UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q





(Mark
one)




x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
Quarterly Period ended October 31, 2009
 
 OR
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from __________ to __________





Commission
File No. 1-8061





FREQUENCY
ELECTRONICS, INC.


(Exact
name of Registrant as specified in its charter)





Delaware
            11-1986657(State
      or other jurisdiction of
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)





55
      CHARLES LINDBERGH BLVD., MITCHEL FIELD, N.Y.
            11553(Address
      of principal executive offices)
            (Zip
      Code)





Registrant's
telephone number, including area code: 516-794-4500





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes x No  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes  ̈  No x (the registrant is not
yet required to submit Interactive Data)




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and smaller reporting company in Rule 12b-2 of the Exchange
Act. (Check one):




Large accelerated filer  ̈
                  Accelerated filer  ̈
                  Non-accelerated filer  ̈
                  Smaller Reporting Company x(do not check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈                      No
x





APPLICABLE
ONLY TO CORPORATE ISSUERS:





The
number of shares outstanding of Registrant's Common Stock, par value $1.00 as of
December 10, 2009 – 8,183,275













FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





INDEX




Page No.Part
      I.  Financial Information:Item
      1 - Financial Statements:Condensed
      Consolidated Balance Sheets -October
      31, 2009 and April 30, 2009
                                  3Condensed
      Consolidated Statements of OperationsSix
      Months Ended October 31, 2009 and 2008
                                  4Condensed
      Consolidated Statements of OperationsThree
      Months Ended October 31, 2009 and 2008
                                  5Condensed
      Consolidated Statements of Cash FlowsSix
      Months Ended October 31, 2009 and 2008
                                  6Notes
      to Condensed Consolidated Financial Statements
                                  7-12Item
      2 - Management's Discussion and Analysis ofFinancial
      Condition and Results of Operations
                                  13-18Item
      4T- Controls and Procedures
                                  19Part
      II.  Other Information:Items
      1, 1A, 2, 3 and 5 are omitted because they are not
    applicableItem
      4 - Submission of Matters to a Vote of Security Holders
                                  20Item
      6 - Exhibits
                                  20Signatures
                                  21Exhibits




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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


Condensed
Consolidated Balance Sheets





October 31,
                
                
                April 30,2009
                
                
                2009(UNAUDITED)
                
                
                (AUDITED)(NOTE A)(In thousands except share data)ASSETS:Current
      assets:Cash
      and cash equivalents
                
                $
                5,699
                
                
                $
                4,911Marketable
      securities
                
                
                10,832
                
                
                
                9,998Accounts
      receivable, net of allowance for doubtful accounts of $285 at October 31
      and April 30, 2009
                
                
                9,452
                
                
                
                10,775Costs
      and estimated earnings in excess of billings
                
                
                2,585
                
                
                
                2,193Inventories
                
                
                27,263
                
                
                
                26,051Income
      taxes receivable
                
                
                791
                
                
                
                886Prepaid
      expenses and other
                
                
                1,619
                
                
                
                1,257Total
      current assets
                
                
                58,241
                
                
                
                56,071Property,
      plant and equipment, at cost, less accumulated depreciation and
      amortization
                
                
                7,332
                
                
                
                7,961Goodwill
      and other intangible assets, net
                
                
                218
                
                
                
                218Cash
      surrender value of life insurance and cash held in trust
                
                
                8,663
                
                
                
                8,423Investments
      in and loans receivable from affiliates
                
                
                4,043
                
                
                
                4,430Other
      assets
                
                
                817
                
                
                
                817Total
      assets
                
                $
                79,314
                
                
                $
                77,920LIABILITIES
      AND STOCKHOLDERS’ EQUITY:Current
      liabilities:Short-term
      credit obligations
                
                $
                239
                
                
                $
                1,327Accounts
      payable – trade
                
                
                2,669
                
                
                
                2,305Accrued
      liabilities and other
                
                
                4,113
                
                
                
                4,408Total
      current liabilities
                
                
                7,021
                
                
                
                8,040Lease
      obligation – noncurrent
                
                
                569
                
                
                
                684Deferred
      compensation
                
                
                9,580
                
                
                
                9,546Other
      liabilities
                
                
                558
                
                
                
                484Total
      liabilities
                
                
                17,728
                
                
                
                18,754Stockholders’
      equity:Preferred
      stock - $1.00 par value
                
                
                
                
                
                
                -Common
      stock - $1.00 par value
                
                
                9,164
                
                
                
                9,164Additional
      paid-in capital
                
                
                49,265
                
                
                
                48,997Retained
      earnings
                
                
                3,047
                
                
                
                2,52261,476
                
                
                
                60,683Common
      stock reacquired and held in treasury -at cost, 980,725 shares at October
      31, 2009 and 1,021,159 shares at April 30, 2009
                
                
                (4,823
                )
                
                
                (4,972
                )Accumulated
      other comprehensive income
                
                
                4,933
                
                
                
                3,455Total
      stockholders' equity
                
                
                61,586
                
                
                
                59,166Total
      liabilities and stockholders' equity
                
                $
                79,314
                
                
                $
                77,920





See
accompanying notes to condensed consolidated financial
statements.


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 
 Condensed
Consolidated Statements of Operations
 
 Six
Months Ended October 31,
 (Unaudited)
 
 2009
                  
                  
                  2008(In
      thousands except per share data)Revenues
                  
                  $
                  23,836
                  
                  
                  $
                  27,089Cost
      of revenues
                  
                  
                  15,141
                  
                  
                  
                  21,183Gross
      margin
                  
                  
                  8,695
                  
                  
                  
                  5,906Selling
      and administrative expenses
                  
                  
                  5,340
                  
                  
                  
                  5,951Research
      and development expense
                  
                  
                  2,454
                  
                  
                  
                  2,239Operating
      profit (loss)
                  
                  
                  901
                  
                  
                  
                  (2,284
                  )Other
      income (expense):Investment
      income
                  
                  
                  253
                  
                  
                  
                  367Equity
      loss
                  
                  
                  (195
                  )
                  
                  
                  (308
                  )Impairment
      of investment in affiliate
                  
                  
                  (200
                  )
                  
                  
                  -Interest
      expense
                  
                  
                  (78
                  )
                  
                  
                  (193
                  )Other
      (expense) income, net
                  
                  
                  (156
                  )
                  
                  
                  75Income
      (loss) before benefit for income taxes
                  
                  
                  525
                  
                  
                  
                  (2,343
                  )Benefit
      for income taxes
                  
                  
                  -
                  
                  
                  
                  (677
                  )Net
      income (loss)
                  
                  $
                  525
                  
                  
                  $
                  (1,666
                  )Net
      income (loss) per common shareBasic
                  
                  $
                  0.06
                  
                  
                  $
                  (0.20
                  )Diluted
                  
                  $
                  0.06
                  
                  
                  $
                  (0.20
                  )Weighted
      average shares outstandingBasic
                  
                  
                  8,172,643
                  
                  
                  
                  8,523,187Diluted
                  
                  
                  8,184,764
                  
                  
                  
                  8,523,187
 
 See
accompanying notes to consolidated condensed financial statements.
 
