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 JulyJanuary 31, 20232024

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 September 11, 2023March 18, 2024 – 9,390,0469,487,342

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)

See accompanying notes to condensed consolidated financial statements.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (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 Months Ended Julyand Nine months ended January 31, 2023 and 20222024

(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, 2023

(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 JulyJanuary 31, 20232024 and the results of its operations, changes in stockholders’ equity for the three and nine months ended JulyJanuary 31, 20232024 and 2022,2023, and cash flows for the threenine months ended JulyJanuary 31, 20232024 and 2022.2023. The April 30, 2023 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, 2023 filed on July 27, 2023 with the Securities and 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 vendors continue to deliver materials with longer lead times due to COVID-19 related impacts to their workforces or their supply chains. These delays have impacted the Company’s production schedules, and increased costs associated with procurement of materials and services. The Company continues to monitor these and its other vendors and, if necessary, seek alternative suppliers, or, in certain cases, re-design products using alternative parts and materials.

NOTE B – EARNINGS (LOSS) PER SHARE

Reconciliation of the weighted average shares outstanding for basic and diluted income (loss) per share (“EPS”) for the three and nine months ended JulyJanuary 31, 20232024 and 2022,2023, respectively, were as follows:

** For the three and nine months ended JulyJanuary 31, 20232024 and 2022,2023, dilutive securities are excluded from the calculation of earnings per shareEPS since the inclusion of such shares would be antidilutive. The exercisable shares excluded for the three and nine months ended JulyJanuary 31, 2024 were 86,000 shares. The exercisable shares excluded for the three and nine months ended January 31, 2023 and 2022 were 155,000 options and 357,125 options, respectively.243,625 shares.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE C – CONTRACT (LIABILITIES) ASSETS

At JulyJanuary 31, 20232024 and April 30, 2023, contract assets and contract liabilities, consisted of the following (in thousands):

Contract assets represent revenue recognized on long-term contracts that have not been billed at the balance sheet dates, and contract liabilities represent a liability for amounts billed in excess of the revenue recognized, contract liabilities.recognized. Amounts are billed to customers pursuant to contract terms. In general, the recorded amounts will be billed and collected or revenue recognized within twelve months of the balance sheet dates. Revenue on these long-term contracts are accounted for over time using the percentage-of-completion (“POC”) method. Fluctuations of contract assets and contract liabilities are due to the timing of funding, amounts billed and revenue recorded. Contract assets increased $1.0$0.6 million during the threenine months ended JulyJanuary 31, 2023,2024, primarily due to revenue recognized during the threenine months ended JulyJanuary 31, 20232024 for which we have not yet billed our customers. Contract liabilities increaseddecreased $0.2 million during the threenine months ended JulyJanuary 31, 2023,2024, primarily due to payments received in excess of revenue recognized on these performance obligations. During the three and nine months ended JulyJanuary 31, 2023,2024, we recognized $3.7$8.6 million and $12.3 million, respectively, of our contract liabilities at April 30, 2023 as revenue. During the three and nine months ended JulyJanuary 31, 2022,2023, we recognized $2.5$3.6 million and $6.1 million, respectively, of our contract liabilities at April 30, 2022 as revenue. During the three and nine months ended JulyJanuary 31, 2023 and 2022,2024, revenue recognized under POC contracts was approximately $11.7$12.9 million and $7.9$37.0 million, respectively. During the three and nine months ended January 31, 2023, revenue recognized under POC contracts was approximately $10.2 million and $26.8 million, respectively. If contract losses are anticipated, a loss provision is recorded for the full amount of such losses when they are determinable. Total contract losses, recorded in cost of revenue,revenues, for the three and nine months ended January 31, 2024 were approximately $0.6 million and $2.1 million, respectively. Contract losses of approximately $0.5 million, offset by a loss reduction of approximately $1.0 million, mostly related to additional funding, were recorded for the three months ended JulyJanuary 31, 2023 and 20222023. Contract losses of approximately $1.5 million were approximately $139,000 and $1.2 million, respectively.recorded for the nine months ended January 31, 2023.

NOTE D – EMPLOYEE BENEFIT PLANS

During the three and nine months ended JulyJanuary 31, 2024, the Company made contributions of 5,364 and 35,262 shares, respectively, of its common stock to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code. During the three and nine months ended January 31, 2023, the Company made contributions of 17,0137,597 and 42,937 shares, respectively, of its common stock to the Company’s profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code. Such contributions are in accordance with the Company’s discretionary match of employee voluntary contributions to this plan.

