities were sold or redeemed in the amount of $6.5 millionpurchased compared to $3.9$1.3 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. In the nine months ended January 31, 2018 and 2017, theof fiscal year 2023. The Company acquired property, plant, and equipment in the amount of approximately $1.0 million$187,000 and $3.7 million,$465,000 for the three months ended July 31, 2023 and 2022, respectively. The Company may continue to invest cash equivalents as dictated by its investment and acquisition strategies.
There was no financing activities for the ninethree months ended JanuaryJuly 31, 2018 and 2017 was $1,000 compared to approximately $6.0 million used in financing activities. During2023 or the three months ended JanuaryJuly 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 JanuaryJuly 31, 2018,2023, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization.authorization, the majority of which have since been reissued. For the ninethree months ended JanuaryJuly 31, 20182023 and 2017,2022 there were no repurchaserepurchases of shares.
The Company will continue to expend resources for R&D to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems whichthat 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.
As of JanuaryJuly 31, 2018,2023, the Company’s consolidated funded backlog iswas approximately $16$52 million compared to $28$57 million at April 30, 2017,2023, the end of fiscal year 2017.2023. Approximately 80%79% of this backlog is expected to be realized in the next twelve months. Included in the backlog at January 31, 2018 is approximately $7.6 million under cost-plus-fee contracts which the Company believes represent firm commitments from its customers for which the Company has not received full funding to-date. 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 short-term operating and investment needs through at least March 19, 2019September 14, 2024 and its long-term operation and investment needs for the foreseeable future.future thereafter.
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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk
Not applicable to smaller reporting companies.
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, as of July 31, 2023, the Company’s disclosure controls and procedures were 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 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 werehave been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three monthsfiscal quarter ended JanuaryJuly 31, 2018 to which this report relates2023 that havehas materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
As disclosed in “Item 1A. Risk Factors” in the Form 10-K, 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.
Item 6. Exhibits
31.1 - | |
31.2 - | |
32 - | |
101- | The following materials from the Frequency Electronics, Inc. Quarterly Report on Form 10-Q for the quarter ended |
104- | Cover Page Interaction Data File (formatted as inline XBRL and contained in Exhibit 101). |
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.
Dated: September 14, 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)