 4 of
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  FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 
 Condensed
Consolidated Statements of Operations
 
 Three
Months Ended October 31,
 (Unaudited)
 
 2009
                      
                      
                      2008(In
      thousands except per share data)Revenues
                      
                      $
                      11,395
                      
                      
                      $
                      14,026Cost
      of revenues
                      
                      
                      7,001
                      
                      
                      
                      11,311Gross
      margin
                      
                      
                      4,394
                      
                      
                      
                      2,715Selling
      and administrative expenses
                      
                      
                      2,773
                      
                      
                      
                      2,835Research
      and development expense
                      
                      
                      1,379
                      
                      
                      
                      874Operating
      profit (loss)
                      
                      
                      242
                      
                      
                      
                      (994
                      )Other
      income (expense):Investment
      income
                      
                      
                      125
                      
                      
                      
                      209Equity
      loss
                      
                      
                      (145
                      )
                      
                      
                      (345
                      )Impairment
      of investment in affiliate
                      
                      
                      (200
                      )
                      
                      
                      -Interest
      expense
                      
                      
                      (34
                      )
                      
                      
                      (110
                      )Other
      expense, net
                      
                      
                      (117
                      )
                      
                      
                      (6
                      )Loss
      before benefit for income taxes
                      
                      
                      (129
                      )
                      
                      
                      (1,246
                      )Benefit
      for income taxes
                      
                      
                      -
                      
                      
                      
                      (352
                      )Net
      loss
                      
                      $
                      (129
                      )
                      
                      $
                      (894
                      )Net
      loss per common shareBasic
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.11
                      )Diluted
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.11
                      )Weighted
      average shares outstandingBasic
                      
                      
                      8,180,659
                      
                      
                      
                      8,304,288Diluted
                      
                      
                      8,180,659
                      
                      
                      
                      8,304,288
 
 See
accompanying notes to condensed consolidated financial statements.
  5 of
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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Condensed
Consolidated Statements of Cash Flows





Six
Months Ended October 31,


(Unaudited)





2009
                
                
                2008(In thousands)Cash
      flows from operating activities:Net
      income (loss)
                
                $
                525
                
                
                $
                (1,666
                )Non-cash
      charges to earnings, net
                
                
                2,541
                
                
                
                2,552Net
      changes in operating assets and liabilities
                
                
                (406
                )
                
                
                (420
                )Net
      cash provided by operating activities
                
                
                2,660
                
                
                
                466Cash
      flows from investing activities:Proceeds
      from sale of marketable securities and investments
                
                
                -
                
                
                
                1,036Purchase
      of marketable securities
                
                
                -
                
                
                
                (6,594
                )Purchase
      of fixed assets
                
                
                (280
                )
                
                
                (293
                )Net
      cash used in investing activities
                
                
                (280
                )
                
                
                (5,851
                )Cash
      flows from financing activities:Proceeds
      from short-term credit obligations
                
                
                -
                
                
                
                1,500Payment
      of short-term credit and lease obligations
                
                
                (1,243
                )
                
                
                (1,106
                )Purchase
      of stock for treasury
                
                
                -
                
                
                
                (2,974
                )Net
      cash used in financing activities
                
                
                (1,243
                )
                
                
                (2,580
                )Net
      increase (decrease) in cash and cash equivalents before effect of exchange
      rate changes
                
                
                1,137
                
                
                
                (7,965
                )Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (349
                )
                
                
                822Net
      increase (decrease) in cash and cash equivalents
                
                
                788
                
                
                
                (7,143
                )Cash
      and cash equivalents at beginning of period
                
                
                4,911
                
                
                
                11,029Cash
      and cash equivalents at end of period
                
                $
                5,699
                
                
                $
                3,886Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
                
                $
                40
                
                
                $
                159Income
      Taxes
                
                
                -
                
                
                
                -





See
accompanying notes to condensed consolidated financial
statements.


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)





NOTE A -
CONSOLIDATED FINANCIAL STATEMENTS





In the
opinion of management of Frequency Electronics, Inc. (“the Company”), the
accompanying unaudited condensed consolidated interim financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly, in all material respects, the consolidated
financial position of the Company as of October 31, 2009 and the results of its
operations and cash flows for the six and three months ended October 31, 2009
and 2008.  The April 30, 2009 condensed consolidated balance sheet was
derived from audited financial statements.  Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.  It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's April 30, 2009 Annual Report to Stockholders
on Form 10-K.  The results of operations for such interim periods are
not necessarily indicative of the operating results for the full fiscal
year.




NOTE B -
EARNINGS PER SHARE





Reconciliation
of the weighted average shares outstanding for basic and diluted Earnings Per
Share are as follows:


Six months
                      
                      
                      Three monthsPeriods ended October 31,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Basic
      EPS Shares outstanding(weighted
      average)
                      
                      
                      8,172,643
                      
                      
                      
                      8,523,187
                      
                      
                      
                      8,180,659
                      
                      
                      
                      8,304,288Effect
      of Dilutive Securities
                      
                      
                      12,121
                      
                      
                      
                      ***
                      
                      
                      
                      ***
                      
                      
                      
                      ***Diluted
      EPS Shares outstanding
                      
                      
                      8,184,764
                      
                      
                      
                      8,523,187
                      
                      
                      
                      8,180,659
                      
                      
                      
                      8,304,288





***Dilutive
      securities are excluded for the three month period ended October 31, 2009
      and for the six and three-month periods ended October 31, 2008 since the
      inclusion of such shares would be antidilutive due to the net loss for the
      periods then ended.




The
computation of diluted earnings per share excludes those options and stock
appreciation rights with an exercise price in excess of the average market price
of the Company’s common shares during the periods presented.  The
inclusion of such options in the computation of earnings per share would have
been antidilutive.  The number of excluded options were:




Six months
                    
                    
                    Three monthsPeriods ended October 31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Outstanding
      Options excluded
                    
                    
                    869,213
                    
                    
                    
                    1,155,094
                    
                    
                    
                    869,213
                    
                    
                    
                    1,155,094




NOTE C –
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS




At
October 31, 2009 and April 30, 2009 costs and estimated earnings in excess of
billings on uncompleted contracts accounted for on the percentage of completion
basis were approximately $2,585,000 and $2,193,000,
respectively.  Such amounts represent revenue recognized on long-term
contracts that had not been billed at the balance sheet dates.  Such
amounts are billed pursuant to contract terms.  During the six and
three months ended October 31, 2009, the revenue recognized under percentage of
completion contracts was $9.7 million and $5.1 million,
respectively.  For the same periods of fiscal year 2009, the Company
recognized percentage of completion revenue of $9.6 million and $4.8 million,
respectively.




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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)


NOTE D -
INVENTORIES




Inventories,
which are reported at the lower of cost or market at October 31, 2009 and April
30, 2009, respectively, consist of the following:




October 31, 2009
                    
                    
                    April 30, 2009(In thousands)Raw
      materials and Component parts
                    
                    $
                    12,094
                    
                    
                    $
                    12,542Work
      in progress
                    
                    
                    12,789
                    
                    
                    
                    10,613Finished
      Goods
                    
                    
                    2,380
                    
                    
                    
                    2,896$
                    27,263
                    
                    
                    $
                    26,051


As of
October 31, 2009 and April 30, 2009, approximately $17.8 million and $18.0
million, respectively, of total inventory is located in the United States,
approximately $8.5 million and $6.8 million, respectively, is located in Belgium
and $1.0 million and $1.2 million, respectively, is located in
China.




