UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the Quarterly Period ended JanuaryJuly 31, 2022

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 or 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)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 every Interactive Data File required to be submitted 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 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 emerging growth 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.

If an emerging growth company, indicate by check mark if the registrant 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’s Common Stock, par value $1.00 per share, as of March 11,September 13, 2022 – 9,283,6529,313,509

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands except par value)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine Months Ended JanuaryJuly 31, 2022 and 2021

(In thousands except share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine Months Ended January 31, 2021

(In thousands except share data)

(Unaudited)

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 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, 2022 and the results of its operations, changes in stockholders’ equity for the three and nine months ended JanuaryJuly 31, 2022 and 2021, and cash flows for the ninethree months ended JanuaryJuly 31, 2022 and 2021. The April 30, 20212022 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 U.S. GAAP have been condensed or omitted. These condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021,2022, filed on June 30, 2021July 14, 2022 with the Securities and Exchange Commission.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

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. The current resurgence of COVID-19 variants may have additional, unforeseen, impacts. As such, it is uncertain as to the full magnitude that the pandemic may ultimately have on the Company’s financial condition, liquidity, and future results of operations.financial results. For the ninethree months ended JanuaryJuly 31, 2022, the Company washas been impacted by employee absenteeism related to direct or indirect effects of the COVID-19 pandemic, supply chain delays and shortages due to COVID-19 impacts to various vendors, and delays in the receipt of anticipated new contracts from customers due to COVID-19 related administrative delays.administratively affected by the pandemic and limited availability or delivery delays of parts and materials from vendors affected by the pandemic. FEI-Zyfer’s operations were particularly affected as evidenced by decreases in sales and gross margin during fiscal year 2022, which continued during the three months ended July 31, 2022. Management has taken steps to minimize COVID-19 related impacts to ouris actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the continuing changing dynamics of the COVID-19 pandemic itthe Company is not possible for the Companyable to estimate the potential future adverse effects on its operations, financial condition, or liquidity for the remainder of fiscal year 2022.2023. As of July 31, 2021,2022, the Company hadhas returned to essentially normal operations. The Company continuesoperations and will continue to follow CDCfederal and state guidelines with an emphasis on employee safety.

The Company faces various future COVID-19 related risks, including the possibility of impactand risks resulting from possible future variants.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, state and/or other customers or supplier operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions, the Company’s operations may be negatively impacted. If so,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. ThroughDue to continuing geopolitical circumstances resulting in increased inflation, energy and commodity prices may continue escalating which may adversely affect the third quarter of fiscal year 2022, the Company experienced some disruption due to the need to vacate certain areas of its facilities for cleaning and disinfecting as a result of employees potentially being exposed to COVID-19 or following positive COVID-19 test results, as well as employee absenteeism related to COVID-19 exposure or illness.Company’s financial results. Also, certain of the Company’sCompany 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.

NOTE B – EARNINGS (LOSS) PER SHARE

Reconciliation of the weighted average shares outstanding for basic and diluted earnings (loss) per share for the three- and nine-monthsthree-months ended JanuaryJuly 31, 2022 and 2021, respectively, were as follows:

** For the three and nine-monthsthree-months ended JanuaryJuly 31, 2022 and 2021, 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 those periods. The exercisable shares excluded for the three- and nine-monthsthree-months ended JanuaryJuly 31, 2022 was 223,000 options. The exercisableand 2021 were 357,125 shares excluded for the three- and nine-months ended January 31, 2021 was 229,000 and 331,000 options,372,000 shares, respectively.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE C – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS,CONTRACT (LIABILITIES) ASSETS, NET

At JanuaryJuly 31, 2022 and April 30, 2021, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings,2022, contract (liabilities) assets, net, respectively, consisted of the following:

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 earned.recognized. Amounts are billed to customers pursuant to contract terms. In general, the recorded amounts will be billed and collected andor 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 three and nine months ended JanuaryJuly 31, 2022 revenue recognized under POC contracts was approximately $11.8 million and $36.4 million, respectively. During the three and nine months ended January 31, 2021, revenue recognized under POC contracts was approximately $10.8$7.9 million and $35.6$12.4 million, respectively. AnticipatedIf contract losses if any, are accruedanticipated, a loss provision is recorded for in the periodfull amount of such determination is made.losses when they are determinable. Contract losses of approximately $171,000$1.2 million and $218,000$16,000 were recorded for the three and nine months ended JanuaryJuly 31, 2022 respectively. Contract losses of approximately $144,000 and $876,000 were recorded for the three and nine months ended January 31, 2021, respectively.

