UNITED STATES
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
TABLE OF CONTENTS
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, | |||||||
| 2025 | 2025 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances of $ | ||||||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Deferred taxes | ||||||||
| Goodwill | ||||||||
| Cash surrender value of life insurance and assets held in trust | ||||||||
| Right-of-use assets – operating leases | ||||||||
| Restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable – trade | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Loss provision accrual | ||||||||
| Income taxes payable | ||||||||
| Operating lease liability – current portion | ||||||||
| Contract liabilities | ||||||||
| Total current liabilities | ||||||||
| Deferred compensation | ||||||||
| Operating lease liability – non-current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - $ | ||||||||
| Common stock - $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Common stock reacquired and held in treasury -at cost ( | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
3
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross margin | ||||||||
| Selling and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Operating income | ||||||||
| Other income (expense): | ||||||||
| Income on investments | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other expense, net | ( | ) | ||||||
| Income before (benefit) provision for income taxes | ||||||||
| (Benefit) provision for income taxes | ( | ) | ||||||
| Net income | $ | $ | ||||||
| Net income per common share: | ||||||||
| Basic and diluted income per share | $ | $ | ||||||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to condensed consolidated financial statements.
4
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Non-cash charges to earnings | ||||||||
| Net changes in operating assets and liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Purchase of Treasury stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| 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, 2025 and 2024
(In thousands, except share data)
(Unaudited)
| Additional | Retained earnings | Treasury stock | Accumulated other comprehensive | |||||||||||||||||||||||||||||
| Common stock | paid in | (accumulated | (at cost) | Income | ||||||||||||||||||||||||||||
| Shares | Amount | capital | deficit) | Shares | Amount | (loss) | Total | |||||||||||||||||||||||||
| Balance at April 30, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Contribution of stock to 401(k) plan | - | - | - | - | ||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||||||
| Shares withheld on employee taxes on vested equity awards | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance at July 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Additional | Treasury stock | Accumulated other comprehensive | ||||||||||||||||||||||||||||||
| Common stock | paid in | Accumulated | (at cost) | Income | ||||||||||||||||||||||||||||
| Shares | Amount | capital | deficit | Shares | Amount | (loss) | Total | |||||||||||||||||||||||||
| Balance at April 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Contribution of stock to 401(k) plan | - | - | - | - | ||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||||||
| Shares withheld on employee taxes on vested equity awards | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Exercise of stock options and stock appreciation rights - net of shares tendered for exercise price | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Dividends payable | - | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance at July 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
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 condensed consolidated financial position of the Company as of July 31, 2025 and the results of its operations, changes in stockholders’ equity for the three months ended July 31, 2025 and 2024, and cash flows for the three months ended July 31, 2025 and 2024. The April 30, 2025 condensed consolidated balance sheet was derived from audited financial statements. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2025, filed on July 18, 2025 with the Securities and Exchange Commission (the “Form 10-K”). The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal year.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the previously reported changes in net assets.
NOTE B – EARNINGS PER SHARE
Reconciliation of the weighted average shares outstanding for basic and diluted earnings per share (“EPS”) for the three months ended July 31, 2025 and 2024, respectively, were as follows:
| Three months ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| Weighted average shares outstanding: | ||||||||
| Basic EPS shares outstanding (weighted average) | ||||||||
| Effect of dilutive securities | ||||||||
| Diluted EPS shares outstanding | ||||||||
| ** |
On
July 22, 2024, the Company’s Board of Directors declared a special cash dividend of $
NOTE C – CONTRACT ASSETS AND LIABILITIES
Contract
assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts
with customers. Contract assets are transferred to accounts receivable when the rights become unconditional. Contract liabilities primarily
relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied, and
therefore, revenue has not been recognized. During the three months ended July 31, 2025, we recognized $
7
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE D – EMPLOYEE BENEFIT PLANS
During
the three months ended July 31, 2025, the Company made contributions of
Deferred
compensation expense charged to selling and administrative expenses during the three months ended July 31, 2025, was approximately $
The
whole-life insurance policies on the lives of certain participants covered by deferred compensation agreements have been placed in a
Trust. Upon the death of any insured participant, cash received from life insurance policies in excess of the Company’s deferred
compensation obligations to the estate or beneficiaries of the deceased, are also placed in the Trust. These assets belong to the Company
until a change of control event, as defined in the Trust agreement, should occur. At that time, the Company is required to add sufficient
cash to the Trust so as to match the deferred compensation liability described above. Such funds will be used to continue the deferred
compensation arrangements following a change of control. The Life Insurance Policies amounted to $
NOTE E – INVENTORIES
Inventories, which are reported at the lower of cost and net realizable value, consisted of the following (in thousands):
| July
31, 2025 | April
30, 2025 | |||||||
| Raw materials and component parts | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The Company’s leases primarily represent offices, warehouses, vehicles, manufacturing and research and development (“R&D”) facilities, which expire at various times through 2030 and are operating leases. Contractual arrangements are evaluated at inception to determine if the agreement contains a lease. The leases contain renewal options, early termination, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. We include options to extend or terminate leases in the right-of-use (“ROU”) operating lease asset and liability when it is reasonably certain we will exercise these options. As of July 31, 2025, lease options were not included in the calculation of the ROU operating lease asset and liability. 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.