The
Company reached an agreement with a customer to receive $650,000 representing a
portion of the cost of certain unique inventory items that the customer no
longer requires.  The Company recorded this amount as a reduction to
cost of goods sold during the six and three month periods ended October 31,
2009.  During the same periods, the Company wrote down inventory,
including the unique items, with an aggregate value of $800,000 and $650,000,
respectively.  All written down inventory remains the property of the
Company and may be sold or disposed in the future.




NOTE E –
COMPREHENSIVE INCOME




For the
six months ended October 31, 2009 and 2008, comprehensive income (loss) is
composed of (in thousands):


Six months ended October 31,2009
                  
                  
                  2008Net
      income (loss)
                  
                  $
                  525
                  
                  
                  $
                  (1,666
                  )Foreign
      currency translation adjustment
                  
                  
                  644
                  
                  
                  
                  (134
                  )Change
      in value of marketable securities
                  
                  
                  834
                  
                  
                  
                  (570
                  )Plus
      deferred tax effect of change in value of marketable
      securities
                  
                  
                  -
                  
                  
                  
                  228Comprehensive
      income (loss)
                  
                  $
                  2,003
                  
                  
                  $
                  (2,142
                  )


NOTE F –
SEGMENT INFORMATION




The
Company operates under three reportable segments:


(1)
            FEI-NY
      – consists principally of precision time and frequency control products
      used in three principal markets: communication satellites (both commercial
      and U.S. Government-funded); terrestrial cellular telephone or other
      ground-based telecommunication stations and other components and systems
      for the U.S. military.


(2)
            Gillam-FEI
      - the Company’s Belgian subsidiary primarily sells wireline
      synchronization and network management
systems.


(3)
            FEI-Zyfer
      - the products of the Company’s subsidiary incorporate Global Positioning
      System (GPS) technologies into systems and subsystems for secure
      communications, both government and commercial, and other locator
      applications.




The
FEI-NY segment also includes the operations of the Company’s wholly-owned
subsidiary, FEI-Asia, which functions primarily as a manufacturing facility for
the FEI-NY segment.




The
Company’s Chief Executive Officer measures segment performance based on total
revenues and profits generated by each geographic center rather than on the
specific types of customers or end-users or types of markets
served.


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ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)





The table
below presents information about reported segments with reconciliation of
segment amounts to consolidated amounts as reported in the statement of
operations or the balance sheet for each of the periods (in
thousands):


Six months
                  
                  
                  Three monthsPeriods ended October 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenues:FEI-NY
                  
                  $
                  14,014
                  
                  
                  $
                  18,633
                  
                  
                  $
                  6,949
                  
                  
                  $
                  9,788Gillam-FEI
                  
                  
                  4,975
                  
                  
                  
                  5,301
                  
                  
                  
                  2,501
                  
                  
                  
                  2,683FEI-Zyfer
                  
                  
                  6,828
                  
                  
                  
                  4,127
                  
                  
                  
                  2,579
                  
                  
                  
                  1,824less
      intersegment revenues
                  
                  
                  (1,981
                  )
                  
                  
                  (972
                  )
                  
                  
                  (634
                  )
                  
                  
                  (269
                  )Consolidated
      revenues
                  
                  $
                  23,836
                  
                  
                  $
                  27,089
                  
                  
                  $
                  11,395
                  
                  
                  $
                  14,026Operating
      profit (loss):FEI-NY
                  
                  $
                  624
                  
                  
                  $
                  (1,780
                  )
                  
                  $
                  538
                  
                  
                  $
                  (552
                  )Gillam-FEI
                  
                  
                  (5
                  )
                  
                  
                  (10
                  )
                  
                  
                  14
                  
                  
                  
                  45FEI-Zyfer
                  
                  
                  485
                  
                  
                  
                  (282
                  )
                  
                  
                  (171
                  )
                  
                  
                  (356
                  )Corporate
                  
                  
                  (203
                  )
                  
                  
                  (212
                  )
                  
                  
                  (139
                  )
                  
                  
                  (131
                  )Consolidated
      operating profit (loss)
                  
                  $
                  901
                  
                  
                  $
                  (2,284
                  )
                  
                  $
                  242
                  
                  
                  $
                  (994
                  )




October 31, 2009
                  
                  
                  April 30, 2009Identifiable
      assets:FEI-NY
                  
                  $
                  40,305
                  
                  
                  $
                  39,658Gillam-FEI
                  
                  
                  19,637
                  
                  
                  
                  17,615FEI-Zyfer
                  
                  
                  6,098
                  
                  
                  
                  8,672less
      intercompany balances
                  
                  
                  (17,236
                  )
                  
                  
                  (17,853
                  )Corporate
                  
                  
                  30,510
                  
                  
                  
                  29,828Consolidated
      Identifiable Assets
                  
                  $
                  79,314
                  
                  
                  $
                  77,920





NOTE G –
RELATED PARTY TRANSACTIONS




The
Company has an equity interest in two strategically important companies: Elcom
Technologies, Inc. (“Elcom”) and Morion Inc. (“Morion”).  During the
six and three month periods ended October 31, 2009 and 2008, the Company
acquired technical services from Elcom, purchased crystal oscillator products
from Morion and sold certain of its products to both companies.  The
Company also receives interest from Elcom under a convertible note
receivable.  The table below summarizes these
transactions:




Six months
                  
                  
                  Three monthsPeriods ended October 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(in thousands)Purchases
      from:Elcom
                  
                  $
                  6
                  
                  
                  $
                  113
                  
                  
                  $
                  -
                  
                  
                  $
                  38Morion
                  
                  
                  197
                  
                  
                  
                  469
                  
                  
                  
                  2
                  
                  
                  
                  179Sales
      to:Elcom
                  
                  $
                  1
                  
                  
                  $
                  25
                  
                  
                  $
                  1
                  
                  
                  $
                  11Morion
                  
                  
                  32
                  
                  
                  
                  50
                  
                  
                  
                  11
                  
                  
                  
                  32Interest
      on Elcom note receivable
                  
                  $
                  24
                  
                  
                  $
                  38
                  
                  
                  $
                  12
                  
                  
                  $
                  19




During
the second quarter of fiscal year 2009, the Company repurchased from Elcom
29,651 shares of the Company’s outstanding common stock at an aggregate cost of
approximately $150,000.  The amount paid was at the market value of
the Company’s common stock on the date of purchase.


