freqelec20241031

freqelec20241031_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 October 31, 2024

☐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, NY	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 December 11, 2024 – 9,611,441

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

TABLE OF CONTENTS

	Page No.
Part I. Financial Information:

Item 1 - Financial Statements:

Condensed Consolidated Balance Sheets – October 31, 2024 (unaudited) and April 30, 2024	3

Condensed Consolidated Statements of Operations and Comprehensive Income – Three and Six Months Ended October 31, 2024 and 2023 (unaudited)	4

Condensed Consolidated Statements of Cash Flows Six months ended October 31, 2024 and 2023 (unaudited)	5

Condensed Consolidated Statements of Changes in Stockholders’ Equity – Three and Six Months Ended October 31, 2024 and 2023 (unaudited)	6

Notes to Condensed Consolidated Financial Statements (unaudited)	7-12

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-18

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	19

Item 4 - Controls and Procedures	19

Part II. Other Information:

Item 1A - Risk Factors	21

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 5 - Other Information	21

Item 6 - Exhibits	21

Signatures	22

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except par value)

	October 31,			April 30,
	2024			2024
	(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents	$	9,698		$	18,320
Accounts receivable, net of allowances of $110 at October 31, 2024 and April 30, 2024		4,088			4,614
Contract assets		12,092			10,523
Inventories		25,480			23,431
Prepaid income taxes		12			37
Prepaid expenses and other		1,578			1,196
Total current assets		52,948			58,121
Property, plant, and equipment, net		6,274			6,438
Goodwill		617			617
Cash surrender value of life insurance		10,443			10,221
Right-of-use assets – operating leases		5,276			6,036
Restricted cash		1,342			945
Other assets		875			875
Total assets	$	77,775		$	83,253

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	1,330		$	2,348
Accrued liabilities		3,975			4,765
Loss provision accrual		244			404
Income taxes payable		-			-
Operating lease liability - current portion		1,301			1,640
Contract liabilities		22,659			21,639
Total current liabilities		29,509			30,796
Deferred compensation		8,011			8,088
Deferred taxes		19			8
Operating lease liability – non-current portion		4,044			4,545
Total liabilities		41,583			43,437

Stockholders’ equity:
Preferred stock - $1.00 par value; authorized 600 shares, no shares issued		-			-
Common stock - $1.00 par value; authorized 20,000 shares, 9,621 shares issued and 9,604 shares outstanding at October 31, 2024; 9,512 shares issued and 9,511 shares outstanding at April 30, 2024		9,617			9,512
Additional paid-in capital		41,683			50,334
Accumulated deficit		(14,943	)		(20,027	)
Common stock reacquired and held in treasury - at cost (13 shares at October 31, 2024 and 1 share at April 30, 2024)		(165	)		(3	)
Total stockholders’ equity		36,192			39,816
Total liabilities and stockholders’ equity	$	77,775		$	83,253

See accompanying notes to condensed consolidated financial statements.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2024			2023			2024			2023
Condensed Consolidated Statements of Operations
Revenues	$	15,820		$	13,575		$	30,898		$	25,984
Cost of revenues		8,201			9,245			16,580			16,786
Gross margin		7,619			4,330			14,318			9,198
Selling and administrative expenses		3,388			2,552			6,234			4,853
Research and development expenses		1,613			840			3,101			1,347
Operating income		2,618			938			4,983			2,998

Other income (expense):
Investment income (expense)		203			(106	)		427			(86	)
Interest expense		(27	)		(29	)		(53	)		(60	)
Other expense, net		(1	)		-			(1	)		-
Income before provision for income taxes		2,793			803			5,356			2,852
Provision for income taxes		139			6			272			13
Net income	$	2,654		$	797		$	5,084		$	2,839

Net income per common share:
Basic and diluted income per share	$	0.28		$	0.08		$	0.53		$	0.30

Weighted average shares outstanding:
Basic and diluted		9,585			9,399			9,562			9,392

See accompanying notes to condensed consolidated financial statements.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended October 31,
	2024			2023
Cash flows from operating activities:
Net income	$	5,084		$	2,839
Non-cash charges to earnings		2,534			2,191
Net changes in operating assets and liabilities		(5,266	)		(8,011	)
Net cash provided by (used in) operating activities		2,352			(2,981	)

Cash flows from investing activities:
Purchase of property, plant, and equipment, and other assets		(848	)		(360	)
Net cash used in investing activities		(848	)		(360	)

Cash flows from financing activities:
Payment of dividend		(9,567	)		-
Purchase of Treasury stock		(162	)		-
Net cash used in financing activities		(9,729	)		-

Net decrease in cash and cash equivalents and restricted cash		(8,225	)		(3,341	)

Cash and cash equivalents and restricted cash at beginning of period		19,265			12,049

Cash and cash equivalents and restricted cash at end of period	$	11,040		$	8,708


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	53		$	60
Income taxes	$	45			9

See accompanying notes to condensed consolidated financial statements.