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 consolidated balance sheet. The Company has also elected the practical expedient to account for lease and non-lease components as a single component.
8
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents ROU assets and liabilities recorded on the respective consolidated balance sheets as follows (in thousands):
| July
31, 2025 | April
30, 2025 | |||||||
| Assets | ||||||||
| Right-of-use assets - operating leases | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Total lease liabilities | $ | $ | ||||||
Total
operating lease expense was $
The maturities of lease liabilities at July 31, 2025 are as follows:
| Fiscal Year Ending April 30, | ||||
| (in thousands) | ||||
| Remainder of 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of future lease payments | ||||
| Less current obligations under leases | ( | ) | ||
| Long-term lease obligations | ||||
As
of July 31, 2025 and 2024, the weighted-average remaining lease term for all operating leases was
9
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE G – SEGMENT INFORMATION
The
Company operates under
| (1) | FEI-NY – operates out of New York and its operations consist principally of precision time and frequency control products used in
The FEI-NY segment also includes the operations of the Company’s wholly owned subsidiary, FEI-Elcom. FEI-Elcom, in addition to its own product line, provides design and technical support for the FEI-NY segment’s communication satellite business. |
| (2) | FEI-Zyfer – operates out of California and its products incorporate Global Positioning System (GPS) technologies into systems and subsystems for secure communications, both government and commercial, and other locator applications. This segment also provides sales and support for the Company’s wireline telecommunications family of products, including US5G, which are sold in the U.S. market. |
The Company measures segment performance based on total revenues and profits generated by each geographic location rather than on the specific types of customers or end-users. Consequently, the Company determined that the segments indicated above most appropriately reflect the way the Company’s chief operating decision maker (“CODM”) views the business.
The
accounting policies of the
10
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The tables below present segment revenues, significant segment expenses, which consist of segment cost of revenues and segment R&D expenses, and segment operating income for each reportable segment and on a consolidated basis as reported in the consolidated statements of operations for the three months ended July 31, 2025 and 2024 (in thousands):
| Three Months Ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| FEI-NY | $ | $ | ||||||
| FEI-Zyfer | ||||||||
| Less intersegment revenues | ( | ) | ( | ) | ||||
| Consolidated revenues | $ | $ | ||||||
| Cost of revenues: | ||||||||
| FEI-NY | $ | $ | ||||||
| FEI-Zyfer | ||||||||
| Less intersegment cost of revenues | ( | ) | ( | ) | ||||
| Consolidated cost of revenues | $ | $ |
| Research and development expenses: | ||||||||
| FEI-NY | $ | $ | ||||||
| FEI-Zyfer | ||||||||
| Consolidated research and development expenses | $ | $ |
| Operating income: | ||||||||
| FEI-NY | $ | $ | ||||||
| FEI-Zyfer | ||||||||
| Less intersegment margin | ( | ) | ||||||
| Corporate | ( | ) | ( | ) | ||||
| Consolidated operating income | $ | $ |
Included
in the determination of operating income is selling, general, and administrative expenses of $
11
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The tables below present the identifiable assets of each reportable segment and on a consolidated basis as reported in the consolidated balance sheets as of July 31, 2025 and April 30, 2025 and the depreciation and amortization charges related to these identifiable assets for the three months then ended (in thousands):
| July
31, 2025 | April
30, 2025 | |||||||
| Identifiable assets: | ||||||||
| FEI-NY | $ | $ | ||||||
| FEI-Zyfer | ||||||||
| Less intersegment balances | ( | ) | ( | ) | ||||
| Corporate | ||||||||
| Consolidated identifiable assets | $ | $ | ||||||
| Three Months Ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| Depreciation and amortization: | ||||||||
| FEI-NY | $ | $ | ||||||
| FEI-Zyfer | ||||||||
| Consolidated depreciation and amortization expense | $ | $ | ||||||
Total
revenue recognized over time as Percentage of Completion (“POC”) and Passage of Title (“POT”) was approximately
$
The amounts by segment and product line were as follows (in thousands):
| Three Months Ended July 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| POC Revenue | POT Revenue | Total Revenue | POC Revenue | POT Revenue | Total Revenue | |||||||||||||||||||
| FEI-NY | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| FEI-Zyfer | ||||||||||||||||||||||||
| Intersegment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Three Months Ended July 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues by product line: | ||||||||
| Satellite revenue | $ | $ | ||||||
| Government non-space revenue | ||||||||
| Other commercial & industrial revenue | ||||||||
| Consolidated revenues | $ | $ | ||||||
12
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., a privately-held Russian company, which manufactures high precision quartz resonators and crystal oscillators. The Company has also previously licensed certain technology to Morion.
