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 January 31, 2010





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




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
March 10, 2010 – 8,187,453













FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





INDEX





Page
      No.Part
      I.  Financial Information:Item
      1 - Financial Statements:Condensed
      Consolidated Balance Sheets -January
      31, 2010 and April 30, 2009
                            3Condensed
      Consolidated Statements of OperationsNine
      Months Ended January 31, 2010 and 2009
                            4Condensed
      Consolidated Statements of OperationsThree
      Months Ended January 31, 2010 and 2009
                            5Condensed
      Consolidated Statements of Cash FlowsNine
      Months Ended January 31, 2010 and 2009
                            6Notes
      to Condensed Consolidated Financial Statements
                            7-13Item
      2 - Management's Discussion and Analysis ofFinancial
      Condition and Results of Operations
                            13-19Item
      3 – Quantitative and Qualitative Disclosures About Market
    Risk
                            19Item
      4T- Controls and Procedures
                            19-20Part
      II.  Other Information:Item
      6 - Exhibits
                            20Signatures
                            21Exhibits
                            22-25





2 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES




Condensed
Consolidated Balance Sheets


__________________________


January
      31,
                            
                            
                            April
      30,2010
                            
                            
                            2009(UNAUDITED)
                            
                            
                            (AUDITED)(NOTE
      A)(In
      thousands except share data)ASSETS:Current
      assets:Cash
      and cash equivalents
                            
                            $
                            6,504
                            
                            
                            $
                            4,911Marketable
      securities
                            
                            
                            10,408
                            
                            
                            
                            9,998Accounts
      receivable, net of allowance for doubtful accounts of $285 at January 31,
      2010 and April 30, 2009
                            
                            
                            9,924
                            
                            
                            
                            10,775Costs
      and estimated earnings in excess of billings
                            
                            
                            2,667
                            
                            
                            
                            2,193Inventories
                            
                            
                            28,585
                            
                            
                            
                            26,051Income
      taxes receivable and refundable
                            
                            
                            2,443
                            
                            
                            
                            886Prepaid
      expenses and other
                            
                            
                            864
                            
                            
                            
                            1,257Total
      current assets
                            
                            
                            61,395
                            
                            
                            
                            56,071Property,
      plant and equipment, at cost, less accumulated depreciation and
      amortization
                            
                            
                            7,016
                            
                            
                            
                            7,961Goodwill
      and other intangible assets, net
                            
                            
                            218
                            
                            
                            
                            218Cash
      surrender value of life insurance and cash held in trust
                            
                            
                            8,784
                            
                            
                            
                            8,423Investments
      in and loans receivable from affiliates
                            
                            
                            3,516
                            
                            
                            
                            4,430Other
      assets
                            
                            
                            817
                            
                            
                            
                            817Total
      assets
                            
                            $
                            81,746
                            
                            
                            $
                            77,920LIABILITIES
      AND STOCKHOLDERS’ EQUITY:Current
      liabilities:Short-term
      credit obligations
                            
                            $
                            243
                            
                            
                            $
                            1,327Accounts
      payable - trade
                            
                            
                            2,833
                            
                            
                            
                            2,305Accrued
      liabilities and other
                            
                            
                            4,385
                            
                            
                            
                            4,408Total
      current liabilities
                            
                            
                            7,461
                            
                            
                            
                            8,040Lease
      obligation – noncurrent
                            
                            
                            511
                            
                            
                            
                            684Deferred
      compensation
                            
                            
                            9,599
                            
                            
                            
                            9,546Other
      liabilities
                            
                            
                            641
                            
                            
                            
                            484Total
      liabilities
                            
                            
                            18,212
                            
                            
                            
                            18,754Stockholders’
      equity:Preferred
      stock - $1.00 par value
                            
                            
                            -
                            
                            
                            
                            -Common
      stock - $1.00 par value
                            
                            
                            9,164
                            
                            
                            
                            9,164Additional
      paid-in capital
                            
                            
                            49,422
                            
                            
                            
                            48,997Retained
      earnings
                            
                            
                            5,096
                            
                            
                            
                            2,52263,682
                            
                            
                            
                            60,683Common
      stock reacquired and held in treasury -at cost, 976,487 shares at January
      31, 2010 and 1,021,159 shares at April 30, 2009
                            
                            
                            (4,799
                            )
                            
                            
                            (4,972
                            )Accumulated
      other comprehensive income
                            
                            
                            4,651
                            
                            
                            
                            3,455Total
      stockholders' equity
                            
                            
                            63,534
                            
                            
                            
                            59,166Total
      liabilities and stockholders' equity
                            
                            $
                            81,746
                            
                            
                            $
                            77,920





See
accompanying notes to condensed consolidated financial statements.





