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, 2020

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)

 

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 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 as of September 10, 2020 – 9,162,566

 

 

 

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

Page No.

Part I. Financial Information:

 

 

 

Item 1 - Financial Statements:

 

 

 

Condensed Consolidated Balance Sheets – July 31, 2020 (unaudited) and April 30, 2020

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss Three Months Ended July 31, 2020 and 2019 (unaudited)

4

 

 

Condensed Consolidated Statements of Cash Flows Three Months Ended July 31, 2020 and 2019 (unaudited)

5

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity Three Months Ended July 31, 2020 and 2019 (unaudited)

6

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7-16

 

 

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

17-22

 

 

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

23

 

 

Item 4 - Controls and Procedures

23

 

 

Part II. Other Information:

 

 

 

Item 1 – Legal Proceedings

24

   

Item 6 - Exhibits

25

 

 

Signatures

26

 

 

 

 

 

 

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,

 
   

2020

   

2020

 
   

(UNAUDITED)

         

ASSETS:

               

Current assets:

               

Cash and cash equivalents

  $ 2,431     $ 3,808  

Marketable securities

    10,011       10,570  

Accounts receivable, net of allowance for doubtful accounts of $183 at July 31, 2020

and April 30, 2020

    6,201       4,392  

Costs and estimated earnings in excess of billings, net

    6,932       6,953  

Inventories, net

    21,683       22,958  

Prepaid income taxes

    525       849  

Prepaid expenses and other

    1,850       1,705  

Total current assets

    49,633       51,235  

Property, plant and equipment, at cost, net of accumulated depreciation and amortization

    10,731       11,267  

Goodwill

    617       617  

Cash surrender value of life insurance

    14,964       14,790  

Other assets

    2,453       2,503  

Right-of-Use assets – operating leases

    10,546       10,864  

Total assets

  $ 88,944     $ 91,276  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

               

Current liabilities:

               

Accounts payable – trade

  $ 1,461     $ 1,424  

Accrued liabilities

    3,924       3,982  

Loss provision accrual

    519       748  

Operating lease liability

    1,822       1,869  

Current debt

    3,012       4,965  

Total current liabilities

    10,738       12,988  

Deferred compensation

    14,334       14,258  

Deferred taxes

    8       8  

Operating lease liability – non-current

    9,172       9,444  

Deferred rent and other liabilities

    357       342  

   Total liabilities

    34,609       37,040  

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, 9,164 shares issued and 9,160 shares outstanding at July 31, 2020; 9,121 shares outstanding at April 30, 2020

    9,164       9,164  

Additional paid-in capital

    56,927       56,914  

Accumulated deficit

    (12,399

)

    (12,137

)

      53,692       53,941  

Common stock reacquired and held in treasury -

at cost (4 shares at July 31, 2020 and 43 shares at April 30, 2020)

    (18

)

    (195

)

Accumulated other comprehensive income

    661       490  

Total stockholders’ equity

    54,335       54,236  

Total liabilities and stockholders’ equity

  $ 88,944     $ 91,276  

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended July 31,

(In thousands except per share data)

(Unaudited)

 

   

2020

   

2019

 

Condensed Consolidated Statements of Operations

               

Revenues

  $ 12,951     $ 12,554  

Cost of revenues

    8,863       8,601  

Gross margin

    4,088       3,953  

Selling and administrative expenses

    3,228       2,453  

Research and development expense

    1,197       2,280  

Operating loss

    (337

)

    (780

)

                 

Other income (expense):

               

Investment income

    107       177  

Interest expense

    (39

)

    (24

)

Other income (expense), net

    16       56  

Loss before provision for income taxes

    (253

)

    (571

)

Provision for income taxes

    9       20  

Net loss

  $ (262

)

  $ (591

)

                 

Net loss per common share:

               

Basic and diluted loss per share

  $ (0.03

)

  $ (0.07

)

                 

Weighted average shares outstanding:

               

Basic and diluted

    9,139       9,001  
                 

Condensed Consolidated Statements of Comprehensive Loss

               

Net loss

  $ (262

)

  $ (591

)

                 

Unrealized gain (loss) on marketable securities:

               

Change in market value of marketable securities before

 reclassification, net of tax

    173       135  

Reclassification adjustment for realized gains included in

 net income, net of tax

    (2 )     (1

)

Total unrealized gain on marketable securities, net of tax

    171       134  
                 

Comprehensive loss

  $ (91

)

  $ (457

)

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended July 31,

(In thousands)

(Unaudited)

 

   

2020

   

2019

 

Cash flows from operating activities:

               

Net loss

  $ (262

)

  $ (591

)

Non-cash charges to earnings

    1,205       2,506  

Net changes in operating assets and liabilities

    (881

)

    (1,762

)

   Net cash provided by operating activities

    62       153  
                 

Cash flows from investing activities:

               

Proceeds on redemption of marketable securities

    725       750  

Purchase of marketable securities

    -       (1,435

)

Purchase of fixed assets and other assets

    (211

)

    (912

)

Net cash provided by (used in) investing activities

    514       (1,597

)

                 

Net cash used in financing activities:

               

Repayment of PPP Loan

    (4,965

)

    -  

Proceeds from UBS line of credit

    3,012       -  
      (1,953

)

    -  
                 

Net decrease in cash and cash equivalents

    (1,377 )     (1,444

)

                 

Cash and cash equivalents at beginning of period

    3,808       3,683  
                 

Cash and cash equivalents at end of period

  $ 2,431     $ 2,239  
                 
                 

Supplemental disclosures of cash flow information:

               

Cash paid during the period for:

               

Interest

  $ 39     $ 24  

Income taxes

  $ -     $ -  

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

FREQUENCY ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended July 31, 2020 and July 31, 2019

(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, 2019

 

 

9,163,940

 

 

$

9,164

 

 

$

56,831

 

 

$

(2,111

)

 

 

183,661

 

 

$

(841

)

 

$

46

 

 

$

63,089

 

Contribution of stock to 401(k) plan

 

 

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

 

(10,906

)

 

 

50

 

 

 

 

 

 

 

124

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80

 

Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price

 

 

 

 

 

 

 

 

 

 

(189

)

 

 

 

 

 

 

(41,325

)

 

 

189

 

 

 

 

 

 

 

-

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134

 

 

 

134

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(591

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(591

)

Balance at July 31, 2019

 

 

9,163,940

 

 

$

9,164

 

 

$

56,796

 

 

$

(2,702

)

 

 

131,430

 

 

$

(602

)

 

$

180

 

 

$

62,836

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Treasury stock

 

 

Accumulated other

 

 

 

 

 

 

 

Common Stock

 

 

paid in

 

 

Accumulated

 

 

(at cost)

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Income

 

 

Total

 

Balance at April 30, 2020

 

 

9,163,940

 

 

$

9,164

 

 

$

56,914

 

 

$

(12,137

)

 

 

42,696

 

 

$

(195

)

 

$

490

 

 

$

54,236

 

Contribution of stock to 401(k) plan

 

 

 

 

 

 

 

 

 

 

68

 

 

 

 

 

 

 

(14,926

)

 

 

68

 

 

 

 

 

 

 

136

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price

 

 

 

 

 

 

 

 

 

 

(109

)

 

 

 

 

 

 

(23,808

)

 

 

109

 

 

 

 

 

 

 

-

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

171

 

 

 

171

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(262

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(262

)

Balance at July 31, 2020

 

 

9,163,940

 

 

$

9,164

 

 

$

56,927

 

 

$

(12,399

)

 

 

3,962

 

 

$

(18

)

 

$

661

 

 

$

54,335

 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

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 consolidated financial position of the Company as of July 31, 2020 and the results of its operations and cash flows for the three months ended July 31, 2020 and July 31, 2019.  The April 30, 2020 condensed consolidated balance sheet was derived from audited financial statements.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission, and the financial statements and notes thereto.  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 the CARES Act

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic may have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

 

The Company faces various risks related to COVID-19 outbreak. The Company is dependent on its workforce to deliver its products primarily to the U.S. Government. If significant portions of the Company’s workforce are unable to work effectively, or if the U.S. Government and/or other customers’ operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic, the Company’s operations will likely be impacted. The Company may be unable to perform fully on its contracts and costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance.  Since the COVID-19 outbreak began, no facilities have been fully shut down (other than temporarily for disinfecting) and such measures to disinfect facilities have not had a significant impact on production. Certain of the Company’s vendors have been unable to deliver materials on time due to the COVID-19 outbreak.  Such delays have negatively impacted the Company’s production, and the Company plans to continue to monitor these and its other vendors and, if necessary, seek alternative suppliers. 

 

At this time, the Company’s management cannot predict the impact of the COVID-19 pandemic, but management continues to monitor the situation, to assess further possible implications to operations, the supply chain, and customers, and to take actions in an effort to mitigate adverse consequences. Further, the pandemic may have an adverse effect on the Company’s results of operations, financial position, and liquidity in fiscal year 2021.

 

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also appropriated funds for the Small Business Administration (SBA) Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

 

7

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE B – EARNINGS PER SHARE

 

Reconciliation of the weighted average shares outstanding for basic and diluted loss per share for the three months ended July 31, 2020 and 2019, respectively, were as follows:

 

   

Three months ended July 31,

 
   

2020

   

2019

 

Weighted average shares outstanding:

               

Basic EPS Shares outstanding (weighted average)

    9,139,130       9,001,324  

Effect of Dilutive Securities

    **       **  

Basic and Diluted EPS Shares outstanding

    9,139,130       9,001,324  

 

**For the three-month periods ended July 31, 2020 and 2019 dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for both periods.  Basic and diluted shares outstanding for the three months ended July 31, 2020 and 2019 are 9,139,130 and 9,001,324, respectively. Additionally, there are anti-dilutive exercisable shares excluded in the above table for the three months ended July 31, 2020 and 2019 of 676,000 and 1,201,125, respectively.

 

NOTE C – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET

 

At July 31, 2020 and April 30, 2020, costs and estimated earnings in excess of billings, net, consisted of the following:

 

   

July 31, 2020

   

April 30, 2020

 
   

(In thousands)

 

Costs and estimated earnings in excess of billings

  $ 17,466     $ 10,460  

Billings in excess of costs and estimated earnings

    (10,534

)

    (3,507

)

Net asset

  $ 6,932     $ 6,953  

 

Such amounts represent revenue recognized on long-term contracts that had not been billed at the balance sheet dates or represent a liability for amounts billed in excess of the revenue 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 date.  Revenue on these long-term contracts is accounted for on the percentage of completion (“POC”) basis. During the three months ended July 31, 2020 and 2019, revenue recognized under POC contracts was approximately $11.7 million and $11.5 million, respectively. If contract losses are anticipated, costs and estimated earnings in excess of billings are reduced for the full amount of such losses when they are determinable. Contract losses of approximately $611,000 and $314,000 were recorded for the three months ended July 31, 2020 and July 31, 2019, respectively.

 

NOTE D – TREASURY STOCK TRANSACTIONS

 

During the three month period ended July 31, 2020, the Company made contributions of 14,926 shares of its common stock held in treasury 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.