The
Company’s investment consists of
During
the three months ended July 31, 2025 and 2024, the Company did
Prior purchases of materials from Morion consisted primarily of quartz crystal blanks, which were used in the fabrication of quartz resonators. However, on October 30, 2024, the U.S. Department of Treasury’s Office of Foreign Assets Control designated Morion as a Specially Designated National, resulting in the blocking of all Morion property and property interests. As a result, the Company has terminated all commercial relationships with Morion, including the licensing of technology to Morion and the purchase of any products from Morion. The Company has established alternate sources of supply with respect to items previously acquired from Morion. The Company is also capable of fabricating the crystal blanks in-house.
NOTE I – RESTRICTED CASH
As
of July 31, 2025 and April 30, 2025, restricted cash consisted of approximately $
A reconciliation of cash and cash equivalents and restricted cash from the condensed consolidated balance sheets to the condensed consolidated statements of cash flows is shown below (in thousands):
| July
31, 2025 | April
30, 2025 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | ||||||
NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires companies to annually disclose categories in the effective tax rate reconciliation and additional information about income taxes paid. The new guidance is effective for annual periods beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-09 as of July 31, 2025 and determined there to be no material impact to the interim financial statements.
13
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE K – DEFERRED INCOME TAXES
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.
On
July 4, 2025, President Trump signed H.R.1, the One Big Beautiful Bill Act (“OBBBA”) into law. In accordance with U.S. GAAP,
the Company will account for the tax effects of changes in tax law in the period of enactment which is the quarter ended July 31, 2025.
The OBBBA made changes to the U.S. tax code, including, but not limited to: (1) allowing taxpayers to fully deduct domestic research
expenditures for tax years beginning after December 31, 2024, (2) provides a catch-up relief provision for taxpayers to accelerate deductions
for unamortized domestic research expenditures, (3) provides a permanent provision for
As required by the authoritative guidance on accounting for income taxes, we evaluate the realization 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. In general, the favorable research and expenditure provisions and permanent bonus depreciation provision will allow the Company to accelerate deductions and reduce cash taxes. The enactment of the OBBBA did not have a material impact on our provision or effective tax rate as of July 31, 2025. We continue to evaluate the OBBBA and its requirements, as well as its application to our business and its impact on cash taxes and our effective tax rate.
As
of July 31, 2025, the Company maintains a valuation allowance of $
NOTE L – PRODUCT WARRANTIES
The
Company generally provides its customers with a one-year warranty regarding the manufactured quality and functionality of its products.
The Company establishes warranty reserves based on its product history, current information on repair costs and annual sales levels.
| July
31, 2025 | April
30, 2025 | |||||||
| Balance at beginning of year | $ | $ | ||||||
| Warranty costs incurred | ( | ) | ( | ) | ||||
| Product warranty accrual | ||||||||
| Balance at end of year | $ | $ | ||||||
14
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 (“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, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, including the U.S government, 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, other supply chain related issues, increasing costs for materials, operating related expenses, competitive developments, changes in manufacturing and transportation costs, the availability of capital, the outcome of any litigation and arbitration proceedings, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive. Other sections of this Form 10-Q and in Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2025 (the “Form 10-K”) 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-Q 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, except as required by law.