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ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)





NOTE H –
FAIR VALUE OF FINANCIAL INSTRUMENTS




The cost,
gross unrealized gains, gross unrealized losses and fair market value of
available-for-sale securities at October 31, 2009 and April 30, 2009 are as
follows (in thousands):




October 31, 2009Gross
                  
                  
                  Gross
                  
                  
                  FairUnrealized
                  
                  
                  Unrealized
                  
                  
                  MarketCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueFixed
      income securities
                  
                  $
                  10,165
                  
                  
                  $
                  293
                  
                  
                  $
                  (272
                  )
                  
                  $
                  10,186Equity
      securities
                  
                  
                  450
                  
                  
                  
                  196
                  
                  
                  
                  -
                  
                  
                  
                  646$
                  10,615
                  
                  
                  $
                  489
                  
                  
                  $
                  (272
                  )
                  
                  $
                  10,832





April 30, 2009Gross
                  
                  
                  Gross
                  
                  
                  FairUnrealized
                  
                  
                  Unrealized
                  
                  
                  MarketCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueFixed
      income securities
                  
                  $
                  10,165
                  
                  
                  $
                  278
                  
                  
                  $
                  (803
                  )
                  
                  $
                  9,640Equity
      securities
                  
                  
                  450
                  
                  
                  
                  -
                  
                  
                  
                  (92
                  )
                  
                  
                  358$
                  10,615
                  
                  
                  $
                  278
                  
                  
                  $
                  (895
                  )
                  
                  $
                  9,998


The
following table presents the fair value and unrealized losses, aggregated by
investment type and length of time that individual securities have been in a
continuous unrealized loss position:




Less than 12 months
                      
                      
                      12 Months or more
                      
                      
                      TotalFair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      UnrealizedValue
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      LossesOctober 31, 2009Fixed
      Income Securities
                      
                      $
                      504
                      
                      
                      $
                      (3
                      )
                      
                      $
                      1,783
                      
                      
                      $
                      (269
                      )
                      
                      $
                      2,287
                      
                      
                      $
                      (272
                      )Equity
      Securities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -$
                      504
                      
                      
                      $
                      (3
                      )
                      
                      $
                      1,783
                      
                      
                      $
                      (269
                      )
                      
                      $
                      2,287
                      
                      
                      $
                      (272
                      )April 30, 2009Fixed
      Income Securities
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,268
                      
                      
                      $
                      (803
                      )
                      
                      $
                      2,268
                      
                      
                      $
                      (803
                      )Equity
      Securities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      358
                      
                      
                      
                      (92
                      )
                      
                      
                      358
                      
                      
                      
                      (92
                      )$
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,626
                      
                      
                      $
                      (895
                      )
                      
                      $
                      2,626
                      
                      
                      $
                      (895
                      )


The
Company regularly reviews its investment portfolio to identify and evaluate
investments that have indications of possible impairment.  The Company
does not believe that its investments in marketable securities with unrealized
losses at October 31, 2009 are other-than-temporary due to market volatility of
the security’s fair value, analysts’ expectations and the Company’s ability to
hold the securities for a period of time sufficient to allow for any anticipated
recoveries in market value.




During
the six and three month periods ended October 31, 2009, the Company did not sell
or redeem any available-for-sale securities.  Accordingly, there were
no realized gains or losses included in the determination of net income (loss)
for those periods.  During the six and three month periods ended
October 31, 2008, the Company sold available-for-sale securities with a market
value of $1,036,000 and realized a gain of approximately $22,000 in those
periods.




Maturities
of fixed income securities classified as available-for-sale at October 31, 2009
are as follows, at cost (in thousands):


Current
                  
                  $
                  -Due
      after one year through five years
                  
                  
                  8,136Due
      after five years through ten years
                  
                  
                  2,029$
                  10,165


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Notes to
Condensed Consolidated Financial Statements


(Unaudited)




The fair
value accounting framework provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value.  The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurements) and the
lowest priority to unobservable inputs (level 3 measurements).  The
three levels of the fair value hierarchy are described below:




Level 1
              Inputs
      to the valuation methodology are unadjusted quoted prices for identical
      assets or liabilities in active markets that the Company has the ability
      to access.




Level 2
              Inputs
      to the valuation methodology
include:


- 
      Quoted prices for similar assets or liabilities in active
      markets;


- 
      Quoted prices for identical or similar assets or liabilities in inactive
      markets


- 
      Inputs other than quoted prices that are observable for the asset or
      liability;


- Inputs
that are derived principally from or corroborated by observable market data by
correlation or other means.




Level 3
              Inputs
      to the valuation methodology are unobservable and significant to the fair
      value measurement.




The
asset’s or liability’s fair value measurement level within the fair value
hierarchy is based on the lowest level of any input that is significant to the
fair value measurement.  Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable
inputs.  All of the Company’s investments in marketable securities are
Level 1 assets.





NOTE I -
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS




In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning May 1, 2010, with earlier
adoption permitted.  Under the new guidance on arrangements that include
software elements, tangible products that have software components that are
essential to the functionality of the tangible product will no longer be within
the scope of the software revenue recognition guidance, and software-enabled
products will now be subject to other relevant revenue recognition guidance.
 Additionally, the FASB issued authoritative guidance on revenue
arrangements with multiple deliverables that are outside the scope of the
software revenue recognition guidance.  Under the new guidance, when vendor
specific objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method.  The new guidance includes new
disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition.  In the event
that early adoption is elected, the Company would be required to determine the
relative selling price for all deliverables in a multiple element arrangement
based on the hierarchy identified in the new standard.  The Company
would also be required to apply the standard retrospectively to the beginning of
the year and to the comparable prior period for disclosure
purposes.  The Company is currently evaluating the impact this
new guidance may have on its condensed consolidated financial statements. 
Early adoption of the standard is unlikely.




In June
2009, the FASB issued authoritative guidance codifying a single source of
authoritative nongovernmental U.S. GAAP.  This guidance does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all authoritative literature related to a particular
topic in one place.  All existing accounting standard documents will be
superseded and all other accounting literature not included in the FASB
Codification will be considered non-authoritative.  These provisions
were effective for interim and annual periods ending after September 15,
2009 and, accordingly, are effective for the Company in the current fiscal
reporting period.  The adoption of this pronouncement did not have an
impact on the Company’s condensed consolidated financial statements, but will
impact its financial reporting process by eliminating all references to
pre-codification standards.  On the effective date, the Codification
superseded all then-existing non-SEC accounting and reporting standards, and all
other non-grandfathered non-SEC accounting literature not included in the
Codification became non-authoritative.


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ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)





In May
2009, the FASB issued guidelines on subsequent event accounting which
establishes general standards of accounting for, and requires disclosure of,
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued.  The Company adopted these
amendments effective May 1, 2009 and has evaluated subsequent events through the
date these financial statements were filed on December 15, 2009.




In April
2009, the FASB issued new guidance on the recognition of other-than-temporary
impairments of investments in debt securities and provides new presentation and
disclosure requirements for other-than-temporary impairments of investments in
debt and equity securities.  The Company adopted these provisions
during the first quarter of fiscal year 2010.  The adoption did not
have a material effect on its consolidated financial statements.




In April
2009, the FASB issued guidance which requires disclosures about fair value of
financial instruments in interim and annual financial statements.  The
new requirements were effective for interim periods ending after June 15, 2009
and the Company adopted these requirements in the first quarter of fiscal year
2010.  The adoption did not have a material effect on its consolidated
financial statements.