 

8

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE E – INVENTORIES

 

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

 

   

July 31, 2020

   

April 30, 2020

 
   

(In thousands)

 

Raw Materials and Component Parts

  $ 13,942     $ 15,470  

Work in Progress

    6,788       6,104  

Finished Goods

    953       1,384  
    $ 21,683     $ 22,958  

 

The amounts above are net of reserves of $6.8 million and $6.6 million as of July 31, 2020 and April 30, 2020, respectively.

 

NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

 

The Company’s leases primarily represent offices, warehouses, vehicles, and manufacturing and research and development facilities which expire at various times through 2029 and are generally operating leases. Contractual arrangements are evaluated at inception to determine if the agreement contains a lease. Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. Right-of-use (“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. Lease terms may factor in options to extend or terminate the lease.

 

The Company elected the practical expedient for short-term leases which allows leases with terms of twelve months or less to be recorded on a straight-line basis over the lease term without being recognized on the balance sheet.

 

Effective May 1, 2019, the Company adopted ASU 2016-02. The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets, related to ASU 2016-02 (in thousands):

 

 

Classification

 

July 31, 2020

   

April 30, 2020

 
     

(unaudited)

         

Assets

                 

     Operating lease ROU assets

Right-of-Use assets leases

  $ 10,546     $ 10,864  
                   

Liabilities

                 

     Operating lease liabilities (short-term)

Lease liability, current

    1,822       1,869  

     Operating lease liabilities (long-term)

Lease liability, non-current

    9,172       9,444  

          Total lease liabilities

  $ 10,994     $ 11,313  

 

Total operating lease expense was $478,000 and $504,000 for the three months ended July 31, 2020 and July 31, 2019, 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. There were no new leases entered into during the three months ended July 31, 2020.

 

9

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited consolidated balance sheet as of July 31, 2020:

 

Fiscal Year Ending July 31,

 

(in thousands)

 

 

 

 

 

 

Remainder of 2021

 

$

1,312

 

2022

 

 

1,886

 

2023

 

 

1,815

 

2024

 

 

1,834

 

2025

 

 

1,723

 

Thereafter

 

 

5,492

 

Total lease payments

 

 

14,062

 

Less imputed interest

 

 

(3,068

)

Present value of future lease payments

 

 

10,994

 

Less current obligations under leases

 

 

(1,822

Long-term lease obligations

 

 

9,172

 

 

As of July 31, 2020, the weighted-average remaining lease term for all operating leases was 8.1 years. The Company does not generally have access to the rate implicit in the leases and therefore utilized the Company’s borrowing rate as the discount rate. The weighted average discount rate for operating leases as of July 31, 2020 was 6.20%.

 

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: 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 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. FEI-Zyfer’s products also incorporate precision time references for terrestrial secure communications and command and control, and frequency products that incorporate GPS.  FEI-Zyfer’s GPS capability complements the Company’s existing technologies and permits the combined entities to provide a broader range of embedded systems for a variety of timing functions and anti-spoofing (“SAASM”) applications.

 

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.

 

The accounting policies of the two segments are the same as those described in the “Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission. The Company evaluates the performance of its segments and allocates resources to them based on operating profit which is defined as income before investment income, interest expense and taxes.  All acquired assets, including intangible assets, are included in the assets of both reporting segments.

 

10

 

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

 

   

Three months ended July 31,

 
   

2020

   

2019

 

Revenues:

               

FEI-NY

  $ 9,839     $ 9,010  

FEI-Zyfer

    3,922       3,701  

less intersegment revenues

    (810

)

    (157

)

Consolidated revenues

  $ 12,951     $ 12,554  

 

Operating (loss) profit:

               

FEI-NY

  $ (623

)

  $ (1,232

)

FEI-Zyfer

    361       517  

Corporate

    (75

)

    (65

)

Consolidated operating loss

  $ (337

)

  $ (780

)

 

   

July 31, 2020

   

April 30, 2020

 

Identifiable assets:

               

FEI-NY

  $ 42,732     $ 44,599  

FEI-Zyfer

    14,786       13,344  

less intersegment balances

    -       (8,586

)

Corporate

    31,426       41,919  

Consolidated identifiable assets

  $ 88,944     $ 91,276  

 

Total revenue recognized over time as POC and Passage of Title (“POT”) were approximately $11.7 million and $1.3 million, respectively, of the $13.0 million reported for the three months ended July 31, 2020. The amounts recognized over time as POC and POT were approximately $11.5 million and $1.1 million of the $12.6 million reported for the three months ended July 31, 2019. The amounts by segment and product line were as follows:

  

 

 

Three Months Ended July 31, 2020

 

 

Three Months Ended July 31, 2019

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

POC Revenue

 

 

POT Revenue

 

 

Total Revenue

 

 

POC Revenue

 

 

POT Revenue

 

 

Total Revenue

 

FEI-NY

 

$

8,622

 

 

$

1,217

 

 

$

9,839

 

 

$

8,160

 

 

$

850

 

 

$

9,010

 

FEI-Zyfer

 

 

3,038

 

 

 

884

 

 

 

3,922

 

 

 

3,323

 

 

 

378

 

 

 

3,701

 

Intersegment

 

 

(9)

 

 

 

(801

)

 

 

(810

)

 

 

26

 

 

 

(183

)

 

 

(157

)

Revenue

 

$

11,651

 

 

$

1,300

 

 

$

12,951

 

 

$

11,509

 

 

$

1,045

 

 

$

12,554

 

 

   

Three Months Ended July 31,

 
   

2020

   

2019

 
   

(In thousands)

 

Revenue by Product Line:

               

Satellite Revenue

  $ 6,651     $ 3,895  

Government Non-Space Revenue

    5,335       6,744  

Other Commercial & Industrial Revenue

    965       1,915  

Consolidated revenues

  $ 12,951     $ 12,554  

 

11

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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.

 

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.  This investment of approximately $800,000 is included in other assets in the accompanying condensed consolidated balance sheets. During the three months ended July 31, 2020 and 2019, the Company acquired product from Morion in the aggregate amount of approximately $150,000 and $245,000, respectively. There were no sales to Morion during the three months ended July 31, 2020. The Company sold product and training services to Morion in the aggregate amount of approximately $47,000 during the three months ended July 31, 2019, which is included in revenues in the unaudited condensed consolidated statements of operations as part of the FEI-NY segment. At July 31, 2020 there was approximately $34,000 payable to Morion. There were no amounts payable to Morion at April 30, 2020. There were no receivables related to Morion for either period ended July 31, 2020 and April 30. 2020. The Company did not receive dividends from Morion during the three months ended July 31, 2020. During the three months ended July 31, 2019, the Company received a dividend from Morion in the amount of approximately $125,000, which is included in other income, net in the condensed consolidated statements of operations as part of the FEI-NY segment.

 

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.

 

In light of Morion’s relationship with Gazprombank, the Company recently evaluated, with the assistance of external legal counsel, certain sales to Morion and the timing of payments by Morion to the Company in connection with those sales to determine whether payments by Morion may have inadvertently constituted extensions of credit in violation of Directive 1 under Executive Order 13662.  The Company determined that certain payments by Morion – the majority of which occurred more than five years ago – were not timely.  Following the evaluation, on May 7, 2020, the Company voluntarily disclosed its findings to the Office of Foreign Assets Control (“OFAC”).  The Company’s voluntary disclosure to OFAC relates solely to delays in collection of accounts receivable that exceeded then-applicable payment windows set forth in sanctions regulations and do not relate to any other type of payment or transaction.  On July 22, 2020, OFAC informed the Company that it is conducting a civil investigation of the matter. 

 

The ongoing OFAC civil investigation subjects the Company to a number of financial and business risks.  OFAC has broad enforcement discretion, and the imposition of sanctions, fines or remedial measures could have a material adverse effect on the Company’s business, prospects, reputation, financial condition, liquidity, results of operations or cash flows. Given the matter is in an early stage, however, the Company does not have sufficient information to (i) determine whether any liability (including penalties, sanctions, or remedial actions) as a result of the voluntary disclosure is probable or (ii) estimate the magnitude of any liability.  While we are currently unable to predict what if any actions OFAC might take, or what the likely outcome of any such actions might be, or estimate the range of reasonably possible fines or penalties, such outcome may be material.  Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, including legal fees.

 

12

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale securities at July 31, 2020 and April 30, 2020, respectively, were as follows (in thousands):

 

   

July 31, 2020

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Fair Market Value

 

 Fixed income securities

  $ 9,350     $ 661     $ -     $ 10,011  

 

   

April 30, 2020

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Fair Market Value

 

 Fixed income securities

  $ 10,081     $ 495     $ (6

)

  $ 10,570  

 

The following table presents the fair value and unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 

 

 

Less than 12 months

 

 

12 Months or more

 

 

Total

 

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

July 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fixed Income Securities

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fixed Income Securities

 

$

380

 

 

$

(6

)

 

$

-

 

 

$

-

 

 

$

380

 

 

$

(6

)

 

During the three months ended July 31, 2020, the Company sold or redeemed available-for-sale securities of approximately $725,000, realizing gains of approximately $3,000.

 

Maturities of fixed income securities classified as available-for-sale at July 31, 2020 were as follows, at cost (in thousands):

 

Current

  $ 2,724  

Due after one year through five years

    3,438  

Due after five years

    3,188  
    $ 9,350  

 

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

 

13

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The levels of the fair value hierarchy are described below:

 

 

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.

 

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.  The Company’s money market, business account, and U.S. securities are valued on a Level 1 basis. The Company’s fixed income corporate debt securities and certificates of deposit are valued on a Level 2 basis.

 

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is 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 value 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. The Company will not be adopting ASU 2017-04 early, and is in the process of determining the effect that ASU 2017-04 may have. However, the Company expects the new standard to have an immaterial effect on its 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. The new guidance is effective for fiscal years beginning after December 15, 2022. The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in fiscal year 2023.

 

14

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE K – CREDIT FACILITY

 

As of July 31, 2020, the Company had available credit with UBS Bank USA at variable terms based on its securities holdings under an advisory arrangement, under which the Company has borrowed $3 million. On April 12, 2020, the Company received proceeds from a loan in the amount of $4,964,810 (the “PPP Loan”) from JPMorgan Chase Bank, N.A. as the Lender, pursuant to the SBA Paycheck Protection Program under the CARES Act. The PPP Loan was repaid in full on May 6, 2020.

 

NOTE L – VALUATION ALLOWANCE ON DEFERRED TAX ASSETS

 

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 realizability 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 July 31, 2020, and April 30, 2020, 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.

