Frequency Electronics(FEIM) - 2020 Q4 - Annual Report

PART I Business Frequency Electronics, Inc. provides precision time and frequency generation systems for satellite, C4ISR, and EW, with 83% of FY2020 revenue from U.S. Government contracts - The company's core business is providing precision time and low phase noise frequency generation systems for space and challenging environments[15][17] - Operations are divided into two segments: FEI-NY, accounting for 77% of FY2020 revenues, and FEI-Zyfer, accounting for 26%[21][29][30] - Consolidated backlog was approximately $36 million as of April 30, 2020, with 81% expected to be filled in fiscal year 2021[44] - Sales to the U.S. Government or subcontracts for U.S. Government end-use constituted 83% of total sales in FY2020[46][47] | Category | FY 2020 | FY 2019 | | :--- | :--- | :--- | | R&D Expenditure | $5.1 million | $6.5 million | Risk Factors This section is not applicable as the company qualifies as a smaller reporting company - This item is not required for smaller reporting companies[68] Unresolved Staff Comments The company has no unresolved comments from the SEC staff - Not Applicable[69] Properties The company leases all primary operational facilities, including its headquarters in Long Island, NY, and sites in CA and NJ | Location | Size (sq. ft.) | Own or Lease | | :--- | :--- | :--- | | Long Island, NY | 93,000 | Lease | | Garden Grove, CA | 27,850 | Lease | | Northvale, NJ | 9,000 | Lease | - The lease for the main Long Island, NY facility was extended through September 30, 2029[71] Legal Proceedings The company is engaged in multiple legal disputes with a former Chief Scientist regarding wrongful termination, age discrimination, and deferred compensation claims - Martin B. Bloch, former Chief Scientist, filed a complaint alleging wrongful termination and age discrimination[74] - Mr. Bloch also initiated two arbitration proceedings claiming denial of benefits under deferred compensation agreements[75] - The company has filed a petition to stay arbitration, believing the claims are without merit, and intends to vigorously defend its position[74][76][77] Mine Safety Disclosures This disclosure is not applicable to the company's operations - Not applicable[78] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'FEIM'; no dividends were paid in FY2020 or FY2019, and no shares were repurchased - The company's common stock is listed on The Nasdaq Global Market under the ticker symbol "FEIM"[81] - No dividends were declared or paid during fiscal years 2020 and 2019, with an intention to retain future earnings[82] - The company did not repurchase any stock during fiscal years 2020 or 2019, with approximately $1 million remaining authorized under its repurchase program[83] Selected Financial Data This section is not applicable as the company qualifies as a smaller reporting company - Not Applicable[84] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2020 revenues decreased 16% to $41.5 million, gross margin fell to 13.9%, and operating loss widened to $10.9 million, driven by lower revenues and higher engineering costs Results of Operations FY2020 consolidated revenues decreased 16% to $41.5 million, gross profit fell 63.6%, and operating loss widened to $10.9 million, driven by lower revenues and higher engineering costs | Metric | FY 2020 (USD thousands) | FY 2019 (USD thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $41,507 | $49,509 | (16%) | | Gross Profit | $5,748 | $15,789 | (63.6%) | | Gross Margin | 13.9% | 31.9% | - | | Operating Loss | $(10,922) | $(2,817) | NM | | Net Loss | $(10,026) | $(2,529) | NM | - The decrease in gross profit and margin resulted from lower revenues and increased engineering costs on development-phase programs facing technical challenges[104] - The company recorded an income tax benefit of $1.74 million in FY2020, primarily due to the CARES Act allowing for net operating loss carryback[113] Liquidity and Capital Resources The company maintained strong liquidity with $38.3 million in working capital and $14.4 million in cash at FY2020-end, despite $1.4 million net cash used in operations | Metric | April 30, 2020 (USD millions) | April 30, 2019 (USD millions) | | :--- | :--- | :--- | | Working Capital | $38.3 | $46.9 | | Cash & Marketable Securities | $14.4 | N/A | | Current Ratio | 3.9 to 1 | 9.0 to 1 | - Net cash used in operations was $1.4 million in FY2020, compared to $0.1 million in FY2019[115] - The company