freqelec20210731

freqelec20210731_10q.htm

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 July 31, 2021

☐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)

Delaware	11-1986657
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

55 CHARLES LINDBERGH BLVD., MITCHEL FIELD, N.Y.	11553
(Address of principal executive offices)	(Zip Code)

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

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock (par value $1.00 per share)	FEIM	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller Reporting Company ☒
Emerging growth company ☐

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 10, 2021 – 9,245,940

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

TABLE OF CONTENTS

	Page No.
Part I. Financial Information:

Item 1 - Financial Statements:

Condensed Consolidated Balance Sheets – July 31, 2021 (unaudited) and April 30, 2021	3

Condensed Consolidated Statements of Operations and Comprehensive Loss Three Months Ended July 31, 2021 and 2020 (unaudited)	4

Condensed Consolidated Statements of Cash Flows Three Months Ended July 31, 2021 and 2020 (unaudited)	5

Condensed Consolidated Statements of Changes in Stockholders’ Equity Three Months Ended July 31, 2021 and 2020 (unaudited)	6

Notes to Condensed Consolidated Financial Statements (unaudited)	7-15

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-21

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	22

Item 4 - Controls and Procedures	22

Part II. Other Information:

Item 1 – Legal Proceedings	23

Item 6 - Exhibits	24

Signatures	25

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands except par value)

	July 31,			April 30,
	2021			2021
	(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents	$	8,901		$	9,807
Marketable securities		9,964			10,313
Accounts receivable, net of allowance for doubtful accounts of $111 at July 31, 2021 and April 30, 2021		9,189			5,515
Costs and estimated earnings in excess of billings, net		-			1,948
Inventories, net		20,073			19,661
Prepaid income taxes		451			444
Cash surrender value of life insurance - current		6,000			-
Prepaid expenses and other		956			991
Total current assets		55,534			48,679
Property, plant and equipment, at cost, net of accumulated depreciation and amortization		9,459			9,612
Goodwill		617			617
Cash surrender value of life insurance, net of current portion		9,646			15,396
Other assets		1,875			1,939
Right-of-Use assets – operating leases		9,433			9,773
Total assets	$	86,564		$	86,016

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable – trade	$	1,307		$	1,080
Accrued liabilities		5,221			5,245
Loss provision accrual		1			57
Operating lease liability		1,814			1,715
Billings in excess of costs and estimated earnings, net		1,754			-
Deferred compensation - current		5,325			-
Total current liabilities		15,422			8,097
Deferred compensation		8,982			14,017
Deferred taxes		8			8
Operating lease liability – non-current		7,922			8,366
Other liabilities		118			119
Total liabilities		32,452			30,607
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, 9,247 shares issued and 9,246 shares outstanding at July 31, 2021; 9,226 shares issued and 9,225 shares outstanding at April 30, 2021		9,247			9,226
Additional paid-in capital		57,533			57,355
Accumulated deficit		(13,032	)		(11,457	)
Common stock reacquired and held in treasury - at cost (1 share at July 31, 2021 and 1 share at April 30, 2021)		(6	)		(6	)
Accumulated other comprehensive income		370			291
Total stockholders’ equity		54,112			55,409
Total liabilities and stockholders’ equity	$	86,564		$	86,016

See accompanying notes to condensed consolidated financial statements.

	Three Months Ended July 31,
	2021			2020
Condensed Consolidated Statements of Operations
Revenues	$	12,955		$	12,951
Cost of revenues		8,893			8,863
Gross margin		4,062			4,088
Selling and administrative expenses		4,394			3,228
Research and development expenses		1,355			1,197
Operating loss		(1,687	)		(337	)

Other income (expense):
Investment income		93			107
Interest expense		(20	)		(39	)
Other income (expense), net		40			16
Loss before provision for income taxes		(1,574	)		(253	)
Provision for income taxes		1			9
Net loss	$	(1,575	)	$	(262	)

Net loss per common share:
Basic and diluted loss per share	$	(0.17	)	$	(0.03	)

Weighted average shares outstanding:
Basic and diluted		9,193			9,139

Condensed Consolidated Statements of Comprehensive Loss
Net loss	$	(1,575	)	$	(262	)

Unrealized gain (loss) on marketable securities:
Change in market value of marketable securities before reclassification, net of tax		85			173
Reclassification adjustment for realized gains included in net income, net of tax		(6	)		(2	)
Total unrealized gain on marketable securities, net of tax		79			171

Comprehensive loss	$	(1,496	)	$	(91	)