 

NOTE M – COMMITMENTS AND CONTINGENCIES

 

On January 28, 2020, Martin B. Bloch, the former Chief Scientist of the Company and a former member of the Company’s Board, filed a complaint against the Company and Jonathan Brolin, Lance W. Lord, Russell M. Sarachek, Richard Schwartz and Stanton D. Sloane, each in their capacity as members of the Board (collectively, the “Director Defendants”), in the Supreme Court of the State of New York, County of Nassau (Bloch v. Frequency Electronics, Inc., et al., Index No. 601369/2020 (N.Y. Sup. Ct. filed Jan. 28, 2020)). Mr. Bloch seeks compensatory damages and costs and attorney’s fees, among other things, based on allegations that he was wrongfully terminated “for cause” pursuant to his employment agreement, dated March 17, 2008, and that the Company and the Director Defendants discriminated against him based on his age. Mr. Bloch had originally also sought a declaratory judgment and claims for damage to his reputation and a derivative claim on behalf of the Company alleging that the Director Defendants breached their fiduciary duty in rendering their decision to terminate Mr. Bloch’s employment with the Company. However, Mr. Bloch removed those claims from a subsequently filed amended complaint after the Company and the Director Defendants moved to dismiss them. On June 11, 2020, the Company and the Director Defendants filed their answer to the amended complaint. Mr. Bloch filed a motion for summary judgment on June 23, 2020, which the Company and the Director Defendants opposed on July 10, 2020. Mr. Bloch’s motion seeks an order that the Company is liable for breach of his employment agreement because he purportedly resigned from the Company before he was terminated. On July 10, 2020, the Company and the Director Defendants opposed Mr. Bloch’s motion and also filed a motion for summary judgment seeking the dismissal of all claims in Mr. Bloch’s amended complaint. The Parties’ respective motions are pending. The Company and the Director Defendants believe that the Board was justified in its decision to terminate Mr. Bloch “for cause” and that Mr. Bloch’s complaint is entirely without merit.  The Company intends to vigorously defend against all of Mr. Bloch’s allegations. At this time, the Company does not have sufficient information to determine whether liability, if any, arising out of these matters is probable or the possible loss, if any that could result from an unfavorable outcome arising out of these matters.

 

In addition, Mr. Bloch sought to initiate two arbitration proceedings under the AAA Rules (Bloch v. Frequency Electronics, Inc., the Compensation Committee of the Board of Directors of Frequency Electronics, Inc., and the Deferred Compensation Plan Agreement Dated March 7, 2008). One arbitration is brought under a deferred compensation agreement dated March 27, 1980 and the other under a second amended and restated deferred compensation agreement, dated March 7, 2008. Bloch submitted his Statements of Claim in both arbitrations on May 4, 2020.  In both proceedings, Mr. Bloch claims that defendants violated ERISA rules by denying him deferred compensation benefits. He seeks an award for allegedly past due deferred compensation benefits plus interest, clarification as to his future rights to deferred compensation benefits, and attorneys’ fees and costs. 

 

15

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

On June 2, 2020, the Company filed a petition for a stay of arbitration and related declaratory relief against Mr. Bloch, in the Supreme Court of the State of New York, New York County (Frequency Electronics, Inc. v. Martin B. Bloch, Index No. 652191/2020 (N.Y. Sup. Ct. filed June 2, 2020)). The Company claims that Mr. Bloch may not arbitrate his claims for deferred compensation because he did not timely appeal the Company’s denial of those claims, and because he failed to comply with the arbitration procedures in the applicable deferred compensation agreement. Mr. Bloch filed a motion on June 16, 2020 seeking a change of venue to the County of Nassau, which the Company opposed on July 7, 2020. The motion is currently pending. At this time, the Company does not have sufficient information to determine the likelihood of success of this petition.

 

On June 5, 2020, Mr. Bloch filed a petition against the Company, the Compensation Committee of the Company’s Board of Directors, and the Deferred Compensation Plan Agreement Dated March 7, 2008, as amended, for the appointment of an arbitrator in one of the arbitration proceedings that Mr. Bloch sought to initiate. The petition was filed in the Supreme Court of the State of New York, County of Nassau (Bloch v. Frequency Electronics, Inc. et al., Index No. 605380/2020 (N.Y. Sup. Ct. filed June 5, 2020)). On June 22, 2020, the Company moved to dismiss Mr. Bloch’s petition, and he opposed the Company’s motion on July 2, 2020. The motion is currently pending. Defendants dispute all of Bloch’s claims and intend to continue to vigorously defend the Company in this special proceeding. The likelihood of any outcome of this proceeding cannot be determined at this time.

 

 

 

16

 

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 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, 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 the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission 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-K 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.

 

Critical Accounting Policies and Estimates

 

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission.  The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts, income taxes, and the valuation of inventory.  Each of these areas requires 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 months ended July 31, 2020.

 

Revenue Recognition

 

Revenue is recognized when a performance obligation is satisfied, which is when the expected goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to receive. A performance obligation is a distinct product or service that is transferred to the customer based on the contract. The transaction price is allocated to each performance obligation and is recognized as revenue upon satisfaction of that performance obligation. The Company derives revenue from contracts with customers by units sold with specific specifications and frequencies that are used by a specific customer and contracts where the end user is the government. The Company’s contracts typically include one performance obligation which is satisfied by shipped projects and completed services/reports required in the contract.  Control over these performance obligations passes to the customer over time and therefore these revenues are reported in operating results 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 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.

 

For smaller contracts or orders, sales of products and services to customers are reported in operating results based upon (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order.  When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed.  The Company’s products generally carry a one-year warranty, but may vary based on the contract terms.

 

17

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

 

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. 

 

Contract costs include all direct material, direct labor costs, manufacturing overhead and other direct costs related to contract performance.  Selling, general and administrative costs are charged to expense as incurred. 

 

Inventory

 

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 expectations for future business.  Any changes arising from revised expectations are reflected in cost of revenues in the period the revision is made.

 

Marketable Securities

 

Marketable securities consist of corporate debt securities, certificates-of-deposit, and debt securities of U.S. Government agencies.  All marketable securities were held in the custody of one financial institution at July 31, 2020 and April 30, 2020.  Investments in debt securities are categorized as available-for-sale and are carried at fair value, with unrealized gains and losses excluded from income and recorded directly to stockholders’ equity.  The Company recognizes gains or losses when securities are sold using the specific identification method.

 

COVID-19 Outbreak Update

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

 

The Company’s priority during the COVID-19 outbreak has been to protect the health and safety of its employees while keeping its manufacturing sites open. Within the limitations imposed by governmental health and safety procedures, the Company has continued to manufacture its full range of products at its facilities. The Company has educated employees about COVID-19 symptoms and hygiene best practices. The Company’s policies also include taking an employee’s temperature before entering production facilities; mandating handwashing; requiring social distancing and, where social distancing is difficult, requiring face coverings; streamlining onsite personnel; encouraging, and in some cases, requiring remote work for those employees who can work from home; and disinfecting facilities.

 

As of September 14, 2020, the Company was aware of two employees that have had confirmed cases of COVID-19 since the COVID-19 outbreak began, with no fatalities and both of those employees having returned to work. Additional employees have been absent or self-quarantined due to COVID-19; however, such absences have not had a significant impact on production. Additionally, since the COVID-19 outbreak began, no facilities have been fully shut down (other than temporarily for disinfecting) and such measures to disinfect facilities have not had a significant impact on production. Certain of the Company’s vendors have been unable to deliver materials on time due to the COVID-19 outbreak. Such delays have negatively impacted the Company’s production, and the Company plans to continue to monitor these and its other vendors and, if necessary, seek alternative suppliers.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic may have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

 

18

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

 

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also appropriated funds for the Small Business Administration (SBA) Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

 

Since the filing of the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020, there have been no additional impacts to the Company related to COVID-19.

 

RESULTS OF OPERATIONS

 

The table below sets forth for the three months ended July 31, 2020 and 2019, 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:

 

   

Three months ended July 31,

 
   

2020

   

2019

 

Revenues

               

FEI-NY

    76.0

%

    71.8

%

FEI-Zyfer

    30.3       29.5  

Less intersegment revenues

    (6.3

)

    (1.3

)

      100.0       100.0  

Cost of revenues

    68.4       68.5  

Gross margin

    31.6       31.5  

Selling and administrative expenses

    24.9       19.5  

Research and development expenses

    9.2       18.2  

Operating loss

    (2.5

)

    (6.2

)

Other income (expense), net

    0.6       1.7  

Provision for income taxes

    0.1       0.2  

Net loss

    (2.0

)%

    (4.7

)%

 

Revenues

 

   

Three months ended July 31

(in thousands)

 
                                 

Segment

 

2020

   

2019

   

Change

 

FEI-NY

  $ 9,839     $ 9,010     $ 829       9.2

%

FEI-Zyfer

    3,922       3,701       221       6.0  

Intersegment revenues

    (810

)

    (157

)

    (653

)

    415.9  
    $ 12,951     $ 12,554     $ 397       3.2

%

 

For the three months ended July 31, 2020 revenues from commercial and U.S. Government satellite programs increased approximately $2.8 million, as compared to the same period of fiscal year 2020 and accounted for approximately 51% of consolidated revenues compared to approximately 31% during this same period in fiscal year 2020. The change in revenue is related to product mix and timing of contract awards.  Revenues on these contracts are recognized primarily under the POC method.  Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, decreased $1.4 million over the same period of fiscal year 2020, and accounted for approximately 41% of consolidated revenues compared to approximately 54% during this same period in fiscal year 2020.     Other commercial and industrial revenues for the three months ended July 31, 2020 were $1.0 million and represented approximately 8% of consolidated revenues compared to $1.9 million, or 15%, in the same period of the prior fiscal year.

 

19

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

 

Gross Margin

 

   

Three months ended July 31

(in thousands)

 
                                 
   

2020

   

2019

   

Change

 
    $ 4,088     $ 3,953     $ 135       3.4

%

GM Rate

    31.6

%

    31.5

%

               

 

For the three-month period ended July 31, 2020, gross margin and GM Rate increased marginally as compared to the same period in fiscal year 2020. The increase in gross margin and GM Rate was primarily due to product mix. Additionally, there were higher engineering costs incurred on several programs in both periods, but as these programs are completed, we expect margins to increase.

 

Selling and Administrative Expenses

 

Three months ended July 31,

 

(in thousands)

 

2020

   

2019

   

Change

 
$ 3,228     $ 2,453     $ 775       31.6

%

 

For the three months ended July 31, 2020 and 2019, selling and administrative (“SG&A”) expenses were approximately 25% and 20%, respectively, of consolidated revenues.  The increase in SG&A expenses is due to increase in professional fees (relating to litigation for which we expect to get insurance reimbursement for a portion of the legal fees), and additional insurance costs.

 

Research and Development Expense

 

Three months ended July 31,

 

(in thousands)

 

2020

   

2019

   

Change

 
$ 1,197     $ 2,280     $ (1,083 )     (47.5

)%

 

Research and development (“R&D”) expenditures represent investments intended to keep the Company’s products at the leading edge of time and frequency technology and enhance future competitiveness.   The R&D rate for the three-month period ended July 31, 2020 was 9% of sales compared to 18% of sales for the same period of the previous fiscal year.  The Company’s R&D expense decreased year over year as previous R&D efforts have ended and turned into production; however, the Company plans to continue to invest in R&D.

 

Operating Loss

 

Three months ended July 31,

 

(in thousands)

 

2020

   

2019

   

Change

 
$ (337

)

  $ (780

)

  $ 443       (56.8 )%

 

The Company’s results for the three-month period ended July 31, 2020 reflect improvements in revenues, gross margin and GM rate. The Company is pleased with this trend. Additionally, if certain current bids become contract wins, as anticipated by the Company, we would expect this improvement to continue.