In
September 2006, the FASB issued guidance which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.  This guidance is contained in ASC Topic 820, “Fair
Value Measurements and Disclosures” (“ASC Topic 820”).  In February
2008, the FASB deferred the effective date to January 1, 2009 for all
nonfinancial assets and liabilities, except for those that are recognized or
disclosed at fair value on a recurring basis (that is, at least
annually).  The Company adopted the provisions of ASC Topic 820 in
fiscal year 2009.  With the adoption of new accounting rules, fair
value is now determined as an exit price, representing the price that would be
received in an orderly transaction between market participants based on the
highest and best use of the asset rather than as the result of an
internally-generated cash flow analysis.  In April 2009, the FASB
issued additional guidance for estimating fair value in accordance with ASC
Topic 820.  The additional guidance addresses determining fair value
when the volume and level of activity for an asset or liability have
significantly decreased and identifying transactions that are not
orderly.  The Company adopted the provision of this guidance during
its first quarter of fiscal year 2010, ended July 31, 2009.  The
adoption did not have a material effect on its consolidated financial
statements.




NOTE J –
SUBSEQUENT EVENTS




In
accordance with current accounting standards, the Company has evaluated
subsequent events through the time of filing of this Form 10-Q, which was on
December 15, 2009.




NOTE K –
TREASURY STOCK TRANSACTIONS




During
the six month period ended October 31, 2009, the Company made a contribution of
40,434 shares of its common stock held in treasury to the Company’s profit
sharing plan and trust under section 401(k) of the Internal Revenue
Code.  Such contribution is in accordance with the Company’s
discretionary match of employee voluntary contributions to this
plan.




*********************


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Item
2




Management’s Discussion and
Analysis of Financial Condition and Results of Operations





“Safe Harbor” Statement under the
Private Securities Litigation Reform Act of 1995:




The
statements in this quarterly report on Form 10-Q regarding future earnings and
operations and other statements relating to the future constitute
"forward-looking" statements pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.  Forward-looking
statements inherently involve risks and uncertainties that could cause actual
results to differ materially from the forward-looking
statements.  Factors that would cause or contribute to such
differences include, but are not limited to, 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, competitive developments, changes in manufacturing and
transportation costs, changes in contractual terms, the availability of capital,
and other risks detailed in the Company's periodic report filings with the
Securities and Exchange Commission.  By making these forward-looking
statements, the Company undertakes no obligation to update these statements for
revisions or changes after the date of this report.




Critical
Accounting Policies and Estimates




The
Company’s significant accounting policies are described in Note 1 to the
consolidated financial statements included in the Company’s April 30, 2009
Annual Report to Stockholders.  The Company believes its most critical
accounting policies to be the recognition of revenue and costs on production
contracts and the valuation of inventory.  Each of these areas
requires the Company to make use of reasoned estimates including estimating the
cost to complete a contract, the realizable value of its inventory or the market
value of its products.  Changes in estimates can have a material
impact on the Company’s financial position and results of
operations.




Revenue
Recognition




Revenues
under larger, long-term contracts which generally require billings based on
achievement of milestones rather than delivery of product, are reported in
operating results using the percentage of completion method.  On
fixed-price contracts, which are typical for commercial and U.S. Government
satellite programs and other long-term U.S. Government projects, and which
require initial design and development of the product, revenue is recognized on
the cost-to-cost method.  Under this method, revenue is recorded based
upon the ratio that incurred costs bear to total estimated contract costs with
related cost of sales recorded as the costs are incurred.  Each month
management reviews estimated contract costs through a process of aggregating
actual costs incurred and updating estimated costs to completion based upon the
current available information and status of the contract.  The effect
of any change in the estimated gross margin percentage for a contract is
reflected in revenues in the period in which the change is
known.  Provisions for anticipated losses on contracts are made in the
period in which they become determinable.




On
production-type orders, revenue is recorded as units are delivered with the
related cost of sales recognized on each shipment based upon a percentage of
estimated final program costs.  Changes in job performance may result
in revisions to costs and income and are recognized in the period in which
revisions are determined to be required.  Provisions for anticipated
losses on contracts are made in the period in which they become
determinable.




For
customer orders in the Company’s Gillam-FEI and FEI-Zyfer segments or smaller
contracts or orders in the FEI-NY segment, sales of products and services to
customers are reported in operating results based upon (i) shipment of the
product or (ii) performance of the services pursuant to terms of the customer
order.  When payment is contingent upon customer acceptance of the
installed system, revenue is deferred until such acceptance is received and
installation completed.




Costs and
Expenses




Contract
costs include all direct material, direct labor costs, manufacturing overhead
and other direct costs related to contract performance.  Selling,
general and administrative costs are charged to expense as
incurred.




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(Continued)




Inventory




In
accordance with industry practice, inventoried costs contain amounts relating to
contracts and programs with long production cycles, a portion of which will not
be realized within one year.  The Company writes down the value of
slow-moving and obsolete inventory items based upon management’s experience and
expectations for future business.  Any write downs are reflected in
cost of sales in the period the write downs are made.




RESULTS
OF OPERATIONS




The table
below sets forth for the respective periods of fiscal years 2010 and 2009 the
percentage of consolidated revenues represented by certain items in the
Company’s consolidated statements of operations:


Six months
                    
                    
                    Three monthsPeriods ended October 31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008RevenuesFEI-NY
                    
                    
                    58.8
                    %
                    
                    
                    68.8
                    %
                    
                    
                    61.0
                    %
                    
                    
                    69.8
                    %Gillam-FEI
                    
                    
                    20.9
                    
                    
                    
                    19.6
                    
                    
                    
                    21.9
                    
                    
                    
                    19.1FEI-Zyfer
                    
                    
                    28.6
                    
                    
                    
                    15.2
                    
                    
                    
                    22.6
                    
                    
                    
                    13.0Less
      intersegment revenues
                    
                    
                    (8.3
                    )
                    
                    
                    (3.6
                    )
                    
                    
                    (5.5
                    )
                    
                    
                    (1.9
                    )100.0
                    
                    
                    
                    100.0
                    
                    
                    
                    100.0
                    
                    
                    
                    100.0Cost
      of revenues
                    
                    
                    63.5
                    
                    
                    
                    78.2
                    
                    
                    
                    61.4
                    
                    
                    
                    80.6Gross
      Margin
                    
                    
                    36.5
                    
                    
                    
                    21.8
                    
                    
                    
                    38.6
                    
                    
                    
                    19.4Selling
      and administrative expenses
                    
                    
                    22.4
                    
                    
                    
                    21.9
                    
                    
                    
                    24.4
                    
                    
                    
                    20.2Research
      and development expenses
                    
                    
                    10.3
                    
                    
                    
                    8.3
                    
                    
                    
                    12.1
                    
                    
                    
                    6.2Operating Profit
      (Loss)
                    
                    
                    3.8
                    
                    
                    
                    (8.4
                    )
                    
                    
                    2.1
                    
                    
                    
                    (7.0
                    )Other
      income (expense), net
                    
                    
                    (1.6
                    )
                    
                    
                    (0.2
                    )
                    
                    
                    (3.2
                    )
                    
                    
                    (1.8
                    )Pretax
      Income (Loss)
                    
                    
                    2.2
                    
                    
                    
                    (8.6
                    )
                    
                    
                    (1.1
                    )
                    
                    
                    (8.8
                    )Benefit
      for income taxes
                    
                    
                    -
                    
                    
                    
                    (2.5
                    )
                    
                    
                    -
                    
                    
                    
                    (2.5
                    )Net
      Income (Loss)
                    
