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 SECURITIESEXCHANGE
      ACT OF 1934




For the
Quarterly Period ended January 31, 2009





OR


o
                    TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIESEXCHANGE
      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 o




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




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
            Smaller
      Reporting Company x




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




Yes o        
No x





APPLICABLE
ONLY TO CORPORATE ISSUERS:





The
number of shares outstanding of Registrant's Common Stock, par value $1.00 as of
March 10, 2009 – 8,105,628







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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





INDEX




Part
      I.  Financial Information:
              Page
      No.Item
      1 - Financial Statements:Condensed
      Consolidated Balance Sheets -January
      31, 2009 and April 30, 2008
              3Condensed
      Consolidated Statements of OperationsNine
      months Ended January 31, 2009 and 2008
              4Condensed
      Consolidated Statements of OperationsThree
      Months Ended January 31, 2009 and 2008
              5Condensed
      Consolidated Statements of Cash FlowsNine
      months Ended January 31, 2009 and 2008
              6Notes
      to Condensed Consolidated Financial Statements
              7-11Item
      2 - Management's Discussion and Analysis ofFinancial
      Condition and Results of Operations
              11-16Item
      4T- Controls and Procedures
              17-18Part
      II.  Other Information:Items
      1, 1A, 2, 3, 4 and 5 are omitted because they are not
      applicableItem
      6 - Exhibits
              18Signatures
              19Exhibits
              20-23


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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES




Condensed
Consolidated Balance Sheets


__________________________




January
      31,
              
              
              April
      30,2009
              
              
              2008(UNAUDITED)
              
              
              (AUDITED)(NOTE
      A)(In
      thousands except share data)ASSETS:Current
      assets:Cash
      and cash equivalents
              
              $
              3,274
              
              
              $
              11,029Marketable
      securities
              
              
              9,830
              
              
              
              4,414Accounts
      receivable, net of allowance for doubtful accountsof
      $178 at January 31, 2009 and $185 at April 30, 2008
              
              
              13,913
              
              
              
              10,271Costs
      and estimated earnings in excess of billings
              
              
              1,997
              
              
              
              9,556Inventories
              
              
              30,219
              
              
              
              30,218Deferred
      income taxes
              
              
              4,079
              
              
              
              3,974Income
      taxes receivable
              
              
              800
              
              
              
              151Prepaid
      expenses and other
              
              
              976
              
              
              
              1,371Total
      current assets
              
              
              65,088
              
              
              
              70,984Property,
      plant and equipment, at cost,less
      accumulated depreciation and amortization
              
              
              8,244
              
              
              
              9,531Deferred
      income taxes
              
              
              3,032
              
              
              
              2,990Goodwill
      and other intangible assets, net
              
              
              264
              
              
              
              405Cash
      surrender value of life insurance and cash held in trust
              
              
              8,047
              
              
              
              7,671Investments
      in and loans receivable from affiliates
              
              
              4,397
              
              
              
              4,522Other
      assets
              
              
              817
              
              
              
              817Total
      assets
              
              $
              89,889
              
              
              $
              96,920LIABILITIES
      AND STOCKHOLDERS’ EQUITY:Current
      liabilities:Short-term
      credit obligations
              
              $
              1,326
              
              
              $
              5,168Accounts
      payable - trade
              
              
              3,508
              
              
              
              2,215Accrued
      liabilities and other
              
              
              5,075
              
              
              
              4,694Total
      current liabilities
              
              
              9,909
              
              
              
              12,077Lease
      obligation – noncurrent
              
              
              741
              
              
              
              911Deferred
      compensation
              
              
              9,836
              
              
              
              9,467Deferred
      gain and other liabilities
              
              
              580
              
              
              
              855Total
      liabilities
              
              
              21,066
              
              
              
              23,310Stockholders’
      equity:Preferred
      stock - $1.00 par value
              
              
              -
              
              
              
              -Common
      stock - $1.00 par value
              
              
              9,164
              
              
              
              9,164Additional
      paid-in capital
              
              
              48,830
              
              
              
              48,213Retained
      earnings
              
              
              11,991
              
              
              
              13,55869,985
              
              
              
              70,935Common
      stock reacquired and held in treasury-at
      cost, 1,058,311 shares at January 31, 2009and
      427,366 shares at April 30, 2008
              
              
              (5,060
              )
              
              
              (2,175
              )Accumulated
      other comprehensive income
              
              
              3,898
              
              
              
              4,850Total
      stockholders' equity
              
              
              68,823
              
              
              
              73,610Total
      liabilities and stockholders' equity
              
              $
              89,889
              
              
              $
              96,920




See
accompanying notes to condensed consolidated financial statements.