 

20

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

 

Other Income (Expense), net

 

   

Three months ended July 31,

 
   

(in thousands)

 
   

2020

   

2019

   

Change

 

Investment income

  $ 107     $ 177     $ (70 )     (39.5 )%

Interest expense

    (39

)

    (24

)

    (15

)

    62.5 %

Other income (expense), net

    16       56       (40 )     (71.4 )%
    $ 84     $ 209     $ (125 )     (59.8 )%

 

Investment income is derived primarily from the Company’s holdings of marketable securities.  Earnings on securities may vary based on fluctuating interest rates, dividend payout levels, and the timing of purchases, sales, redemptions or maturities of securities. There were no dividends received from Morion for the three months ended July 31, 2020. For the three months ended July 31, 2019, investment income includes a dividend from Morion of $125,000.

 

Income Tax Provision

 

   

Three months ended July 31,

 
   

(in thousands)

 
   

2020

   

2019

   

Change

 
    $ 9     $ 20     $ (11 )     (55.0 )%

Effective tax rate on pre-tax book loss:

                               
      (3.6

)%

    (3.5

)%

               

 

The estimated annual effective tax rate for the fiscal year ending April 30, 2021 is 2.8%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by the estimated change in the current year valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.

 

For the three months ended July 31, 2020, the Company recorded an income tax provision of $9,000, which includes a discrete income tax provision of $16,000 primarily related to an accrual of interest for unrecognized tax benefits. For the three months ended July 31, 2019, the Company recorded a discrete income tax provision of $20,000.

 

The effective tax rate for the three months ended July 31, 2020 is an income tax provision of 3.6% on a pretax loss of $253,000 compared to an income tax provision of 3.5% on a pretax loss of $571,000 in the comparable prior fiscal year period. The effective tax rate for the three months ended July 31, 2020 differs from the U.S. statutory rate of 21% primarily due to state taxes, a discrete income tax provision related to the accrual of interest for unrecognized tax benefits, and domestic losses for which the Company is not recognizing an income tax benefit.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s consolidated balance sheet continues to reflect a strong working capital position of $38.9 million at July 31, 2020 and $38.3 million at April 30, 2020.  Included in working capital at July 31, 2020 and April 30 2020, is $12.4 million and $14.4 million, respectively, consisting of cash, cash equivalents, and marketable securities.  The Company’s current ratio at July 31, 2020 is 4.6 to 1 compared to 3.9 to 1 as of April 30, 2020.

 

Cash provided by operating activities for the three months ended July 31, 2020 was $62,000 compared to $153,000 in the comparable prior fiscal year 2020 period.  The decreased cash flow in the fiscal year 2021 period resulted primarily from an increase in accounts receivable balances offset by a decrease in inventory amounts.  For the three-month periods ended July 31, 2020 and 2019, the Company incurred $1.2 million and $1.6 million, respectively, of non-cash operating expenses including right to use asset and liability for leases, depreciation and amortization, inventory reserve adjustments, and accruals for employee benefit programs.

 

21

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

 

Net cash provided by investing activities for the three months ended July 31, 2020 was $514,000 compared to $1.6 million of cash used in investing activities for the three months ended July 31, 2019.  During the three months ended July 31, 2020, marketable securities were sold or redeemed in the amount of $725,000 compared to $750,000 during the three months ended July 31, 2019. There were no purchases related to marketable securities during the three months ended July 31, 2020, while approximately $1.4 million of marketable securities were purchased during the three months ended July 31, 2019. The Company acquired property, plant and equipment in the amount of approximately $211,000 and $912,000 during the three months ended July 31, 2020 and 2019, respectively. The Company may continue to invest in cash equivalents as dictated by its investment strategy. 

 

Net cash used in financing activities for the three months ended July 31, 2020 was approximately $2.0 million related to the repayment of the PPP loan and the amounts borrowed against the Company’s line of credit with UBS Bank USA. There was no cash used in financing activities for the three months ended July 31, 2019.

 

The Company has been authorized by its Board of Directors to repurchase up to $5 million worth of shares of its common stock when appropriate opportunities arise.  As of July 31, 2020, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization.  For the three months ended July 31, 2020 and 2019 there were no repurchases of shares.

 

The Company will continue to expend resources to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems which management believes will result in future growth and profitability. The Company anticipates securing additional customer funding for a portion of its R&D activities and will allocate internal funds depending on market conditions and identification of new opportunities.  The Company expects internally generated cash will be adequate to fund these R&D efforts.  The Company may also pursue acquisitions to expand its range of products and may use internally generated cash and external funding in connection with such acquisitions.

 

As of July 31, 2020, the Company’s consolidated funded backlog was approximately $38 million compared to $36 million at April 30, 2020, the end of fiscal 2020.  Approximately 81% of this backlog is expected to be realized in the next twelve months.  As of July 31, 2020, there are no amounts included in backlog under cost-plus fixed-fee (“CPFF”) contracts that have not been funded.  The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion. Over time, as partially funded contracts become fully funded, the Company will add the additional funding to its backlog. The backlog is subject to change for various reasons, including possible cancellation of orders, change orders, terms of the contracts and other factors beyond the Company’s control. Accordingly, the backlog is not necessarily indicative of the revenues or profits (losses) which may be realized when the results of such contracts are reported.

 

The Company believes that its liquidity is adequate to meet its operating and investment needs through at least September 14, 2021 and the foreseeable future.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements, that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

22

 

FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES

(Continued)

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies. 

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on their evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of July 31, 2020, the Company’s disclosure controls and procedures were effective.

 

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. 

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended July 31, 2020 to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

23

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

 

On January 28, 2020, Martin B. Bloch, the former Chief Scientist of the Company and a former member of the Company’s Board, filed a complaint against the Company and Jonathan Brolin, Lance W. Lord, Russell M. Sarachek, Richard Schwartz and Stanton D. Sloane, each in their capacity as members of the Board (collectively, the “Director Defendants”), in the Supreme Court of the State of New York, County of Nassau (Bloch v. Frequency Electronics, Inc., et al., Index No. 601369/2020 (N.Y. Sup. Ct. filed Jan. 28, 2020)). Mr. Bloch seeks compensatory damages and costs and attorney’s fees, among other things, based on allegations that he was wrongfully terminated “for cause” pursuant to his employment agreement, dated March 17, 2008, and that the Company and the Director Defendants discriminated against him based on his age. Mr. Bloch had originally also sought a declaratory judgment and claims for damage to his reputation and a derivative claim on behalf of the Company alleging that the Director Defendants breached their fiduciary duty in rendering their decision to terminate Mr. Bloch’s employment with the Company. However, Mr. Bloch removed those claims from a subsequently filed amended complaint after the Company and the Director Defendants moved to dismiss them. On June 11, 2020, the Company and the Director Defendants filed their answer to the amended complaint. Mr. Bloch filed a motion for summary judgment on June 23, 2020, which the Company and the Director Defendants opposed on July 10, 2020. Mr. Bloch’s motion seeks an order that the Company is liable for breach of his employment agreement because he purportedly resigned from the Company before he was terminated. On July 10, 2020, the Company and the Director Defendants opposed Mr. Bloch’s motion and also filed a motion for summary judgment seeking the dismissal of all claims in Mr. Bloch’s amended complaint. The Parties’ respective motions are pending. The Company and the Director Defendants believe that the Board was justified in its decision to terminate Mr. Bloch “for cause” and that Mr. Bloch’s complaint is entirely without merit.  The Company intends to vigorously defend against all of Mr. Bloch’s allegations. At this time, the Company does not have sufficient information to determine whether liability, if any, arising out of these matters is probable or the possible loss, if any, that could result from an unfavorable outcome arising out of these matters.

 

In addition, Mr. Bloch sought to initiate two arbitration proceedings under the AAA Rules (Bloch v. Frequency Electronics, Inc., the Compensation Committee of the Board of Directors of Frequency Electronics, Inc., and the Deferred Compensation Plan Agreement Dated March 7, 2008). One arbitration is brought under a deferred compensation agreement dated March 27, 1980 and the other under a second amended and restated deferred compensation agreement, dated March 7, 2008. Bloch submitted his Statements of Claim in both arbitrations on May 4, 2020.  In both proceedings, Mr. Bloch claims that defendants violated ERISA rules by denying him deferred compensation benefits. He seeks an award for allegedly past due deferred compensation benefits plus interest, clarification as to his future rights to deferred compensation benefits, and attorneys’ fees and costs.

 

On June 2, 2020, the Company filed a petition for a stay of arbitration and related declaratory relief against Mr. Bloch, in the Supreme Court of the State of New York, New York County (Frequency Electronics, Inc. v. Martin B. Bloch, Index No. 652191/2020 (N.Y. Sup. Ct. filed June 2, 2020)). The Company claims that Mr. Bloch may not arbitrate his claims for deferred compensation because he did not timely appeal the Company’s denial of those claims, and because he failed to comply with the arbitration procedures in the applicable deferred compensation agreement. Mr. Bloch filed a motion on June 16, 2020 seeking a change of venue to the County of Nassau, which the Company opposed on July 7, 2020. The motion is currently pending. At this time, the Company does not have sufficient information to determine the likelihood of success of this petition.

 

On June 5, 2020, Mr. Bloch filed a petition against the Company, the Compensation Committee of the Company’s Board of Directors, and the Deferred Compensation Plan Agreement Dated March 7, 2008, as amended, for the appointment of an arbitrator in one of the arbitration proceedings that Mr. Bloch sought to initiate. The petition was filed in the Supreme Court of the State of New York, County of Nassau (Bloch v. Frequency Electronics, Inc. et al., Index No. 605380/2020 (N.Y. Sup. Ct. filed June 5, 2020)). On June 22, 2020, the Company moved to dismiss Mr. Bloch’s petition, and he opposed the Company’s motion on July 2, 2020. The motion is currently pending. Defendants dispute all of Bloch’s claims and intend to continue to vigorously defend the Company in this special proceeding. The likelihood of any outcome of this proceeding cannot be determined at this time.

 

24

 

Item 6.  Exhibits

 

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, 2020 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity and (v) Notes to Condensed Consolidated Financial Statements.

 

 

 

 

25

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

                FREQUENCY ELECTRONICS, INC.