3 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Condensed
Consolidated Statements of Operations





Nine
Months Ended January 31,


(Unaudited)





2010
                    
                    
                    2009(In
      thousands except per share data)Revenues
                    
                    $
                    36,360
                    
                    
                    $
                    40,297Cost
      of revenues
                    
                    
                    23,243
                    
                    
                    
                    30,932Gross
      margin
                    
                    
                    13,117
                    
                    
                    
                    9,365Selling
      and administrative expenses
                    
                    
                    7,948
                    
                    
                    
                    8,797Research
      and development expense
                    
                    
                    3,954
                    
                    
                    
                    3,068Operating
      income (loss)
                    
                    
                    1,215
                    
                    
                    
                    (2,500
                    )Other
      income (expense):Investment
      income
                    
                    
                    400
                    
                    
                    
                    526Equity
      loss
                    
                    
                    (151
                    )
                    
                    
                    (100
                    )Impairment
      of investment in affiliate
                    
                    
                    (550
                    )
                    
                    
                    -Interest
      expense
                    
                    
                    (103
                    )
                    
                    
                    (269
                    )Other
      (expense) income, net
                    
                    
                    (207
                    )
                    
                    
                    80Income
      (Loss) before benefit for income taxes
                    
                    
                    604
                    
                    
                    
                    (2,263
                    )Benefit
      for income taxes
                    
                    
                    (1,970
                    )
                    
                    
                    (696
                    )Net
      income (loss)
                    
                    $
                    2,574
                    
                    
                    $
                    (1,567
                    )Net
      income (loss) per common shareBasic
                    
                    $
                    0.31
                    
                    
                    $
                    (0.19
                    )Diluted
                    
                    $
                    0.31
                    
                    
                    $
                    (0.19
                    )Weighted
      average shares outstandingBasic
                    
                    
                    8,176,638
                    
                    
                    
                    8,381,424Diluted
                    
                    
                    8,197,367
                    
                    
                    
                    8,381,424





See
accompanying notes to consolidated condensed financial statements.





4 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Condensed
Consolidated Statements of Operations





Three
Months Ended January 31,


(Unaudited)





2010
                              
                              
                              2009(In
      thousands except per share data)Revenues
                              
                              $
                              12,524
                              
                              
                              $
                              13,208Cost
      of revenues
                              
                              
                              8,102
                              
                              
                              
                              9,749Gross
      margin
                              
                              
                              4,422
                              
                              
                              
                              3,459Selling
      and administrative expenses
                              
                              
                              2,608
                              
                              
                              
                              2,845Research
      and development expense
                              
                              
                              1,500
                              
                              
                              
                              829Operating
      income (loss)
                              
                              
                              314
                              
                              
                              
                              (215
                              )Other
      income (expense):Investment
      income
                              
                              
                              147
                              
                              
                              
                              159Equity
      income
                              
                              
                              44
                              
                              
                              
                              208Impairment
      of investment in affiliate
                              
                              
                              (350
                              )
                              
                              
                              -Interest
      expense
                              
                              
                              (25
                              )
                              
                              
                              (76
                              )Other
      (expense) income, net
                              
                              
                              (51
                              )
                              
                              
                              4Income
      before benefit for income taxes
                              
                              
                              79
                              
                              
                              
                              80Benefit
      for income taxes
                              
                              
                              (1,970
                              )
                              
                              
                              (19
                              )Net
      income
                              
                              $
                              2,049
                              
                              
                              $
                              99Net
      income per common shareBasic
                              
                              $
                              0.25
                              
                              
                              $
                              0.01Diluted
                              
                              $
                              0.25
                              
                              
                              $
                              0.01Weighted
      average shares outstandingBasic
                              
                              
                              8,184,627
                              
                              
                              
                              8,097,899Diluted
                              
                              
                              8,222,574
                              
                              
                              
                              8,097,899





See
accompanying notes to condensed consolidated financial statements.





