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What changed in FREQUENCY ELECTRONICS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FREQUENCY ELECTRONICS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+128 added−131 removedSource: 10-K (2024-08-02) vs 10-K (2023-07-27)

Top changes in FREQUENCY ELECTRONICS INC's 2024 10-K

128 paragraphs added · 131 removed · 103 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

37 edited+3 added−3 removed52 unchanged
Biggest changeEMPLOYEES Due to the specialized nature of our business, our performance depends on identifying, attracting, developing, motivating, and retaining a highly skilled workforce in multiple areas, including engineering, science, manufacturing, information technology, cybersecurity and business development. The Company develops its workforce using a broad-based recruiting process to select talented individuals and by offering competitive compensation and benefits.
Biggest changeThe Company develops its workforce using a broad-based recruiting process to select talented individuals and by offering competitive compensation and benefits. The Company currently employs 207 employees (200 full-time and 7 part-time), all based in the U.S. No employees are represented by labor unions.
Item 1. Business GENERAL DISCUSSION Frequency Electronics, Inc. (sometimes referred to as “Registrant”, “FEI”, “Frequency Electronics” or the “Company”) is a world leader in precision time and frequency generation technology, which is incorporated into commercial and Government Satellites, Command, Control, Communication, Computer, Intelligence, Surveillance and Reconnaissance (“C4ISR”), and Electronic Warfare (“EW”) systems.
Item 1. Business GENERAL DISCUSSION Frequency Electronics, Inc. (sometimes referred to as “Registrant”, “Frequency Electronics” or the “Company”) is a world leader in precision time and frequency generation technology, which is incorporated into commercial and Government Satellites, Command, Control, Communication, Computer, Intelligence, Surveillance and Reconnaissance (“C4ISR”), and Electronic Warfare (“EW”) systems.
The FEI-Zyfer segment, which operates out of California, designs and manufactures products which incorporate GPS technologies and high-precision clocks designed and manufactured at FEI-NY. FEI-Zyfer sells its products to both commercial and U.S. Government customers and collaborates with FEI-NY on joint product development activities.
The FEI-Zyfer segment, which operates out of California, designs and manufactures products which incorporate GPS technologies and high-precision clocks designed and manufactured at FEI. FEI-Zyfer sells its products to both commercial and U.S. Government customers and collaborates with FEI on joint product development activities.
Where supply chain issues have been encountered, the Company has responded by changing the source of supply or redesigning products and replacing unavailable parts and materials with alternates wherever possible. FEI is dependent on a limited number of suppliers for space qualified parts.
Where supply chain issues have been encountered, the Company has responded by changing the source of supply or redesigning products and replacing unavailable parts and materials with alternates wherever possible. FEI-NY is dependent on a limited number of suppliers for space qualified parts.
McClelland’s title was modified to Senior Vice President and Chief Scientist. On July 8, 2022, Dr. McClelland was appointed the Company’s Interim President and Chief Executive Officer, in addition to his existing positions and responsibilities with the Company, following the resignation of the Company’s former President and Chief Executive Officer, on July 8, 2022. On January 17, 2023, Dr.
McClelland’s title was modified to Senior Vice President and Chief Scientist. In July 2022, Dr. McClelland was appointed the Company’s Interim President and Chief Executive Officer, in addition to his existing positions and responsibilities with the Company, following the resignation of the Company’s former President and Chief Executive Officer. On January 17, 2023, Dr.
However, the Company’s experience indicates that programs and/or product sales can be delayed or canceled due to variations associated with periodic U.S. Government appropriations cycles and shifting priorities. If the U.S. Government canceled or delayed, even temporarily, programs and/or purchases involving Company products, the Company’s business could suffer a material adverse effect. 6 Table of Contents Negotiations on U.S.
However, the Company’s experience indicates that programs and/or product sales can be delayed or canceled due to variations associated with periodic U.S. Government appropriations cycles and shifting priorities. If the U.S. Government canceled or delayed, even temporarily, programs and/or purchases involving Company products, the Company’s business could suffer a material adverse effect. 5 Table of Contents Negotiations on U.S.
As of April 30, 2023, there were no amounts included in backlog under cost-plus fixed-fee contracts that had not been funded. The Company excludes from backlog those contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion.
As of April 30, 2024, there were no amounts included in backlog under cost-plus or fixed-fee contracts that had not been funded. The Company excludes from backlog those contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion.
During fiscal years 2023 and 2022, some of the Company’s development resources were applied to the design-stage of fixed-price satellite payload sub-system programs. For fiscal year 2024, the resources to be allocated to R&D will depend on market conditions and identification of new opportunities, as was the case in fiscal year 2023.
During fiscal years 2024 and 2023, some of the Company’s development resources were applied to the design-stage of fixed-price satellite payload sub-system programs. For fiscal year 2025, the resources to be allocated to R&D will depend on market conditions and identification of new opportunities, as was the case in fiscal year 2024.
Bernstein - Chief Financial Officer and Secretary and Treasurer Thomas McClelland, age 68, joined the Company as an engineer in 1984 and was elected Vice President, Commercial Products in March 1999. In fiscal year 2011, Dr. McClelland’s title was modified to Vice President Advanced Development to describe his expanded role in the Company. In January 2020 Dr.
Bernstein - Chief Financial Officer and Secretary and Treasurer Thomas McClelland, age 69, joined the Company as an engineer in 1984 and was elected Vice President, Commercial Products in March 1999. In fiscal year 2011, Dr. McClelland’s title was modified to Vice President Advanced Development to describe his expanded role in the Company. In January 2020 Dr.
FEI-Elcom, in addition to its own product line, provides design and technical support for the FEI-NY segment’s business. The products manufactured by the FEI-NY segment are principally marketed to the commercial and U.S. Government satellite markets, to other U.S. Department of Defense (“DOD”) customers and to wireless communications network providers.
FEI-Elcom, in addition to its own product line, provides design and technical support for FEI’s business. The products manufactured by the FEI-NY segment are principally marketed to the commercial and U.S. Government satellite markets, to other U.S. Department of Defense (“DOD”) customers and to wireless communications network providers.
Consequently, the Company determined that the segments indicated above appropriately reflect the way the Company’s management views the business. The FEI-NY segment, which operates out of the Company’s Long Island, New York headquarters facility, also includes the operations of the Company’s wholly-owned subsidiary, FEI-Elcom.
Consequently, the Company determined that the segments indicated above appropriately reflect the way the Company’s management views the business. The FEI-NY segment, which includes the parent company, FEI, and operates out of the Company’s Long Island, New York headquarters facility, also includes the operations of the Company’s wholly-owned subsidiary, FEI-Elcom.
Government end-use. During fiscal year 2023, Lockheed Martin Corporation (“Lockheed Martin”), Northrop Grumman Company (“Northrop Grumman”), Office of Naval Research and BAE Systems each accounted for more than 10% of the Company’s consolidated revenues. During fiscal year 2022, Northrop Grumman, Lockheed Martin, and BAE Systems each accounted for more than 10% of the Company’s consolidated revenues.
Government end-use. During fiscal year 2024, Lockheed Martin Corporation (“Lockheed Martin”), Northrop Grumman Company (“Northrop Grumman”), Office of Naval Research and BAE Systems each accounted for more than 10% of the Company’s consolidated revenues. During fiscal year 2023, Lockheed Martin, Northrop Grumman, Office of Naval Research and BAE Systems each accounted for more than 10% of the Company’s consolidated revenues.
The Company is required to submit, for subsequent review, an Incurred Cost Report by October 31, for each year then ended. All such required reports have been filed with no adverse comments to date. FEI has a DCAA audited and approved accounting system, which enables the Company to enter into contracts directly with U.S.
The Company is required to submit, for subsequent review, an Incurred Cost Report by October 31, for each year then ended. All such required reports have been filed with no adverse comments to date. Frequency Electronics has a DCAA audited and approved accounting system, which enables the Company to enter into contracts directly with U.S.