                (Registrant)

 

Date: September 14, 2020                                                                By:   /s/   Steven L. Bernstein                                

Steven L. Bernstein

Chief Financial Officer, Secretary and Treasurer

Signing on behalf of the registrant and as principal financial officer

 

 

 

26
ex_203522.htm

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Stanton Sloane, certify that:

 

1.  I have reviewed this quarterly report on Form 10-Q of Frequency Electronics, Inc.;

 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

  /s/   Stanton Sloane                                                                                            September 14, 2020

Stanton Sloane

President and Chief Executive Officer

 

 
ex_203523.htm

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Steven L. Bernstein, certify that

 

1.  I have reviewed this quarterly report on Form 10-Q of Frequency Electronics, Inc.;

 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

  /s/   Steven L. Bernstein                                                                                 September 14, 2020

Steven L. Bernstein

Chief Financial Officer, Secretary and Treasurer

 

 
ex_203524.htm

Exhibit 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Certification of CEO

 

In connection with the Quarterly Report of Frequency Electronics, Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanton Sloane, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

                /s/   Stanton Sloane                                                                                              September 14, 2020

Stanton Sloane

President and Chief Executive Officer

 

******************

Certification of CFO

 

In connection with the Quarterly Report of Frequency Electronics, Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven L. Bernstein, Chief Financial Officer, Secretary and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

                /s/   Steven L. Bernstein                                                                                     September 14, 2020

Steven L. Bernstein

Chief Financial Officer, Secretary and Treasurer

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

 

 

 
v3.20.2
Document And Entity Information - shares
3 Months Ended
Jul. 31, 2020
Sep. 10, 2020
Document Information Line Items    
Entity Registrant Name FREQUENCY ELECTRONICS INC  
Document Type 10-Q  
Current Fiscal Year End Date --04-30  
Entity Common Stock, Shares Outstanding   9,162,566
Amendment Flag false  
Entity Central Index Key 0000039020  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Document Period End Date Jul. 31, 2020  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Interactive Data Current Yes  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Current assets:    
Cash and cash equivalents $ 2,431 $ 3,808
Marketable securities 10,011 10,570
Accounts receivable, net of allowance for doubtful accounts of $183 at July 31, 2020 and April 30, 2020 6,201 4,392
Costs and estimated earnings in excess of billings, net 6,932 6,953
Inventories, net 21,683 22,958
Prepaid income taxes 525 849
Prepaid expenses and other 1,850 1,705
Total current assets 49,633 51,235
Property, plant and equipment, at cost, net of accumulated depreciation and amortization 10,731 11,267
Goodwill 617 617
Cash surrender value of life insurance 14,964 14,790
Other assets 2,453 2,503
Right-of-Use assets – operating leases 10,546 10,864
Total assets 88,944 91,276
Current liabilities:    
Accounts payable – trade 1,461 1,424
Accrued liabilities 3,924 3,982
Loss provision accrual 519 748
Operating lease liability 1,822 1,869
Current debt 3,012 4,965
Total current liabilities 10,738 12,988
Deferred compensation 14,334 14,258
Deferred taxes 8 8
Operating lease liability – non-current 9,172 9,444
Deferred rent and other liabilities 357 342
Total liabilities 34,609 37,040
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, 9,164 shares issued and 9,160 shares outstanding at July 31, 2020; 9,121 shares outstanding at April 30, 2020 9,164 9,164
Additional paid-in capital 56,927 56,914
Accumulated deficit (12,399) (12,137)
53,692 53,941
Common stock reacquired and held in treasury - at cost (4 shares at July 31, 2020 and 43 shares at April 30, 2020) (18) (195)
Accumulated other comprehensive income 661 490
Total stockholders’ equity 54,335 54,236
Total liabilities and stockholders’ equity $ 88,944 $ 91,276
v3.20.2
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($)
shares in Thousands, $ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts (in Dollars) $ 183 $ 183
Preferred stock, par value (in Dollars per share) $ 1.00 $ 1.00
Preferred stock - shares authorized 600 600
Preferred stock - shares issued 0 0
Common stock, par value (in Dollars per share) $ 1.00 $ 1.00
Common stock shares issued 9,164 9,164
Common stock - authorized shares 20,000 20,000
Common stock - shares outstanding 9,164 9,160
Treasury stock, shares 4 43
v3.20.2
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Income Statement [Abstract]    
Revenues $ 12,951 $ 12,554
Cost of revenues 8,863 8,601
Gross margin 4,088 3,953
Selling and administrative expenses 3,228 2,453
Research and development expense 1,197 2,280
Operating loss (337) (780)
Other income (expense):    
Investment income 107 177
Interest expense (39) (24)
Other income (expense), net 16 56
Loss before provision for income taxes (253) (571)
Provision for income taxes 9 20
Net loss $ (262) $ (591)
Net loss per common share:    
Basic and diluted loss per share (in Dollars per share) $ (0.03) $ (0.07)
Weighted average shares outstanding:    
Basic and diluted (in Shares) 9,139,130 9,001,324
Condensed Consolidated Statements of Comprehensive Loss    
Net loss $ (262) $ (591)
Unrealized gain (loss) on marketable securities:    
Change in market value of marketable securities before reclassification, net of tax 173 135
Reclassification adjustment for realized gains included in net income, net of tax (2) (1)
Total unrealized gain on marketable securities, net of tax 171 134
Comprehensive loss $ (91) $ (457)
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Cash flows from operating activities:    
Net loss $ (262) $ (591)
Non-cash charges to earnings 1,205 2,506
Net changes in operating assets and liabilities (881) (1,762)
Net cash provided by operating activities 62 153
Cash flows from investing activities:    
Proceeds on redemption of marketable securities 725 750
Purchase of marketable securities 0 (1,435)
Purchase of fixed assets and other assets (211) (912)
Net cash provided by (used in) investing activities 514 (1,597)
Net cash used in financing activities:    
Repayment of PPP Loan (4,965) 0
Proceeds from UBS line of credit 3,012 0
(1,953) 0
Net decrease in cash and cash equivalents (1,377) (1,444)
Cash and cash equivalents at beginning of period 3,808 3,683
Cash and cash equivalents at end of period 2,431 2,239
Supplemental disclosures of cash flow information:    
Interest 39 24
Income taxes $ 0 $ 0
v3.20.2
Condensed Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
AOCI Attributable to Parent [Member]
Total
Balance at Apr. 30, 2019 $ 9,164 $ 56,831 $ (2,111) $ (841) $ 46 $ 63,089
Balance (in Shares) at Apr. 30, 2019 9,163,940     183,661    
Contribution of stock to 401(k) plan   74   $ 50   124
Contribution of stock to 401(k) plan (in Shares)       (10,906)    
Stock-based compensation expense   80       80
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price   (189)   $ 189    
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price (in Shares)       (41,325)    
Other comprehensive income, net of tax         134 134
Net loss     (591)     (591)
Balance at Jul. 31, 2019 $ 9,164 56,796 (2,702) $ (602) 180 62,836
Balance (in Shares) at Jul. 31, 2019 9,163,940     131,430    
Balance at Apr. 30, 2020 $ 9,164 56,914 (12,137) $ (195) 490 54,236
Balance (in Shares) at Apr. 30, 2020 9,163,940     42,696    
Contribution of stock to 401(k) plan   68   $ 68   136
Contribution of stock to 401(k) plan (in Shares)       (14,926)    
Stock-based compensation expense   54       $ 54
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price   (109)   $ 109    
Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price (in Shares)       (23,808)   14,926
Other comprehensive income, net of tax         171 $ 171
Net loss     (262)     (262)
Balance at Jul. 31, 2020 $ 9,164 $ 56,927 $ (12,399) $ (18) $ 661 $ 54,335
Balance (in Shares) at Jul. 31, 2020 9,163,940     3,962    
v3.20.2
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3 Months Ended
Jul. 31, 2020
Accounting Policies [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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 consolidated financial position of the Company as of July 31, 2020 and the results of its operations and cash flows for the three months ended July 31, 2020 and July 31, 2019.  The April 30, 2020 condensed consolidated balance sheet was derived from audited financial statements.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission, and the financial statements and notes thereto.  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 the CARES Act


On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.


The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic may have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.


The Company faces various risks related to COVID-19 outbreak. The Company is dependent on its workforce to deliver its products primarily to the U.S. Government. If significant portions of the Company’s workforce are unable to work effectively, or if the U.S. Government and/or other customers’ operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic, the Company’s operations will likely be impacted. The Company may be unable to perform fully on its contracts and costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance.  Since the COVID-19 outbreak began, no facilities have been fully shut down (other than temporarily for disinfecting) and such measures to disinfect facilities have not had a significant impact on production. Certain of the Company’s vendors have been unable to deliver materials on time due to the COVID-19 outbreak.  Such delays have negatively impacted the Company’s production, and the Company plans to continue to monitor these and its other vendors and, if necessary, seek alternative suppliers. 


At this time, the Company’s management cannot predict the impact of the COVID-19 pandemic, but management continues to monitor the situation, to assess further possible implications to operations, the supply chain, and customers, and to take actions in an effort to mitigate adverse consequences. Further, the pandemic may have an adverse effect on the Company’s results of operations, financial position, and liquidity in fiscal year 2021.


On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also appropriated funds for the Small Business Administration (SBA) Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.


v3.20.2
EARNINGS PER SHARE
3 Months Ended
Jul. 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]

NOTE B – EARNINGS PER SHARE


Reconciliation of the weighted average shares outstanding for basic and diluted loss per share for the three months ended July 31, 2020 and 2019, respectively, were as follows:


   

Three months ended July 31,

 
   

2020

   

2019

 

Weighted average shares outstanding:

               

Basic EPS Shares outstanding (weighted average)

    9,139,130       9,001,324  

Effect of Dilutive Securities

    **       **  

Basic and Diluted EPS Shares outstanding

    9,139,130       9,001,324  

**For the three-month periods ended July 31, 2020 and 2019 dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for both periods.  Basic and diluted shares outstanding for the three months ended July 31, 2020 and 2019 are 9,139,130 and 9,001,324, respectively. Additionally, there are anti-dilutive exercisable shares excluded in the above table for the three months ended July 31, 2020 and 2019 of 676,000 and 1,201,125, respectively.


v3.20.2
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET
3 Months Ended
Jul. 31, 2020
Contractors [Abstract]  
Long-term Contracts or Programs Disclosure [Text Block]

NOTE C – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET


At July 31, 2020 and April 30, 2020, costs and estimated earnings in excess of billings, net, consisted of the following:


   

July 31, 2020

   

April 30, 2020

 
   

(In thousands)

 

Costs and estimated earnings in excess of billings

  $ 17,466     $ 10,460  

Billings in excess of costs and estimated earnings

    (10,534

)

    (3,507

)

Net asset

  $ 6,932     $ 6,953  

Such amounts represent revenue recognized on long-term contracts that had not been billed at the balance sheet dates or represent a liability for amounts billed in excess of the revenue 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 date.  Revenue on these long-term contracts is accounted for on the percentage of completion (“POC”) basis. During the three months ended July 31, 2020 and 2019, revenue recognized under POC contracts was approximately $11.7 million and $11.5 million, respectively. If contract losses are anticipated, costs and estimated earnings in excess of billings are reduced for the full amount of such losses when they are determinable. Contract losses of approximately $611,000 and $314,000 were recorded for the three months ended July 31, 2020 and July 31, 2019, respectively.


v3.20.2
TREASURY STOCK TRANSACTIONS
3 Months Ended
Jul. 31, 2020
Disclosure Text Block Supplement [Abstract]  
Treasury Stock [Text Block]

NOTE D – TREASURY STOCK TRANSACTIONS


During the three month period ended July 31, 2020, the Company made contributions of 14,926 shares of its common stock held in treasury 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.


v3.20.2
INVENTORIES
3 Months Ended
Jul. 31, 2020
Inventory Disclosure [Abstract]  
Inventory Disclosure [Text Block]

NOTE E – INVENTORIES


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


   

July 31, 2020

   

April 30, 2020

 
   

(In thousands)

 

Raw Materials and Component Parts

  $ 13,942     $ 15,470  

Work in Progress

    6,788       6,104  

Finished Goods

    953       1,384  
    $ 21,683     $ 22,958  

The amounts above are net of reserves of $6.8 million and $6.6 million as of July 31, 2020 and April 30, 2020, respectively.


v3.20.2
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
3 Months Ended
Jul. 31, 2020
Disclosure Text Block [Abstract]  
Lessee, Operating Leases [Text Block]

NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES


The Company’s leases primarily represent offices, warehouses, vehicles, and manufacturing and research and development facilities which expire at various times through 2029 and are generally operating leases. Contractual arrangements are evaluated at inception to determine if the agreement contains a lease. Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. Right-of-use (“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. Lease terms may factor in options to extend or terminate the lease.