3 of
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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Condensed
Consolidated Statements of Operations





Nine
months Ended January 31,


(Unaudited)




2009
              
              
              2008(In
      thousands except per share data)Revenues
              
              $
              40,297
              
              
              $
              50,105Cost
      of revenues
              
              
              30,932
              
              
              
              34,710Gross
      margin
              
              
              9,365
              
              
              
              15,395Selling
      and administrative expenses
              
              
              8,797
              
              
              
              9,480Research
      and development expense
              
              
              3,068
              
              
              
              5,526Operating
      (loss) income
              
              
              (2,500
              )
              
              
              389Other
      income (expense):Investment
      income
              
              
              526
              
              
              
              3,965Equity
      loss
              
              
              (100
              )
              
              
              (17
              )Interest
      expense
              
              
              (269
              )
              
              
              (402
              )Other
      income, net
              
              
              80
              
              
              
              449(Loss)
      Income before (benefit) provision for income taxes
              
              
              (2,263
              )
              
              
              4,384(Benefit)
      Provision for income taxes
              
              
              (696
              )
              
              
              1,837Net
      (loss) income
              
              $
              (1,567
              )
              
              $
              2,547Net
      (loss) income per common shareBasic
              
              $
              (0.19
              )
              
              $
              0.29Diluted
              
              $
              (0.19
              )
              
              $
              0.29Weighted
      average shares outstandingBasic
              
              
              8,381,424
              
              
              
              8,702,755Diluted
              
              
              8,381,424
              
              
              
              8,782,763


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 January 31,


(Unaudited)




2009
              
              
              2008(In
      thousands except per share data)Revenues
              
              $
              13,208
              
              
              $
              17,055Cost
      of revenues
              
              
              9,749
              
              
              
              11,600Gross
      margin
              
              
              3,459
              
              
              
              5,455Selling
      and administrative expenses
              
              
              2,845
              
              
              
              3,109Research
      and development expense
              
              
              829
              
              
              
              1,541Operating
      (loss) income
              
              
              (215
              )
              
              
              805Other
      income (expense):Investment
      income
              
              
              159
              
              
              
              202Equity
      income
              
              
              208
              
              
              
              128Interest
      expense
              
              
              (76
              )
              
              
              (110
              )Other
      income, net
              
              
              4
              
              
              
              366Income
      before (benefit) provision for income taxes
              
              
              80
              
              
              
              1,391(Benefit)
      Provision for income taxes
              
              
              (19
              )
              
              
              633Net
      income
              
              $
              99
              
              
              $
              758Net
      income per common shareBasic
              
              $
              0.01
              
              
              $
              0.09Diluted
              
              $
              0.01
              
              
              $
              0.09Weighted
      average shares outstandingBasic
              
              
              8,097,899
              
              
              
              8,714,104Diluted
              
              
              8,097,899
              
              
              
              8,780,308





See
accompanying notes to condensed consolidated financial statements.




5 of
19




FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Condensed
Consolidated Statements of Cash Flows





Nine
months Ended January 31,


(Unaudited)




2009
              
              
              2008(In
      thousands)Cash
      flows from operating activities:Net
      (loss) income
              
              $
              (1,567
              )
              
              $
              2,547Non-cash
      (income) charges to earnings, net
              
              
              3,717
              
              
              
              (473
              )Net
      changes in operating assets and liabilities
              
              
              3,184
              
              
              
              (6,028
              )Net
      cash provided by (used in) operating activities
              
              
              5,334
              
              
              
              (3,954
              )Cash
      flows from investing activities:Proceeds
      from sale of marketable securitiesand
      investments
              
              
              1,036
              
              
              
              13,241Purchase
      of marketable securities
              
              
              (6,599
              )
              
              
              (2,099
              )Purchase
      of fixed assets
              
              
              (423
              )
              
              
              (1,482
              )Net
      cash (used in) provided by investing activities
              
              
              (5,986
              )
              
              
              9,660Cash
      flows from financing activities:Proceeds
      from short-term credit obligations
              
              
              2,500
              
              
              
              500Debt
      payments
              
              
              (6,663
              )
              
              
              (18
              )Payment
      of cash dividend
              
              
              -
              
              
              
              (1,748
              )Proceeds
      from stock option exercises
              
              
              -
              
              
              
              157Purchase
      of stock for treasury
              
              
              (3,106
              )
              
              
              (233
              )Net
      cash used in financing activities
              
              
              (7,269
              )
              
              
              (1,342
              )Net
      (decrease) increase in cash and cash equivalentsbefore
      effect of exchange rate changes
              
              
              (7,921
              )
              
              
              4,364Effect
      of exchange rate changeson
      cash and cash equivalents
              
              
              166
              
              
              
              973Net
      (decrease) increase in cash and cash equivalents
              
              
              (7,755
              )
              
              
              5,337Cash
      and cash equivalents at beginning of period
              
              
              11,029
              
              
              
              1,336Cash
      and cash equivalents at end of period
              
              $
              3,274
              
              
              $
              6,673Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
              
              $
              201
              
              
              $
              386Income
      Taxes
              
              
              -
              
              
              $
              940




See
accompanying notes to condensed consolidated financial statements.









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 January 31, 2009 and the results of its
operations and cash flows for the nine and three months ended January 31, 2009
and 2008.  The April 30, 2008 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, 2008 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:
  Nine months
                  
                  
                  Three monthsPeriods
      ended January 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Basic
      EPS Shares outstanding(weighted
      average)
                  
                  
                  8,381,424
                  
                  
                  
                  8,702,755
                  
                  
                  
                  8,097,899
                  
                  
                  
                  8,714,104Effect
      of Dilutive Securities
                  
                  
                  ***
                  
                  
                  
                  80,008
                  
                  
                  
                  ***
                  
                  
                  
                  66,204Diluted
      EPS Shares outstanding
                  
                  
                  8,381,424
                  
                  
                  
                  8,782,763
                  
                  
                  
                  8,097,899
                  
                  
                  
                  8,780,308
 ***Dilutive
      securities are excluded for the nine and three months ended January 31,
      2009 since the inclusion of such shares would be
    antidilutive.
  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:
  Nine months
                  