McClelland was appointed the Company’s President and Chief Executive Officer. Oleandro Mancini, age 74, joined the Company in August 2000 as Vice President, Business Development and was promoted to Senior Vice President in 2010. Prior to joining the Company, Mr.
McClelland was appointed the Company’s President and Chief Executive Officer. Oleandro Mancini, age 75, joined the Company in August 2000 as Vice President, Business Development and was promoted to Senior Vice President in 2010. Prior to joining the Company, Mr.
Government contracts; however, the cancellation or significant reduction of the Company’s commercial or existing U.S. Government contracts could also have a material adverse effect of the Company’s business. 7 Table of Contents The Company purchases a variety of electrical and other components and materials for use in the manufacture of its products.
Government contracts; however, the cancellation or significant reduction of the Company’s commercial or existing U.S. Government contracts could also have a material adverse effect of the Company’s business. The Company purchases a variety of electrical and other components and materials for use in the manufacture of its products.
The Company anticipates that adequate funds will be provided by the U.S. Government to ensure that these programs are sustained. FEI-Elcom addresses RF microwave modules and subsystems up to 60 GHz including fast switching, ultra-low phase noise synthesizers, up-down converters, receivers, tuners, ceramic resonance oscillators and dielectric resonance oscillators.
The Company anticipates that adequate funds will be provided by the U.S. Government to ensure that these programs are sustained. 6 Table of Contents FEI-Elcom addresses RF microwave modules and subsystems up to 60 GHz including fast switching, ultra-low phase noise synthesizers, up-down converters, receivers, tuners, ceramic resonance oscillators and dielectric resonance oscillators.
The Company’s relationship with Morion, which includes ownership of 4.6% of the outstanding shares of Morion’s common stock, permits the Company to secure a cost-effective source for high precision quartz resonators and crystal oscillators. Until April 30, 2022, the Morion investment was accounted for under the cost method.
The Company’s relationship with Morion, which includes ownership of 4.6% of the outstanding shares of Morion’s common stock, permits the Company to secure a cost-effective source for high precision quartz resonators and crystal oscillators. The Morion investment was accounted for under the cost method.
The Company continues to focus a significant portion of its own resources and efforts on developing hardware for satellites (commercial and U.S. Government) and terrestrial commercial communications systems, including wireless and GPS-related systems. During fiscal years 2023 and 2022, the Company expended $3.1 million and $5.0 million of its own funds, respectively, on such R&D activity.
The Company continues to focus a significant portion of its own resources and efforts on developing hardware for satellites (commercial and U.S. Government) and terrestrial commercial communications systems, including wireless and GPS-related systems. During fiscal years 2024 and 2023, the Company expended $3.4 million and $3.1 million of its own funds, respectively, on such R&D activity.
Bernstein, age 58, joined the Company in April 2010 as its Controller and was appointed to the position of Chief Financial Officer in April 2016. Effective January 1, 2019, Mr. Bernstein was also appointed as Secretary and Treasurer of the Company, in addition to his role as Chief Financial Officer. Prior to joining the Company, Mr.
Bernstein, age 59, joined the Company in April 2010 as its Controller and was appointed to the position of Chief Financial Officer in April 2016. In January 2019, Mr. Bernstein was also appointed as Secretary and Treasurer of the Company, in addition to his role as Chief Financial Officer. Prior to joining the Company, Mr.
(The sum of annual sales percentages exceeds 100% due to intersegment sales.) Consolidated revenues include sales to end-users in countries located outside of the U.S., primarily in Europe and Asia. During fiscal years 2023 and 2022, foreign sales comprised 3% and 2%, respectively, of consolidated revenues. For segment information, see Note 13 to the Consolidated Financial Statements.
(The sum of annual sales percentages exceeds 100% due to intersegment sales.) Consolidated revenues include sales to end-users in countries located outside of the U.S., primarily in Europe and Asia. During fiscal years 2024 and 2023, foreign sales comprised 4% and 3%, respectively, of consolidated revenues. For segment information, see Note 14 to the Consolidated Financial Statements.
Sales to non-U.S. end-users totaled approximately 3% and 2% of net revenues in fiscal years 2023 and 2022, respectively. The Company’s products are sold to both commercial and governmental customers. For the years ended April 30, 2023 and 2022, approximately 95% and 94%, respectively, of the Company’s sales were made under contracts to the U.S. Government or subcontracts for U.S.
Sales to non-U.S. end-users totaled approximately 4% and 3% of net revenues in fiscal years 2024 and 2023, respectively. The Company’s products are sold to both commercial and governmental customers. For the years ended April 30, 2024 and 2023, approximately 98% and 95%, respectively, of the Company’s sales were made under contracts to the U.S. Government or subcontracts for U.S.
This requires more precise timing and frequency control at the satellite. The Company manufactures the master timing systems (quartz, rubidium) and other significant timing and frequency generation products for navigation, communication and intelligence collection satellites, and many of the Company’s other space assemblies are used onboard spacecraft for command, control and power distribution.
The Company manufactures the master timing systems (quartz, rubidium) and other significant timing and frequency generation products for navigation, communication and intelligence collection satellites, and many of the Company’s other space assemblies are used onboard spacecraft for command, control and power distribution.
BACKLOG As of April 30, 2023, the Company’s consolidated backlog amounted to approximately $57 million compared to $40 million, at the end of the prior fiscal year. Approximately 75% of the current backlog is expected to be filled during the Company’s fiscal year ending April 30, 2024.
BACKLOG As of April 30, 2024, the Company’s consolidated backlog amounted to approximately $78 million compared to $57 million, at the end of the prior fiscal year. Approximately 70% of the current backlog is expected to be filled during the Company’s fiscal year ending April 30, 2025.
During fiscal years 2023 and 2022, approximately 79% and 85%, respectively, of the Company’s consolidated revenues were from products sold by the FEI-NY segment. In fiscal years 2023 and 2022, sales for the FEI-Zyfer segment were 24% and 16% of consolidated revenues.
During fiscal years 2024 and 2023, approximately 73% and 79%, respectively, of the Company’s consolidated revenues were from products sold by the FEI-NY segment. In fiscal years 2024 and 2023, sales for the FEI-Zyfer segment were 33% and 24% of consolidated revenues.
FEI-NY Segment: The Company provides precision time, frequency generation and synchronization products and subsystems that are found on-board satellites, in ground-based communication systems and imbedded in mobile platforms operated by the U.S. military.
There were three end-use contracts terminated during the fiscal year ended April 30, 2024. FEI-NY Segment: The Company provides precision time, frequency generation and synchronization products and subsystems that are found on-board satellites, in ground-based communication systems and imbedded in mobile platforms operated by the U.S. military.
Government agencies or indirectly through subcontracts intended for U.S. Government end-use. For fixed-price contracts, the price paid to the Company is not subject to adjustment by reason of costs incurred by the Company in the performance of the contract, except for costs incurred due to contract changes ordered by the customer.
For fixed-price contracts, the price paid to the Company is not subject to adjustment by reason of costs incurred by the Company in the performance of the contract, except for costs incurred due to contract changes ordered by the customer.
With respect to non-space products, such as systems for precision time for terrestrial secure communication and command and control, and products for multiple applications in the EW market, the Company competes with larger domestic companies such as Microchip Technology Inc. and Mercury Systems. 8 Table of Contents The Company has previously outsourced certain manufacturing processes to third parties and to Russia-based Morion, in which the Company is a minority stockholder.
With respect to non-space products, such as systems for precision time for terrestrial secure communication and command and control, and products for multiple applications in the EW market, the Company competes with larger domestic companies such as Microchip Technology Inc. and Mercury Systems.
The Company expects to continue to generate substantial revenues from deployment of new and replacement satellites and other U.S.
The Company expects to continue to generate substantial revenues from deployment of new and replacement satellites and other U.S. Government/DOD applications including sales of ruggedized subsystems for mobile U.S. military platforms.
