freqelec20220731

freqelec20220731_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, 2022

☐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 13, 2022 – 9,313,509

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

TABLE OF CONTENTS

	Page No.
Part I. Financial Information:

Item 1 - Financial Statements:

Condensed Consolidated Balance Sheets – July 31, 2022 (unaudited) and April 30, 2022	3

Condensed Consolidated Statements of Operations and Comprehensive Loss Three Months Ended July 31, 2022 and 2021 (unaudited)	4

Condensed Consolidated Statements of Cash Flows Three Months Ended July 31, 2022 and 2021 (unaudited)	5

Condensed Consolidated Statements of Changes in Stockholders’ Equity Three Months Ended July 31, 2022 and 2021 (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	16-22

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	23

Item 4 - Controls and Procedures	23

Part II. Other Information:

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,
	2022			2022
	(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents	$	7,246		$	11,561
Marketable securities		10,221			9,964
Accounts receivable, net of allowance for doubtful accounts of $111 at July 31, 2022 and April 30, 2022		3,819			4,291
Contract assets		11,750			9,977
Inventories, net		19,752			19,906
Prepaid income taxes		265			269
Prepaid expenses and other		1,349			1,162
Total current assets		54,402			57,130
Property, plant and equipment, at cost, net of accumulated depreciation and amortization		8,456			8,564
Goodwill		617			617
Cash surrender value of life insurance		10,003			9,855
Other assets		900			909
Right-of-Use assets – operating leases		8,455			8,805
Total assets	$	82,833		$	85,880

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable – trade	$	1,232		$	1,080
Accrued liabilities		3,389			3,696
Loss provision accrual		4,290			4,243
Operating lease liability, current portion		1,750			1,744
Contract liabilities		12,837			12,218
Total current liabilities		23,498			22,981
Deferred compensation		8,532			8,730
Deferred taxes		8			8
Operating lease liability – non-current		6,992			7,353
Other liabilities		121			120
Total liabilities		39,151			39,192
Commitments and contingencies (Note M)
Stockholders’ equity:
Preferred stock - $1.00 par value; authorized 600 shares, no shares issued		-			-
Common stock - $1.00 par value; authorized 20,000 shares, 9,315 shares issued and 9,314 shares outstanding at July 31, 2022; 9,298 shares issued and 9,297 shares outstanding at April 30, 2022		9,315			9,298
Additional paid-in capital		58,036			57,956
Accumulated deficit		(23,237	)		(20,120	)
Common stock reacquired and held in treasury - at cost (1 share at July 31, 2022 and April 30, 2022)		(6	)		(6	)
Accumulated other comprehensive loss		(426	)		(440	)
Total stockholders’ equity		43,682			46,688
Total liabilities and stockholders’ equity	$	82,833		$	85,880

See accompanying notes to condensed consolidated financial statements.

	Three Months Ended July 31,
	2022			2021

Revenues	$	8,204		$	12,955
Cost of revenues		8,209			8,893
Gross margin		(5	)		4,062
Selling and administrative expenses		1,992			4,394
Research and development expenses		1,110			1,355
Operating loss		(3,107	)		(1,687	)

Other income (expense):
Investment income		36			93
Interest expense		(45	)		(20	)
Other income (expense), net		-			40
Loss before provision for income taxes		(3,116	)		(1,574	)
Provision for income taxes		1			1
Net loss	$	(3,117	)	$	(1,575	)

Net loss per common share:
Basic and diluted loss per share	$	(0.33	)	$	(0.17	)

Weighted average shares outstanding:
Basic and diluted		9,308			9,193

Condensed Consolidated Statements of Comprehensive Loss
Net loss	$	(3,117	)	$	(1,575	)

Unrealized gain (loss) on marketable securities:
Change in market value of marketable securities before reclassification, net of tax		(2	)		85
Reclassification adjustment for realized gains included in net income, net of tax		16			(6	)
Total unrealized gain on marketable securities, net of tax		14			79

Comprehensive loss	$	(3,103	)	$	(1,496	)