                  
                  Three monthsPeriods
      ended January 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Outstanding
      Options excluded
                  
                  
                  1,073,719
                  
                  
                  
                  850,675
                  
                  
                  
                  1,073,719
                  
                  
                  
                  1,063,175
  During
the three-month period ended January 31, 2009, the Company granted Stock
Appreciation Rights (“SARS”) to officers, directors and employees of the Company
based on 88,000 shares of Company common stock.  When the SARS become
exercisable, the Company will settle the SARS by issuing to exercising
recipients the number of shares of stock equal to the appreciated value of the
Company’s stock between the grant date and exercise date.
  NOTE C –
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
  At
January 31, 2009 and April 30, 2008 costs and estimated earnings in excess of
billings on uncompleted contracts accounted for on the percentage of completion
basis were approximately $1,997,000 and $9,556,000,
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 nine and
three months ended January 31, 2009, the revenue recognized under percentage of
completion contracts was $14.6 million and $5.1 million,
respectively.  For the same periods of fiscal year 2008, the Company
recognized percentage of completion revenue of $21.2 million and $6.4 million,
respectively.
  7 of
19
  FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 
 Notes to
Condensed Consolidated Financial Statements
 (Unaudited)
 NOTE D -
INVENTORIES
  Inventories,
which are reported net of reserves of $7,036,000 and $6,206,000 at January 31,
2009 and April 30, 2008, respectively, consist of the following:
  January 31, 2009
                  
                  
                  April 30, 2008(In
      thousands)Raw
      materials and Component parts
                  
                  $
                  15,138
                  
                  
                  $
                  12,523Work
      in progress
                  
                  
                  11,986
                  
                  
                  
                  13,938Finished
      Goods
                  
                  
                  3,095
                  
                  
                  
                  3,757$
                  30,219
                  
                  
                  $
                  30,218
  As of
January 31, 2009 and April 30, 2008, approximately $20.9 million and $22.9
million, respectively, of total inventory is located in the United States,
approximately $7.9 million and $5.8 million, respectively, is located in Belgium
and approximately $1.4 million and $1.5 million, respectively, is located in
China.
  NOTE E –
COMPREHENSIVE (LOSS) INCOME
  For the
nine months ended January 31, 2009 and 2008, comprehensive income (loss) is
composed of:
  Nine months ended January
    31,(in
      thousands)2009
                  
                  
                  2008Net
      (loss) income
                  
                  $
                  (1,567
                  )
                  
                  $
                  2,547Foreign
      currency translation adjustment
                  
                  
                  (854
                  )
                  
                  
                  1,695Change
      in market value of marketable securities
                  
                  
                  (163
                  )
                  
                  
                  (190
                  )Deferred
      tax effect of change in market value ofmarketable
      securities
                  
                  
                  65
                  
                  
                  
                  76Comprehensive
      (loss) income
                  
                  $
                  (2,519
                  )
                  
                  $
                  4,128
  NOTE F –
TREASURY STOCK TRANSACTIONS
  On
September 11, 2008, the Company announced that it had acquired 615,000 shares of
its outstanding common stock in a block transaction with what had been its
largest institutional shareholder.  The Company paid approximately
$2.6 million for these shares.  Coupled with other purchases of common
stock during the nine month period ended January 31, 2009, the Company acquired
a total of 724,632 shares at an average price per share of
$4.29.  With these purchases, the Company has acquired approximately
$4 million of its common stock out of the total authorization of $5
million.  Offsetting the treasury stock transactions, the Company
contributed 93,687 shares to the profit sharing plan and trust under section
401(k) of the Internal Revenue Code for the benefit of the Company’s
employees.
  NOTE G –
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.
  8 of
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  FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 
 Notes to
Condensed Consolidated Financial Statements
 (Unaudited)
 
 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.
  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):
  Nine months
                  
                  
                  Three monthsPeriods
      ended January 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenues:FEI-NY
                  
                  $
                  28,104
                  
                  
                  $
                  37,175
                  
                  
                  $
                  9,471
                  
                  
                  $
                  11,803Gillam-FEI
                  
                  
                  7,708
                  
                  
                  
                  8,058
                  
                  
                  
                  2,407
                  
                  
                  
                  3,308FEI-Zyfer
                  
                  
                  6,243
                  
                  
                  
                  6,733
                  
                  
                  
                  2,116
                  
                  
                  
                  2,442less
      intersegment revenues
                  
                  
                  (1,758
                  )
                  
                  
                  (1,861
                  )
                  
                  
                  (786
                  )
                  
                  
                  (498
                  )Consolidated
      revenues
                  
                  $
                  40,297
                  
                  
                  $
                  50,105
                  
                  
                  $
                  13,208
                  
                  
                  $
                  17,055Operating
      (loss) income:FEI-NY
                  
                  $
                  (1,748
                  )
                  
                  $
                  471
                  
                  
                  $
                  33
                  
                  
                  $
                  517Gillam-FEI
                  
                  
                  (55
                  )
                  
                  
                  (109
                  )
                  
                  
                  (45
                  )
                  
                  
                  78FEI-Zyfer
                  
                  
                  (419
                  )
                  
                  
                  410
                  
                  
                  
                  (137
                  )
                  
                  
                  317Corporate
                  
                  
                  (278
                  )
                  
                  
                  (383
                  )
                  
                  
                  (66
                  )
                  