Government and to the public and enterprise networks through jamming, multi-path or “spoofing” GPS signals may be mitigated by FEI-Zyfer’s technologies and products. High precision, ruggedized clocks combined with specialized software are essential for the security of government communication and systems. More than 86% of FEI-Zyfer’s revenues are derived from sales where the end user is the U.S. Government.
High precision, ruggedized clocks combined with specialized software are essential for the security of government communication and systems. More than 91% of FEI-Zyfer’s revenues are derived from sales where the end user is the U.S. Government.
If these suppliers were unable to deliver in reasonable time frames, then the prompt qualification of alternate suppliers may not be feasible or cost effective. Consequently, the Company could experience delays in delivery of its end products or costs in excess of what was originally quoted.
If these suppliers were unable to deliver in reasonable time frames, then the prompt qualification of alternate suppliers may not be feasible or cost effective.
The Company currently employs 196 employees (187 full-time and 9 part-time), all based in the U.S. No employees are represented by labor unions. Relationships with employees are favorable as reflected in high retention rates and increasing average length of service. Due to low turnover of employees, the average age of the workforce is increasing with time.
We believe our relationships with our employees are favorable as reflected in high retention rates and increasing average length of service. Due to low turnover of employees, the average age of the workforce is increasing with time.
Government/DOD applications including sales of ruggedized subsystems for mobile U.S. military platforms. 5 Table of Contents Satellite Payloads The use of satellites launched for communications, navigation, weather forecasting, video and data transmissions and Internet access has expanded the need to transmit increasing amounts of voice, video, and data to earth-based receivers.
Satellite Payloads The use of satellites launched for communications, navigation, weather forecasting, video and data transmissions and Internet access has expanded the need to transmit increasing amounts of voice, video, and data to earth-based receivers. This requires more precise timing and frequency control at the satellite.
FEI-Zyfer’s products are integrated into radar systems, airborne SIGINT/COMINT platforms, information networks, test equipment, military command and control terminals, and satellite ground stations. FEI-Zyfer’s products are an important extension of FEI’s core product line, specifically in secure PNT for Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance, and Reconnaissance (C5ISR). Recently identified threats to the communication capabilities of U.S.
FEI-Zyfer’s products are an important extension of FEI’s core product line, specifically in secure PNT for Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance, and Reconnaissance (C5ISR). Recently identified threats to the communication capabilities of U.S. Government and to the public and enterprise networks through jamming, multi-path or “spoofing” GPS signals may be mitigated by FEI-Zyfer’s technologies and products.
Depending on growth in total employment and the average age of newly hired employees, replacement of key technical staff may be an issue in the future due to increased retirement. Employee health and safety is a top priority.
Depending on growth in total employment and the average age of newly hired employees, replacement of key technical staff may be an issue in the future due to increased retirement. OTHER ASPECTS The Company’s business is not seasonal although it expects to experience some fluctuation in revenues during the second fiscal quarter as a result of summer holiday periods.
RESEARCH AND DEVELOPMENT The Company’s technological leadership continues to be an essential factor as it pursues future growth in revenues and earnings.
Consequently, the Company could experience delays in delivery of its end products or costs in excess of what was originally quoted. 7 Table of Contents RESEARCH AND DEVELOPMENT The Company’s technological leadership continues to be an essential factor as it pursues future growth in revenues and earnings.
The Company believes its ability to obtain raw materials, manufacture finished products, integrate them into systems and sub-systems and interface these systems with highly sophisticated end-user applications provides a strong competitive edge.
The Company believes its ability to obtain raw materials, manufacture finished products, integrate them into systems and sub-systems and interface these systems with highly sophisticated end-user applications provides a strong competitive edge. 8 Table of Contents EMPLOYEES Due to the specialized nature of our business, our performance depends on identifying, attracting, developing, motivating, and retaining a highly skilled workforce in multiple areas, including engineering, science, manufacturing, information technology, cybersecurity and business development.
These instruments and components are mission critical for many applications in the EW market, including SATCOM communication, surveillance, intelligence collection (SIGINT, COMINT, MASINT, and ELINT) and threat simulation systems. The Company’s sales on U.S. Government programs for both space and non-space applications are generally made under fixed price or cost-plus contracts either directly with U.S.
The Company’s sales on U.S. Government programs for both space and non-space applications are generally made under fixed price or cost-plus contracts either directly with U.S. Government agencies or indirectly through subcontracts intended for U.S. Government end-use.
Removed
There were no end-use contracts terminated for the fiscal year ended April 30, 2023. FEI-Zyfer Segment: FEI-Zyfer designs, develops and manufactures products which provide PNT, primarily incorporating Global Navigation Satellite System(s) technology. FEI-Zyfer’s products make use of both “in-the-clear” civil and “crypto-secured” military signals for GPS.
Added
These instruments and components are mission critical for many applications in the EW market, including SATCOM communication, surveillance, intelligence collection (SIGINT, COMINT, MASINT, and ELINT) and threat simulation systems. FEI-Zyfer Segment: FEI-Zyfer designs, develops and manufactures products which provide PNT, primarily incorporating Global Navigation Satellite System(s) technology.
Removed
The Company has provided all employees with detailed health and safety literature on COVID-19 and had implemented work from home policies at all locations for a period of time at the beginning of the pandemic for positions that were conducive to work from home in order to minimalize risk to the manufacturing staff that continued to work in the Company’s facilities.
Added
FEI-Zyfer’s products make use of both “in-the-clear” civil and “crypto-secured” military signals for GPS. FEI-Zyfer’s products are integrated into radar systems, airborne SIGINT/COMINT platforms, information networks, test equipment, military command and control terminals, and satellite ground stations.
Removed
The Company has since returned to essentially normal operations. OTHER ASPECTS The Company’s business is not seasonal although it expects to experience some fluctuation in revenues during the second fiscal quarter as a result of summer holiday periods.
Added
The Company has previously outsourced certain manufacturing processes to third parties and to Russia-based Morion, in which the Company is a minority stockholder.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs of April 30, 2023, the Company’s management believes the identified material weaknesses have been remediated. The Company cannot assure you that new material weaknesses in our internal control over financial reporting will not arise in the future.
Biggest changeAs the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan. Moreover, the Company cannot assure you that additional material weaknesses will not arise in the future.
Specifically, the emergence of numerous LEO commercial satellite systems that have significantly lower requirements for life in orbit may result in new products based on commercial parts and processes not required for the high performance and/or longer lived geo-synchronous orbit (GEO) satellites for which the Company has typically developed products.
Specifically, the emergence of numerous LEO commercial satellite systems that have significantly lower requirements for life in orbit may result in new products based on commercial parts and processes not required for the high performance and/or longer lived geo-synchronous orbit satellites for which the Company has typically developed products.
Turmoil in world financial markets may impact our supply chain resulting in unavailability of key components and materials increasing costs due to delays, need to redesign certain electronics in order to mitigate shortages or schedule impacts and costs to establish alternate qualified suppliers.
Turmoil in world financial markets may impact our supply chain resulting in unavailability of key components and materials, increasing costs due to delays, need to redesign certain electronics in order to mitigate shortages or schedule impacts and increasing costs to establish alternate qualified suppliers.
These U.S Government programs may be only partially or incrementally funded and are subject to potential termination, may be subject to funding reductions and/or delays due to changes in government priorities or other factors. Whether direct contracts with the U.S. Government or contracts with prime contractors to the U.S.
These U.S Government programs may be only partially or incrementally funded and are subject to potential termination. These programs may also be subject to funding reductions and/or delays due to changes in government priorities or other factors. Whether direct contracts with the U.S. Government or contracts with prime contractors to the U.S.
These impacts may affect our business due to customer cancellations, reduced demand for our products and increased costs, which impact our financial condition. We are also subject to inflation and recessionary pressures. The current inflationary environment has and may continue to increase our cost of labor as well as our other operating costs.
These impacts may adversely affect our business due to customer cancellations, reduced demand for our products and increased costs, which could impact our financial condition. We are also subject to inflation and recessionary pressures. The current inflationary environment has and may continue to increase our cost of labor as well as our other operating costs.