5 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Condensed
Consolidated Statements of Cash Flows





Nine
Months Ended January 31,


(Unaudited)





2010
                              
                              
                              2009(In
      thousands)Cash
      flows from operating activities:Net
      income (loss)
                              
                              $
                              2,574
                              
                              
                              $
                              (1,567
                              )Non-cash
      (income) charges to earnings, net
                              
                              
                              3,844
                              
                              
                              
                              3,717Net
      changes in operating assets and liabilities
                              
                              
                              (3,293
                              )
                              
                              
                              3,184Net
      cash provided by operating activities
                              
                              
                              3,125
                              
                              
                              
                              5,334Cash
      flows from investing activities:Proceeds
      from sale of marketable securities
                              
                              
                              500
                              
                              
                              
                              1,036Purchase
      of marketable securities
                              
                              
                              -
                              
                              
                              
                              (6,599
                              )Receipt
      of loan payment from affiliate
                              
                              
                              220
                              
                              
                              
                              -Purchase
      of fixed assets
                              
                              
                              (517
                              )
                              
                              
                              (423
                              )Net
      cash provided by (used in) investing activities
                              
                              
                              203
                              
                              
                              
                              (5,986
                              )Cash
      flows from financing activities:Proceeds
      from short-term credit obligations
                              
                              
                              -
                              
                              
                              
                              2,500Debt
      payments
                              
                              
                              (1,314
                              )
                              
                              
                              (6,663
                              )Purchase
      of stock for treasury
                              
                              
                              -
                              
                              
                              
                              (3,106
                              )Net
      cash used in financing activities
                              
                              
                              (1,314
                              )
                              
                              
                              (7,269
                              )Net
      increase (decrease) in cash and cash equivalents before effect of exchange
      rate changes
                              
                              
                              2,014
                              
                              
                              
                              (7,921
                              )Effect
      of exchange rate changes on cash and cash equivalents
                              
                              
                              (421
                              )
                              
                              
                              166Net
      increase (decrease) in cash and cash equivalents
                              
                              
                              1,593
                              
                              
                              
                              (7,755
                              )Cash
      and cash equivalents at beginning of period
                              
                              
                              4,911
                              
                              
                              
                              11,029Cash
      and cash equivalents at end of period
                              
                              $
                              6,504
                              
                              
                              $
                              3,274Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
                              
                              $
                              103
                              
                              
                              $
                              201Income
      Taxes
                              
                              
                              -
                              
                              
                              
                              -





See
accompanying notes to condensed consolidated financial statements.





6 of
21





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, 2010 and the results of its
operations and cash flows for the nine and three months ended January 31, 2010
and 2009.  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:


Nine months
                      
                      
                      Three monthsPeriods
      ended January 31,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Basic
      EPS Shares outstanding(weighted
      average)
                      
                      
                      8,176,638
                      
                      
                      
                      8,381,424
                      
                      
                      
                      8,184,627
                      
                      
                      
                      8,097,899Effect
      of Dilutive Securities
                      
                      
                      20,729
                      
                      
                      
                      ***
                      
                      
                      
                      37,947
                      
                      
                      
                      ***Diluted
      EPS Shares outstanding
                      
                      
                      8,197,367
                      
                      
                      
                      8,381,424
                      
                      
                      
                      8,222,574
                      
                      
                      
                      8,097,899





***
              Dilutive
      securities are excluded for the nine- and three-month periods 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 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Outstanding
      Options excluded
                    
                    
                    1,347,775
                    
                    
                    
                    1,073,719
                    
                    
                    
                    1,066,775
                    
                    
                    
                    1,073,719




NOTE C –
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS




At
January 31, 2010 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 $2,667,000 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 nine and
three months ended January 31, 2010, the revenue recognized under percentage of
completion contracts was $14.4 million and $4.7 million,
respectively.  For the same periods of fiscal year 2009, the Company
recognized percentage of completion revenue of $14.6 million and $5.1 million,
respectively.





7 of
21





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 January 31, 2010 and April
30, 2009, respectively, consist of the following:





January 31, 2010
                    
                    
                    April 30, 2009(In
      thousands)Raw
      materials and Component parts
                    
                    $
                    11,935
                    
                    
                    $
                    12,542Work
      in progress
                    
                    
                    14,163
                    
                    
                    
                    10,613Finished
      Goods
                    
                    
                    2,487
                    
                    
                    
                    2,896$
                    28,585
                    
                    
                    $
                    26,051




As of
January 31, 2010 and April 30, 2009, approximately $18.0 million and $18.0
million, respectively, of total inventory is located in the United States,
approximately $9.7 million and $6.8 million, respectively, is located in Belgium
and $900,000 and $1.2 million, respectively, is located in China.