                  
                  (107
                  )Consolidated
      operating (loss) income
                  
                  $
                  (2,500
                  )
                  
                  $
                  389
                  
                  
                  $
                  (215
                  )
                  
                  $
                  805
  January 31, 2009
                  
                  
                  April 30, 2008Identifiable
      assets:FEI-NY
                  
                  $
                  47,393
                  
                  
                  $
                  54,522Gillam-FEI
                  
                  
                  19,424
                  
                  
                  
                  18,611FEI-Zyfer
                  
                  
                  7,062
                  
                  
                  
                  6,538less
      intercompany balances
                  
                  
                  (16,928
                  )
                  
                  
                  (17,786
                  )Corporate
                  
                  
                  32,938
                  
                  
                  
                  35,035Consolidated
      Identifiable Assets
                  
                  $
                  89,889
                  
                  
                  $
                  96,920
 
 NOTE H –
RELATED PARTY TRANSACTIONS
  The
Company has an equity interest in two strategically important companies: Elcom
Technologies, Inc. (“Elcom”) and Morion Inc. (“Morion”).  During the
nine and three month periods ended January 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:
  Nine months
                  
                  
                  Three monthsPeriods
      ended January 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(in
      thousands)Purchases
      from:Elcom
                  
                  $
                  249
                  
                  
                  $
                  577
                  
                  
                  $
                  136
                  
                  
                  $
                  184Morion
                  
                  
                  814
                  
                  
                  
                  399
                  
                  
                  
                  345
                  
                  
                  
                  31Sales
      to:Elcom
                  
                  $
                  62
                  
                  
                  $
                  -
                  
                  
                  $
                  37
                  
                  
                  $
                  -Morion
                  
                  
                  98
                  
                  
                  
                  152
                  
                  
                  
                  48
                  
                  
                  
                  38Interest
      on Elcom note receivable
                  
                  $
                  53
                  
                  
                  $
                  89
                  
                  
                  $
                  16
                  
                  
                  $
                  28
   9 of
19
  FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 
 Notes to
Condensed Consolidated Financial Statements
 (Unaudited)
 
 During
the second quarter of fiscal 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.
  NOTE I -
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements.”  (“FAS 157”)  This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”) and expands disclosures about fair value
measurements.  FAS 157 does not require any new fair value
measurements but simplifies and codifies related guidance.  The
Company adopted FAS 157 in fiscal year 2009.  Such adoption did not
have a material impact on the Company’s financial statements.
  During
calendar year 2008, the FASB issued FASB Staff Positions (“FSP FAS”) 157-1,
157-2, and 157-3.  FSP FAS 157-1 amends FAS 157 to exclude FAS No. 13,
“Accounting for Leases”, and its related interpretive accounting pronouncements
that address leasing transactions, FSP FAS 157-2 delays the effective date of
the application of FAS 157 to fiscal years beginning after November 15, 2008 for
all nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis, and
FSP FAS 157-3 clarifies how the fair value of a financial asset is determined
when the market for that financial asset is inactive.
  In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of SFAS No.
115” (“FAS 159”).  The new statement allows entities to choose, at
specified election dates, to measure eligible financial assets and liabilities
at fair value that are not otherwise required to be measured at fair
value.  If a company elects the fair value option for an eligible
item, changes in that item’s fair value in subsequent reporting periods must be
recognized in current earnings.  FAS 159 is effective for fiscal years
beginning after November 15, 2007.  The adoption of FAS 159 in fiscal
year 2009 had no impact on the Company’s financial statements since the Company
elected not to measure any financial assets or liabilities at fair value other
than those for which previous pronouncements required it to do so.
  In
December 2007, the FASB issued Statements No. 141(R), “Business Combinations”,
and No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB 51.”  Effective for fiscal years beginning after
December 15, 2008, these statements revise and converge internationally the
accounting for business combinations and the reporting of noncontrolling
interests in consolidated financial statements.  The adoption of these
statements will change the Company’s accounting treatment for business
combinations on a prospective basis but will have no impact on the Company’s
current financial statements.
  In March
2008, the FASB issued Statement No.161, Disclosures about Derivative Instruments
and Hedging Activities - An Amendment of FASB Statement No. 133 (“FAS
161”).  FAS 161 requires enhanced qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements.  FAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008.  The Company is currently evaluating the impact of FAS 161 on
its consolidated financial statements although it does not anticipate that the
statement will have a material impact since the Company has not historically
engaged in hedging activities or acquired derivative instruments.
  In
May 2008, the FASB issued Statement of Financial Accounting Standards No.
162 (“FAS 162”), “The Hierarchy of Generally Accepted Accounting
Principles.”  FAS 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with U.S. GAAP.  FAS 162 will become effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.”  This statement is not
expected to change the Company’s current accounting practice.
  10 of
19
  FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 
 Notes to
Condensed Consolidated Financial Statements
 (Unaudited)
 
 In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”).  FSP FAS 142-3 amends the
factors that should be considered in developing a renewal or extension
assumptions used for purposes of determining the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets (“FAS
142”).  FSP FAS 142-3 is intended to improve the consistency
between the useful life of a recognized intangible asset under SFAS 142 and
the period of expected cash flows used to measure the fair value of the asset
under SFAS 141 (R) and other U.S. generally accepted accounting
principles. FSP FAS 142-3 is effective for fiscal years beginning after
December 15, 2008. Earlier application is not permitted. The Company will
be assessing the potential effect of FSP FAS 142-3 if applicable, if it
enters into a business combination.
  On
December 21, 2007, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 110 ("SAB 110”) to permit entities, under certain
circumstances to continue to use the "simplified" method, in developing
estimates of expected term of "plain-vanilla" share options in accordance with
Statement No. 123R Share-Based Payment. SAB 110 amended SAB 107 to
permit the use of the "simplified" method beyond December 31,
2007.  The Company believes that the adoption of SAB 110 will not have
a material impact on its consolidated financial
statements.