During fiscal year 2023, Lockheed Martin, Northrop Grumman, Office of Naval Research and BAE Systems each accounted for more than 10% of the Company’s consolidated revenues. These customers typically incorporate our products into larger programs.
During fiscal year 2024, Lockheed Martin, Northrop Grumman, Office of Naval Research and BAE Systems each accounted for more than 10% of the Company’s consolidated revenues. These customers typically incorporate our products into larger programs.
These could result in reputational damage, fines, litigation, operational impacts or significant costs for mitigation and/or recovery, all with adverse consequences to our financial position, results of operations and/or cash flows. 14 Table of Contents Claims by third parties that our products infringe their intellectual property could result in costly disputes and/or require us to develop alternate designs.
These could result in reputational damage, fines, litigation, operational impacts or significant costs for mitigation and/or recovery, all with adverse consequences to our financial position, results of operations and/or cash flows. Claims by third parties that our products infringe their intellectual property could result in costly disputes and/or require us to develop alternate designs.
Government on such programs could have a material adverse effect on our business, financial position, results of operations and/or cash flows. Either as a prime contractor or as a subcontractor, we rely heavily on U.S. Government programs, from which we derived approximately 95% and 94% of our sales in fiscal 2023 and fiscal 2022, respectively.
Government on such programs could have a material adverse effect on our business, financial position, results of operations and/or cash flows. Either as a prime contractor or as a subcontractor, we rely heavily on U.S. Government programs, from which we derived approximately 98% and 95% of our sales in fiscal 2024 and fiscal 2023, respectively.
For fiscal 2023 and fiscal 2022, approximately 95% and 94% of the Company’s sales, respectively, were made under contracts to the U.S. Government or subcontracts for U.S. Government end-use. As a subcontractor, the Company is reliant on a few large customers that generally hold the ultimate contract with the U.S. Government.
For fiscal 2024 and fiscal 2023, approximately 98% and 95% of the Company’s sales, respectively, were made under contracts to the U.S. Government or subcontracts for U.S. Government end-use. As a subcontractor, the Company is reliant on a few large customers that generally hold the ultimate contract with the U.S. Government.
Many of our competitors are larger, have greater financial resources and have larger research and development and marketing staffs. While we also maintain a robust internal research and development program that is intended to maintain our technical edge, the Company is limited in its resources and ultimately may not be able to successfully compete.
Many of our competitors are larger, have greater financial resources and have larger R&D and marketing staffs. While we also maintain a robust internal R&D program that is intended to maintain our technical edge, the Company is limited in its resources and ultimately may not be able to successfully compete.
Approximately 50.4% of our outstanding common stock is held by 6 individuals or entities. The market price of our common stock could decline if a large number of our shares of outstanding common stock are sold in the public market by our existing stockholders or as a result of the perception that such sales could occur.
Approximately 43.6% of our outstanding common stock is held by 5 individuals or entities. The market price of our common stock could decline if a large number of our shares of outstanding common stock are sold in the public market by our existing stockholders or as a result of the perception that such sales could occur.
Due to their nature, fixed price contracts inherently tend to have more financial risk than cost-type contracts, including as a result of inflationary pressures, labor shortages, and increased labor rates. In fiscal 2023, 81% of our sales were derived from fixed-price contracts.
Due to their nature, fixed price contracts inherently tend to have more financial risk than cost-type contracts, including as a result of inflationary pressures, labor shortages, and increased labor rates. In fiscal 2024, 87% of our sales were derived from fixed-price contracts.
In addition to the time off to recover (or pass the CDC guideline isolation period), there is a need to clean and disinfect the areas where the employee was working and had frequented in the facility. The nature of the Company’s business requires mostly “hands-on” activities related to design, manufacturing and testing.
In addition to the time off to recover, there is a need to clean and disinfect the areas where the employee was working and had frequented in the facility. The nature of the Company’s business requires mostly “hands-on” activities related to design, manufacturing and testing.
Finally, shifting funding priorities or federal budget changes, could also result in reductions in overall spending on our contracts and projects, which could adversely impact our business. Changes in funding priorities could reduce opportunities in existing programs and in future programs where we intend to compete.
Finally, shifting funding priorities or federal budget changes, could also result in reductions in overall spending on our contracts and projects, which could adversely impact our business, financial condition, results of operations and/or cash flows. Changes in funding priorities could reduce opportunities in existing programs and in future programs where we intend to compete.
Under standards established by the Public Company Accounting Oversight Board (United States) (“PCAOB”), a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Under standards established by the PCAOB, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Although our shares of common stock are listed on the Nasdaq Global Market, we have historically experienced a relatively low trading volume of approximately 13,000 shares per trading day.
The relatively low trading volume of our common stock may limit your ability to sell your shares. Although our shares of common stock are listed on the Nasdaq Global Market, we have historically experienced a relatively low trading volume of approximately 18,000 shares per trading day.
We may become subject to claims for infringement of intellectual property, which could result in litigation costs or require us to incur costs for developing alternate designs that may require extensive testing and qualification to meet contract obligations. This could result in adverse consequences to our financial position, results of operations and/or cash flows.
We may become subject to claims for infringement of intellectual property, which could result in litigation costs or require us to incur costs for developing alternate designs that may require extensive testing and qualification to meet contract obligations.
Any failure to maintain existing or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in new material weaknesses in the Company’s internal control over financial reporting, could result in future material misstatements in its consolidated financial statements and cause the Company to fail to meet its reporting and financial obligations, which in turn could have a negative impact on the Company’s financial condition.
Any failure to remediate the material weakness, or the development of new material weaknesses in the Company’s internal control over financial reporting, could result in future material misstatements in its consolidated financial statements and cause the Company to fail to meet its reporting and financial obligations, which in turn could have a negative impact on the Company’s financial condition.
Contract accounting requires significant judgment by the Company’s management with respect to estimating contract revenues and costs. Due to the nature and complexity of many of our contracts, the estimation of total revenues and costs at completion is subject to many variables and often difficult to predict accurately.
Due to the nature and complexity of many of our contracts, the estimation of total revenues and costs at completion is subject to many variables and often difficult to predict accurately.
Accordingly, investigations, claims, disputes, enforcement actions, litigation or other legal proceedings could have a material adverse effect on our financial position, results of operations and/or cash flows. 13 Table of Contents The Company ’ s failure to establish and maintain effective internal control over financial reporting resulted in a material misstatement of the audited consolidated financial statements in the Form 10-K for the fiscal year ended April 30, 2022 (the “ 2022 Form 10-K ” ).
Accordingly, investigations, claims, disputes, enforcement actions, litigation or other legal proceedings could have a material adverse effect on our financial position, results of operations and/or cash flows. 13 Table of Contents The Company has identified a material weakness in its internal control over financial reporting for the fiscal year ended April 30, 2024.
Our operating results, from time to time, may be below the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock. The relatively low trading volume of our common stock may limit your ability to sell your shares.
This volatility may or may not be related to our operating performance. Our operating results, from time to time, may be below the expectations of public market analysts and investors, which could have a material adverse effect on the market price of our common stock.
Risks Related to Our Common Stock Our stock price may continue to be volatile. The trading price of our common stock may continue to be volatile. As a result, investors in our common stock may experience substantial losses. This volatility may or may not be related to our operating performance.
This could result in adverse consequences to our financial position, results of operations and/or cash flows. 14 Table of Contents Risks Related to Our Common Stock Our stock price may continue to be volatile. The trading price of our common stock may continue to be volatile. As a result, investors in our common stock may experience substantial losses.
Health epidemics, pandemics and similar outbreaks, such as COVID-19, create substantial risk to the Company. Employees work in close proximity to one another. When an employee is positive for COVID-19 or suspected of being infected, other employees he or she has come in contact with may also be infected, with a cascading effect on the workforce.
Therefore, if an employee is infected with a communicable disease, such as COVID-19, or suspected of being infected, other employees he or she has come in contact with may also be infected, with a cascading effect on the workforce.
