R&D and Innovation - The company expended 3.1 million in fiscal year 2023 on R&D for satellite and terrestrial communication systems[31] - The Company engages in R&D activities to improve existing products and manufacturing processes, with costs expensed as incurred[170] - Research and development expenses increased slightly to 3.1 million in 2023[139] Revenue and Sales - Approximately 98% of the company's sales in fiscal 2024 and 95% in fiscal 2023 were derived from U.S. Government contracts or subcontracts[42] - 87% of the company's sales in fiscal 2024 were derived from fixed-price contracts, which carry higher financial risk[49] - The company's major customers include Lockheed Martin, Northrop Grumman, Office of Naval Research, and BAE Systems, each accounting for more than 10% of consolidated revenues in fiscal 2024[45] - Revenue increased to 40.8 million in 2023[139] - Consolidated revenues for the fiscal year ended April 30, 2024 were 40.8 million in 2023[169] - Consolidated revenues increased from 55.3 million in 2024, driven by growth in both FEI-NY and FEI-Zyfer segments[228] - FEI-NY segment revenues grew from 40.3 million in 2024, while FEI-Zyfer segment revenues increased from 18.1 million over the same period[228] - Approximately 98% of the company's sales in 2024 were made under contracts to the U.S. Government or subcontracts for U.S. Government end-use, up from 95% in 2023[230] - Foreign sales increased from 2.1 million in 2024, representing a small portion of total revenues[234] Financial Performance - Gross margin improved significantly to 7.8 million in 2023, reflecting a 136.8% increase[139] - Net income turned positive at 5.5 million in 2023[139] - Operating income reached 4.7 million in 2023[139] - Basic and diluted earnings per share were 0.59 per share in 2023[139] - Operating income improved significantly, with FEI-NY reporting 4.2 million in 2023, and FEI-Zyfer reporting 0.2 million in 2023[228] Cash Flow and Liquidity - The company's cash and cash equivalents increased to 12.05 million in 2023, reflecting a 52% growth[138] - Cash and cash equivalents increased to 12.0 million in 2023[141] - Net cash provided by operating activities was 1.2 million in 2023[141] - The company declared a special cash dividend of 9.4 million based on current shares outstanding[238] Assets and Liabilities - Accounts receivable remained stable at 4.62 million in 2023[138] - Contract assets grew by 5% to 10.01 million in 2023[138] - Inventories increased by 14% to 20.53 million in 2023[138] - Total current assets rose by 20% to 48.31 million in 2023[138] - Contract liabilities increased by 16% to 18.59 million in 2023[138] - Total assets grew by 12% to 74.50 million in 2023[138] - The company's accumulated deficit improved to (25.62 million) in 2023, a 22% reduction[138] - Total stockholders' equity increased to 32.9 million in 2023[145] - Contract assets increased to 10.0 million in 2023, while contract liabilities increased to 18.6 million[185] - Inventories increased to 20.5 million in 2023, with inventory reserves of 8.1 million respectively[187] - Property, plant and equipment decreased to 7.1 million in 2023, with depreciation expense of 2.4 million respectively[189] - Total operating lease liabilities decreased to 7.6 million in 2023, with total lease payments of 4.8 million in 2024 from 945,000, related to a letter of credit for contractual restrictions, with no restricted cash in the prior fiscal year[200] Workforce and Compensation - The company employs 207 employees (200 full-time and 7 part-time) with high retention rates and increasing average length of service[37] - The company's workforce has an average tenure of 15 years and a median age of 53, raising concerns about potential retirements and challenges in attracting and retaining skilled replacements[58] - Stock-based compensation expense increased to 197,000 in 2023[141] - The company contributed 58,987 and 61,897 shares of common stock to the profit-sharing plan in fiscal years 2024 and 2023, valued at 413,000 respectively[201] - The incentive bonus for the fiscal year ended April 30, 2024 was 175,000 in the prior fiscal year[202] - As of April 30, 2024, eligible employees and directors had been granted SARs representing approximately 2,385,000 shares, with 86,000 shares exercisable at a weighted average exercise price of 487,000 and 219,000 for fiscal year 2024, compared to 643,000 in the prior fiscal year[213] Risks and Challenges - The company faces competition from larger firms with greater financial resources and larger R&D and marketing staffs[33] - The company's products are technologically complex and require state-of-the-art technology and manufacturing expertise, with potential risks of system failure[52] - The company is dependent on numerous suppliers for parts, materials, and services, with potential