The Company elected the practical expedient for short-term leases which allows leases with terms of twelve months or less to be recorded on a straight-line basis over the lease term without being recognized on the balance sheet.


Effective May 1, 2019, the Company adopted ASU 2016-02. The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets, related to ASU 2016-02 (in thousands):


 

Classification

 

July 31, 2020

   

April 30, 2020

 
     

(unaudited)

         

Assets

                 

     Operating lease ROU assets

Right-of-Use assets leases

  $ 10,546     $ 10,864  
                   

Liabilities

                 

     Operating lease liabilities (short-term)

Lease liability, current

    1,822       1,869  

     Operating lease liabilities (long-term)

Lease liability, non-current

    9,172       9,444  

          Total lease liabilities

  $ 10,994     $ 11,313  

Total operating lease expense was $478,000 and $504,000 for the three months ended July 31, 2020 and July 31, 2019, 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. There were no new leases entered into during the three months ended July 31, 2020.


The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited consolidated balance sheet as of July 31, 2020:


Fiscal Year Ending July 31,

 

(in thousands)

 

 

 

 

 

 

Remainder of 2021

 

$

1,312

 

2022

 

 

1,886

 

2023

 

 

1,815

 

2024

 

 

1,834

 

2025

 

 

1,723

 

Thereafter

 

 

5,492

 

Total lease payments

 

 

14,062

 

Less imputed interest

 

 

(3,068

)

Present value of future lease payments

 

 

10,994

 

Less current obligations under leases

 

 

(1,822

Long-term lease obligations

 

 

9,172

 


As of July 31, 2020, the weighted-average remaining lease term for all operating leases was 8.1 years. The Company does not generally have access to the rate implicit in the leases and therefore utilized the Company’s borrowing rate as the discount rate. The weighted average discount rate for operating leases as of July 31, 2020 was 6.20%.


v3.20.2
SEGMENT INFORMATION
3 Months Ended
Jul. 31, 2020
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block]

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: 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 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. FEI-Zyfer’s products also incorporate precision time references for terrestrial secure communications and command and control, and frequency products that incorporate GPS.  FEI-Zyfer’s GPS capability complements the Company’s existing technologies and permits the combined entities to provide a broader range of embedded systems for a variety of timing functions and anti-spoofing (“SAASM”) applications.


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.


The accounting policies of the two segments are the same as those described in the “Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended April 30, 2020, filed on July 29, 2020 with the Securities and Exchange Commission. The Company evaluates the performance of its segments and allocates resources to them based on operating profit which is defined as income before investment income, interest expense and taxes.  All acquired assets, including intangible assets, are included in the assets of both reporting segments.


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


   

Three months ended July 31,

 
   

2020

   

2019

 

Revenues:

               

FEI-NY

  $ 9,839     $ 9,010  

FEI-Zyfer

    3,922       3,701  

less intersegment revenues

    (810

)

    (157

)

Consolidated revenues

  $ 12,951     $ 12,554  

Operating (loss) profit:

               

FEI-NY

  $ (623

)

  $ (1,232

)

FEI-Zyfer

    361       517  

Corporate

    (75

)

    (65

)

Consolidated operating loss

  $ (337

)

  $ (780

)


   

July 31, 2020

   

April 30, 2020

 

Identifiable assets:

               

FEI-NY

  $ 42,732     $ 44,599  

FEI-Zyfer

    14,786       13,344  

less intersegment balances

    -       (8,586

)

Corporate

    31,426       41,919  

Consolidated identifiable assets

  $ 88,944     $ 91,276  

Total revenue recognized over time as POC and Passage of Title (“POT”) were approximately $11.7 million and $1.3 million, respectively, of the $13.0 million reported for the three months ended July 31, 2020. The amounts recognized over time as POC and POT were approximately $11.5 million and $1.1 million of the $12.6 million reported for the three months ended July 31, 2019. The amounts by segment and product line were as follows:


 

 

Three Months Ended July 31, 2020

 

 

Three Months Ended July 31, 2019

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

POC Revenue

 

 

POT Revenue

 

 

Total Revenue

 

 

POC Revenue

 

 

POT Revenue

 

 

Total Revenue

 

FEI-NY

 

$

8,622

 

 

$

1,217

 

 

$

9,839

 

 

$

8,160

 

 

$

850

 

 

$

9,010

 

FEI-Zyfer

 

 

3,038

 

 

 

884

 

 

 

3,922

 

 

 

3,323

 

 

 

378

 

 

 

3,701

 

Intersegment

 

 

(9)

 

 

 

(801

)

 

 

(810

)

 

 

26

 

 

 

(183

)

 

 

(157

)

Revenue

 

$

11,651

 

 

$

1,300

 

 

$

12,951

 

 

$

11,509

 

 

$

1,045

 

 

$

12,554

 


   

Three Months Ended July 31,

 
   

2020

   

2019

 
   

(In thousands)

 

Revenue by Product Line:

               

Satellite Revenue

  $ 6,651     $ 3,895  

Government Non-Space Revenue

    5,335       6,744  

Other Commercial & Industrial Revenue

    965       1,915  

Consolidated revenues

  $ 12,951     $ 12,554  

v3.20.2
INVESTMENT IN MORION, INC.
3 Months Ended
Jul. 31, 2020
Investment Holdings [Abstract]  
Investment Holdings [Text Block]

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.


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.  This investment of approximately $800,000 is included in other assets in the accompanying condensed consolidated balance sheets. During the three months ended July 31, 2020 and 2019, the Company acquired product from Morion in the aggregate amount of approximately $150,000 and $245,000, respectively. There were no sales to Morion during the three months ended July 31, 2020. The Company sold product and training services to Morion in the aggregate amount of approximately $47,000 during the three months ended July 31, 2019, which is included in revenues in the unaudited condensed consolidated statements of operations as part of the FEI-NY segment. At July 31, 2020 there was approximately $34,000 payable to Morion. There were no amounts payable to Morion at April 30, 2020. There were no receivables related to Morion for either period ended July 31, 2020 and April 30. 2020. The Company did not receive dividends from Morion during the three months ended July 31, 2020. During the three months ended July 31, 2019, the Company received a dividend from Morion in the amount of approximately $125,000, which is included in other income, net in the condensed consolidated statements of operations as part of the FEI-NY segment.


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.


In light of Morion’s relationship with Gazprombank, the Company recently evaluated, with the assistance of external legal counsel, certain sales to Morion and the timing of payments by Morion to the Company in connection with those sales to determine whether payments by Morion may have inadvertently constituted extensions of credit in violation of Directive 1 under Executive Order 13662.  The Company determined that certain payments by Morion – the majority of which occurred more than five years ago – were not timely.  Following the evaluation, on May 7, 2020, the Company voluntarily disclosed its findings to the Office of Foreign Assets Control (“OFAC”).  The Company’s voluntary disclosure to OFAC relates solely to delays in collection of accounts receivable that exceeded then-applicable payment windows set forth in sanctions regulations and do not relate to any other type of payment or transaction.  On July 22, 2020, OFAC informed the Company that it is conducting a civil investigation of the matter. 


The ongoing OFAC civil investigation subjects the Company to a number of financial and business risks.  OFAC has broad enforcement discretion, and the imposition of sanctions, fines or remedial measures could have a material adverse effect on the Company’s business, prospects, reputation, financial condition, liquidity, results of operations or cash flows. Given the matter is in an early stage, however, the Company does not have sufficient information to (i) determine whether any liability (including penalties, sanctions, or remedial actions) as a result of the voluntary disclosure is probable or (ii) estimate the magnitude of any liability.  While we are currently unable to predict what if any actions OFAC might take, or what the likely outcome of any such actions might be, or estimate the range of reasonably possible fines or penalties, such outcome may be material.  Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, including legal fees.


v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS
3 Months Ended
Jul. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS


The cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale securities at July 31, 2020 and April 30, 2020, respectively, were as follows (in thousands):


   

July 31, 2020

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Fair Market Value

 

 Fixed income securities

  $ 9,350     $ 661     $ -     $ 10,011  

   

April 30, 2020

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Fair Market Value

 

 Fixed income securities

  $ 10,081     $ 495     $ (6

)

  $ 10,570  

The following table presents the fair value and unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


 

 

Less than 12 months

 

 

12 Months or more

 

 

Total

 

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

July 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fixed Income Securities

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fixed Income Securities

 

$

380

 

 

$

(6

)

 

$

-

 

 

$

-

 

 

$

380

 

 

$

(6

)


During the three months ended July 31, 2020, the Company sold or redeemed available-for-sale securities of approximately $725,000, realizing gains of approximately $3,000.


Maturities of fixed income securities classified as available-for-sale at July 31, 2020 were as follows, at cost (in thousands):


Current

  $ 2,724  

Due after one year through five years

    3,438  

Due after five years

    3,188  
    $ 9,350  

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).


The levels of the fair value hierarchy are described below:


 

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.