Critical Accounting Policies and Estimates
The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory. Both of these areas require 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, 2025.
Revenue Recognition
Revenues are reported in operating results predominantly 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 regarding labor, outside services, materials, overhead costs, 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.
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.
Inventories
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 estimates for future business. Any changes arising from revised estimates are reflected in cost of revenues in the period the revision is made.
15
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Income Taxes
We are subject to income taxes in the U.S. and significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets that are not more likely than not to be realized. We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. In completing our assessment of realizability of our deferred tax assets, we consider our history of income (loss) measured at pre-tax income (loss) adjusted for permanent book-tax differences on a jurisdictional basis, volatility in actual earnings, excess tax benefits related to stock-based compensation in recent prior years and impacts of the timing of reversal of existing temporary differences. We also rely on our assessment of the Company’s projected future results of business operations, including uncertainty in future operating results relative to historical results, volatility in the market price of our common stock and its performance over time, variable macroeconomic conditions impacting our ability to forecast future taxable income, and changes in business that may affect the existence and magnitude of future taxable income. Our valuation allowance assessment is based on our best estimate of future results considering all available information.
Our provision for or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
RESULTS OF OPERATIONS
The table below sets forth for the three months ended July 31, 2025 and 2024, 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, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | ||||||||
| FEI-NY | 75.0 | % | 72.8 | % | ||||
| FEI-Zyfer | 26.9 | 28.3 | ||||||
| Less intersegment revenues | (1.9 | ) | (1.1 | ) | ||||
| 100.0 | 100.0 | |||||||
| Cost of revenues | 63.2 | 55.6 | ||||||
| Gross margin | 36.8 | 44.4 | ||||||
| Selling and administrative expenses | 26.0 | 18.9 | ||||||
| Research and development expenses | 8.2 | 9.8 | ||||||
| Operating income | 2.6 | 15.7 | ||||||
| Other income, net | 1.4 | 1.3 | ||||||
| (Benefit) provision for income taxes | (0.6 | ) | 0.9 | |||||
| Net income | 4.6 | % | 16.1 | % | ||||
Revenues
| Three months ended July 31, | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Segment | 2025 | 2024 | Change | |||||||||||||
| FEI-NY | $ | 10,354 | $ | 10,975 | $ | (621 | ) | (5.7 | )% | |||||||
| FEI-Zyfer | 3,718 | 4,272 | (554 | ) | (13.0 | ) | ||||||||||
| Intersegment revenues | (260 | ) | (170 | ) | (90 | ) | 52.9 | |||||||||
| $ | 13,812 | $ | 15,077 | $ | (1,265 | ) | (8.4 | )% | ||||||||
For the three months ended July 31, 2025, revenues from commercial and U.S. Government communication satellite programs accounted for approximately 47% of consolidated revenues compared to approximately 55% of consolidated revenues during this same period in the prior fiscal year. Revenues are recognized primarily over time under the percentage-of-completion (“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, accounted for approximately 50% of consolidated revenues for the three months ended July, 31, 2025 compared to approximately 42% of consolidated revenue during the same period in the prior fiscal year. Other commercial and industrial revenues for the three months ended July 31, 2025 and 2024 accounted for approximately 3% of consolidated revenue.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
The revenue for the three months ended July, 31, 2025 is lower than revenues in the prior period due to several customer imposed program delays. These delays are not expected to result in revenue reductions as the revenue shortfalls are anticipated to be realized in the upcoming quarters, predominately in this fiscal year.
Gross Margin
| Three Months ended July 31, | |||||||||||||
| (in thousands) | |||||||||||||
| 2025 | 2024 | Change | |||||||||||
| $ | 5,082 | $ | 6,698 | $ | (1,616 | ) | (24.1 | )% | |||||
| GM Rate | 36.8 | % | 44.4 | % | |||||||||
For the three months ended July 31, 2025, both gross margin (“GM”) and GM rate decreased compared to the same period in the prior fiscal year. The decrease in GM was primarily due to a decrease in revenue; and the decrease in GM rate was attributable to quarterly fluctuations in the mix of business activity between higher margin programs and lower margin programs, including cumulative catch-up adjustments for some ongoing programs. As we have stated in the past, gross margins on the manufacturing of existing products are generally high; whereas, gross margins on development efforts and new products are typically lower.