risks of delays or failures in procurement[55] - The company's operating income can be adversely affected by increased estimated contract costs due to design issues, production challenges, and supplier issues[48] - The company faces significant supply chain risks, including potential disruptions from supplier quality issues, industry consolidation, and the need for alternate suppliers, which could result in increased costs and delays[56] - Global economic and geopolitical conditions, including inflation and recessionary pressures, could increase costs and reduce demand for the company's products[60] - Health epidemics and pandemics, such as COVID-19, could lead to workforce absenteeism, facility cleaning costs, and significant impacts on contract schedules and costs[62] - Cybersecurity attacks pose a significant risk, potentially leading to operational disruptions, intellectual property theft, and reputational damage[74] - The company's common stock has a relatively low trading volume of approximately 18,000 shares per day, which may limit shareholders' ability to sell shares at desired prices[76] - Approximately 43.6% of the company's outstanding common stock is held by 5 individuals or entities, and large sales by these holders could significantly depress the stock price[77] - The company maintains a comprehensive cybersecurity framework, including risk-based controls, incident response plans, and third-party assessments, to mitigate cybersecurity risks[79][80] Internal Controls and Financial Reporting - The company has identified a material weakness in internal control over financial reporting related to the calculation of loss provisions, which could result in future financial misstatements[68][69] - The company is implementing remediation plans to address the material weakness and aims to complete testing of remediated controls by April 30, 2025[71] - The company identified a material weakness in internal control over the calculation of loss provision accruals in customer contracts, which has been corrected but could impact future financial statements if not remediated[245] - The company's internal control over financial reporting was not effective as of April 30, 2024, due to the identified material weakness[244] - The company is actively remediating the material weakness by improving controls over loss provision accruals and implementing enhanced review and monitoring processes[247] - The company's disclosure controls and procedures were not effective at a reasonable assurance level as of April 30, 2024, due to the material weakness[241] - The company's management believes the audited consolidated financial statements fairly present the financial position, results of operations, and cash flows in conformity with GAAP, despite the material weakness[246] - The company has updated its method of calculating loss provision accruals to include previously recognized contract losses[247] - No changes in internal control over financial reporting, other than the identified material weakness, occurred during the fiscal quarter ended April 30, 2024[249] Investments and Marketable Securities - The company fully impaired its investment in Morion due to the Russia-Ukraine conflict and resulting sanctions[125] - No marketable securities were held during the fiscal year ended April 30, 2024, and all holdings related to marketable securities were liquidated in the fiscal year ended April 30, 2023[151] - The company liquidated all marketable securities holdings in fiscal year 2023, with proceeds of 10.97 million and gross realized losses of 89,000 in 2024 from 130,000, compared to a provision of 19.2 million in 2023 to 1.1 million in 2024 compared to 2023, reflecting a reduction in net deferred tax assets[219] - The company has U.S. federal net operating losses of 8.5 million expiring between 2025 and 2038, and 52.1 million and 15.8 million of contract liabilities as revenue in fiscal year 2024, compared to 3.1 million in fiscal year 2024, up from 0.9 million, decreasing cost of revenues and loss provision accrual, with no impact on cash flows[182] Product Warranty and Legal Matters - Product warranty accrual increased from 542,000 in 2024, reflecting changes in repair costs and sales levels[235] - The company was not involved in any litigation with probable unfavorable outcomes or material claims as of April 30, 2024[237] Other Financial Metrics - The company had no Accumulated Other Comprehensive Income (AOCI) as of April 30, 2024, and no change in AOCI during the fiscal year[236] - The cost of employee services received in exchange for equity awards is based on the grant-date fair value of the award[178] - The Company's fair value hierarchy prioritizes unadjusted quoted prices in active markets (Level 1) and unobservable inputs (Level 3)[176]
Frequency Electronics(FEIM) - 2024 Q4 - Annual Report