Frequency Electronics(FEIM) - 2021 Q1 - Quarterly Report

Part I. Financial Information This section covers the company's financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Financial Statements The company reported increased revenues and narrowed losses for the quarter, with stable assets and ongoing legal and regulatory matters Condensed Consolidated Balance Sheets The balance sheet shows a slight decrease in total assets and liabilities, with stable stockholders' equity as of July 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | July 31, 2020 | April 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $49,633 | $51,235 | | Total Assets | $88,944 | $91,276 | | Total Current Liabilities | $10,738 | $12,988 | | Total Liabilities | $34,609 | $37,040 | | Total Stockholders' Equity | $54,335 | $54,236 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported increased revenues and a narrowed operating and net loss for the three months ended July 31, 2020 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended July 31, 2020 | Three Months Ended July 31, 2019 | | :--- | :--- | :--- | | Revenues | $12,951 | $12,554 | | Gross Margin | $4,088 | $3,953 | | Operating Loss | $(337) | $(780) | | Net Loss | $(262) | $(591) | | Basic and Diluted Loss Per Share | $(0.03) | $(0.07) | Condensed Consolidated Statements of Cash Flows Cash flow analysis shows a net decrease in cash due to financing activities, despite positive operating and investing cash flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended July 31, 2020 | Three Months Ended July 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62 | $153 | | Net cash provided by (used in) investing activities | $514 | $(1,597) | | Net cash used in financing activities | $(1,953) | $0 | | Net decrease in cash and cash equivalents | $(1,377) | $(1,444) | | Cash and cash equivalents at end of period | $2,431 | $2,239 | Notes to Condensed Consolidated Financial Statements Key notes disclose the impact of COVID-19, segment performance, an OFAC investigation, and ongoing legal proceedings with a former executive - The company is actively monitoring the impact of the COVID-19 pandemic, which has caused some vendor delays but has not significantly impacted production[30][31] The full financial effect for fiscal year 2021 remains uncertain[32] - The company made a voluntary disclosure to the Office of Foreign Assets Control (OFAC) regarding untimely payments from its Russian investment, Morion, Inc., which may have violated U.S. sanctions[61] OFAC has initiated a civil investigation, the outcome and potential liability of which are currently unknown[62] - The company is engaged in litigation and arbitration with a former executive, Martin B. Bloch, over claims of wrongful termination, age discrimination, and denial of deferred compensation benefits[79] The company is defending itself vigorously but cannot predict the outcome or estimate potential losses[80] Revenue by Segment (in thousands) | Segment | Three Months Ended July 31, 2020 | Three Months Ended July 31, 2019 | | :--- | :--- | :--- | | FEI-NY | $9,839 | $9,010 | | FEI-Zyfer | $3,922 | $3,701 | | Intersegment | $(810) | $(157) | | Total | $12,951 | $12,554 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses increased revenue, narrowed operating loss due to R&D reductions, and a strong liquidity position with growing backlog Results of Operations Revenue increased by 3.2% driven by satellite programs, while operating loss narrowed due to reduced R&D expenses despite higher SG&A costs Revenue Analysis (in thousands) | Revenue Source | Q1 FY2021 | Q1 FY2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Satellite Programs | $6,651 | $3,895 | $2,756 | 70.8% | | Government Non-Space | $5,335 | $6,744 | $(1,409) | (20.9)% | | Other Commercial | $965 | $1,915 | $(950) | (49.6)% | | Total Revenues | $12,951 | $12,554 | $397 | 3.2% | - Selling and administrative (SG&A) expenses increased by $775,000 (31.6%) year-over-year, attributed to higher professional fees related to litigation and increased insurance costs[109] - Research and development (R&D) expenses decreased by $1.1 million (47.5%) compared to the prior year, as previous R&D efforts have concluded and transitioned into production phases[110] Liquidity and Capital Resources The company maintains strong liquidity with $38.9 million in working capital and a growing funded backlog of $38 million - The company maintains a strong working capital position of $38.9 million and a current ratio of 4.6 to 1 at July 31, 2020[120] - Consolidated funded backlog increased to approximately $38 million as of July 31, 2020, up from $36 million at April 30, 2020[128] Approximately 81% of this backlog is expected to be realized in the next twelve months[128] - Management believes that its liquidity is adequate to meet its operating and investment needs through at least September 14, 2021[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not applicable to smaller reporting companies[133] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Company's chief executive officer and chief financial officer concluded that as of July 31, 2020, the Company's disclosure controls and procedures were effective[134] - There were no changes in the Company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the controls[136] Part II. Other Information This section details the company's ongoing legal proceedings and lists the exhibits filed with the quarterly report Item 1. Legal Proceedings The company is engaged in multiple legal disputes and arbitration with a former executive regarding termination and deferred compensation claims - Former Chief Scientist Martin B. Bloch filed a complaint against the Company alleging wrongful termination "for cause" and age discrimination[140] - Mr. Bloch also initiated two arbitration proceedings claiming denial of deferred compensation benefits under ERISA rules[141] - The Company has filed a petition to stay the arbitration and intends to vigorously defend against all of Mr. Bloch's allegations, but cannot determine the probability of liability or estimate any potential loss at this time[140][142] Item 6. Exhibits This section lists the exhibits filed, including CEO and CFO certifications and financial statements in XBRL format - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[145][146] - The report includes financial data formatted in eXtensible Business Reporting Language (XBRL)[147]