Selling, General, and Administrative Expenses
| Three Months ended July 31, | ||||||||||||||
| (in thousands) | ||||||||||||||
| 2025 | 2024 | Change | ||||||||||||
| $ | 3,585 | $ | 2,845 | $ | 740 | 26.0 | % | |||||||
For the three months ended July 31, 2025 and 2024, selling, general, and administrative (“SG&A”) expenses were approximately 26% and 19%, respectively, of consolidated revenues. The increase in SG&A expenses during the three months ended July 31, 2025 was an increase in payroll related expenses, including stock compensation, and investments in the future growth of the Company, including expansion into Colorado and Quantum sensing, which are expected to continue through the fiscal year.
Research and Development Expenses
| Three Months ended July 31, | ||||||||||||||
| (in thousands) | ||||||||||||||
| 2025 | 2024 | Change | ||||||||||||
| $ | 1,133 | $ | 1,488 | $ | (355 | ) | (23.9 | )% | ||||||
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. Fluctuations in R&D expenditures will occur in some periods due to current operational needs supporting ongoing programs. The Company plans to continue to invest in R&D in the future to keep its products at the state of the art.
Operating Income
| Three Months ended July 31, | ||||||||||||||
| (in thousands) | ||||||||||||||
| 2025 | 2024 | Change | ||||||||||||
| $ | 364 | $ | 2,365 | $ | (2,001 | ) | (84.6 | )% | ||||||
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
For the three months ended July 31, 2025, operating income decreased due to lower revenue and gross margin and increased SG&A as described above.
Other Income (Expense), net
| Three Months ended July 31, | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||
| Investment income, net | $ | 218 | $ | 224 | $ | (6 | ) | (2.7 | )% | |||||||
| Interest expense | (23 | ) | (26 | ) | 3 | (11.5 | )% | |||||||||
| Other expense, net | (2 | ) | - | (2 | ) | - | % | |||||||||
| $ | 193 | $ | 198 | $ | (5 | ) | (2.5 | )% | ||||||||
Other income (expense), net is derived from various sources. The income can come from reclaiming of metal, refunds, interest on deferred trust assets, or the sale of a fixed asset. Interest expense is related to the deferred compensation payments made to retired employees. The majority of the approximately $0.2 million of investment income for the three months ended July 31, 2025, was from interest income and unrealized gains on assets held in the Frequency Electronics, Inc. Deferred Compensation Trust.
(Benefit) Provision for Income Tax
| Three Months ended July 31, | ||||||||||||||
| (in thousands) | ||||||||||||||
| 2025 | 2024 | Change | ||||||||||||
| $ | (77 | ) | $ | 133 | $ | (210 | ) | (157.9 | )% | |||||
| Three Months ended July 31, | |||||||
| Effective tax rate on pre-tax book income: | 2025 | 2024 | |||||
| -13.9 | % | 5.2 | % | ||||
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
On July 4, 2025, President Trump signed the OBBBA into law. In accordance with U.S. GAAP, the Company will account for the tax effects of changes in tax law in the period of enactment which is the quarter ended July 31, 2025. The OBBBA made changes to the U.S. tax code, including, but not limited to: (1) allowing taxpayers to fully deduct domestic research expenditures for tax years beginning after December 31, 2024, (2) provides a catch-up relief provision for taxpayers to accelerate deductions for unamortized domestic research expenditures, (3) a permanent provision for 100% bonus depreciation deductions for most tangible personal property with a recovery period of 20 years or less, acquired and placed in service after January 19, 2025, and (4) for tax years beginning after December 31, 2024, restores Adjusted Taxable Income by adding back amortization and depreciation to calculate the limitation on interest deductions (effectively returning to EBITDA).
The estimated annual effective tax rate for the fiscal year ending April 30, 2026 is 20.96%. This calculation reflects an estimated income tax expense based on our current fiscal year annual pretax income forecast which includes non-deductible expenses, estimated research and development credits, and state income taxes. The estimate of the annual effective tax rate is based on evaluations of possible future events and may be subject to revision in subsequent reporting periods.
For the three months ending July 31, 2025, the Company recorded an income tax benefit of $77,270 which includes a discrete income tax benefit of $193,919. The discrete income tax benefit is primarily due to stock compensation windfall tax benefits. For the three months ending July 31, 2024, the Company recorded an income tax provision of $132,930 which included a discrete income tax expense of $6,894.