The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.  The Company’s money market, business account, and U.S. securities are valued on a Level 1 basis. The Company’s fixed income corporate debt securities and certificates of deposit are valued on a Level 2 basis.


v3.20.2
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
3 Months Ended
Jul. 31, 2020
Accounting Standards Update and Change in Accounting Principle [Abstract]  
Accounting Standards Update and Change in Accounting Principle [Text Block]

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS


In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is 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 value 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. The Company will not be adopting ASU 2017-04 early, and is in the process of determining the effect that ASU 2017-04 may have. However, the Company expects the new standard to have an immaterial effect on its 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. The new guidance is effective for fiscal years beginning after December 15, 2022. The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in fiscal year 2023.


v3.20.2
CREDIT FACILITY
3 Months Ended
Jul. 31, 2020
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

NOTE K – CREDIT FACILITY


As of July 31, 2020, the Company had available credit with UBS Bank USA at variable terms based on its securities holdings under an advisory arrangement, under which the Company has borrowed $3 million. On April 12, 2020, the Company received proceeds from a loan in the amount of $4,964,810 (the “PPP Loan”) from JPMorgan Chase Bank, N.A. as the Lender, pursuant to the SBA Paycheck Protection Program under the CARES Act. The PPP Loan was repaid in full on May 6, 2020.


v3.20.2
VALUATION ALLOWANCE ON DEFERRED TAX ASSETS
3 Months Ended
Jul. 31, 2020
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE L – VALUATION ALLOWANCE ON DEFERRED TAX ASSETS


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 realizability 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 July 31, 2020, and April 30, 2020, 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.


v3.20.2
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Jul. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]

NOTE M – COMMITMENTS AND CONTINGENCIES


On January 28, 2020, Martin B. Bloch, the former Chief Scientist of the Company and a former member of the Company’s Board, filed a complaint against the Company and Jonathan Brolin, Lance W. Lord, Russell M. Sarachek, Richard Schwartz and Stanton D. Sloane, each in their capacity as members of the Board (collectively, the “Director Defendants”), in the Supreme Court of the State of New York, County of Nassau (Bloch v. Frequency Electronics, Inc., et al., Index No. 601369/2020 (N.Y. Sup. Ct. filed Jan. 28, 2020)). Mr. Bloch seeks compensatory damages and costs and attorney’s fees, among other things, based on allegations that he was wrongfully terminated “for cause” pursuant to his employment agreement, dated March 17, 2008, and that the Company and the Director Defendants discriminated against him based on his age. Mr. Bloch had originally also sought a declaratory judgment and claims for damage to his reputation and a derivative claim on behalf of the Company alleging that the Director Defendants breached their fiduciary duty in rendering their decision to terminate Mr. Bloch’s employment with the Company. However, Mr. Bloch removed those claims from a subsequently filed amended complaint after the Company and the Director Defendants moved to dismiss them. On June 11, 2020, the Company and the Director Defendants filed their answer to the amended complaint. Mr. Bloch filed a motion for summary judgment on June 23, 2020, which the Company and the Director Defendants opposed on July 10, 2020. Mr. Bloch’s motion seeks an order that the Company is liable for breach of his employment agreement because he purportedly resigned from the Company before he was terminated. On July 10, 2020, the Company and the Director Defendants opposed Mr. Bloch’s motion and also filed a motion for summary judgment seeking the dismissal of all claims in Mr. Bloch’s amended complaint. The Parties’ respective motions are pending. The Company and the Director Defendants believe that the Board was justified in its decision to terminate Mr. Bloch “for cause” and that Mr. Bloch’s complaint is entirely without merit.  The Company intends to vigorously defend against all of Mr. Bloch’s allegations. At this time, the Company does not have sufficient information to determine whether liability, if any, arising out of these matters is probable or the possible loss, if any that could result from an unfavorable outcome arising out of these matters.


In addition, Mr. Bloch sought to initiate two arbitration proceedings under the AAA Rules (Bloch v. Frequency Electronics, Inc., the Compensation Committee of the Board of Directors of Frequency Electronics, Inc., and the Deferred Compensation Plan Agreement Dated March 7, 2008). One arbitration is brought under a deferred compensation agreement dated March 27, 1980 and the other under a second amended and restated deferred compensation agreement, dated March 7, 2008. Bloch submitted his Statements of Claim in both arbitrations on May 4, 2020.  In both proceedings, Mr. Bloch claims that defendants violated ERISA rules by denying him deferred compensation benefits. He seeks an award for allegedly past due deferred compensation benefits plus interest, clarification as to his future rights to deferred compensation benefits, and attorneys’ fees and costs. 


On June 2, 2020, the Company filed a petition for a stay of arbitration and related declaratory relief against Mr. Bloch, in the Supreme Court of the State of New York, New York County (Frequency Electronics, Inc. v. Martin B. Bloch, Index No. 652191/2020 (N.Y. Sup. Ct. filed June 2, 2020)). The Company claims that Mr. Bloch may not arbitrate his claims for deferred compensation because he did not timely appeal the Company’s denial of those claims, and because he failed to comply with the arbitration procedures in the applicable deferred compensation agreement. Mr. Bloch filed a motion on June 16, 2020 seeking a change of venue to the County of Nassau, which the Company opposed on July 7, 2020. The motion is currently pending. At this time, the Company does not have sufficient information to determine the likelihood of success of this petition.


On June 5, 2020, Mr. Bloch filed a petition against the Company, the Compensation Committee of the Company’s Board of Directors, and the Deferred Compensation Plan Agreement Dated March 7, 2008, as amended, for the appointment of an arbitrator in one of the arbitration proceedings that Mr. Bloch sought to initiate. The petition was filed in the Supreme Court of the State of New York, County of Nassau (Bloch v. Frequency Electronics, Inc. et al., Index No. 605380/2020 (N.Y. Sup. Ct. filed June 5, 2020)). On June 22, 2020, the Company moved to dismiss Mr. Bloch’s petition, and he opposed the Company’s motion on July 2, 2020. The motion is currently pending. Defendants dispute all of Bloch’s claims and intend to continue to vigorously defend the Company in this special proceeding. The likelihood of any outcome of this proceeding cannot be determined at this time.


v3.20.2
EARNINGS PER SHARE (Tables)
3 Months Ended
Jul. 31, 2020
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
Reconciliation of the weighted average shares outstanding for basic and diluted loss per share for the three months ended July 31, 2020 and 2019, respectively, were as follows:


   

Three months ended July 31,

 
   

2020

   

2019

 

Weighted average shares outstanding:

               

Basic EPS Shares outstanding (weighted average)

    9,139,130       9,001,324  

Effect of Dilutive Securities

    **       **  

Basic and Diluted EPS Shares outstanding

    9,139,130       9,001,324  

**For the three-month periods ended July 31, 2020 and 2019 dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for both periods.  Basic and diluted shares outstanding for the three months ended July 31, 2020 and 2019 are 9,139,130 and 9,001,324, respectively. Additionally, there are anti-dilutive exercisable shares excluded in the above table for the three months ended July 31, 2020 and 2019 of 676,000 and 1,201,125, respectively.

v3.20.2
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET (Tables)
3 Months Ended
Jul. 31, 2020
Contractors [Abstract]  
Costs and Estimated Earnings in Excess of Billings, Net [Table Text Block]
At July 31, 2020 and April 30, 2020, costs and estimated earnings in excess of billings, net, consisted of the following:


   

July 31, 2020

   

April 30, 2020

 
   

(In thousands)

 

Costs and estimated earnings in excess of billings

  $ 17,466     $ 10,460  

Billings in excess of costs and estimated earnings

    (10,534

)

    (3,507

)

Net asset

  $ 6,932     $ 6,953  
v3.20.2
INVENTORIES (Tables)
3 Months Ended
Jul. 31, 2020
Inventory Disclosure [Abstract]  
Schedule of Inventory, Current [Table Text Block]
Inventories, which are reported at the lower of cost and net realizable value, consisted of the following:


   

July 31, 2020

   

April 30, 2020

 
   

(In thousands)

 

Raw Materials and Component Parts

  $ 13,942     $ 15,470  

Work in Progress

    6,788       6,104  

Finished Goods

    953       1,384  
    $ 21,683     $ 22,958  
v3.20.2
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Tables)
3 Months Ended
Jul. 31, 2020
Disclosure Text Block [Abstract]  
Lessee, Operating Lease, Disclosure [Table Text Block]
Effective May 1, 2019, the Company adopted ASU 2016-02. The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets, related to ASU 2016-02 (in thousands):


 

Classification

 

July 31, 2020

   

April 30, 2020

 
     

(unaudited)

         

Assets

                 

     Operating lease ROU assets

Right-of-Use assets leases

  $ 10,546     $ 10,864  
                   

Liabilities

                 

     Operating lease liabilities (short-term)

Lease liability, current

    1,822       1,869  

     Operating lease liabilities (long-term)

Lease liability, non-current

    9,172       9,444  

          Total lease liabilities

  $ 10,994     $ 11,313  
Lessee, Operating Lease, Liability, Maturity [Table Text Block]
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited consolidated balance sheet as of July 31, 2020:


Fiscal Year Ending July 31,

 

(in thousands)

 

 

 

 

 

 

Remainder of 2021

 

$

1,312

 

2022

 

 

1,886

 

2023

 

 

1,815

 

2024

 

 

1,834

 

2025

 

 

1,723

 

Thereafter

 

 

5,492

 

Total lease payments

 

 

14,062

 

Less imputed interest

 

 

(3,068

)

Present value of future lease payments

 

 

10,994

 

Less current obligations under leases

 

 

(1,822

Long-term lease obligations

 

 

9,172

 

v3.20.2
SEGMENT INFORMATION (Tables)
3 Months Ended
Jul. 31, 2020
Segment Reporting [Abstract]  
Reconciliation of Revenue from Segments to Consolidated [Table Text Block]
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 condensed consolidated balance sheets for each of the periods (in thousands):


   

Three months ended July 31,

 
   

2020

   

2019

 

Revenues:

               

FEI-NY

  $ 9,839     $ 9,010  

FEI-Zyfer

    3,922       3,701  

less intersegment revenues

    (810

)

    (157

)

Consolidated revenues

  $ 12,951     $ 12,554  
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

Operating (loss) profit:

               

FEI-NY

  $ (623

)

  $ (1,232

)

FEI-Zyfer

    361       517  

Corporate

    (75

)

    (65

)

Consolidated operating loss

  $ (337

)

  $ (780

)

Reconciliation of Assets from Segment to Consolidated [Table Text Block]
   

July 31, 2020

   

April 30, 2020

 

Identifiable assets:

               

FEI-NY

  $ 42,732     $ 44,599  

FEI-Zyfer

    14,786       13,344  

less intersegment balances

    -       (8,586

)

Corporate

    31,426       41,919  

Consolidated identifiable assets

  $ 88,944     $ 91,276  
Disaggregation of Revenue [Table Text Block]
The amounts by segment and product line were as follows:


 

 

Three Months Ended July 31, 2020

 

 

Three Months Ended July 31, 2019

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

POC Revenue

 

 

POT Revenue

 

 

Total Revenue

 

 

POC Revenue

 

 

POT Revenue

 

 

Total Revenue

 

FEI-NY

 

$

8,622

 

 

$

1,217

 

 

$

9,839

 

 

$

8,160

 

 

$

850

 

 

$

9,010

 

FEI-Zyfer

 

 

3,038

 

 

 

884

 

 

 

3,922

 

 

 

3,323

 

 

 

378

 

 

 

3,701

 

Intersegment

 

 

(9)

 

 

 

(801

)

 

 

(810

)

 

 

26

 

 

 

(183

)

 

 

(157

)

Revenue

 

$

11,651

 

 

$

1,300

 

 

$

12,951

 

 

$

11,509

 

 

$

1,045

 

 

$

12,554

 

Revenue from External Customers by Products and Services [Table Text Block]
   

Three Months Ended July 31,

 
   

2020

   

2019

 
   

(In thousands)

 

Revenue by Product Line:

               

Satellite Revenue

  $ 6,651     $ 3,895  

Government Non-Space Revenue

    5,335       6,744  

Other Commercial & Industrial Revenue

    965       1,915  

Consolidated revenues

  $ 12,951     $ 12,554  
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
3 Months Ended
Jul. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Schedule of Available-for-sale Securities Reconciliation [Table Text Block]
The cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale securities at July 31, 2020 and April 30, 2020, respectively, were as follows (in thousands):


   

July 31, 2020

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Fair Market Value

 

 Fixed income securities

  $ 9,350     $ 661     $ -     $ 10,011  
   

April 30, 2020

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Fair Market Value

 

 Fixed income securities

  $ 10,081     $ 495     $ (6

)