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, 2008
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 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
revenues 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.




11 of
19


FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 (Continued)




On
production-type contracts, revenue is recorded as units are delivered with the
related cost of revenues 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 orders in
the FEI-NY segment which are not long-term contracts, revenues on 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.




Inventory




Inventoried
costs contain amounts relating to contracts and programs with long production
cycles, a portion of which will not be realized within one
year.  Inventory reserves are established for slow-moving and obsolete
items and are based upon management’s experience and expectations for future
business.  Any changes in reserves are reflected in cost of revenues
in the period the revision is made.




RESULTS
OF OPERATIONS




The table
below sets forth for the respective periods of fiscal years 2009 and 2008 the
percentage of consolidated Revenues represented by certain items in the
Company’s consolidated statements of operations:




Nine
      months
              
              
              Three
      monthsPeriods
      ended January 31,2009
              
              
              2008
              
              
              2009
              
              
              2008RevenuesFEI-NY
              
              
              69.7
              %
              
              
              74.2
              %
              
              
              71.7
              %
              
              
              69.2
              %Gillam-FEI
              
              
              19.1
              
              
              
              16.1
              
              
              
              18.2
              
              
              
              19.4FEI-Zyfer
              
              
              15.5
              
              
              
              13.4
              
              
              
              16.0
              
              
              
              14.3Less
      intersegment revenues
              
              
              (4.3
              )
              
              
              (3.7
              )
              
              
              (5.9
              )
              
              
              (2.9
              )100.0
              
              
              
              100.0
              
              
              
              100.0
              
              
              
              100.0Cost
      of revenues
              
              
              76.8
              
              
              
              69.3
              
              
              
              73.8
              
              
              
              68.0Gross
      Margin
              
              
              23.2
              
              
              
              30.7
              
              
              
              26.2
              
              
              
              32.0Selling
      and administrative expenses
              
              
              21.8
              
              
              
              18.9
              
              
              
              21.5
              
              
              
              18.3Research
      and development expenses
              
              
              7.6
              
              
              
              11.0
              
              
              
              6.3
              
              
              
              9.0Operating
      (Loss) Income
              
              
              (6.2
              )
              
              
              0.8
              
              
              
              (1.6
              )
              
              
              4.7Other
      income, net
              
              
              0.6
              
              
              
              8.0
              
              
              
              2.2
              
              
              
              3.4Pretax
      (Loss) Income
              
              
              (5.6
              )
              
              
              8.8
              
              
              
              0.6
              
              
              
              8.1(Benefit)
      Provision for income taxes
              
              
              (1.7
              )
              
              
              3.7
              
              
              
              (0.1
              )
              
              
              3.7Net
      (Loss) Income
              
              
              (3.9
              )%
              
              
              5.1
              %
              
              
              0.7
              %
              
              
              4.4
              %




12 of
19




FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 (Continued)
  (Note:
All dollar amounts in following tables are in thousands, except Revenues which
are in millions)
  Revenues
                  
                  (in
      millions)Nine
      months
                  
                  
                  Three
      monthsPeriods
      ended January 31,Segment
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  ChangeFEI-NY
                  
                  $
                  28.1
                  
                  
                  $
                  37.2
                  
                  
                  $
                  (9.1
                  )
                  
                  
                  (24
                  %)
                  
                  $
                  9.5
                  
                  
                  $
                  11.8
                  
                  
                  $
                  (2.3
                  )
                  
                  
                  (20
                  %)Gillam-FEI
                  
                  
                  7.7
                  
                  
                  
                  8.1
                  
                  
                  
                  (0.4
                  )
                  
                  
                  (4
                  %)
                  
                  
                  2.4
                  
                  
                  
                  3.3
                  
                  
                  
                  (0.9
                  )
                  
                  
                  (27
                  %)FEI-Zyfer
                  
                  
                  6.2
                  
                  
                  
                  6.7
                  
                  
                  
                  (0.5
                  )
                  
                  
                  (7
                  %)
                  
                  
                  2.1
                  
                  
                  
                  2.4
                  
                  
                  
                  (0.3
                  )
                  
                  
                  (13
                  %)Intersegment
      revenues
                  
                  
                  (1.7
                  )
                  
                  
                  (1.9
                  )
                  
                  
                  0.2
                  
                  
                  
                  
                  
                  
                  
                  (0.8
                  )
                  
                  
                  (0.5
                  )
                  
                  
                  (0.3
                  )$
                  40.3
                  
                  
                  $
                  50.1
                  
                  
                  $
                  (9.8
                  )
                  
                  
                  (20
                  %)
                  
                  $
                  13.2
                  
                  
                  $
                  17.0
                  
                  
                  $
                  (3.8
                  )
                  