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FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six months ended October 31, 2024 and 2023

(In thousands, except share data)

(Unaudited)

					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, 2024		9,511,560	$	9,512	$	50,334		$	(20,027	)		741	$	(3	)	$	-	$	39,816
Contribution of stock to 401(k) plan		26,457		26		215			-			-		-			-		241
Stock-based compensation expense		27,815		28		316			-			-		-			-		344
Shares withheld on employee taxes on vested equity awards		-		-		-			-			4,569		(62	)		-		(62	)
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price		1,819		2		(2	)		-			-		-			-		-
Dividends payable		-		-		(9,567	)		-			-		-			-		(9,567	)
Net income		-		-		-			2,430			-		-			-		2,430
Balance at July 31, 2024		9,567,651	$	9,568	$	41,296		$	(17,597	)		5,310	$	(65	)	$	-	$	33,202
Contribution of stock to 401(k) plan		17,577		17		195			-			-		-			-		212
Stock-based compensation expense		32,127		32		192			-			-		-			-		224
Shares withheld on employee taxes on vested equity awards		-		-		-			-			7,893		(100	)		-		(100	)
Dividends payable		-		-		9,567			-			-		-			-		9,567
Dividends paid		-		-		(9,567	)		-			-		-			-		(9,567	)
Net income		-		-		-			2,654			-		-			-		2,654
Balance at October 31, 2024		9,617,355	$	9,617	$	41,683		$	(14,943	)		13,203	$	(165	)	$	-	$	36,192

					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
Contribution of stock to 401(k) plan		12,885		13		75		-			-		-			-		88
Stock-based compensation expense		750		1		201		-			-		-			-		202
Net income		-		-		-		797			-		-			-		797
Balance at October 31, 2023		9,404,424	$	9,405	$	49,636	$	(22,782	)		741	$	(3	)	$	-	$	36,256

See accompanying notes to condensed consolidated financial statements.

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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 October 31, 2024 and the results of its operations, changes in stockholders’ equity for the three and six months ended October 31, 2024 and 2023, and cash flows for the six months ended October 31, 2024 and 2023. The April 30, 2024 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, 2024, filed on August 2, 2024 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.

NOTE B – EARNINGS PER SHARE

Reconciliation of the weighted average shares outstanding for basic and diluted income per share (“EPS”) for the three and six months ended October 31, 2024 and 2023, respectively, were as follows:

Periods ended October 31,

Three months

Six months

2024

2023

2024

2023

Weighted average shares outstanding:

Basic EPS shares outstanding (weighted average)

9,585,357

9,399,052

9,561,848

9,391,714

Effect of dilutive securities

Diluted EPS shares outstanding

9,585,357

9,399,052

9,561,848

9,391,714

** For the three and six months ended October 31, 2024 and 2023, dilutive securities are excluded from the calculation of EPS since the inclusion of such shares would be antidilutive. The exercisable shares excluded for the three and six months ended October 31, 2024 were 76,000 shares. The exercisable shares excluded for the three and six months ended October 31, 2023 were 97,000 shares.

On July 22, 2024 the Company’s Board of Directors declared a special cash dividend of $1.00 per share of common stock. The special dividend was paid on August 29, 2024, to stockholders of record as of the close of business on August 8, 2024. The total amount of the special dividend payment was approximately $9.6 million.

NOTE C – CONTRACT ASSETS AND LIABILITIES

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to accounts receivable when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied, and therefore, revenue has not been recognized. During the three and six months ended October 31, 2024, we recognized $8.3 million and $16.0 million, respectively, of our contract liabilities at April 30, 2024 as revenue. During the three and six months ended October 31, 2023, we recognized $4.4 million and $8.1 million, respectively, of our contract liabilities at April 30, 2023 as revenue. If contract losses are anticipated, a loss provision is recorded for the full amount of such losses when they are determinable. Contract losses for three and six months ended October 31, 2024 were approximately $0.2 million in both periods, offset by a loss reduction of approximately $0.3 million, mostly related to additional funding. Total contract losses for three and six months ended October 31, 2023 were approximately $1.4 million and $1.5 million, respectively. The liability for contract losses is presented as loss provision accrual within the consolidated balance sheets.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE D – EMPLOYEE BENEFIT PLANS

During the three and six months ended October 31, 2024, the Company made contributions of 17,577 shares and 44,034 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 six months ended October 31, 2023, the Company made contributions of 12,885 shares and 29,898 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 six months ended October 31, 2024, was approximately $140,000 and $283,000, respectively. Payments made related to deferred compensation, inclusive of approximately $26,000 and $53,000, respectively, of interest expense, were approximately $179,000 and $358,000 for the same periods. Deferred compensation expense charged to selling and administrative expenses during the three and six months ended October 31, 2023, was approximately $109,000 and $217,000, respectively. Payments made related to deferred compensation, inclusive of approximately $29,000 and $60,000, respectively, of interest expense were approximately $175,000 and $361,000 for the same periods.

NOTE E – INVENTORIES

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

	October 31, 2024		April 30, 2024
Raw materials and component parts	$	15,515	$	14,939
Work in progress		9,431		8,035
Finished goods		534		457
	$	25,480	$	23,431

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.

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 right-of-use (“ROU”) assets and liabilities recorded on the respective consolidated balance sheets as follows (in thousands):

	October 31, 2024		April 30, 2024
Assets
Operating lease ROU assets	$	5,276	$	6,036

Liabilities
Operating lease liabilities (short-term)		1,301		1,640
Operating lease liabilities (long-term)		4,044		4,545
Total lease liabilities	$	5,345	$	6,185

Total operating lease expense was $0.5 million and $0.9 million for the three and six months ended October 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 $0.9 million for the three and six months ended October 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.

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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The maturities of lease liabilities at October 31, 2024 are as follows:

Fiscal Year Ending April 30,
(in thousands)

Remainder of 2025	$	662
2026		1,362
2027		964
2028		1,262
2029		1,389
Thereafter		587
Total lease payments		6,226
Less imputed interest		(881	)
Present value of future lease payments		5,345
Less current obligations under leases		(1,301	)
Long-term lease obligations		4,044

As of October 31, 2024 and 2023, the weighted-average remaining lease term for all operating leases was 4.70 years and 5.27 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 October 31, 2024 and 2023, was 6.38% and 6.28%, respectively.

NOTE G – SEGMENT INFORMATION

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

(1)

FEI-NY – operates out of New York and its operations consist principally of precision time and frequency control products used in three principal markets: communication satellites (both commercial and U.S. Government-funded); terrestrial cellular telephone or other ground-based telecommunication stations; and other components and systems for the U.S. military.

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 U.S. market.

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.

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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). Investment income (expense), interest expense, and other expense, net, as reported in the Condensed Consolidated Statement of Operations and Comprehensive Income, are not allocated to or disclosed for each reportable segment and reconcile segment operating income (loss) to income before provision of income taxes. All acquired assets, including intangible assets, are included in the assets of the applicable reporting segment.

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):

	Periods ended October 31,
	Three months						Six months
	2024			2023			2024			2023
Revenues:
FEI-NY	$	11,518		$	9,271		$	22,494		$	18,762
FEI-Zyfer		4,559			4,756			8,831			8,023
less intersegment revenues		(257	)		(452	)		(427	)		(801	)
Consolidated revenues	$	15,820		$	13,575		$	30,898		$	25,984

Operating income:
FEI-NY	$	2,402		$	(231	)	$	3,779		$	1,249
FEI-Zyfer		253			1,484			1,393			2,163
less intersegment profit		164			(79	)		149			(140	)
Corporate		(201	)		(236	)		(338	)		(274	)
Consolidated operating income	$	2,618		$	938		$	4,983		$	2,998

	October 31, 2024			April 30, 2024
Identifiable assets:
FEI-NY	$	38,607		$	36,512
FEI-Zyfer		15,622			15,696
less intersegment balances		(88	)		(237	)
Corporate		23,634			31,282
Consolidated identifiable assets	$	77,775		$	83,253

Total revenue recognized over time as Percentage of Completion (“POC”) and Passage of Title (“POT”) was approximately $15.1 million and $0.7 million, respectively, of the $15.8 million reported for the three months ended October 31, 2024. Total revenue recognized over time as POC and POT was approximately $29.6 million and $1.3 million, respectively, of the $30.9 million reported for the six months ended October 31, 2024. Total revenue recognized over time as POC and POT was approximately $12.3 million and $1.3 million, respectively, of the $13.6 million reported for the three months ended October 31, 2023. Total revenue recognized over time as POC and POT was approximately $24.0 million and $2.0 million, respectively, of the $26.0 million reported for the six months ended October 31, 2023. The amounts by segment and product line were as follows (in thousands):

	Three Months Ended October 31,
	2024								2023
	POC		POT			Total			POC		POT			Total
	Revenue		Revenue			Revenue			Revenue		Revenue			Revenue
FEI-NY	$	10,842	$	676		$	11,518		$	7,894	$	1,377		$	9,271
FEI-Zyfer		4,282		277			4,559			4,402		354			4,756
Intersegment		-		(257	)		(257	)		-		(452	)		(452	)
Revenues	$	15,124	$	696		$	15,820		$	12,296	$	1,279		$	13,575

SEC Form 10-Q filed by Frequency Electronics Inc.