  $ 10,570  
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Table Text Block]
The following table presents the fair value and unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


 

 

Less than 12 months

 

 

12 Months or more

 

 

Total

 

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

July 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fixed Income Securities

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Fixed Income Securities

 

$

380

 

 

$

(6

)

 

$

-

 

 

$

-

 

 

$

380

 

 

$

(6

)

Investments Classified by Contractual Maturity Date [Table Text Block]
Maturities of fixed income securities classified as available-for-sale at July 31, 2020 were as follows, at cost (in thousands):


Current

  $ 2,724  

Due after one year through five years

    3,438  

Due after five years

    3,188  
    $ 9,350  
v3.20.2
EARNINGS PER SHARE (Details) - shares
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Earnings Per Share [Abstract]    
Weighted Average Number of Shares Outstanding, Basic and Diluted 9,139,130 9,001,324
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 676,000 1,201,125
v3.20.2
EARNINGS PER SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted - shares
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Weighted average shares outstanding:    
Basic EPS Shares outstanding (weighted average) 9,139,130 9,001,324
Effect of Dilutive Securities [1]
Basic and Diluted EPS Shares outstanding 9,139,130 9,001,324
[1] For the three-month periods ended July 31, 2020 and 2019 dilutive securities are excluded from the calculation of earnings per share since the inclusion of such shares would be antidilutive due to the net loss for both periods. Basic and diluted shares outstanding for the three months ended July 31, 2020 and 2019 are 9,139,130 and 9,001,324, respectively. Additionally, there are anti-dilutive exercisable shares excluded in the above table for the three months ended July 31, 2020 and 2019 of 676,000 and 1,201,125, respectively.
v3.20.2
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET (Details) - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET (Details) [Line Items]    
Revenues $ 12,951 $ 12,554
Loss on Contracts 611,000,000 314,000,000
Contracts Accounted for under Percentage of Completion [Member]    
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET (Details) [Line Items]    
Revenues $ 11,700 $ 11,500
v3.20.2
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET (Details) - Costs and Estimated Earnings in Excess of Billings, Net - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Costs and Estimated Earnings in Excess of Billings, Net [Abstract]    
Costs and estimated earnings in excess of billings $ 17,466 $ 10,460
Billings in excess of costs and estimated earnings (10,534) (3,507)
Net asset $ 6,932 $ 6,953
v3.20.2
TREASURY STOCK TRANSACTIONS (Details)
3 Months Ended
Jul. 31, 2020
shares
Disclosure Text Block Supplement [Abstract]  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period 14,926
v3.20.2
INVENTORIES (Details) - USD ($)
$ in Millions
Jul. 31, 2020
Apr. 30, 2020
UNITED STATES    
INVENTORIES (Details) [Line Items]    
Inventory, Net $ 6.8 $ 6.6
v3.20.2
INVENTORIES (Details) - Schedule of Inventory, Current - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Schedule of Inventory, Current [Abstract]    
Raw Materials and Component Parts $ 13,942 $ 15,470
Work in Progress 6,788 6,104
Finished Goods 953 1,384
$ 21,683 $ 22,958
v3.20.2
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Details) - USD ($)
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Disclosure Text Block [Abstract]    
Operating Leases, Rent Expense $ 478,000 $ 504,000
Operating Lease, Weighted Average Remaining Lease Term 8 years 36 days  
Operating Lease, Weighted Average Discount Rate, Percent 6.20%  
v3.20.2
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Details) - Lessee, Operating Lease, Disclosure - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Assets    
Operating lease ROU assets $ 10,546 $ 10,864
Liabilities    
Operating lease liabilities (short-term) 1,822 1,869
Operating lease liabilities (long-term) 9,172 9,444
Total lease liabilities $ 10,994 $ 11,313
v3.20.2
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (Details) - Lessee, Operating Lease, Liability, Maturity - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Lessee, Operating Lease, Liability, Maturity [Abstract]    
Remainder of 2021 $ 1,312  
2022 1,886  
2023 1,815  
2024 1,834  
2025 1,723  
Thereafter 5,492  
Total lease payments 14,062  
Less imputed interest (3,068)  
Present value of future lease payments 10,994 $ 11,313
Less current obligations under leases (1,822) (1,869)
Long-term lease obligations $ 9,172 $ 9,444
v3.20.2
SEGMENT INFORMATION (Details)
$ in Thousands
3 Months Ended
Jul. 31, 2020
USD ($)
Jul. 31, 2019
USD ($)
SEGMENT INFORMATION (Details) [Line Items]    
Number of Reportable Segments 2  
Revenues $ 12,951 $ 12,554
Frequency Electronics Inc New York [Member]    
SEGMENT INFORMATION (Details) [Line Items]    
Number Of Principal Markets 3  
Revenues $ 9,839 9,010
POC Revenue [Member]    
SEGMENT INFORMATION (Details) [Line Items]    
Revenues 11,651 11,509
POC Revenue [Member] | Frequency Electronics Inc New York [Member]    
SEGMENT INFORMATION (Details) [Line Items]    
Revenues 8,622 8,160
POT Revenue [Member]    
SEGMENT INFORMATION (Details) [Line Items]    
Revenues 1,300 1,045
POT Revenue [Member] | Frequency Electronics Inc New York [Member]    
SEGMENT INFORMATION (Details) [Line Items]    
Revenues $ 1,217 $ 850
v3.20.2
SEGMENT INFORMATION (Details) - Reconciliation of Revenue from Segments to Consolidated - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Revenues:    
Revenues $ 12,951 $ 12,554
Frequency Electronics Inc New York [Member]    
Revenues:    
Revenues 9,839 9,010
Frequency Electronics Inc Zyfer [Member]    
Revenues:    
Revenues 3,922 3,701
Inter Segment [Member]    
Revenues:    
Revenues $ (810) $ (157)
v3.20.2
SEGMENT INFORMATION (Details) - Reconciliation of Operating Profit (Loss) from Segments to Consolidated - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Operating (loss) profit:    
Operating profit (loss) $ (337) $ (780)
Frequency Electronics Inc New York [Member]    
Operating (loss) profit:    
Operating profit (loss) (623) (1,232)
Frequency Electronics Inc Zyfer [Member]    
Operating (loss) profit:    
Operating profit (loss) 361 517
Corporate Segment [Member]    
Operating (loss) profit:    
Operating profit (loss) $ (75) $ (65)
v3.20.2
SEGMENT INFORMATION (Details) - Schedule of Reconciliation of Assets from Segment to Consolidated - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
Identifiable assets:    
Identifiable Assets $ 88,944 $ 91,276
Identifiable Assets (88,944) (91,276)
Frequency Electronics Inc New York [Member]    
Identifiable assets:    
Identifiable Assets 42,732 44,599
Identifiable Assets (42,732) (44,599)
Frequency Electronics Inc Zyfer [Member]    
Identifiable assets:    
Identifiable Assets 14,786 13,344
Identifiable Assets (14,786) (13,344)
Inter Segment [Member]    
Identifiable assets:    
Identifiable Assets 0 8,586
Identifiable Assets 0 (8,586)
Corporate Segment [Member]    
Identifiable assets:    
Identifiable Assets 31,426 41,919
Identifiable Assets $ (31,426) $ (41,919)
v3.20.2
SEGMENT INFORMATION (Details) - Disaggregation of Revenue - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Disaggregation of Revenue [Line Items]    
Revenue $ 12,951 $ 12,554
Frequency Electronics Inc New York [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 9,839 9,010
Frequency Electronics Inc Zyfer [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 3,922 3,701
Inter Segment [Member]    
Disaggregation of Revenue [Line Items]    
Revenue (810) (157)
POC Revenue [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 11,651 11,509
POC Revenue [Member] | Frequency Electronics Inc New York [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 8,622 8,160
POC Revenue [Member] | Frequency Electronics Inc Zyfer [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 3,038 3,323
POC Revenue [Member] | Inter Segment [Member]    
Disaggregation of Revenue [Line Items]    
Revenue (9) 26
POT Revenue [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 1,300 1,045
POT Revenue [Member] | Frequency Electronics Inc New York [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 1,217 850
POT Revenue [Member] | Frequency Electronics Inc Zyfer [Member]    
Disaggregation of Revenue [Line Items]    
Revenue 884 378
POT Revenue [Member] | Inter Segment [Member]    
Disaggregation of Revenue [Line Items]    
Revenue $ (801) $ (183)
v3.20.2
SEGMENT INFORMATION (Details) - Revenue from External Customers by Products and Services - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2020
Jul. 31, 2019
Revenue from External Customer [Line Items]    
Revenue $ 12,951 $ 12,554
Satellite Revenue [Member]    
Revenue from External Customer [Line Items]    
Revenue 6,651 3,895
Government Non-Space Revenue [Member]    
Revenue from External Customer [Line Items]    
Revenue 5,335 6,744
Other Commercial & Industrial Revenue [Member]    
Revenue from External Customer [Line Items]    
Revenue $ 965 $ 1,915
v3.20.2
INVESTMENT IN MORION, INC. (Details) - Morion Inc [Member] - USD ($)
3 Months Ended
Jul. 31, 2020
Jan. 31, 2020
Jul. 31, 2019
INVESTMENT IN MORION, INC. (Details) [Line Items]      
Cost Method Investment Ownership Percentage 4.60%    
Related Party Transaction, Purchases from Related Party $ 150,000   $ 245,000
Revenue from Related Parties     $ 47,000
Due to Related Parties $ 34,000    
Proceeds from Dividends Received   $ 125,000  
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details)
3 Months Ended
Jul. 31, 2020
USD ($)
Investments, Debt and Equity Securities [Abstract]  
Proceeds from Sale of Debt Securities, Available-for-sale $ 725,000
Available-for-sale Securities, Gross Realized Gains $ 3,000
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Schedule of Available-for-sale Securities Reconciliation - Fixed Income Securities [Member] - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Jul. 31, 2020
Apr. 30, 2020
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Schedule of Available-for-sale Securities Reconciliation [Line Items]    
Cost $ 9,350 $ 10,081
Gross Unrealized Gains 661 495
Gross Unrealized Losses 0 (6)
Fair Market Value $ 10,011 $ 10,570
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value - Fixed Income Securities [Member] - USD ($)
$ in Thousands
Jul. 31, 2020
Apr. 30, 2020
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Line Items]    
Fair Value, Less than 12 months $ 0 $ 380
Unrealized Losses, Less than 12 months 0 (6)
Fair Value, 12 Months or more 0 0
Unrealized Losses, 12 Months or more 0 0
Fair Value 0 380
Unrealized Losses $ 0 $ (6)
v3.20.2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Investments Classified by Contractual Maturity Date - Fixed Income Securities [Member]
$ in Thousands
Jul. 31, 2020
USD ($)
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Investments Classified by Contractual Maturity Date [Line Items]  
Current $ 2,724
Due after one year through five years 3,438
Due after five years 3,188
$ 9,350
v3.20.2
CREDIT FACILITY (Details) - USD ($)
Jul. 31, 2020
Apr. 12, 2020
Debt Disclosure [Abstract]    
Long-term Line of Credit $ 3,000,000  
Loans Payable to Bank   $ 4,964,810