NOTE D –STOCK TRANSACTIONS

During the three and nine-month periodsthree-month period ended JanuaryJuly 31, 2022, the Company made contributions of 7,045 and 31,07516,708 shares of its common stock respectively, to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code. Such contributions are in accordance with the Company’s discretionary match of employee voluntary contributions to this plan.

NOTE E – INVENTORIES, NET

Inventories, which isare reported at the lower of cost and net realizable value, consisted of the following:

The amounts above are net ofInventory reserves of $7.0included in inventory were $7.7 million and $7.3$7.5 million as of JanuaryJuly 31, 2022 and April 30, 2021,2022, respectively. Reserve amounts relate to raw materials and component parts and work in progress.

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

The Company’s leases primarily represent offices, warehouses, vehicles, and manufacturing and research and developmentR&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.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company elected the practical expedient for short-term leases which allows leases with terms of twelve12 months or less to be recorded on a straight-line basis over the lease term without being recognized on the consolidated balance sheet.

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

Total operating lease expense was $500,000$481,000 and $1.5 million$506,000 for the three and nine-monthsthree-months ended JanuaryJuly 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. Total operating lease expense was $500,000 and $1.5 million for the three and nine-months ended January 31, 2021, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses inon the unaudited condensed consolidated statements of operations.

The table below reconciles the undiscounted cash flows for each of the first four fiscal years and total of the remaining fiscal years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of JanuaryJuly 31, 2022:

As of JanuaryJuly 31, 2022, the weighted-average remaining lease term for all operating leases was 6.56.15 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 weighted average discount rate for operating leases as of JanuaryJuly 31, 2022 was 6.15%6.18%.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE G – SEGMENT INFORMATION

The Company operates under 2two reportable segments based on the geographic locations of its subsidiaries:

The Company 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 Significant Accounting Policies” in the fiscal year-end financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed on June 30, 2021 with the Securities and Exchange Commission.10-K. The Company evaluates the performance of its segments and allocates resources to them based on operating profit, which is defined as income before investment income, interest expense and taxes. All acquired assets, including intangible assets, are included in the assets of both reporting segments.

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 condensed consolidated statements of operations or the condensed consolidated balance sheets for each of the periods (in thousands):

Total revenue recognized over time as POC and Passage of Title (“POT”) were approximately $11.8$8.0 million and $0.5$0.3 million, respectively, of the $12.2$8.2 million reported for the three months ended JanuaryJuly 31, 2022. Total revenue recognized over time as POC and POT were approximately $36.4$12.4 million and $1.7$0.6 million, respectively, of the $38.1 million reported for the nine months ended January 31, 2022. Total revenue recognized over time as POC and POT were approximately $10.8 million and $0.9 million, respectively, of the $11.7$13.0 million reported for the three months ended January 31, 2021. Total revenue recognized over time, as POC and POT were approximately $35.6 million and $3.0 million, respectively, for the nine months ended JanuaryJuly 31, 2021. The amounts by segment and product line were as follows:

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 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, 2022 and 2021, the Company acquired product from Morion in the aggregate amount of approximately $0 and $85,000, respectively. During the three months ended July 31, 2022 and 2021, 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. This investment of approximately $800,000 is included in other assets in the accompanying consolidated balance sheets. 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 three and nine months ended January 31, 2021, the Company acquired product from Morion in the aggregate amount of approximately $199,000 and $467,000, respectively. During the nine months ended January 31, 2022 and 2021, the Company received dividends from Morion in the amount of approximately $123,000 and $105,000, respectively, which is included in other income, net in the consolidated statements of operations as part of the FEI-NY segment.

Morion 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. As

Due to the current Russia-Ukraine conflict and resulting sanctions, the future status of February 24, 2022, Gazprombankthe Company’s equity investment in Morion is also subjectuncertain. In response to Directive 3 under Executive Order 14024, which contains similar restrictions on new extensionsthese conditions, in connection with the preparation of credit.the audited financial statements included in the Form 10-K, the Company impaired its investment in Morion in full. The impairment of $796,000 is included in other income (expense), net, in the Consolidated Statements of Operations for the fiscal year ended April 30, 2022. The likelihood of future sales to, purchases, and dividend payments from Morion is questionable.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to 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 JanuaryJuly 31, 2022 and April 30, 2021,2022, respectively, were as follows (in thousands):

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):