Deferred compensation expense charged to selling and administrative expenses during the three and nine months ended JulyJanuary 31, 2023, were2024, was approximately $138,000, inclusive of approximately $38,000 of interest expense.$109,000 and $325,000, respectively. Payments made related to deferred compensation, inclusive of approximately $28,000 and $88,000, respectively, of interest expense, were approximately $185,000$175,000 and $536,000 for the same period.periods. Deferred compensation expense charged to selling and administrative expenses during the three and nine months ended JulyJanuary 31, 2022, were2023, was approximately $127,000, inclusive of approximately $17,000 of interest expense.$110,000 and $329,000, respectively. Payments made related to deferred compensation, inclusive of approximately $18,000 and $54,000, respectively, of interest expense were approximately $161,000$159,000 and $479,000 for the same period.periods.

NOTE E – INVENTORIES

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

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)(“ROU”) operating lease asset and liability when it is reasonably certain we will exercise these options. As of JulyJanuary 31, 20232024, 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”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 JulyJanuary 31, 20232024, 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 JulyJanuary 31, 20232024, 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):

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)

Total operating lease expense was $0.5 million and $1.4 million for the three and nine months ended January 31, 2024, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations. Total operating lease expense was $0.5 million and $1.4 million for the three and nine months ended January 31, 2023, respectively, the majority of which is included in cost of revenues and the remaining amount in selling and administrative expenses on the unaudited condensed consolidated statements of operations.

The table below reconciles the undiscounted cash flows for each of the first four fiscal years and total of the remaining fiscal years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of JulyJanuary 31, 2023:2024:

As of JulyJanuary 31, 20232024 and 2022,2023, the weighted-average remaining lease term for all operating leases was 5.435.12 years and 6.155.79 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 JulyJanuary 31, 2024 and 2023, was 6.31% and 2022, was 6.23% and 6.18%6.21%, respectively.

NOTE G – SEGMENT INFORMATION

The Company operates under two 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.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Total revenue recognized over time as POC and Passage of Title (“POT”) was approximately $11.7$12.9 million and $0.7$0.8 million, respectively, of the $12.4$13.7 million reported for the three months ended JulyJanuary 31, 2024. Total revenue recognized over time as POC and POT was approximately $37.0 million and $2.7 million, respectively, of the $39.7 million reported for the nine months ended January 31, 2024. Total revenue recognized over time as POC and POT was approximately $10.2 million and $0.4 million, respectively, of the $10.6 million reported for the three months ended January 31, 2023. Total revenue recognized over time as POC and POT was approximately $8.0$26.8 million and $0.3$1.0 million, respectively, of the $8.2$27.8 million reported for the threenine months ended JulyJanuary 31, 2022.2023. The amounts by segment and product line were as follows (in thousands):

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of January 31, 2024, the Company’s consolidated unsatisfied performance obligations were approximately $67 million compared to $57 million at April 30, 2023, the end of fiscal year 2023.  Approximately 74% of these unsatisfied performance obligations are expected to be realized in the next twelve months. The Company excludes from the unsatisfied performance obligations any contracts or awards for which it has not received authorization to proceed.

NOTE H – INVESTMENT IN MORION, INC.

The Company has an investment in Morion, Inc. (“Morion”), a privately held Russian company, which manufactures high precision quartz resonators and crystal oscillators. The Company has also licensed certain technology to Morion. During the three and nine months ended JulyJanuary 31, 2023 and 2022,2024, the Company did not acquire anyacquired product from Morion.Morion in the aggregate amount of approximately $89,000 for both periods. During the three and nine months ended JulyJanuary 31, 2023, and 2022, the Company did not receive dividendsacquired product from Morion in the aggregate amount of approximately $55,000 and $86,000, respectively.

The Company’s investment consists of 4.6% of Morion’s outstanding shares, accordingly, the Company accounts for its investment in Morion on the cost basis. Morion is a less than wholly owned subsidiary of Gazprombank, a state-owned Russian bank. 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.on the SSI list, per Directive 1 under Executive Order 13662. The U.S. Russian Harmful Foreign Activities sanctions regime has since 2021 included a variety of blocking and other sanctions pursuant to Executive Order 14024. On February 24, 2022, Gazprombank was designated per Directive 3 under Executive Order 14024, which imposes restrictions on dealing in new debt or equity of designated entities and their property interests.