                    
                    2.2
                    %
                    
                    
                    (6.1
                    )%
                    
                    
                    (1.1
                    )%
                    
                    
                    (6.3
                    )%




(Note:
All dollar amounts in following tables are in thousands, except Revenues which
are in millions)




Revenues
                      
                      (in millions)Six months
                      
                      
                      Three monthsPeriods ended October 31,Segment
                      
                      2009
                      
                      
                      2008
                      
                      
                      Change
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      ChangeFEI-NY
                      
                      $
                      14.0
                      
                      
                      $
                      18.6
                      
                      
                      $
                      (4.6
                      )
                      
                      
                      (25
                      )%
                      
                      $
                      6.9
                      
                      
                      $
                      9.8
                      
                      
                      $
                      (2.8
                      )
                      
                      
                      (29
                      )%Gillam-FEI
                      
                      
                      5.0
                      
                      
                      
                      5.3
                      
                      
                      
                      (0.3
                      )
                      
                      
                      (6
                      )%
                      
                      
                      2.5
                      
                      
                      
                      2.7
                      
                      
                      
                      (0.2
                      )
                      
                      
                      (7
                      )%FEI-Zyfer
                      
                      
                      6.8
                      
                      
                      
                      4.1
                      
                      
                      
                      2.7
                      
                      
                      
                      65
                      %
                      
                      
                      2.6
                      
                      
                      
                      1.8
                      
                      
                      
                      0.8
                      
                      
                      
                      41
                      %Intersegment
      revenues
                      
                      
                      (2.0
                      )
                      
                      
                      (0.9
                      )
                      
                      
                      (1.0
                      )
                      
                      
                      
                      
                      
                      
                      (0.6
                      )
                      
                      
                      (0.3
                      )
                      
                      
                      (0.4
                      )$
                      23.8
                      
                      
                      $
                      27.1
                      
                      
                      $
                      (3.2
                      )
                      
                      
                      (12
                      )%
                      
                      $
                      11.4
                      
                      
                      $
                      14.0
                      
                      
                      $
                      (2.6
                      )
                      
                      
                      (19
                      )%


The
decrease in revenues for the six and three month periods ended October 31, 2009
compared to the same periods of fiscal year 2009, was primarily the result of
lower revenues from wireless infrastructure products recorded in the FEI-NY
segment.  These lower revenues were partially offset by increased
sales from the Company’s US5G productline for the U.S. domestic wireline market
which are generated by the FEI-Zyfer segment.  Revenues from satellite
payload programs were moderately lower in the fiscal year 2010 periods compared
to the same periods of fiscal year 2009.  Revenues from U.S.
Government space programs have increased by over 10% year-over-year but these
increases were offset by continued low levels of activity in commercial
satellite space programs.  Revenues from U.S. Government/DOD non-space
programs, which are recorded in the FEI-NY and FEI-Zyfer segments, increased
almost 25% year-over-year and accounted for more than 25% of consolidated
revenue in the fiscal year 2010 periods compared to less than 20% in the fiscal
year 2009 periods.  During the remainder of fiscal year 2010, the
Company expects revenues from wireless telecommunication infrastructure




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(Continued)




Gross
margin


Six months
                    
                    
                    Three monthsPeriods ended October 31,2009
                    
                    
                    2008
                    
                    
                    Change
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    Change$
                    8,695
                    
                    
                    $
                    5,906
                    
                    
                    $
                    2,789
                    
                    
                    
                    47
                    %
                    
                    $
                    4,394
                    
                    
                    $
                    2,715
                    
                    
                    $
                    1,679
                    
                    
                    
                    62
                    %GM
      Rate
                    
                    
                    36.5
                    %
                    
                    
                    21.8
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    38.6
                    %
                    
                    
                    19.4
                    %




The
improvement in gross margins for the six and three month periods ended October
31, 2009, are primarily due to increased gross margin rates.  The
gross margin rates recorded in the fiscal year 2010 periods approach the
Company’s targeted rates.  The rates recorded in the fiscal year 2009
periods were much lower than the Company’s targets due primarily to higher
levels of engineering and manufacturing costs on certain satellite payload
programs that were completed during fiscal year 2009.  During the
quarter ended October 31, 2009, the Company reached an agreement with a customer
to receive $650,000 representing a portion of the cost of certain unique
inventory items that the customer no longer requires.  The Company
recorded this amount as a reduction to cost of goods sold during the six and
three month periods ended October 31, 2009.  During the same periods,
the Company wrote down inventory, including the unique items, with an aggregate
value of $800,000 and $650,000, respectively.  The Company anticipates
that its gross margin rates for the remainder of fiscal year 2010 will be
comparable to the current periods but will show significant improvement over the
prior fiscal year.




Selling and administrative
expenses




Six months
                                    
                                    
                                    Three monthsPeriods ended October 31,2009
                                    
                                    
                                    2008
                                    
                                    
                                    Change
                                    
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    Change$
                                    5,340
                                    
                                    
                                    $
                                    5,951
                                    
                                    
                                    $
                                    (611
                                    )
                                    
                                    
                                    (10
                                    )%
                                    
                                    $
                                    2,773
                                    
                                    
                                    $
                                    2,835
                                    
                                    
                                    $
                                    (62
                                    )
                                    
                                    
                                    (2
                                    )%


For the
six and three months ended October 31, 2009, selling and administrative expenses
were 22% and 24%, respectively, of consolidated revenues.  This is
compared to 22% and 20%, respectively, for the same periods of fiscal year
2009.  Although the Company’s target for such expenses is not to
exceed 20% of revenues, since many of the costs are relatively fixed, lower
revenues result in a higher ratio of expenses to revenues.  The
decrease in expenses in the fiscal year 2010 periods compared to the same
periods of fiscal year 2009 are primarily due to declines in personnel costs
through a reduction in force and reduced deferred compensation
expense.  These decreases were partially offset by higher professional
fees and increased costs in the Gillam-FEI segment, including the impact of the
rising value of the Euro to the U.S. dollar.  In subsequent quarters
of fiscal year 2010, the Company expects selling and administrative expenses to
be incurred at approximately the same rate in both dollars and as a percentage
of revenues.




Research and development
expense




Six months
                                
                                
                                Three monthsPeriods ended October 31,2009
                                
                                
                                2008
                                
                                
                                Change
                                
                                
                                2009
                                
                                
                                2008
                                
                                
                                Change$
                                2,454
                                
                                
                                $
                                2,239
                                
                                
                                $
                                215
                                
                                
                                
                                10
                                %
                                
                                $
                                1,379
                                
                                
                                $
                                874
                                
                                
                                $
                                505
                                
                                
                                
                                58
                                %


Research
and development expenditures represent investments that keep the Company’s
products at the leading edge of time and frequency technology and enhance
competitiveness for future revenues.  Research and development
spending for the six and three-month periods ended October 31, 2009 was 10% and
12% of revenues, respectively, compared to 8% and 6% of revenues for the same
periods of fiscal year 2009, respectively.  The increased spending in
fiscal year 2010, particularly in the second quarter of fiscal year 2010,
resulted from intensive activities in the areas of satellite payload product
development and improving the technology of the Company’s new wireline
synchronization equipment.  In addition, the Company continues to
conduct development activities on customer-funded programs the cost of which
appears in cost of revenues, thus reducing the level of internal research and
development spending.  The Company targets research and development
spending at approximately 10% of revenues, but the rate of spending can increase
or decrease from quarter to quarter as new projects are identified and others
are concluded.  The Company will continue to devote significant
resources to develop new products, enhance existing products and implement
efficient manufacturing processes.  For the remainder of fiscal year
2010, the Company anticipates that internal research and development spending
will be less than 10% of revenues.  Internally generated cash and cash
reserves are adequate to fund these development efforts.




