Frequency Electronics(FEIM) - 2022 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements The unaudited statements show decreased assets, a quarterly profit but semi-annual loss, and a significant legal settlement Condensed Consolidated Balance Sheets Total assets decreased to $81.4 million, driven by lower life insurance cash value and reduced liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2021 | Apr 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $50,477 | $48,679 | | Total Assets | $81,378 | $86,016 | | Total Current Liabilities | $10,010 | $8,097 | | Total Liabilities | $26,749 | $30,607 | | Total Stockholders' Equity | $54,629 | $55,409 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Quarterly net income rose despite lower revenue, while the six-month period saw a net loss of $1.08 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $12,936 | $13,990 | $25,890 | $26,940 | | Gross Margin | $4,091 | $5,322 | $8,152 | $9,410 | | Operating Income (Loss) | $303 | $219 | $(1,385) | $(119) | | Net Income (Loss) | $497 | $329 | $(1,078) | $67 | | Basic and Diluted EPS | $0.05 | $0.04 | $(0.12) | $0.01 | Condensed Consolidated Statements of Cash Flows Net cash from operations was $1.7 million for the six-month period, with increased cash used in investing Cash Flow Summary for Six Months Ended October 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,661 | $1,980 | | Net cash used in investing activities | $(845) | $(169) | | Net cash used in financing activities | $0 | $(1,965) | | Net increase (decrease) in cash | $816 | $(154) | | Cash and cash equivalents at end of period | $10,623 | $3,654 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity declined to $54.6 million, primarily due to the six-month net loss - Stockholders' equity decreased from $55.4 million at the beginning of the fiscal year to $54.6 million at the end of the second quarter, mainly due to a net loss of $1.08 million for the six-month period[21] Notes to Condensed Consolidated Financial Statements Notes disclose a $6 million legal settlement, COVID-19 impacts, and segment revenue declines - The company settled litigation with its former Chief Scientist, Martin B. Bloch, for $6 million, resulting in a net expense of $650,000 recognized in selling and administrative expenses during the first quarter[82] - The COVID-19 pandemic continued to affect the company through employee absenteeism, delays in new contracts, and disruptions in the supply chain from vendors[28][29] Segment Revenues (in thousands) | Segment | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | FEI-NY | $10,381 | $11,156 | $20,543 | $20,996 | | FEI-Zyfer | $2,648 | $3,430 | $5,783 | $7,353 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue declines, margin contraction, lower SG&A, higher R&D, and strong liquidity Results of Operations Q2 revenue fell 7.5% YoY, with lower gross margin offset by reduced SG&A and increased R&D investment Revenue by Segment (in thousands) | Segment | Q2 2021 | Q2 2020 | Change (%) | H1 2021 | H1 2020 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | FEI-NY | $10,381 | $11,156 | (6.9)% | $20,543 | $20,996 | (2.2)% | | FEI-Zyfer | $2,648 | $3,430 | (22.8)% | $5,783 | $7,353 | (21.4)% | | Total | $12,936 | $13,990 | (7.5)% | $25,890 | $26,940 | (3.9)% | - Gross margin and the gross margin rate decreased due to increased engineering costs on complex development programs and supply chain problems, including parts unavailability and quality issues[105] - Selling and Administrative (SG&A) expenses decreased significantly, primarily due to a reduction in professional fees following the settlement of litigation with the company's former Chief Scientist[106] - Research and Development (R&D) expenses increased by 25.5% for the six-month period due to strategic investments in new technology developments for atomic clocks and low-noise oscillators to enhance future competitiveness[107] Liquidity and Capital Resources The company maintains a strong liquidity position with $40.5 million in working capital and a $38 million backlog - The company's working capital was $40.5 million at October 31, 2021, with cash, cash equivalents, and marketable securities totaling $20.6 million[119] - Consolidated funded backlog was approximately $38 million as of October 31, 2021, a decrease from $40 million at the end of fiscal year 2021[127] - Management believes that its liquidity is adequate to meet its operating and investment needs through at least December 15, 2022, and for the foreseeable future[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - The company has omitted this section as it is not applicable to smaller reporting companies[132] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The company's chief executive officer and chief financial officer concluded that as of October 31, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level[133] - No changes in the company's internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[135] Part II. Other Information Item 1. Legal Proceedings The company settled disputes with its former Chief Scientist for $6 million, resulting in a net expense of $650,000 - On August 25, 2021, the company settled all disputes with its former Chief Scientist, Martin B. Bloch, agreeing to pay him $6 million[138] - The settlement resulted in a net expense of $650,000, which was recognized in selling and administrative expenses[139] Item 6. Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and XBRL data - The exhibits filed with this report include certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and XBRL interactive data files[140]