The
Company reached an agreement with a customer and received $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 nine month period ended January 31,
2010.  During the nine- and three-month periods ended January 31,
2010, the Company wrote down inventory with an aggregate value of $950,000 and
$150,000, respectively.  In the same periods of fiscal year 2009, the
Company wrote down inventory with an aggregate value of $1.45 million 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
nine months ended January 31, 2010 and 2009, comprehensive income (loss) is
composed of (in thousands):


Nine months ended January
    31,2010
                  
                  
                  2009Net
      income (loss)
                  
                  $
                  2,574
                  
                  
                  $
                  (1,567
                  )Foreign
      currency translation adjustment
                  
                  
                  596
                  
                  
                  
                  (854
                  )Change
      in market value of marketable securities
                  
                  
                  917
                  
                  
                  
                  (163
                  )Deferred
      tax effect of change in market value of marketable
      securities
                  
                  
                  (317
                  )
                  
                  
                  65Comprehensive
      income (loss)
                  
                  $
                  3,770
                  
                  
                  $
                  (2,519
                  )




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.





8 of
21





FREQUENCY
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):


Nine months
                  
                  
                  Three monthsPeriods
      ended January 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenues:FEI-NY
                  
                  $
                  21,382
                  
                  
                  $
                  28,104
                  
                  
                  $
                  7,368
                  
                  
                  $
                  9,471Gillam-FEI
                  
                  
                  8,812
                  
                  
                  
                  7,708
                  
                  
                  
                  3,837
                  
                  
                  
                  2,407FEI-Zyfer
                  
                  
                  8,742
                  
                  
                  
                  6,243
                  
                  
                  
                  1,914
                  
                  
                  
                  2,116less
      intersegment revenues
                  
                  
                  (2,576
                  )
                  
                  
                  (1,758
                  )
                  
                  
                  (595
                  )
                  
                  
                  (786
                  )Consolidated
      revenues
                  
                  $
                  36,360
                  
                  
                  $
                  40,297
                  
                  
                  $
                  12,524
                  
                  
                  $
                  13,208Operating
      income (loss):FEI-NY
                  
                  $
                  885
                  
                  
                  $
                  (1,748
                  )
                  
                  $
                  261
                  
                  
                  $
                  33Gillam-FEI
                  
                  
                  377
                  
                  
                  
                  (55
                  )
                  
                  
                  382
                  
                  
                  
                  (45
                  )FEI-Zyfer
                  
                  
                  229
                  
                  
                  
                  (419
                  )
                  
                  
                  (256
                  )
                  
                  
                  (137
                  )Corporate
                  
                  
                  (276
                  )
                  
                  
                  (278
                  )
                  
                  
                  (73
                  )
                  
                  
                  (66
                  )Consolidated
      operating income (loss)
                  
                  $
                  1,215
                  
                  
                  $
                  (2,500
                  )
                  
                  $
                  314
                  
                  
                  $
                  (215
                  )





January 31, 2010
                  
                  
                  April 30, 2009Identifiable
      assets:FEI-NY
                  
                  $
                  39,773
                  
                  
                  $
                  39,658Gillam-FEI
                  
                  
                  20,333
                  
                  
                  
                  17,615FEI-Zyfer
                  
                  
                  5,720
                  
                  
                  
                  8,672less
      intercompany balances
                  
                  
                  (16,613
                  )
                  
                  
                  (17,853
                  )Corporate
                  
                  
                  32,533
                  
                  
                  
                  29,828Consolidated
      Identifiable Assets
                  
                  $
                  81,746
                  
                  
                  $
                  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
nine and three month periods ended January 31, 2010 and 2009, 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 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(in
      thousands)Purchases
      from:Elcom
                  
                  $
                  15
                  
                  
                  $
                  249
                  
                  
                  $
                  9
                  
                  
                  $
                  136Morion
                  
                  
                  222
                  
                  
                  
                  814
                  
                  
                  
                  2
                  
                  
                  