                  
                  (23
                  %)
  For the
nine and three month periods ended January 31, 2009, revenues declined in all
major market areas and in each segment of the Company, compared to the same
periods of fiscal year 2008.  Revenues from telecommunications
customers, which are recorded in each of the Company’s operating segments, were
16% lower for the nine month period and 38% lower in the third quarter of fiscal
year 2009 compared to the same periods of fiscal year 2008.  The
Company expects wireless telecommunication revenues to remain soft for the near
term but expects an increase in wireline product sales during the fourth quarter
of fiscal year 2009 based on current backlog.  Revenues from satellite
payloads, which are recorded in the FEI-NY segment, remained relatively constant
over each of the three quarters of fiscal year 2009 but are lower by 35% and
18%, respectively, for the nine and three month periods ended January 31, 2009,
compared to the same periods of fiscal year 2008.  These results
reflect the conclusion of certain long-term programs and the lower level of
recent contract awards partially as a result of current macroeconomic
conditions.  With its current backlog and potential new contracts, the
Company expects satellite payload revenue to continue at the current
pace.  For the nine and three month periods ended January 31, 2009,
revenues from non-space U.S. Government customers which are recorded in the
FEI-NY and FEI-Zyfer segments, were lower by 9% and 23%,
respectively.  This is primarily the result of temporary delays in the
awarding of certain orders.  The Company anticipates that revenues for
this market area will be higher in the last quarter of the current fiscal
year.
  Gross
margin
  Nine
      months
                
                
                
                Three
      monthsPeriods
      ended January 31,2009
                
                
                
                2008
                
                
                
                Change
                
                
                
                2009
                
                
                
                2008
                
                
                
                Change$
                9,365
                
                
                $
                15,395
                
                
                $
                (6,030
                )
                
                
                (39
                %)
                
                $
                3,459
                
                
                $
                5,455
                
                
                $
                (1,996
                )
                
                
                (37
                %)GM
      Rate
                
                
                23.2
                %
                
                
                30.7
                %
                
                
                
                
                
                
                
                
                
                
                26.2
                %
                
                
                32.0
                %
   The 39%
and 37% decreases in gross margin for the nine and three months ended January
31, 2009, respectively, are due primarily to lower revenues, higher levels of
engineering and manufacturing costs on certain satellite payload programs that
the Company began to experience in late fiscal year 2008 and higher overhead
costs.  The gross margin rates of 23.2% and 26.2% for the nine and
three-month periods ended January 31, 2009, respectively, also reflect the
impact of recording higher reserves for slow moving inventory.  Such
reserve increases reduced gross margins by approximately 3.6% and 4.9%,
respectively.  With the completion of the challenging satellite
programs in the first half of fiscal year 2009, the gross margin rate improved
from 22% to 26%.  The Company expects the rate to continue to improve
moderately based on the future revenue mix.
  Selling and administrative
expenses
  Nine
      months
                  
                  
                  Three
      monthsPeriods
      ended January 31,2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  Change$
                  8,797
                  
                  
                  $
                  9,480
                  
                  
                  $
                  (683
                  )
                  
                  
                  (7
                  %)
                  
                  $
                  2,845
                  
                  
                  $
                  3,109
                  
                  
                  $
                  (264
                  )
                  
                  
                  (8
                  %)
   For the
nine and three months ended January 31, 2009, selling and administrative
expenses were 21.8% and 21.5%, respectively, of consolidated
revenues.  This is compared to 18.9% and 18.3%, respectively, for the
same periods of fiscal year 2008.  The Company’s target for such
expenses is not to exceed 20% of revenues but this ratio was not achieved in the
fiscal year 2009 periods primarily due to a lower level of
revenues.  Selling and administrative expenses declined in the fiscal
year 2009 periods due to
decreases in personnel costs including reduced incentive compensation and
decreased employee benefits resulting from a reduction in
personnel.  For the balance of fiscal year 2009, the Company expects
selling and administrative expenses to be incurred at approximately the same
level.


13 of
19




FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
 (Continued)




Research and development
expense




Nine
      months
            
            
            Three
      monthsPeriods
      ended January 31,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change$
            3,068
            
            
            $
            5,526
            
            
            $
            (2,458
            )
            
            
            (44
            %)
            
            $
            829
            
            
            $
            1,541
            
            
            $
            (712
            )
            
            
            (46
            %)




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 nine and three-month periods ended January 31, 2009, was 7.6%
and 6.3% of revenues, respectively, compared to 11.0% and 9.0% of revenues for
the same periods of fiscal year 2008, respectively.  The decreased
spending in fiscal year 2009 is a result of many of the Company’s development
resources being applied to certain cost-plus-fee satellite payload
programs.  As a consequence, some of the Company’s development
expenditures will be customer-funded and the costs will appear in cost of
revenues, thus reducing the level of internal research and development
spending.  In the nine and three-month periods ended January 31, 2008,
the Company incurred exceptional levels of engineering spending and development
work on its satellite payload products.  This effort abated throughout
fiscal year 2008.  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 number of such projects, their size and duration
can vary widely depending on the intermediate and long-term needs of the
Company.  The Company expects to continue to devote significant
resources to develop new products, enhance existing products and implement
efficient manufacturing processes.  Internally generated cash and cash
reserves are adequate to fund these development efforts.