Removed
Although we have remediated the material weakness, we cannot assure you that other material weaknesses in internal control over financial reporting will not occur in the future. An ineffective control environment and could result in material misstatements in future consolidated financial statements.
Added
Contract accounting requires significant judgment by the Company’s management with respect to estimating contract revenues and costs and making assumptions for possible schedule and technical issues. These costs include planned costs for all phases of the contract and, if needed, costs for any technical issues that arise.
Removed
In the course of preparing the condensed consolidated financial statements for the second quarter of fiscal 2023, ended October 31, 2022, the Company identified revisions related to the calculations, and errors related to the presentation of contract assets and contract liabilities in the 2022 Form 10-K.
Added
Health epidemics, pandemics and similar outbreaks, such as COVID-19, create substantial risk to the Company. Employees work in close proximity to one another.
Removed
Following the identification of these prior errors and revisions, management re-evaluated the Company’s internal control over financial reporting as of April 30, 2022 and as of July 31, 2022 and identified certain deficiencies, which the Company concluded constituted material weaknesses in the Company’s internal control over financial reporting as of April 30, 2022 and for the three months ended July 31, 2022.
Added
Although the Company ’ s failure to establish and maintain effective internal control over financial reporting has not resulted in a material misstatement of the Company ’ s prior annual or interim consolidated financial statements, such failure could result in material misstatements in future consolidated financial statements.
Removed
As a result of the material weaknesses, the Company’s management concluded that the audited consolidated financial statements included in the 2022 Form 10-K were materially misstated. Accordingly, the Company filed the amendment to its 2022 Form 10-K in order to correct the audited consolidated financial statements for the fiscal year ended April 30, 2022.
Added
As more fully disclosed in Part II, Item 9A “Controls and Procedures,” in the course of preparing the audited consolidated financial statements for this Annual Report on Form 10-K, the Company an identified error related to the calculation of the provision for losses on contracts.
Removed
The material weaknesses were due to revisions related to the calculations, and errors related to the presentation of contract assets and contract liabilities.
Added
We determined that we did not maintain adequate controls over to the review of the calculation of the loss provision, which the Company concluded constituted a material weakness in the Company’s internal control over financial reporting as of April 30, 2024.
Removed
In response, the Company implemented the following remediation steps to address the material weaknesses: The Company used additional checks and balances surrounding the calculations and formulas used, as well as additional verification checks regarding the presentation of contract assets and contract liabilities to comply with current reporting requirements.
Added
To remediate the material weakness, the Company has implemented changes to its loss provision calculation and enhanced its controls over the review of the loss provision calculation to ensure appropriateness. The Company believes that its remediation plan will be sufficient to remediate the identified material weakness and strengthen its internal control over financial reporting.
Added
The Company believes by April 30, 2025, the Company’s next annual reporting date, is sufficient time to remediate the material weakness fully or, if not fully remediated, to complete testing of the remediated controls.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, the Company may become a defendant in litigation arising out of the ordinary course of business. As of July 27, 2023, the Company is not party to any material pending legal proceedings. Item 4. Mine Safety Disclosures Not applicable. 16 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings From time to time, the Company may become a defendant in litigation arising out of the ordinary course of business. As of July 23, 2024, the Company is not party to any material pending legal proceedings. Item 4. Mine Safety Disclosures Not applicable. 17 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe total amount of the special dividend payment was $9.4 million. Any future determinations as to the declaration of dividends on our common stock will be made at the discretion of the Board of Directors and will depend on our earnings, operating and financial conditions, capital requirements and other factors deemed relevant by the Board of Directors.
Biggest changeAny future determinations as to the declaration of dividends on our common stock will be made at the discretion of the Board of Directors and will depend on our earnings, operating and financial conditions, capital requirements and other factors deemed relevant by the Board of Directors.
DIVIDEND POLICY No dividends were declared or paid during fiscal year 2022. On December 20, 2022, the Board of Directors of the Company declared a special cash dividend of $1.00 per share of common stock. The dividend was paid on January 26, 2023, to stockholders of record as of the close of business on January 6, 2023.
DIVIDEND POLICY No dividends were declared or paid during fiscal year 2024. On December 20, 2022, the Board of Directors of the Company declared a special cash dividend of $1.00 per share of common stock. The dividend was paid on January 26, 2023, to stockholders of record as of the close of business on January 6, 2023.
Purchases may be commenced or suspended at any time without notice. The Company has acquired approximately $4 million of its common stock out of the total authorization of $5 million. The Company did not make any purchases of stock for the treasury during fiscal years 2023 or 2022. Item 6. [Reserved]
Purchases may be commenced or suspended at any time without notice. The Company has acquired approximately $4 million of its common stock out of the total authorization of $5 million. The Company did not make any purchases of stock for the treasury during fiscal years 2024 or 2023. Item 6. [Reserved]
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The common stock of the Company is listed on The Nasdaq Global Market (“NASDAQ”) under the ticker symbol “FEIM.” As of July 17, 2023, the approximate number of holders of record of common stock was 408.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The common stock of the Company is listed on The Nasdaq Global Market (“NASDAQ”) under the ticker symbol “FEIM.” As of July 24, 2024, the approximate number of holders of record of common stock was 420.
Added
The total amount of this special dividend payment was $9.4 million. Additionally, on July 22, 2024, the Board of Directors of the Company declared a special cash dividend of $1.00 per share of common stock. The dividend is payable on August 29, 2024, to stockholders of record as of the close of business on August 8, 2024.
Added
Based on the current number of shares of common stock outstanding, the total amount of this special cash dividend payment will be approximately $9.4 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFactors 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, 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.
Biggest changeFactors that would cause or contribute to such differences include, but are not limited to, the risks associated with reliance on key customers, including the U.S. government, the Company’s use of estimates when accounting for contracts, actions by significant customers or competitors, competitive factors, new products and technological changes, continued acceptance of the Company’s products in the marketplace, dependence upon third-party vendors, product prices and raw material costs, the Company’s ability to attract and retain key employees, general domestic and international economic conditions, health epidemics and pandemics, external disruptions to the Company’s facilities or supply chain, the Company’s operations in a highly regulated industry, the outcome of any litigation and arbitration proceedings, cybersecurity attacks, volatility in the Company’s stock price, including due to the relatively low trading volume of its common stock, and failure to maintain an effective system of internal controls over financial reporting.
As of April 30, 2023 and 2022, we have a full valuation allowance against our U.S. deferred tax assets. If these estimates and assumptions change in the future, the Company may be required to reduce its existing valuation allowance resulting in less income tax expense. The Company evaluates the likelihood of realizing its deferred tax assets quarterly.
As of April 30, 2024 and 2023, we have a full valuation allowance against our U.S. deferred tax assets. If these estimates and assumptions change in the future, the Company may be required to reduce its existing valuation allowance resulting in less income tax expense. The Company evaluates the likelihood of realizing its deferred tax assets quarterly.
For fiscal year 2024, 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 as in fiscal 2023. The Company expects internally generated cash will be adequate to fund these future R&D efforts.
For fiscal year 2025, 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 as in fiscal 2024. The Company expects internally generated cash will be adequate to fund these future R&D efforts.
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. 17 Table of Contents Critical Accounting Estimates The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements.
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. 18 Table of Contents Critical Accounting Estimates The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements.
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. During fiscal year 2023, as in fiscal year 2022, the impact of inflation on the Company’s business was due to increases in costs for materials and services.
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. During fiscal year 2024, as in fiscal year 2023, the impact of inflation on the Company’s business was due to increases in costs for materials and services.
The Company believes that its cash, as of April 30, 2023, and cash flows from operations will provide sufficient liquidity to meet its operating needs in the normal course of business in both the short-term (next twelve months from the date of issuance of these consolidated financial statements) and in the long-term (beyond the next twelve months).
The Company believes that its cash, as of April 30, 2024, and cash flows from operations will provide sufficient liquidity to meet its operating needs in the normal course of business in both the short-term (next twelve months from the date of issuance of these consolidated financial statements) and in the long-term (beyond the next twelve months).