                  345Sales
      to:Elcom
                  
                  $
                  1
                  
                  
                  $
                  62
                  
                  
                  $
                  1
                  
                  
                  $
                  37Morion
                  
                  
                  76
                  
                  
                  
                  98
                  
                  
                  
                  11
                  
                  
                  
                  48Interest
      on Elcom note receivable
                  
                  $
                  69
                  
                  
                  $
                  53
                  
                  
                  $
                  45
                  
                  
                  $
                  16




The
Company measures the current market value of Elcom based on comparisons to
comparable companies as well as Elcom’s forecasts of future financial
results.  In fiscal year 2010, the Company determined that its
investment was impaired and for the nine and three months ended January 31,
2010, recorded impairment charges in the amount $550,000 and $350,000,
respectively.  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.





9 of
21





FREQUENCY
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 January 31, 2010 and April 30, 2009 are as
follows (in thousands):




January 31, 2010Gross
                  
                  
                  Gross
                  
                  
                  FairUnrealized
                  
                  
                  Unrealized
                  
                  
                  MarketCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  ValueFixed
      income securities
                  
                  $
                  9,658
                  
                  
                  $
                  280
                  
                  
                  $
                  (136
                  )
                  
                  $
                  9,802Equity
      securities
                  
                  
                  450
                  
                  
                  
                  156
                  
                  
                  
                  -
                  
                  
                  
                  606$
                  10,108
                  
                  
                  $
                  436
                  
                  
                  $
                  (136
                  )
                  
                  $
                  10,408





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
                      
                      
                      LossesJanuary 31, 2010Fixed
      Income Securities
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,916
                      
                      
                      $
                      (136
                      )
                      
                      $
                      1,916
                      
                      
                      $
                      (136
                      )Equity
      Securities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -$
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,916
                      
                      
                      $
                      (136
                      )
                      
                      $
                      1,916
                      
                      
                      $
                      (136
                      )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 January 31, 2010 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 nine and three month periods ended January 31, 2010, the Company redeemed an
available-for-sale security in the amount of $500,000 and realized a loss of
$7,000 on the transaction which is included in the determination of net income
for those periods.  During the nine and three month periods ended
January 31, 2009, 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.





10 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)




Maturities
of fixed income securities classified as available-for-sale at January 31, 2010
are as follows, at cost (in thousands):


Current
                  
                  $
                  -Due
      after one year through five years
                  
                  
                  9,658Due
      after five years through ten years
                  
                  
                  -$
                  9,658




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
valued on a Level 1 basis.





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.





11 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)




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




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.




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 –
INCOME TAXES




In
November 2009, the United States enacted legislation which permits corporations
to carryback net operating losses up to 5 years versus the previous 2-year
limitation.  As a result, the Company filed a claim to carryback the
entire amount of its fiscal year 2009 tax loss to an earlier year, thus
realizing a tax benefit of approximately $2.9 million.  Before this
legislation was enacted, the Company anticipated receiving a tax benefit of
approximately $800,000 and recorded a receivable on that basis.  Due
to the change in tax law, during the nine and three month periods ended January
31, 2010, the Company is recording a tax benefit of $1.97 million of which $2.1
million is attributable to the effect of the new law.  During the nine
months ended January 31, 2010, the Company recorded an income tax provision of
approximately $180,000, or approximately 30% of pre-tax income.  A
portion of this provision was deferred and is offset by a reduction in the
valuation allowance on deferred tax assets that was established in prior
years.  As of January 31, 2010, the valuation allowance is
approximately $6.7 million and may continue to be reduced as the Company
realizes pre-tax profits in future periods.





12 of
21





FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES





Notes to
Condensed Consolidated Financial Statements


(Unaudited)




NOTE K –
TREASURY STOCK TRANSACTIONS




During
the nine month period ended January 31, 2010, the Company made a contribution of
44,672 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.




NOTE L –
SUBSEQUENT EVENTS




In
accordance with current accounting standards, the Company has evaluated
subsequent events through the time of filing of this Form 10-Q.




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




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.





13 of
21




FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




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.