Operating (Loss)
Income


Nine
      month
                
                
                Three
      monthsPeriods
      ended January 31,2009
                
                
                2008
                
                
                Change
                
                
                2009
                
                
                2008
                
                
                Change$
                (2,500
                )
                
                $
                389
                
                
                $
                (2,889
                )
                NM
                
                
                $
                (215
                )
                
                $
                805
                
                
                $
                (1,020
                )
                NM


Lower
revenues, the higher level of engineering and manufacturing effort related to
satellite payload programs during the first half of the year, higher overhead
costs and recording a higher level of inventory reserves resulted in operating
losses for the nine and three-month periods ended January 31, 2009, compared to
the same periods of fiscal year 2008.  Although fiscal year 2009
revenues have been relatively flat during the year, the operating loss in the
third quarter has decreased significantly from the first half of the year as the
Company has made adjustments to the lower level of business.  The
Company anticipates that the combination of cost reductions and improving
revenues will enable it to generate an operating profit in the last quarter of
fiscal year 2009.




Other income
(expense)




Nine
      months
                
                
                Three
      monthsPeriods
      ended January 31,2009
                
                
                2008
                
                
                Change
                
                
                2009
                
                
                2008
                
                
                ChangeInvestment
      income
                
                $
                526
                
                
                $
                3,965
                
                
                $
                (3,439
                )
                
                
                (87
                %)
                
                $
                159
                
                
                $
                202
                
                
                $
                (43
                )
                
                
                (21
                %)Equity
      (loss) income
                
                
                (100
                )
                
                
                (17
                )
                
                
                (83
                )
                
                
                (488
                %)
                
                
                208
                
                
                
                128
                
                
                
                80
                
                
                
                62
                %Interest
      expense
                
                
                (269
                )
                
                
                (402
                )
                
                
                133
                
                
                
                33
                %
                
                
                (76
                )
                
                
                (110
                )
                
                
                34
                
                
                
                31
                %Other
      income, net
                
                
                80
                
                
                
                449
                
                
                
                (369
                )
                
                
                (82
                %)
                
                
                4
                
                
                
                366
                
                
                
                (362
                )
                
                
                (99
                %)$
                237
                
                
                $
                3,995
                
                
                $
                (3,758
                )
                
                
                (94
                %)
                
                $
                295
                
                
                $
                586
                
                
                $
                (291
                )
                
                
                (50
                %)




During
the nine months ended January 31, 2008, the Company reduced its investment in
Morion, Inc. from 36.6% to 8% by selling shares to a Russian government
majority-owned bank.  The Company received proceeds of approximately
$5.8 million and realized a book gain of approximately $3.0
million.  Such gain was included in investment income for the first
quarter of fiscal year 2008.  Comparable gains were not recorded
during the fiscal year 2009 periods.  In addition, investment income
from interest and dividends was reduced in the fiscal year 2009 period due to a
lower level of marketable securities than in the same periods of the prior
year.




14 of
19




FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




The
equity (loss) income in the fiscal year 2009 and 2008 periods represent the
Company’s share of the quarterly results recorded by Elcom Technologies in which
the Company owns a 25% interest.




The
decrease in interest expense for the nine and three month periods ended January
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 January 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 $236,000 and $59,000
for the nine and three months ended January 31, 2009,
respectively.  The deferred gain was fully amortized during the third
quarter of fiscal year 2009.  In the same periods of fiscal 2008,
deferred gain was $265,000 and $88,000, respectively.  These gains
were partially offset by certain nonrecurring expenses at the FEI-NY and
Gillam-FEI segments, including certain foreign currency exchange losses,
settlement of European insurance claims and business interruption
costs.  Other insignificant income and expense items are also recorded
under this caption.




Net (Loss)
income


Nine
      months
                
                Three
      monthsPeriods
      ended January 31,2009
                
                
                2008
                
                
                Change
                
                2009
                
                
                2008
                
                
                Change$
                (1,567
                )
                
                $
                2,547
                
                
                $
                (4,114
                )
                NM
                
                $
                99
                
                
                $
                758
                
                
                $
                (659
                )
                
                
                (87
                %)


The
decline in profitability for the nine and three month periods ended January 31,
2009, compared to the same periods of fiscal year 2008, resulted from the
decrease in revenues, higher engineering and production costs on certain
satellite programs, higher overhead costs and increases to inventory reserves as
discussed above.  The results for the nine month period of fiscal year
2008 were positively impacted by the investment gain recorded on the sale of a
portion of the Company’s investment in Morion.  The Company expects to
realize improved gross and operating margins in the last quarter of fiscal year
2009.




Income
Taxes




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, 2008, the Company’s European
subsidiaries had available net operating loss carryforwards of approximately
$1.2 million, which may be used to offset future taxable income.  The
Company’s effective tax rate for fiscal year 2008 was higher than in prior years
as a result of the gain recognized on the Morion transaction.  The
Company’s tax basis in its Morion investment was less than its book basis
resulting in greater taxable income than that recorded for financial reporting
purposes.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company’s balance sheet continues to reflect a strong working capital position
of $55 million at January 31, 2009, which is compared to working capital of $59
million at April 30, 2008.  Included in working capital at January 31,
2009 is $13.1 million of cash, cash equivalents and marketable securities which
are offset by $1.1 million in borrowings under its bank line of
credit.  The Company’s current ratio at January 31, 2009 is 6.6 to
1.