Morion The Company has an investment in 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 accounted for its investment in Morion on the cost basis.
Morion The Company has an investment in 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.
During fiscal year 2023, the Company secured partial customer funding for a portion of its R&D efforts. The customer funds received in connection therewith appear in revenues and are not included in R&D expenses.
During fiscal year 2024, the Company secured partial customer funding for a portion of its R&D efforts. The customer funds received in connection therewith appear in revenues and are not included in R&D expenses.
Changes in estimates can have a material impact on the Company’s financial position and results of operations. Revenue Recognition Revenues are reported in operating results over time using the cost-to-cost method.
Changes in estimates can have a material impact on the Company’s financial position and results of operations. Revenue Recognition Revenues for most contracts are reported in operating results over time using the cost-to-cost method.
Satellite program revenues for government end-use were 43% and 52% of total revenues for fiscal years 2023 and 2022, respectively. Satellite program revenues for commercial end-use were 1% and 2% of total revenue for fiscal year 2023 and 2022, respectively. Revenues on satellite program contracts are recorded in the FEI-NY segment and are recognized primarily under the Percentage-of-Completion (“POC”) method.
Satellite program revenues for government end-use were 40% and 43% of total revenues for fiscal years 2024 and 2023, respectively. Satellite program revenues for commercial end-use were 2% and 1% of total revenue for fiscal years 2024 and 2023, respectively. Revenues on satellite program contracts are recorded in the FEI-NY segment and are recognized primarily under the percentage-of-completion (“POC”) method.
During fiscal year 2023, operating cash was increased by decreases in loss on provision accrual and other liabilities and increases in contract assets and inventory, offset by an increase in contract liabilities. During fiscal year 2022, operating cash was increased by a decrease in contract assets and inventory and increases in contract liabilities.
During fiscal year 2023, operating cash was increased by decreases in loss on provision accrual and other liabilities and increases in contract assets and inventory, partially offset by an increase in contract liabilities.
The remaining U.S. federal net operating losses of $15.6 million have an indefinite carry-forward period. The U.S. federal capital loss carry-forward of $0.9 million expires in fiscal years 2025 and 2027. U.S. federal R&D credits of $0.9 million begin to expire in fiscal year 2036 through fiscal year 2040.
The remaining U.S. federal net operating losses of $15.7 million have an indefinite carry-forward period. The U.S. federal capital loss carry-forward of $0.8 million expires in fiscal years 2025 and 2028. U.S. federal R&D credits of $1.0 million begin to expire in fiscal year 2036 through fiscal year 2040.
Revenues from non-space U.S. Government/DOD customers increased by approximately $0.7 million, or 4%, in fiscal year 2023 compared to fiscal year 2022. These revenues are recorded in both the FEI-NY and FEI-Zyfer segments and accounted for approximately 50% and 41% of consolidated revenues for fiscal years 2023 and 2022, respectively.
Revenues from non-space U.S. Government/DOD customers increased by approximately $8.7 million, or 43%, in fiscal year 2024 compared to fiscal year 2023. These revenues are recorded in both the FEI-NY and FEI-Zyfer segments and accounted for approximately 52% and 50% of consolidated revenues for fiscal years 2024 and 2023, respectively.
The Company believes this may continue to impact expenses in fiscal year 2024 and future years. As of April 30, 2023, the Company had an accumulated deficit of $25.6 million.
The Company believes this may continue to impact expenses in fiscal year 2025 and future years. As of April 30, 2024, the Company had an accumulated deficit of $20.0 million.
The Company also has state net operating loss carryforwards, and state tax credits that expire in various years and amounts. 21 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations was $1.2 million in fiscal year 2023 compared to cash provided by operations of $4.0 million in fiscal year 2022.
The Company also has state net operating loss carryforwards, and state tax credits that expire in various years and amounts. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations was $8.7 million in fiscal year 2024 compared to cash provided by operations of $1.2 million in fiscal year 2023.
The Company’s balance sheet continues to reflect a highly liquid position with working capital of $21.0 million at April 30, 2023 as compared to $34.2 million at April 30, 2022. Included in working capital at April 30, 2023 was $12.0 million consisting of cash and cash equivalents.
The Company’s balance sheet continues to reflect a highly liquid position with working capital of $27.3 million at April 30, 2024 as compared to $21.0 million at April 30, 2023. Included in working capital at April 30, 2024 was $18.3 million consisting of cash and cash equivalents.
Other commercial and industrial sales accounted for approximately 6% and 5% of consolidated revenues for fiscal years 2023 and 2022, respectively. Sales in this business area were $2.6 million for both the fiscal year ended April 30, 2023 and the fiscal year ended April 30, 2022.
Other commercial and industrial sales accounted for approximately 6% of consolidated revenues for both fiscal years 2024 and 2023. Sales in the other commercial and industrial sales area were $3.1 million and $2.6 million for the fiscal year ended April 30, 2024 and the fiscal year ended April 30, 2023, respectively.
Research and Development Expenses Fiscal Years Ended April 30, (in thousands) 2023 2022 Change $ 3,149 $ 4,975 $ (1,826 ) (36.7 )% As a percentage of consolidated revenue, R&D expense for the fiscal years ended April 30, 2023 and 2022 were 8% and 10%, respectively.
Research and Development Expenses Fiscal Years Ended April 30, (in thousands) 2024 2023 Change $ 3,380 $ 3,149 $ 231 7.3 % As a percentage of consolidated revenue, R&D expense for the fiscal years ended April 30, 2024 and 2023 were 6% and 8%, respectively.
There was no cash used in financing activities for the fiscal year ended April 30, 2022. The Company will continue to expend resources to develop, improve and acquire products for space and other applications, which management believes will result in future growth and profitability.
Net cash used in financing activities for the fiscal year ended April 30, 2023 was approximately $9.4 million related to a special dividend payout. The Company will continue to expend resources to develop, improve and acquire products for space and other applications, which management believes will result in future growth and profitability.
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.
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.
Income Tax Provision Fiscal Years Ended April 30, (in thousands) 2023 2022 Change $ 74 $ 1 $ 73 NM Fiscal Years Ended April 30, (in thousands) 2023 2022 Effective tax rate on pre-tax book loss: (1.3 )% (0.0 )% For the fiscal year ended April 30, 2023, the Company recorded an income tax provision of $74,000.
Income Tax (Benefit) Provision Fiscal Years Ended April 30, (in thousands) 2024 2023 Change $ (130 ) $ 74 $ (204 ) (275.7 )% Fiscal Years Ended April 30, (in thousands) 2024 2023 Effective tax rate on pre-tax book income (loss): (2.4 )% (1.3 )% For the fiscal year ended April 30, 2024, the Company recorded an income tax benefit of $130,000.
(See Note 12 to the Consolidated Financial Statements for a reconciliation of the actual tax benefit to the expected tax provision at the federal statutory rate.) As of April 30, 2023, the Company has U.S. federal net operating losses of $31.3 million of which $15.7 million begins to expire in fiscal year 2026 through fiscal year 2038, including $3.1 million which is subject to annual limitation under IRC Section 382.
(See Note 13 to the Consolidated Financial Statements for a reconciliation of the actual tax benefit to the expected tax provision at the federal statutory rate.) As of April 30, 2024, the Company has U.S. federal net operating losses of $24.2 million of which $8.5 million begins to expire in fiscal year 2025 through fiscal year 2038, including $2.0 million which is subject to annual limitation under Internal Revenue Code Section 382.
During fiscal years 2023 and 2022, the Company incurred $5.0 million and $5.4 million, respectively, in non-cash charges to earnings, including adjustments relating to net assets and liabilities for operating leases, loss provision accrual, loss on impairment of Morion, provision for a note receivable, depreciation and amortization expense, inventory adjustments, warranty and accounts receivable reserves and certain employee benefit plan expenses, including accounting for stock-based compensation.