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ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Operating Profit
(Loss)


Six months
                    
                    Three monthsPeriods
      ended October 31,2009
                    
                    2008
                    
                    
                    Change
                    
                    2009
                    
                    
                    2008
                    
                    
                    Change$
                    901
                    
                    $
                    (2,284
                    )
                    
                    $
                    3,185
                    
                    NM
                    
                    $
                    242
                    
                    
                    $
                    (994
                    )
                    
                    $
                    1,236
                    
                    NM




Improved
gross margin rates and lower operating expenses in the fiscal year 2010 periods
enabled the Company to record operating profits for the six and three-month
periods ended October 31, 2009, compared to the same periods of fiscal year
2009.  The Company anticipates that at the current level of business
and having implemented certain cost saving measures, that it can sustain
operating profits at this level.  As the Company gains additional
business through increased bookings on its current product lines and expands its
product offerings through research and development efforts, the operating profit
is expected to further improve.  The Company anticipates that it will
generate an operating profit for the full fiscal year 2010.




Other income
(expense)


Six months
                        
                        
                        Three monthsPeriods ended October 31,2009
                        
                        
                        2008
                        
                        
                        Change
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        ChangeInvestment
      income
                        
                        $
                        253
                        
                        
                        $
                        367
                        
                        
                        $
                        (
      114
                        )
                        
                        
                        (31
                        )%
                        
                        $
                        125
                        
                        
                        $
                        209
                        
                        
                        $
                        (
      84
                        )
                        
                        
                        (40
                        )%Equity
      (loss)
                        
                        
                        (195
                        )
                        
                        
                        (308
                        )
                        
                        
                        113
                        
                        
                        
                        37
                        %
                        
                        
                        (145
                        )
                        
                        
                        (345
                        )
                        
                        
                        200
                        
                        
                        
                        58
                        %Impairment
      charge
                        
                        
                        (200
                        )
                        
                        
                        -
                        
                        
                        
                        (200
                        )
                        
                        NM
                        
                        
                        
                        (200
                        )
                        
                        
                        -
                        
                        
                        
                        (200
                        )
                        
                        NMInterest
      expense
                        
                        
                        (78
                        )
                        
                        
                        (193
                        )
                        
                        
                        115
                        
                        
                        
                        60
                        %
                        
                        
                        (34
                        )
                        
                        
                        (110
                        )
                        
                        
                        76
                        
                        
                        
                        69
                        %Other
      income, net
                        
                        
                        (156
                        )
                        
                        
                        75
                        
                        
                        
                        (231
                        )
                        
                        NM
                        
                        
                        
                        (117
                        )
                        
                        
                        (6
                        )
                        
                        
                        (111
                        )
                        
                        NM$
                        (
      376
                        )
                        
                        $
                        (
      59
                        )
                        
                        $
                        (
      317
                        )
                        
                        
                        (537
                        )%
                        
                        $
                        (
      371
                        )
                        
                        $
                        (
      252
                        )
                        
                        $
                        (
      119
                        )
                        
                        
                        (47
                        )%




Investment
income is derived primarily from the Company’s holdings of marketable
securities.  Earnings on these securities may vary based on
fluctuating interest rate levels and the timing of purchases or sales of
securities.




The
equity loss in the fiscal year 2010 and 2009 periods represent the Company’s
share of the quarterly loss recorded by Elcom Technologies in which the Company
owns a 25% interest.  In addition, during the three month period ended
October 31, 2009, the Company measured the current market value of Elcom based
on comparisons to comparable companies as well as Elcom’s forecasts of future
financial results and determined that its investment was
impaired.  Consequently, the Company recorded an impairment charge in
the amount of $200,000 in addition to its equity share in Elcom’s quarterly
loss.




The
decrease in interest expense for the six and three month periods ended October
31, 2009, resulted from both a decrease in borrowings under the Company’s line
of credit as well as a lower rate of interest charged on such borrowings
compared to the same periods ended October 31, 2008.




Under the
provisions of sale and leaseback accounting, a portion of the capital gain
realized on a fiscal year 2005 real estate transaction is deferred and
recognized in income over the initial lease term.  Under the caption
“Other income, net” the Company recognized deferred gain of $177,000 and $88,000
for the six and three months ended October 31, 2008,
respectively.  Since the gain was fully amortized during fiscal year
2009, comparable income was not recorded in the periods ended October 31, 2009.
In the fiscal year 2010 periods, other expense included royalty expense and
certain foreign currency exchange losses at the Company’s overseas
subsidiaries.  Other insignificant income and expense items are also
recorded under this caption.


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Net Income
(Loss)


Six months
                    
                    Three monthsPeriods ended October 31,2009
                    
                    2008
                    
                    
                    Change
                    
                    2009
                    
                    
                    2008
                    
                    
                    Change$
                    525
                    
                    $
                    (1,666
                    )
                    
                    $
                    2,191
                    
                    NM
                    
                    $
                    (129
                    )
                    
                    $
                    (894
                    )
                    
                    $
                    765
                    
                    
                    
                    86
                    %




The
improvement in net income (loss) for the six and three months ended October 31,
2009, resulted from the improved gross margin and reduced operating expenses as
discussed above.  The net loss for the second quarter of fiscal year
2010 included the $200,000 non-cash impairment charge on its Elcom
investment.  The fiscal year 2009 results were negatively impacted by
the higher engineering costs on certain satellite payload programs which were
completed during that fiscal year.  The Company expects to realize
improved gross and operating margins in the subsequent quarters of fiscal year
2010 and anticipates that it will report a profit for the full
year.




Income
Taxes




During
the six months ended October 31, 2009, the Company recorded an income tax
provision of approximately $130,000, or approximately 25% of pre-tax
income.  This provision was completely offset by a reduction in the
valuation allowance on deferred tax assets that was established in prior
years.  As of October 31, 2009, the valuation allowance is
approximately $8.4 million and may continue to be reduced as the Company
realizes pre-tax profits in future periods.




The
Company is subject to taxation in several countries as well as the states of New
York and California.  The statutory federal rates vary from 34% in the
United States to 35% in Europe.  The effective rate is impacted by the
income or loss of certain of the Company’s European and Asian subsidiaries which
are currently not taxed.  In addition, the Company utilizes the
availability of research and development tax credits in the United States to
lower its tax rate.  As of April 30, 2009, the Company’s European
subsidiaries had available net operating loss carryforwards of approximately
$1.1 million, which will offset future taxable income.  The domestic
U.S. tax loss carryforward, which expires in 2028, is approximately $3.0 million
and the tax loss carryforward for state income tax purposes is approximately
$7.3 million.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company’s balance sheet continues to reflect a strong working capital position
of $51 million at October 31, 2009, compared to working capital of $48 million
at April 30, 2009.  Included in working capital at October 31, 2009 is
$16.5 million of cash, cash equivalents and marketable
securities.  The Company’s current ratio at October 31, 2009 is 8.3 to
1.