					Additional					Treasury stock					Accumulated other
	Common Stock				paid in		Accumulated			(at cost)					comprehensive
	Shares		Amount		capital		Deficit			Shares		Amount			Income (loss)		Total
Balance at April 30, 2021		9,226,268	$	9,226	$	57,355	$	(11,457	)		1,376	$	(6	)	$	291	$	55,409
Contribution of stock to 401(k) plan		13,251		13		117		-			-		-			-		130
Stock-based compensation expense		7,500		8		61		-			-		-			-		69
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price		-		-		-		-			-		-			-		-
Other comprehensive income, net of tax		-		-		-		-			-		-			79		79
Net loss		-		-		-		(1,575	)		-		-			-		(1,575	)
Balance at July 31, 2021		9,247,019	$	9,247	$	57,533	$	(13,032	)		1,376	$	(6	)	$	370	$	54,112

	July 31, 2021			April 30, 2021
	(In thousands)
Costs and estimated earnings in excess of billings	$	11,083		$	12,640
Billings in excess of costs and estimated earnings		(12,837	)		(10,692	)
Net (liability) asset	$	(1,754	)	$	1,948

	Classification	July 31, 2021		April 30, 2021
		(unaudited)
Assets
Operating lease ROU assets	Right-of-Use assets - operating leases	$	9,433	$	9,773

Liabilities
Operating lease liabilities (short-term)	Operating lease liability		1,814		1,715
Operating lease liabilities (long-term)	Operating lease liability - non-current		7,922		8,366
Total lease liabilities		$	9,736	$	10,081

Fiscal Year Ending July 31,
(in thousands)

Remainder of 2022	$	1,267
2023		1,837
2024		1,849
2025		1,723
2026		1,317
Thereafter		4,175
Total lease payments		12,168
Less imputed interest		(2,432)
Present value of future lease payments		9,736
Less current obligations under leases		(1,814)
Long-term lease obligations		7,922

Operating (loss) income:
FEI-NY	$	(1,011	)	$	(623	)
FEI-Zyfer		33			361
less intersegment revenues		(20	)		-
Corporate		(689	)		(75	)
Consolidated operating loss	$	(1,687	)	$	(337	)

	July 31, 2021		April 30, 2021
Identifiable assets:
FEI-NY	$	37,111	$	34,869
FEI-Zyfer		12,233		12,888
less intersegment balances		-		-
Corporate		37,220		38,259
Consolidated identifiable assets	$	86,564	$	86,016

	July 31, 2021
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Fixed income securities	$	9,594	$	432	$	(62	)	$	9,964

	Less than 12 months					12 Months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
July 31, 2021
Fixed Income Securities	$	1,390	$	(26	)	$	859	$	(36	)	$	2,249	$	(62	)

April 30, 2021
Fixed Income Securities	$	1,793	$	(52	)	$	614	$	(50	)	$	2,407	$	(102	)

Current	$	3,368
Due after one year through five years		3,758
Due after five years		2,468
	$	9,594

	July 31, 2021		April 30, 2021
	(In thousands)
Raw Materials and Component Parts	$	12,466	$	12,386
Work in Progress		6,956		6,259
Finished Goods		651		1,016
	$	20,073	$	19,661

	Three Months Ended July 31,
	2021								2020
	(In thousands)								(In thousands)
	POC		POT			Total			POC			POT			Total
	Revenue		Revenue			Revenue			Revenue			Revenue			Revenue
FEI-NY	$	9,601	$	561		$	10,162		$	8,622		$	1,217		$	9,839
FEI-Zyfer		2,801		335			3,136			3,038			884			3,922
Intersegment		-		(343	)		(343	)		(9	)		(801	)		(810	)
Revenue	$	12,402	$	553		$	12,955		$	11,651		$	1,300		$	12,951

	Three Months Ended July 31,
	(in thousands)
	2021		2020
Revenues by Product Line:
Satellite Revenue	$	6,741	$	6,651
Government Non-Space Revenue		5,490		5,335
Other Commercial & Industrial Revenue		724		965
Consolidated revenues	$	12,955	$	12,951

	Level 1	Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

	Level 2	Inputs to the valuation methodology include: -Quoted prices for similar assets or liabilities in active markets; -Quoted prices for identical or similar assets or liabilities in inactive markets; -Inputs other than quoted prices that are observable for the asset or liability; and -Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

	Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

	Three months ended July 31,
	(in thousands)
Segment	2021			2020			Change
FEI-NY	$	10,162		$	9,839		$	323		3.3	%
FEI-Zyfer		3,136			3,922			(786	)	(20.0	)
Intersegment revenues		(343	)		(810	)		467		(57.7	)
	$	12,955		$	12,951		$	4		0.0	%

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

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

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

101-	The following materials from the Frequency Electronics, Inc. Quarterly Report on Form 10-Q for the quarter ended July 31, 2021 formatted in eXtensible Business Reporting Language (XBRL): (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within Inline XBRL document.

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

SEC Form 10-Q filed by Frequency Electronics, Inc.