received a $5.0 million PPP loan in April 2020, which was fully repaid in May 2020[119][308] - Management believes existing cash, marketable securities, and cash flows will provide sufficient liquidity for the next twelve months[121] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Not applicable[134] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2020 and FY2019, including balance sheets, statements of operations, cash flows, and comprehensive notes Consolidated Financial Statements FY2020 net loss was $10.0 million on $41.5 million revenues, with total assets of $91.3 million, liabilities of $37.0 million, and stockholders' equity of $54.2 million Key Financial Statement Data (USD thousands) | Account | April 30, 2020 | April 30, 2019 | | :--- | :--- | :--- | | Total Assets | $91,276 | $86,771 | | Total Liabilities | $37,040 | $23,682 | | Total Stockholders' Equity | $54,236 | $63,089 | | Revenues (FY) | $41,507 | $49,509 | | Net Loss (FY) | $(10,026) | $(2,529) | | Net Cash Used in Operations (FY) | $(1,407) | $(97) | Notes to Consolidated Financial Statements The notes detail accounting policies, including lease standard adoption, COVID-19 impact, CARES Act tax benefits, segment performance, and ongoing legal contingencies - The company adopted the new lease accounting standard (Topic 842) in FY2020, recognizing $12.1 million in lease liabilities and right-of-use assets[216][128] - In FY2020, a $1 million reserve was recorded for a note receivable from the 2018 Gillam subsidiary sale; the FEI-Asia subsidiary sale in May 2019 resulted in a $1 million loss in FY2019[219][220] - The company recorded an income tax benefit of $1.74 million in FY2020, primarily due to the CARES Act allowing for net operating loss carryback[273][277][279] Segment Operating Loss (FY 2020, USD thousands) | Segment | Operating Loss | | :--- | :--- | | FEI-NY | $(9,910) | | FEI-Zyfer | $(673) | | Corporate | $(339) | | Consolidated Total | $(10,922) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no disagreements with its accountants on accounting principles, financial disclosure, or auditing scope - None[310] Controls and Procedures As of April 30, 2020, management concluded that both disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of April 30, 2020[311] - Management assessed the company's internal control over financial reporting as effective as of April 30, 2020, based on the COSO framework[313] Other Information There was no other information to be reported in this section - None[316] PART III Part III incorporates information by reference from the company's 2020 Proxy Statement, covering directors, executive officers, corporate governance, compensation, security ownership, and accountant fees Directors, Executive Officers and Corporate Governance Information on directors, executive officers, corporate governance, and Section 16(a) compliance is incorporated by reference from the 2020 Proxy Statement - Information required by this item is incorporated by reference from the company's definitive proxy statement for the annual meeting of stockholders[319] Executive Compensation This information is incorporated by reference from the company's 2020 Proxy Statement - This item is incorporated by reference from the Company's 2020 Proxy Statement[320] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This information is incorporated by reference from the company's 2020 Proxy Statement - This item is incorporated by reference from the Company's 2020 Proxy Statement[320] Certain Relationships and Related Transactions, and Director Independence This information is incorporated by reference from the company's 2020 Proxy Statement - This item is incorporated by reference from the Company's 2020 Proxy Statement[321] Principal Accountant Fees and Services This information is incorporated by reference from the company's 2020 Proxy Statement - This item is incorporated by reference from the Company's 2020 Proxy Statement[321] PART IV This final part lists the financial statements and exhibits filed as part of the annual report, including signatures of officers and directors Exhibits and Financial Statement Schedules This section provides an index of financial statements and all exhibits filed with the Form 10-K, including corporate governance documents and certifications - Lists the financial statements and exhibits filed as part of the annual report[325] Form 10-K Summary No summary is provided in this section - None[330]