For the
six months ended October 31, 2009, the Company had positive cash flow from
operating activities of $2.7 million compared to $466,000 provided by operations
in the comparable fiscal year 2009 period.  The primary sources of
cash in the fiscal year 2010 period were profitable operations and the
collection of accounts receivable.  During the fiscal year 2010
period, the Company incurred over $2.5 million of non-cash operating expenses,
such as depreciation and amortization and accruals for employee benefit
programs.  These non-cash expenses are comparable to prior
years.  In the six month period ended October 31, 2008, operating cash
flow was diminished by the $1.7 million net loss for the period.  For
the balance of fiscal year 2010, the Company expects to generate positive cash
flow from operating activities.




Net cash
used in investing activities for the six months ended October 31, 2009, was
$280,000 compared to a $5.9 million use of cash for the same period of fiscal
year 2009.  During the fiscal year 2010 period, cash was used solely
to acquire capital equipment.  In the prior fiscal year, the Company
invested $5.6 million in marketable securities, net of $1.0 million in proceeds
from the sale of certain marketable securities, and acquired additional fixed
assets for $293,000.  The Company may continue to acquire or sell
marketable securities as dictated by its investment strategies as well as by the
cash requirements for its development activities.  Capital equipment
purchases for all of fiscal year 2010 are expected to be in the range of $1.0
million to $1.5 million.  Internally generated cash is adequate to
acquire this level of capital equipment.


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Net cash
used in financing activities for the six months ended October 31, 2009, was $1.2
million compared to $2.6 million used during the comparable fiscal year 2009
period.  The fiscal year 2010 activity consisted solely of payments
against the Company’s capital lease obligation and paydown of the Company’s line
of credit with a financial institution.  During the first six months
of fiscal year 2009, the Company repurchased over 677,000 shares of its common
stock at an average per share price of $4.39, or approximately $3.0
million.  In addition, during fiscal year 2009, the Company had net
borrowings of $0.5 million against its line of credit and made principal
payments of $106,000 against a long-term capital lease.




The
Company has been authorized by its Board of Directors to repurchase up to $5
million worth of shares of its common stock for treasury whenever appropriate
opportunities arise but it has neither a formal repurchase plan nor commitments
to purchase additional shares in the future.  As of October 31, 2009,
the Company has repurchased approximately $4 million of its common stock out of
the $5 million authorization.




The
Company will continue to expend resources to develop and improve products for
space applications, guidance and targeting systems, and communication systems
which management believes will result in future growth and continued
profitability.  During fiscal year 2010, the Company intends to make a
substantial investment of capital and technical resources to develop new
products to meet the needs of the U.S. Government, commercial space and
telecommunications infrastructure marketplaces and to invest in more efficient
product designs and manufacturing procedures.  Where possible, the
Company will secure partial customer funding for such development efforts but is
targeting to spend its own funds at a rate less than 10% of revenues to achieve
its development goals.  Internally generated cash will be adequate to
fund these development efforts.




As of
October 31, 2009, the Company's consolidated backlog amounted to approximately
$37 million.  Approximately 70% of this backlog is expected to be
realized in the next twelve months.  Included in the backlog at
October 31, 2009 is approximately $7.5 million under cost-plus-fee contracts
which the Company believes represent firm commitments from its customers for
which the Company has not received full funding to date.  The Company
excludes from backlog any contracts or awards for which it has not received
authorization to proceed.




Off-Balance Sheet
Arrangements




The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company’s financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.




———————————


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Item
4T.


Controls and
Procedures




Disclosure Controls and
Procedures. The Company’s management, with the participation of the
Company’s chief executive officer and chief financial officer, has evaluated the
effectiveness of the Company’s disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) as of the end of the period covered
by this report.  There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the possibility
of human error and the circumvention or overriding of the controls and
procedures.  Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives.  Based on their evaluation, the Company’s chief executive
officer and chief financial officer have concluded that, as of October 31, 2009,
the Company’s disclosure controls and procedures were not effective for the
reasons discussed below, to ensure that information relating to the Company,
including its consolidated subsidiaries, required to be included in its reports
that it filed or submitted under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.




Management’s Report on
Internal Control over Financial Reporting




Management
of Frequency Electronics is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act.  The Company’s internal control
system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.  Because of inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.  Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.




As
disclosed in its Form 10-K for the year ended April 30, 2009, the Company has
identified several material weaknesses in its internal control over financial
reporting.  While the Company did not conduct a full assessment of the
effectiveness of internal controls over financial reporting at October 31, 2009,
for the second quarter of fiscal year 2010, there were no substantial changes
made to the Company’s internal control over financial reporting since
management’s assessment of April 30, 2009, and therefore the weaknesses
previously identified by management continued to exist at October 31,
2009.  Please refer to the Company’s Annual Report on Form 10-K for
the year ended April 30, 2009 for a more detailed discussion of the weaknesses
previously identified by management.




Changes in Internal Control
Over Financial Reporting. There were no changes in the Company’s internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the quarter ended October 31, 2009 to
which this report relates that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




PART
II





ITEMS 1,
1A, 2, 3 and 5 are omitted because they are not applicable.





ITEM
4  Submission of Matters to a Vote of Security Holders




On October 6, 2009, at the Annual
Meeting of Stockholders, the following matters were approved by the shareholders
of the Company:




1.
            Election
      of the following six directors:




DIRECTOR
                      
                      FOR
                      
                      
                      WITHHELD
                      
                      
                      BROKER NON-VOTESJoseph
      P. Franklin
                      
                      
                      6,234,788
                      
                      
                      
                      2,013,657
                      
                      
                      
                      0Martin
      B. Bloch
                      
                      
                      6,407,673
                      
                      
                      
                      1,840,772
                      
                      
                      
                      0Joel
      Girsky
                      
                      
                      7,540,814
                      
                      
                      
                      707,631
                      
                      
                      
                      0E.
      Donald Shapiro
                      
                      
                      7,417,902
                      
                      
                      
                      830,543
                      
                      
                      
                      0S.
      Robert Foley, Jr.
                      
                      
                      7,425,498
                      
                      
                      
                      822,947
                      
                      
                      
                      0Richard
      Schwartz
                      
                      
                      7,442,109
                      
                      
                      
                      806,336
                      
                      
                      
                      0





2.
            Ratification
      of the appointment of Eisner LLP as independent auditors for fiscal year
      2010.  The results of the voting were as
  follows:




FOR
                          
                          AGAINST
                          
                          ABSTAIN
                          
                          BROKER NON-VOTES7,765,310
                          
                          142,420
                          
                          340,716
                          
                          0





ITEM 6 -
Exhibits





31.1
                    -
                    Certification
      by the Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                    -
                    Certification
      by the Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                    -
                    Certification
      by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
                    -
                    Certification
      by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.




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21





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934 the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





FREQUENCY
      ELECTRONICS, INC.(Registrant)Date:
      December 15, 2009
                BY
                /s/   Alan
      MillerAlan
      MillerChief
      Financial Officerand
      Treasurer


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