Due to the current Russia-Ukraine conflict and resulting sanctions, the future status of the Company’s equity investment in Morion is uncertain. In response to these conditions, in connection with the preparation of the audited financial statements included in the Form 10-K for the fiscal year ended April 30, 2022, as amended, the Company impaired its investment in Morion in full. The likelihood of futureFuture sales to, purchases from, and dividend payments from Morion is remote.are expected to be limited or non-existent going forward.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE I – RESTRICTED CASH

As of January 31, 2024 restricted cash consisted of approximately $941,000 related to a letter of credit required for contractual restrictions during the period of performance for one of the Company’s contracts. There was no restricted cash in the prior fiscal year. Restricted cash is classified as current or non-current based on the remaining performance period of the contract.

A reconciliation of cash and cash equivalents and restricted cash from the condensed consolidated balance sheets to the condensed consolidated statements of cash flows is shown below (in thousands):

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2017,November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04,2023-07, Intangibles – Goodwill and OtherSegment Reporting (Topic 350)280): Simplifying the Test for Goodwill Impairment Improvements to Reportable Segment Disclosures(“ (“ASU 2017-04”2023-07”), which simplifies how an entity isexpands on the 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 valuedisclosure 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, 2022, with early adoption permitted. ASU 2017-04 was adopted, effective May 1, 2023, with no material impact to the consolidated 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 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.incremental segment information. The new guidance is effective for fiscal years beginning after December 15, 2022. ASU 2016-13 was adopted, effective May 1, 2023, and interim periods within fiscal years beginning after December 15, 2024, with no material impactearly adoption permitted. The Company expects the new standard to thehave an immaterial effect on its consolidated financial statements.statements when adopted in fiscal year 2025.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires companies to annually disclose categories in the effective tax rate reconciliation and additional information about income taxes paid. The new guidance is effective for annual periods beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company expects the new standard to have an immaterial effect on its consolidated financial statements when adopted in fiscal year 2025.

NOTE JK – CREDIT FACILITY

As of JulyJanuary 31, 2023,2024, the Company neither had noany borrowings nor any borrowing capacity pursuant to a credit facility. As of April 30, 2023, the Company retired its advisory credit arrangement with UBS Bank USA. Prior to retiring the advisory credit arrangement, no borrowings were made during fiscal 2023.

NOTE KL – DEFERRED INCOME TAXES

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

As required by the authoritative guidance on accounting for income taxes, we evaluate the realization of deferred tax assets on 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. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will 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 JulyJanuary 31, 2023,2024, and April 30, 2023, the Company maintained a full valuation allowance against its deferred tax assets. If these estimates and assumptions change in the future, the Company may be required to adjust its existing valuation allowance resulting in changes to deferred income tax expense.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

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

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

The statements in this quarterly reportQuarterly Report on Form 10-Q regarding future earnings and operations and other statements relating to the future constitute “forward-looking” statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include but are not limited to, 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, including the U.S government, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, competitive developments, changes in manufacturing and transportation costs, the availability of capital, and the outcome of any litigation and arbitration proceedings. The factors listed above are not exhaustive. Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2023 (the “Form 10-K”) include additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict 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 as a prediction of actual results. Any or all of the forward-looking statements contained in this Form 10-Q and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, 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. EachBoth of these areas requiresrequire the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory and the market value of its products. Changes in estimates can have a material impact on the Company’s financial position and results of operations. The Company’s significant accounting policies did not change during the three and nine months ended JulyJanuary 31, 2023.2024.

Revenue Recognition

Revenues are reported in operating results predominantly over time using 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 revenues 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 rate (“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 used in evaluating the financial information for certain contracts to determine an appropriate budget and estimated cost. The Company evaluates this information continuously and bases its judgments on historical experience, design specifications, and expected costs for material and labor.

InventoryInventories

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-downs are based upon management’s experience and estimates for future business. Any changes arising from revised estimates are reflected in cost of revenues in the period the revision is made.

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

RESULTS OF OPERATIONS

The table below sets forth for the three and nine months ended JulyJanuary 31, 20232024 and 2022,2023, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements: