freqelec20221031

freqelec20221031_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, 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 December 14, 2022 – 9,343,717

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

TABLE OF CONTENTS

	Page No.
Part I. Financial Information:

Item 1 - Financial Statements:

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

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

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

Condensed Consolidated Statements of Changes in Stockholders’ Equity Three and Six Months Ended October 31, 2022 and 2021 (unaudited)	6-7

Notes to Condensed Consolidated Financial Statements (unaudited)	8-17

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-24

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	25

Item 4 - Controls and Procedures	25

Part II. Other Information:

Item 1A - Risk Factors	27

Item 6 - Exhibits	28

Signatures	29

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,
	2022			2022
	(UNAUDITED)			(Revised - See Note C)
ASSETS:
Current assets:
Cash and cash equivalents	$	10,120		$	11,561
Marketable securities		9,612			9,964
Accounts receivable, net of allowance for doubtful accounts of $111 at October 31, 2022 and April 30, 2022		4,855			4,291
Contract assets		9,473			8,857
Inventories, net		19,878			19,906
Prepaid income taxes		102			269
Prepaid expenses and other		1,208			1,162
Total current assets		55,248			56,010
Property, plant and equipment, at cost, net of accumulated depreciation and amortization		8,148			8,564
Goodwill		617			617
Cash surrender value of life insurance		10,060			9,855
Other assets		899			909
Right-of-Use assets – operating leases		8,104			8,805
Total assets	$	83,076		$	84,760

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable – trade	$	1,461		$	1,080
Accrued liabilities		3,339			3,696
Loss provision accrual		3,350			4,243
Operating lease liability, current portion		1,751			1,744
Contract liabilities		16,976			11,098
Total current liabilities		26,877			21,861
Deferred compensation		8,499			8,730
Deferred taxes		8			8
Operating lease liability – non-current		6,629			7,353
Other liabilities		124			120
Total liabilities		42,137			38,072
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, 9,334 shares issued and 9,333 shares outstanding at October 31, 2022; 9,298 shares issued and 9,297 shares outstanding at April 30, 2022		9,334			9,298
Additional paid-in capital		58,153			57,956
Accumulated deficit		(25,551	)		(20,120	)
Common stock reacquired and held in treasury - at cost (1 share at October 31, 2022 and April 30, 2022)		(6	)		(6	)
Accumulated other comprehensive income		(991	)		(440	)
Total stockholders’ equity		40,939			46,688
Total liabilities and stockholders’ equity	$	83,076		$	84,760

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands except per share data)

(Unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2022			2021			2022			2021
Condensed Consolidated Statements of Operations
Revenues	$	8,949		$	12,936		$	17,153		$	25,890
Cost of revenues		8,599			8,845			16,808			17,738
Gross margin		350			4,091			345			8,152
Selling and administrative expenses		2,034			2,411			4,026			6,805
Research and development expenses		599			1,377			1,709			2,732
Operating (loss) income		(2,283	)		303			(5,390	)		(1,385	)

Other income (expense):
Investment (expense) income		(12	)		98			24			191
Interest expense		(18	)		(20	)		(63	)		(40	)
Other income (expense), net		-			118			-			158
(Loss) income before provision for income taxes		(2,313	)		499			(5,429	)		(1,076	)
Provision for income taxes		1			2			2			2
Net (loss) income	$	(2,314	)	$	497		$	(5,431	)	$	(1,078	)

Net (loss) income per common share:
Basic and diluted (loss) income per share	$	(0.25	)	$	0.05		$	(0.58	)	$	(0.12	)

Weighted average shares outstanding:
Basic		9,326			9,256			9,317			9,246
Diluted		9,326			9,302			9,317			9,246


Condensed Consolidated Statements of Comprehensive (Loss) Income
Net (loss) income	$	(2,314	)	$	497		$	(5,431	)	$	(1,078	)

Unrealized loss on marketable securities:
Change in market value of marketable securities before reclassification, net of tax		(581	)		(157	)		(552	)		(72	)
Reclassification adjustment for realized gains (losses) included in net income, net of tax		16			-			1			(6	)
Total unrealized loss on marketable securities, net of tax		(565	)		(157	)		(551	)		(78	)

Comprehensive (loss) income	$	(2,879	)	$	340		$	(5,982	)	$	(1,156	)

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,
	2022			2021
Cash flows from operating activities:
Net loss	$	(5,431	)	$	(1,078	)
Non-cash charges to earnings		1,209			1,765
Net changes in operating assets and liabilities		3,756			974
Net cash (used in) provided by operating activities		(466	)		1,661

Cash flows from investing activities:
Proceeds on redemption of marketable securities		1,137			1,427
Purchase of marketable securities		(1,383	)		(1,164	)
Purchase of property, plant, and equipment, and other assets		(729	)		(1,108	)
Net cash used in investing activities		(975	)		(845	)


Net (decrease) increase in cash and cash equivalents		(1,441	)		816

Cash and cash equivalents at beginning of period		11,561			9,807

Cash and cash equivalents at end of period	$	10,120		$	10,623


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	36		$	40
Income Taxes	$	-			15

Cash refunded during the period for:
Income Taxes	$	176		$	-

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, 2022

(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, 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
Contribution of stock to 401(k) plan		18,632		18		89			-			-		-			-			107
Stock-based compensation expense		750		1		28			-			-		-			-			29
Other comprehensive loss, net of tax		-		-		-						-		-			(565	)		(565	)
Net loss		-				-			(2,314	)		-		-			-			(2,314	)
Balance at October 31, 2022		9,334,268	$	9,334	$	58,153		$	(25,551	)		1,375	$	(6	)	$	(991	)	$	40,939

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended October 31, 2021

(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, 2021		9,226,268	$	9,226	$	57,355		$	(11,457	)		1,375	$	(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
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	)		1,375	$	(6	)	$	370		$	54,112
Contribution of stock to 401(k) plan		10,779		11		100			-			-		-			-			111
Stock-based compensation expense		250		-		66			-			-		-			-			66
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price		6,278		6		(6	)		-			-		-			-			-
Other comprehensive loss, net of tax		-		-		-			-			-		-			(157	)		(157	)
Net income		-		-		-			497			-		-			-			497
Balance at October 31, 2021		9,264,326	$	9,264	$	57,693		$	(12,535	)		1,375	$	(6	)	$	213		$	54,629

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, 2022 and the results of its operations, changes in stockholders’ equity for the three and six months ended October 31, 2022 and 2021, and cash flows for the six months ended October 31, 2022 and 2021. The April 30, 2022 condensed consolidated balance sheet was derived from audited financial statements (see Revision of Previously Issued Financial Statements in Note C below). 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, 2022, filed on July 14, 2022 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

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. 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 financial results. For the six months ended October 31, 2022, the Company has been impacted by employee absenteeism related to direct or indirect effects of the COVID-19 pandemic, delays in the receipt of anticipated new contracts from customers 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 six months ended October 31, 2022. Management is 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 the Company is not able to estimate the potential adverse effects on its operations, financial condition, or liquidity for the remainder of fiscal year 2023. The Company has returned to essentially normal operations at its various locations. At its locations, the Company continues to follow federal and state guidelines with an emphasis on employee safety.

The Company faces various future COVID-19 related risks, and risks resulting from 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 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. For example, in the latter part of fiscal year 2021, the Company experienced some operation disruptions due to the need to vacate certain areas of the facilities for cleaning and disinfecting resulting from employees being potentially exposed to COVID-19 or following positive COVID-19 test results. Also, certain Company 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.

In addition to the impacts of the COVID-19 pandemic, the Company’s financial condition, liquidity, and future financial results may also be affected by other macroeconomic factors. For example, due to continuing geopolitical circumstances resulting in increased inflation, energy and commodity prices may continue escalating which may adversely affect the Company’s financial results.

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 six months ended October 31, 2022 and 2021, respectively, were as follows:

Periods ended October 31,

SEC Form 10-Q filed by Frequency Electronics Inc.