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:


Nine months
                        
                        
                        Three monthsPeriods ended January 31,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009RevenuesFEI-NY
                        
                        
                        58.8
                        %
                        
                        
                        69.7
                        %
                        
                        
                        58.8
                        %
                        
                        
                        71.7
                        %Gillam-FEI
                        
                        
                        24.2
                        
                        
                        
                        19.1
                        
                        
                        
                        30.6
                        
                        
                        
                        18.2FEI-Zyfer
                        
                        
                        24.0
                        
                        
                        
                        15.5
                        
                        
                        
                        15.3
                        
                        
                        
                        16.0Less
      intersegment revenues
                        
                        
                        (7.0
                        )
                        
                        
                        (4.3
                        )
                        
                        
                        (4.7
                        )
                        
                        
                        (5.9
                        )100.0
                        
                        
                        
                        100.0
                        
                        
                        
                        100.0
                        
                        
                        
                        100.0Cost
      of revenues
                        
                        
                        63.9
                        
                        
                        
                        76.8
                        
                        
                        
                        64.7
                        
                        
                        
                        73.8Gross
      Margin
                        
                        
                        36.1
                        
                        
                        
                        23.2
                        
                        
                        
                        35.3
                        
                        
                        
                        26.2Selling
      and administrative expenses
                        
                        
                        21.9
                        
                        
                        
                        21.8
                        
                        
                        
                        20.8
                        
                        
                        
                        21.5Research
      and development expenses
                        
                        
                        10.9
                        
                        
                        
                        7.6
                        
                        
                        
                        12.0
                        
                        
                        
                        6.3Operating
      Income (Loss)
                        
                        
                        3.3
                        
                        
                        
                        (6.2
                        )
                        
                        
                        2.5
                        
                        
                        
                        (1.6
                        )Other
      income (expense), net
                        
                        
                        (1.6
                        )
                        
                        
                        0.6
                        
                        
                        
                        (1.9
                        )
                        
                        
                        2.2Pretax
      Income (Loss)
                        
                        
                        1.7
                        
                        
                        
                        (5.6
                        )
                        
                        
                        0.6
                        
                        
                        
                        0.6Benefit
      for income taxes
                        
                        
                        (5.4
                        )
                        
                        
                        (1.7
                        )
                        
                        
                        (15.7
                        )
                        
                        
                        (0.1
                        )Net
      Income (Loss)
                        
                        
                        7.1
                        %
                        
                        
                        (3.9
                        )%
                        
                        
                        16.3
                        %
                        
                        
                        0.7
                        %


14 of
21


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
                          
                          2010
                          
                          
                          2009
                          
                          
                          Change
                          
                          
                          2010
                          
                          
                          2009
                          
                          
                          ChangeFEI-NY
                          
                          $
                          21.4
                          
                          
                          $
                          28.1
                          
                          
                          $
                          (6.7
                          )
                          
                          
                          (24
                          )%
                          
                          $
                          7.4
                          
                          
                          $
                          9.5
                          
                          
                          $
                          (2.1
                          )
                          
                          
                          (22
                          )%Gillam-FEI
                          
                          
                          8.8
                          
                          
                          
                          7.7
                          
                          
                          
                          1.1
                          
                          
                          
                          14
                          %
                          
                          
                          3.8
                          
                          
                          
                          2.4
                          
                          
                          
                          1.4
                          
                          
                          
                          59
                          %FEI-Zyfer
                          
                          
                          8.7
                          
                          
                          
                          6.2
                          
                          
                          
                          2.5
                          
                          
                          
                          40
                          %
                          
                          
                          1.9
                          
                          
                          
                          2.1
                          
                          
                          
                          (0.2
                          )
                          
                          
                          (10
                          )%Intersegment
      revenues
                          
                          
                          (2.6
                          )
                          
                          
                          (1.7
                          )
                          
                          
                          (0.9
                          )
                          
                          
                          
                          
                          
                          
                          (0.6
                          )
                          
                          
                          (0.8
                          )
                          
                          
                          0.2$
                          36.3
                          
                          
                          $
                          40.3
                          
                          
                          $
                          (4.0
                          )
                          
                          
                          (10
                          )%
                          
                          $
                          12.5
                          
                          
                          $
                          13.2
                          
                          
                          $
                          (0.7
                          )
                          
                          
                          (5
                          )%


The
decrease in revenues for the nine and three month periods ended January 31, 2010
compared to the same periods of fiscal year 2009, was the result of lower
revenues from wireless infrastructure products and sales of other commercial
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 7% 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 by more than 25% year-over-year and accounted
for approximately 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 products and satellite programs to remain at
approximately the same levels as the first nine months of the year but expects
to realize increased revenues from wireline telecommunication products and from
U.S. Government/DOD non-space programs.