The Company’s current ratio at April 30, 2024 was 1.9 to 1 compared to 1.8 to 1, at the end of prior fiscal year. 22 Table of Contents During fiscal years 2024 and 2023, the Company incurred $4.4 million and $5.0 million, respectively, in non-cash charges to earnings, including adjustments relating to net assets and liabilities for operating leases, loss provision accrual, provision for a note receivable, depreciation and amortization expense, inventory adjustments, warranty and accounts receivable reserves and certain employee benefit plan expenses, including accounting for stock-based compensation.
While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. 18 Table of Contents RESULTS OF OPERATIONS Consolidated Results The table below sets forth for the fiscal years ended April 30, 2023 and 2022, the percentage of consolidated net sales represented by certain items in the Company’s consolidated statements of operations: Fiscal Years Ended April 30, 2023 2022 Revenues FEI-NY 79.2 % 85.2 % FEI-Zyfer 24.4 16.2 Less intersegment revenues (3.6 ) (1.4 ) 100.0 100.0 Cost of revenues 80.8 82.2 Gross margin 19.2 17.8 Selling and administrative expenses 23.0 24.1 Research and development expenses 7.7 10.3 Operating loss (11.5 ) (16.6 ) Other (expense) income, net (1.8 ) (1.3 ) Provision from income taxes 0.2 - Net loss (13.5 )% (17.9 )% Revenues Fiscal Years Ended April 30, (in thousands) Segment 2023 2022 Change FEI-NY $ 32,314 $ 41,157 $ (8,843 ) (21.5 )% FEI-Zyfer 9,932 7,827 2,105 26.9 % Intersegment revenues (1,469 ) (688 ) (781 ) NM $ 40,777 $ 48,296 $ (7,519 ) (15.6 )% Fiscal year 2023 revenues from satellite programs, one of the Company’s largest business areas, decreased by $8.2 million, or 31%, compared to the prior fiscal year.
While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate. 19 Table of Contents RESULTS OF OPERATIONS Consolidated Results The table below sets forth for the fiscal years ended April 30, 2024 and 2023, the percentage of consolidated net sales represented by certain items in the Company’s consolidated statements of operations: Fiscal Years Ended April 30, 2024 2023 Revenues FEI-NY 72.9 % 79.2 % FEI-Zyfer 32.8 24.4 Less intersegment revenues (5.7 ) (3.6 ) 100.0 100.0 Cost of revenues 66.4 80.8 Gross margin 33.6 19.2 Selling and administrative expenses 18.4 23.0 Research and development expenses 6.1 7.7 Operating income (loss) 9.1 (11.5 ) Other (expense) income, net 0.8 (1.8 ) (Benefit) Provision from income taxes (0.2 ) 0.2 Net income (loss) 10.1 % (13.5 )% Revenues Fiscal Years Ended April 30, (in thousands) Segment 2024 2023 Change FEI-NY $ 40,261 $ 32,314 $ 7,947 24.6 % FEI-Zyfer 18,138 9,932 8,206 82.6 % Intersegment revenues (3,125 ) (1,469 ) (1,656 ) 112.7 % $ 55,274 $ 40,777 $ 14,497 35.6 % For the fiscal year ended April 30, 2024 revenue increased by approximately $14.5 million, or 36% compared to the prior fiscal year.
In fiscal year 2023, investing activities included the proceeds related to sales of marketable securities net of the purchases of marketable securities of $9.6 million and purchases of capital expenditures of $0.9 million.
In fiscal year 2023, investing activities included the proceeds related to sales of marketable securities net of the purchases of marketable securities of $9.6 million and purchases of capital expenditures of $0.9 million. There was no cash used in financing activities for the fiscal year ended April 30, 2024.
During the fiscal years ended April 30, 2023 and 2022, the Company acquired product from Morion in the aggregate amount of approximately $196,000 and $215,000, respectively.
During the fiscal years ended April 30, 2024 and 2023, the Company acquired product from Morion in the aggregate amount of approximately $89,000 and $196,000, respectively. During the fiscal years ended April 30, 2024 and 2023, the Company sold no product and no training services to Morion, and the Company received no dividends from Morion.
Selling and Administrative Expenses Fiscal Years Ended April 30, (in thousands) 2023 2022 Change $ 9,372 $ 11,662 $ (2,290 ) (19.6 )% In fiscal years ended April 30, 2023 and 2022, selling and administrative expenses (“SG&A”) were 23% and 24% of consolidated revenues, respectively.
Selling and Administrative Expenses Fiscal Years Ended April 30, (in thousands) 2024 2023 Change $ 10,184 $ 9,372 $ 812 8.7 % In fiscal years ended April 30, 2024 and 2023, selling and administrative expenses (“SG&A”) were 18% and 23% of consolidated revenues, respectively.
In the event that these items become unavailable from Morion, the Company is in the process of establishing alternate sources of supply. The Company is also capable of fabricating the crystal blanks in-house. Morion is a less than wholly-owned subsidiary of Gazprombank, a state-owned Russian bank. The U.S.
Purchases of materials from Morion consist mainly of quartz crystal blanks which are used in the fabrication of quartz resonators. In the event that these items become unavailable from Morion, the Company is in the process of establishing alternate sources of supply. The Company is also capable of fabricating the crystal blanks in-house.
Contract liabilities include amounts for programs that are pre-funded for long-lead materials required to be purchased. Net cash provided by investing activities for the fiscal year ended April 30, 2023 was $8.7 million compared to $2.3 million used in investing activities for the fiscal year ended April 30, 2022.
Net cash used in investing activities for the fiscal year ended April 30, 2024 was $1.5 million compared to $8.7 million provided by investing activities for the fiscal year ended April 30, 2023.
In response to these conditions, in connection with the preparation of the audited financial statements included in the 2022 Form 10-K, the Company impaired its investment in Morion in full. The impairment of $796,000 is included in other income (expense), net, in the Consolidated Statements of Operations for the fiscal year ended April 30, 2022.
In response to these conditions, in connection with the preparation of the audited financial statements included in the 2022 Form 10-K, the Company impaired its investment in Morion in full. The likelihood of future sales to, purchases, and dividend payments from Morion is questionable.
That being said, FEI is committed to maintaining its technical excellence, and expects future R&D investment to be in line with, or even potentially above historical commitments. The funds received in connection with customer funded R&D appears in revenues and the associated expenses are included in cost of revenues and are not included in the table above.
The funds received in connection with customer funded R&D appears in revenues and the associated expenses are included in cost of revenues and are not included in the table above. The Company believes that internally generated cash and cash reserves are adequate to fund its future R&D activity.
The Company is evaluating the effect, if any, the update will have on its consolidated financial statements when adopted in fiscal year 2024. 22 Table of Contents OTHER MATTERS The financial information reported herein is not necessarily indicative of future operating results or of the future financial condition of the Company.
The Company is in the process of evaluating the impact that the adoption of ASU No. 2023-09 will have to the financial statements and related disclosures. 23 Table of Contents OTHER MATTERS The financial information reported herein is not necessarily indicative of future operating results or of the future financial condition of the Company.
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 is evaluating the effect, if any, the update will have on its consolidated financial statements.
The new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the effect on its consolidated financial statements when adopted in fiscal year 2025 but does not expect the effect to be material.
The Company believes those engineering issues have largely been resolved, and the delayed programs are expected to start during fiscal year 2024 and contribute significantly to sales in fiscal year 2024. 19 Table of Contents Gross Profit Fiscal Years Ended April 30, (in thousands) 2023 2022 Change $ 7,849 $ 8,599 $ (750 ) (8.7 )% Gross Profit Percentage 19.2 % 17.8 % For the fiscal year ended April 30, 2023, the gross profit decreased and gross profit percentage increased as the result of several factors.
Government/DOD market. 20 Table of Contents Gross Profit Fiscal Years Ended April 30, (in thousands) 2024 2023 Change Gross Profit $ 18,583 $ 7,849 $ 10,734 136.8 % Gross Profit Percentage 33.6 % 19.2 % For the fiscal year ended April 30, 2024, the gross profit and gross profit percentage increased as a result of several factors.