For the
nine months ended January 31, 2009, the Company had positive cash flow from
operating activities of $5.3 million compared to $4.0 million used by operations
in the comparable fiscal year 2008 period.  The primary source of cash
in the fiscal year 2009 period was the collection of accounts
receivable.  As the Company achieved milestones on certain large
satellite programs, it was contractually permitted to issue invoices to its
customers and a significant portion of the receivables were collected by the end
of the fiscal quarter.  In the nine month period ended January 31,
2008, the decrease in operating cash flow was due primarily to increases in
unbilled accounts receivable, inventory and payments against accounts
payable.  For the balance of fiscal year 2009, the Company expects to
generate positive cash flow from operating activities.




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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Net cash
used in investing activities for the nine months ended January 31, 2009, was
$6.0 million compared to cash provided by investing activities of $9.7 million
for the same period of fiscal year 2008.  During the fiscal year 2009
period, 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 $423,000.  In the prior fiscal year, the
Company received net proceeds of $5.6 million from the sale of a portion of its
investment in Morion and the net proceeds from the redemption and purchase of
marketable securities for $5.5 million.  This cash inflow was
partially offset by fixed asset acquisitions of $1.5 million.  The
Company may continue to acquire or sell marketable securities as dictated by its
liquidity requirements.  Capital equipment purchases for all of fiscal
year 2009 are expected to aggregate less than $1.0
million.  Internally generated cash is adequate to acquire this level
of capital equipment.




Net cash
used in financing activities for the nine months ended January 31, 2009, was
$7.3 million compared to $1.3 million used during the comparable fiscal year
2008 period.  During the first nine months of fiscal year 2009, the
Company repurchased approximately 725,000 shares of its common stock at an
average per share price of $4.29, or approximately $3.1 million, compared to
treasury stock purchases of $233,000 for the same period of fiscal year
2008.  During fiscal year 2009, the Company had repaid $4.0 million
against its line of credit and made principle payments of $163,000 against a
long-term capital lease.  During the nine months ended January 31,
2008, the Company paid a cash dividend of $1.7 million and repaid $3.0 million
of the $3.5 million borrowed under its line of credit.




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 the end of the
most recent fiscal quarter, 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, wireless networks and
wireline communication systems which management believes will result in future
growth and continued profitability.  During fiscal year 2009, the
Company intends to make investments in more efficient product designs, automatic
test equipment, employee training and improved manufacturing
processes.  For the current fiscal year and for the foreseeable
future, the Company has been awarded several cost-plus-fee development contracts
for satellite payloads.  Such customer-funded programs will enable the
Company to conduct important development activities and the Company will be
reimbursed by its customers for its efforts.  Thus, the Company
expects to spend its own funds at a lower rate than it has historically to
achieve its development goals.  Internally generated cash will be
adequate to fund these internal research and development efforts.




As of
January 31, 2009, the Company's consolidated backlog amounted to approximately
$39 million.  Approximately 70% of this backlog is expected to be
realized in the next twelve months.  Included in the backlog at
January 31, 2009 is approximately $12.8 million under cost-plus-fee contracts
which represent firm commitments from its customers for which the Company has
not yet received full funding.  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 January 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.




At the
end of fiscal year 2008, management assessed the effectiveness of the Company’s
internal control over financial reporting.  In making this assessment,
management used the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).  As of January 31, 2009, management reviewed its
original assessment and the current status of its internal controls over
financial reporting.  Based on this review, management has concluded
that the Company’s internal control over financial reporting was not effective
as of January 31, 2009.  The Company’s chief executive officer and
chief financial officer have concluded that the Company has material weaknesses
in its internal control over financial reporting.




A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.




Financial
Reporting


The
Company had inadequate resources and an insufficient number of personnel having
adequate knowledge, experience and training to provide effective oversight and
review of our internal controls within the prescribed timeframe.  As a
result, as of January 31, 2009, there was a material weakness in the Company’s
internal control because management has not performed a self-assessment or the
necessary documentation and testing of the internal controls at two of the
Company’s subsidiaries, Gillam-FEI and FEI-Zyfer.  The lack of
documentation and testing of these subsidiaries constitutes a material
weakness.  In order to remediate this material weakness, management
expects to establish policies and procedures to provide for the necessary
documentation and testing of such internal controls over the coming
year.  During fiscal year 2009, the Company began to document the
internal controls over financial reporting at its Gillam-FEI and FEI-Zyfer
subsidiaries.  The Company expects to conduct tests of such controls
and, if this process identifies material weaknesses or significant deficiencies
over such internal controls, the Company intends to implement appropriate
remediation efforts.




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FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Due to
the Company’s small size and lack of resources and staffing, the Chief Financial
Officer is actively involved in the preparation of the financial statements and
therefore, cannot provide an independent review and quality assurance function
within the accounting and financial reporting group.  The limited
number of accounting personnel results in an inability to have independent
review and approval by the Chief Financial Officer of financial accounting
entries.  There is a risk that a material misstatement of the
financial statements could be caused, or at least not be detected in a timely
manner, due to this insufficient segregation of duties.  During fiscal
year 2009, the Company plans to remediate this material weakness by engaging
third-party accounting advisors and by creating processes whereby personnel in
its Accounting Department (other than the Chief Financial Officer) will create
analysis and original accounting entries, which will subsequently be reviewed
and approved by the Chief Financial Officer.




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 ending January 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.




PART
II





ITEMS 1,
1A, 2, 3, 4 and 5 are omitted because they are not applicable.





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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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: March 17, 2009
              By:
              /s/ Alan
      MillerAlan
      Miller
                Chief
      Financial Officer
                and
      Treasurer




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