Gross margin


Nine months
                            
                            
                            Three monthsPeriods ended January 31,2010
                            
                            
                            2009
                            
                            
                            Change
                            
                            
                            2010
                            
                            
                            2009
                            
                            
                            Change$
                            13,117
                            
                            
                            $
                            9,365
                            
                            
                            $
                            3,752
                            
                            
                            
                            40
                            %
                            
                            $
                            4,422
                            
                            
                            $
                            3,459
                            
                            
                            $
                            963
                            
                            
                            
                            28
                            %GM
      Rate
                            
                            
                            36.1
                            %
                            
                            
                            23.2
                            %
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            35.3
                            %
                            
                            
                            26.2
                            %




The
improvement in gross margins for the nine and three month periods ended January
31, 2010, 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
nine-month period ended January 31, 2010, the Company reached an agreement with
a customer and received $650,000 representing a portion of the cost of certain
unique inventory items that the customer no longer requires and recorded this
amount as a reduction to cost of goods sold during the period.  During
the nine and three-month periods ended January 31, 2010, the Company wrote down
inventory, including the unique items, with an aggregate value of $950,000 and
$150,000, respectively.  This is compared to writedowns of $1.45
million and $650,000 for the same periods of fiscal year 2009.  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




Nine months
                      
                      
                      Three monthsPeriods ended January 31,2010
                      
                      2009
                      
                      
                      Change
                      
                      
                      2010
                      
                      
                      2009
                      
                      
                      Change$
                      7,948
                      
                      $
                      8,797
                      
                      
                      $
                      (849
                      )
                      
                      
                      (10
                      )%
                      
                      $
                      2,608
                      
                      
                      $
                      2,845
                      
                      
                      $
                      (237
                      )
                      
                      
                      (8
                      )%


15 of
21


FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




For the
nine and three months ended January 31, 2010, selling and administrative
expenses were 22% and 21%, respectively, of consolidated
revenues.  This is compared to 22% in each of 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 accruals for incentive compensation based on operating
profits.  For the final quarter 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




Nine months
                    
                    
                    Three monthsPeriods ended January 31,2010
                    
                    2009
                    
                    
                    Change
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    Change$
                    3,954
                    
                    $
                    3,068
                    
                    
                    $
                    886
                    
                    
                    
                    29
                    %
                    
                    $
                    1,500
                    
                    
                    $
                    829
                    
                    
                    $
                    671
                    
                    
                    
                    81
                    %




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, 2010 was 11% 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, 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 approximately 10% of revenues.  Internally generated
cash and cash reserves are adequate to fund these development
efforts.




Operating Income
(Loss)




Nine months
                          
                          Three monthsPeriods
      ended January 31,2010
                          
                          2009
                          
                          
                          Change
                          
                          2010
                          
                          
                          2009
                          
                          
                          Change$
                          1,215
                          
                          $
                          (2,500
                          )
                          
                          $
                          3,715
                          
                          NM
                          
                          $
                          314
                          
                          
                          $
                          (215
                          )
                          
                          $
                          529
                          
                          NM




Improved
gross margin rates and lower operating expenses in the fiscal year 2010 periods
enabled the Company to record operating income for the nine and three-month
periods ended January 31, 2010, 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 income 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, operating income is
expected to further improve.  The Company anticipates that it will
generate operating income for the full fiscal year 2010.


16 of
21


FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




Other income
(expense)




Nine months
                
                
                Three monthsPeriods ended January 31,2010
                
                
                2009
                
                
                Change
                
                
                2010
                
                
                2009
                
                
                ChangeInvestment
      income
                
                $
                400
                
                
                $
                526
                
                
                $
                (126
                )
                
                
                (24
                )%
                
                $
                147
                
                
                $
                159
                
                
                $
                (
      12
                )
                
                
                (8
                )%Equity
      (loss) income
                
                
                (151
                )
                
                
                (100
                )
                
                
                (51
                )
                
                
                (51
                )%
                
                
                44
                
                
                
                208
                
                
                
                (164
                )
                
                
                (79
                )%Impairment
      charge
                
                
                (550
                )
                
                
                -
                
                
                
                (550
                )
                
                NM
                
                
                
                (350
                )
                
                
                -
                
                
                
                (350
                )
                
                NMInterest
      expense
                
                
                (103
                )
                
                
                (269
                )
                