The Company believes that internally generated cash and cash reserves are adequate to fund its future R&D activity. 20 Table of Contents Operating Loss Fiscal Years Ended April 30, (in thousands) 2023 2022 Change $ (4,672 ) $ (8,038 ) $ 3,366 (41.9 )% For the fiscal year ended April 30, 2023, the Company recorded an operating loss of $4.7 million compared to an operating loss of $8.1 million in the prior fiscal year.
Operating Income (Loss) Fiscal Years Ended April 30, (in thousands) 2024 2023 Change $ 5,019 $ (4,672 ) $ 9,691 (207.4 )% For the fiscal year ended April 30, 2024, the Company recorded operating income of $5.0 million compared to an operating loss of $4.7 million in the prior fiscal year.
In fiscal year 2022, investing activities included the proceeds related to sales of marketable securities net of the purchases of marketable securities of $422,000 and purchases of capital expenditures of $1.9 million. Net cash used in financing activities for the fiscal year ended April 30, 2023 was approximately $9.4 million related to a dividend payout.
In fiscal year 2024, there were no investing activities related to sales of marketable securities net of the purchases of marketable securities and there were purchases of capital expenditures of $1.5 million.
For the fiscal year ended April 30, 2022, the Company recorded an income tax provision of $1,000. The Company’s effective tax rate of (1.3)% for fiscal year 2023 differs from the U.S. federal statutory rate of 21% primarily due to state taxes and domestic losses for which the Company is not recognizing an income tax benefit.
The Company’s effective tax rate of (2.4)% for fiscal year 2024 differs from the U.S. federal statutory rate of 21% primarily due to state taxes, an income tax benefit for a reduction in the uncertain tax position liability in connection with the expiration of the statute of limitations, and the reduction in the valuation allowance due to a decrease in the deferred tax asset for which no tax benefit was provided.
Other Income (Expense), net Fiscal Years Ended April 30, (in thousands) 2023 2022 Change (Loss) income on Investments $ (606 ) $ 199 $ (805 ) NM Loss on disposal of asset - (110 ) 110 (100.0 )% Loss on impairment of Morion - (796 ) 796 (100.0 )% Interest expense (156 ) (77 ) (79 ) NM Other income (expense), net 7 160 (153 ) (95.6 )% $ (755 ) $ (624 ) $ (131 ) 21.0 % Losses on investment income was derived primarily from the sale of the Company’s available-for-sale marketable securities, which primarily consisted of fixed income securities, during the fiscal year ended April 30, 2023.
The change from an operating loss to operating income, year over year, is attributable to the Company’s significant increase in revenue and margin during fiscal year 2024, along with the positive effects of cost cutting measures instituted by management. 21 Table of Contents Other Income (Expense), net Fiscal Years Ended April 30, (in thousands) 2024 2023 Change Income (loss) on investments $ 561 $ (606 ) $ 1,167 (192.6 )% Interest expense (109 ) (156 ) 47 (30.1 )% Other income (expense), net (7 ) 7 (14 ) (200.0 )% $ 445 $ (755 ) $ 1,200 (158.9 )% The change from the prior fiscal year was mainly caused by a loss on the sale of the Company’s available-for sale marketable securities in the previous fiscal year.
Removed
The majority of the decrease in sales for fiscal year 2023 was in government satellite programs. This decrease is attributable in part to space programs which were delayed due to engineering issues, and in part to programs which were expected to start during fiscal year 2023 but have been delayed.
Added
The Company is encouraged by the significant revenue growth in both segments compared to the prior fiscal year. In fiscal year 2024, revenues from satellite programs, one of the Company’s largest business areas, increased by $5.3 million, or 30%, compared to the prior fiscal year.
Removed
The decrease in gross profit dollars was directly related to the decrease in revenues. Although the gross profit percentage increased slightly in fiscal year 2023 as compared to fiscal year 2022, it remains far below our targeted gross profit percentage range of 35%-40%.
Added
The majority of the increase in revenue for fiscal year 2024, as compared to fiscal year 2023, was as a result of an increase in sales in the non-space U.S.
Removed
However, the Company is encouraged by the fact that the gross profit percentage for the third and fourth quarters of fiscal year 2023 were both over 30%, and the Company anticipates that this trend will continue in fiscal year 2024.
Added
The increase in gross profit dollars was directly related to the significant increase in revenues over the prior fiscal year period as well as the increase in gross margin.
Removed
The low gross profit percentage for fiscal 2022 and fiscal 2023 started in the fourth quarter of fiscal 2022, when we reported that several developmental stage programs experienced substantially higher than anticipated engineering costs.
Added
The majority of the increase in the gross profit percentage, as compared to the prior fiscal year, was in the FEI-NY segment and was attributed to the Company resolving technical issues on some developmental programs from the prior two fiscal years.
Removed
This continued into the first quarter and partially into second quarter of fiscal year 2023, however, the Company believes those issues have been largely resolved and the gross margin for the third and fourth quarters of fiscal year 2023 has increased to over 30%, as mentioned above.
Added
The Company does not foresee significant additional technical issues regarding these programs as most of these programs have been completed. In addition, the Company has new programs that are progressing well, and the Company anticipates that they will add to the generation of additional revenue and profit.
Removed
The decrease in SG&A expenses was mainly due to the decrease in professional fees, deferred compensation expense, stock compensation expense and depreciation expense.
Added
While total SG&A expenses increased in fiscal year 2024, as compared to the prior fiscal year, SG&A expenses decreased as a percentage of revenue in fiscal year 2024, due to increased revenue as well as the Company successfully monitoring costs given the current economic conditions.
Removed
The $1.8 million decrease in R&D expense year over year was largely due to a renewed focus on correcting the program specific engineering issues identified above as part of an overall effort to return the Company to profitability.
Added
The Company funded R&D amount was slightly higher in fiscal year 2024 as compared to the previous fiscal year, reflecting the Company’s commitment to maintaining its technical excellence. The Company expects future R&D investment to be in line with, or even potentially above historical commitments.
Removed
It should also be noted that FEI has dedicated resources and made substantial progress on two advanced technology development programs which are externally funded, and thus do not show up as internally funded R&D.
Added
Additionally, interest expense was approximately 30% lower in fiscal year 2024, as compared to the prior fiscal year.
Removed
The decrease in operating loss was due to changes made affecting the second half of fiscal year 2023. The Company recorded approximately $614,000 of operating income in the second half of fiscal year 2023, a significant improvement from the $5.4 million operating loss for the first half of fiscal year 2023.
Added
For the fiscal year ended April 30, 2023, the Company recorded an income tax provision of $74,000.
Removed
Investment income was derived primarily from the Company’s holdings of marketable securities, which primarily consisted of fixed income securities for the fiscal year ended April 30, 2022.
Added
During fiscal year 2024, operating cash was increased as a result of decreases in loss on provision accrual and other liabilities and increases in contract assets and inventory, partially offset by an increase in contract liabilities and net income.
Removed
The Company’s current ratio at April 30, 2023 was 1.8 to 1 compared to 2.6 to 1, at the end of the prior fiscal year.
Added
RECENT ACCOUNTING PRONOUNCEMENTS In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands on the required disclosure of incremental segment information.
Removed
RECENT ACCOUNTING PRONOUNCEMENTS In January 2017, the Financial Accounting Standards Board (“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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Removed
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.
Removed
During the fiscal year ended April 30, 2022, the Company sold product and training services to Morion in the aggregate amount of approximately $23,000, included in revenues in the consolidated statements of operations as part of the FEI-NY segment.
Removed
During the fiscal years ended April 30, 2022, the Company received dividends from Morion in the amount of approximately $123,000, which is included in other income, net in the consolidated statements of operations as part of the FEI-NY segment.
Removed
During the fiscal year ended April 30, 2023, the Company sold no product and training services to Morion, and the Company received no dividends from Morion. Purchases of materials from Morion consist mainly of quartz crystal blanks which are used in the fabrication of quartz resonators.
Removed
The likelihood of future sales to, purchases, and dividend payments from Morion is questionable.

Other FEIM 10-K year-over-year comparisons