The effective tax rate for the three months ended July 31, 2025 was an income tax benefit of 13.89% on pretax income of $0.6 million compared to an income tax provision of 5.19% on pretax income of $2.6 million in the comparable prior fiscal year period. The effective tax rate for the three months ended July 31, 2025 differs from the U.S. federal statutory rate of 21% primarily due to non-deductible expenses, state income taxes, R&D credits and discrete items.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $29.6 million at July 31, 2025 and approximately $29.7 million at April 30, 2025. Included in working capital at July 31, 2025 and April 30, 2025 was $4.5 million and $4.7 million, respectively, of cash and cash equivalents. The Company’s current ratio was 2.3 to 1 at both July 31, 2025 and at April 30, 2025.
Net cash provided by operating activities for the three months ended July 31, 2025 was approximately $1.2 million and net cash used in operating activities for the three months ended July 31, 2024 was approximately $1.5 million. The increase in net cash provided by operating activities in the first three months of fiscal 2026 as compared to the prior fiscal year period was primarily due to timing of billings and cash collections. For the three months ended July 31, 2025 and 2024, the Company incurred approximately $1.3 million, in both periods, of non-cash operating expenses including amortization of ROU assets, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.
Net cash used in investing activities for the three months ended July 31, 2025 and 2024 was approximately $0.8 million and $0.3 million, respectively, all relating to purchases of capital expenditures.
Net cash used in financing activities for the three months ended July 31, 2025 and 2024 was $0.6 million and $0.1 million, respectively, all related to purchase of treasury stock.
The Company has been authorized by its Board of Directors to repurchase up to $5.0 million worth of shares of its common stock when appropriate opportunities arise. During the three months ended July 31, 2025, the Company acquired 21,910 shares, at a weighted average share price of $26.60 per share, for withholdings pursuant to RSU tax repayments. As of July 31, 2025, the Company has repurchased approximately $4.4 million of its common stock out of the $5.0 million authorization. During the three months ended, July 31, 2024, the Company repurchased 4,569 shares of outstanding common stock at a weighted average share price of $13.60 per share.
The Company will continue to expend resources for R&D to develop, improve and acquire products for space applications, guidance and targeting systems, and communication systems that 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.
19
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
As of July 31, 2025, the Company’s consolidated funded backlog was approximately $71 million compared to approximately $70 million at April 30, 2025. Approximately 64% of the backlog, as of July 31, 2025, is expected to be realized in the next twelve months. 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 future 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 short-term operating and investment needs through at least September 15, 2026 and its long-term operation and investment needs for the foreseeable future thereafter.
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, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
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, 2025, the Company’s disclosure controls and procedures were effective at a reasonable assurance level.
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 have been 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 fiscal quarter ended July 31, 2025 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1A. Risk Factors
As disclosed in “Item 1A. Risk Factors” in the Form 10-K, there are a number of risks and uncertainties that could have a material adverse effect on the Company’s business, financial position, results of operations and/or cash flows. There are no material updates or changes to the Company’s risk factors since the filing of the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchases
In March 2005 the Board of Directors authorized the repurchase of up to $5.0 million worth of shares of the Company’s common stock.
The following table presents the share repurchase activity for the quarter ended July 31, 2025:
| Period | Total
number of shares purchased (1) | Average
price paid per share | Total
number of shares purchased as part of the publicly announced plan or program | Approximate dollar value of shares that may yet be purchased under the plan or program | ||||||||||||
| May 1 - 31, 2025 | - | - | - | $ | 1,138,718 | |||||||||||
| June 1 - 30, 2025 | - | - | - | $ | 1,138,718 | |||||||||||
| July 1 - 31, 2025 | 21,910 | $ | 26.60 | 21,910 | $ | 555,912 | ||||||||||
| Total | 21,910 | 21,910 | $ | 555,912 | ||||||||||||
| (1) | Represents shares withheld with respect to stock-based awards to satisfy required tax withholding obligations for the month of July 2025. There were no shares withheld or otherwise repurchased during the months of May 2025 and June 2025. |
Item 5. Other Information
During
the three months ended July 31, 2025, no director or officer of the Company
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, 2025 formatted in eXtensible Business Reporting Language (XBRL): (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within Inline XBRL document. | |
| 104- | Cover Page Interaction Data File (formatted as inline XBRL and contained in Exhibit 101). |
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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. | ||
| Dated: September 15, 2025 | ||
| By: | /s/ Thomas McClelland | |
| Thomas McClelland | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Steven L. Bernstein | |
| Steven L. Bernstein | ||
| Chief Financial Officer, Secretary and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
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