					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

	July 31, 2022			April 30, 2022
	(in thousands)
Contract Assets	$	11,750		$	9,977
Contract Liabilities		(12,837	)		(12,218	)
Net (liability) asset	$	(1,087	)	$	(2,241	)

	Classification	July 31, 2022		April 30, 2022
		(unaudited)
Assets
Operating lease ROU assets	ROU assets - operating leases	$	8,455	$	8,805

Liabilities
Operating lease liabilities (short-term)	Operating lease liability		1,750		1,744
Operating lease liabilities (long-term)	Operating lease liability - non-current		6,992		7,353
Total lease liabilities		$	8,742	$	9,097

Fiscal Year Ending April 30,
(in thousands)

Remainder of 2023	$	1,303
2024		1,993
2025		1,832
2026		1,317
2027		937
Thereafter		3,239
Total lease payments		10,621
Less imputed interest		(1,879	)
Present value of future lease payments		8,742
Less current obligations under leases		(1,750	)
Long-term lease obligations		6,992

Operating (loss) income:
FEI-NY	$	(2,589	)	$	(1,011	)
FEI-Zyfer		(438	)		33
less intersegment revenues		-			(20	)
Corporate		(80	)		(689	)
Consolidated operating loss	$	(3,107	)	$	(1,687	)

	July 31, 2022			April 30, 2022
Identifiable assets:
FEI-NY	$	42,433		$	42,008
FEI-Zyfer		10,743			10,522
less intersegment balances		(126	)		(126	)
Corporate		29,783			33,476
Consolidated identifiable assets	$	82,833		$	85,880

	July 31, 2022
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Fixed income securities	$	10,647	$	39	$	(465	)	$	10,221

	April 30, 2022
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Fixed income securities	$	10,403	$	23	$	(462	)	$	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, 2022
Fixed Income Securities	$	2,138	$	(82	)	$	5,610	$	(383	)	$	7,748	$	(465	)

April 30, 2022
Fixed Income Securities	$	2,349	$	(146	)	$	5,573	$	(316	)	$	7,922	$	(462	)

Current	$	3,261
Due after one year through five years		5,676
Due after five years		1,710
	$	10,647

	July 31, 2022		April 30, 2022
	(in thousands)
Raw Materials and Component Parts	$	11,722	$	11,683
Work in Progress		7,739		7,746
Finished Goods		291		477
	$	19,752	$	19,906

	Three Months Ended July 31,
	2022								2021
	(in thousands)								(in thousands)
	POC		POT			Total			POC		POT			Total
	Revenue		Revenue			Revenue			Revenue		Revenue			Revenue
FEI-NY	$	6,278	$	576		$	6,854		$	9,601	$	561		$	10,162
FEI-Zyfer		1,674		58			1,732			2,801		335			3,136
Intersegment		-		(382	)		(382	)		-		(343	)		(343	)
Revenue	$	7,952	$	252		$	8,204		$	12,402	$	553		$	12,955

	Three Months Ended July 31,
	(in thousands)
	2022		2021
Revenues by Product Line:
Satellite Revenue	$	3,476	$	6,741
Government Non-Space Revenue		4,064		5,490
Other Commercial & Industrial Revenue		664		724
Consolidated revenues	$	8,204	$	12,955

	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	2022			2021			Change
FEI-NY	$	6,854		$	10,162		$	(3,308	)	(32.6	)%
FEI-Zyfer		1,732			3,136			(1,404	)	(44.8	)
Intersegment revenues		(382	)		(343	)		(39	)	11.4
	$	8,204		$	12,955		$	(4,751	)	(36.7	)%

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, 2022 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).

September 14, 2022	FREQUENCY ELECTRONICS, INC.


	By:	/s/ Thomas McClelland
		Thomas McClelland
		Interim President and Chief Executive Officer and Chief Scientist (Principal Executive Officer)


	By:	Steven L. Bernstein
		Steven L. Bernstein
		Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Frequency Electronics Inc.