                
                166
                
                
                
                62
                %
                
                
                (25
                )
                
                
                (76
                )
                
                
                51
                
                
                
                67
                %Other
      income, net
                
                
                (207
                )
                
                
                80
                
                
                
                (287
                )
                
                NM
                
                
                
                (51
                )
                
                
                4
                
                
                
                (55
                )
                
                NM$
                (
      611
                )
                
                $
                237
                
                
                $
                (848
                )
                
                NM
                
                
                $
                (235
                )
                
                $
                295
                
                
                $
                (530
                )
                
                NM




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) income in the fiscal year 2010 and 2009 periods represent the
Company’s share of the quarterly income or loss recorded by Elcom Technologies
in which the Company owns a 25% interest.  In addition, 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, during the
nine and three month periods ended January 31, 2010, the Company recorded
impairment charges in the amount of $550,000 and $350,000, respectively, in
addition to its equity share in Elcom’s quarterly income or loss.




The
decrease in interest expense for the nine and three month periods ended January
31, 2010, 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, 2009.




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.  Since the gain was fully amortized during fiscal year
2009, comparable income was not recorded in the periods ended January 31,
2010.  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.




Income Tax
Benefit




Nine months
                          
                          
                          Three monthsPeriods ended January 31,2010
                          
                          2009
                          
                          
                          Change
                          
                          
                          2010
                          
                          
                          2009
                          
                          
                          Change$
                          (1,970
                          )
                          $
                          (696
                          )
                          
                          $
                          (1,274
                          )
                          
                          
                          183
                          %
                          
                          $
                          (1,970
                          )
                          
                          $
                          (19
                          )
                          
                          $
                          (1,951
                          )
                          NM




In
November 2009, the United States enacted legislation which permits corporations
to carryback net operating losses up to 5 years versus the previous 2-year
limitation.  As a result, the Company filed a claim to carryback the
entire amount of its fiscal year 2009 tax loss to an earlier year, thus
realizing a tax benefit of approximately $2.9 million.  Before this
legislation was enacted, the Company anticipated receiving a tax benefit of
approximately $800,000 and recorded a receivable on that basis.  Due
to the change in tax law, during the nine and three month periods ended January
31, 2010, the Company is recording a tax benefit of $1.97 million of which $2.1
million is attributable to the effect of the new law.  During the nine
months ended January 31, 2010, the Company recorded an income tax provision of
approximately $180,000, or approximately 30% of pre-tax income.  A
portion of this provision was deferred and is offset by a reduction in the
valuation allowance on deferred tax assets that was established in prior
years.  As of January 31, 2010, the valuation allowance is
approximately $6.7 million and may continue to be reduced as the Company
realizes pre-tax profits in future periods.


17 of
21


FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




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 for state income tax purposes is approximately $7.3
million.




Net Income
(Loss)




Nine months
                            
                            Three monthsPeriods ended January 31,2010
                            
                            2009
                            
                            
                            Change
                            
                            2010
                            
                            
                            2009
                            
                            
                            Change$
                            2,574
                            
                            $
                            (1,567
                            )
                            
                            $
                            4,141
                            
                            NM
                            
                            $
                            2,049
                            
                            
                            $
                            99
                            
                            
                            $
                            1,950
                            
                            NM




The
improvement in net income (loss) for the nine and three months ended January 31,
2010, were primarily the result of the $2.0 million tax benefit as described
above.  In addition, due to improved gross margin rates and reduced
operating expenses the Company generated pretax profits in the fiscal year 2010
periods compared to a pretax loss for the nine month period ended January 31,
2009 and $80,000 pretax income for the three-month period then
ended.  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 final quarter of fiscal year 2010
and anticipates that it will report a profit for the full year.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company’s balance sheet continues to reflect a strong working capital position
of $54 million at January 31, 2010, compared to working capital of $48 million
at April 30, 2009.  Included in working capital at January 31, 2010 is
$16.9 million of cash, cash equivalents and marketable
securities.  The Company’s current ratio at January 31, 2010 is 8.2 to
1.




For the
nine months ended January 31, 2010, the Company had positive cash flow from
operating activities of $3.1 million compared to $5.3 million provided by
operations in the comparable fiscal year 2009 period.  The primary
sources of cash in the fiscal year 2010 period were profitable operations, the
collection of accounts receivable and net of reductions in operating
liabilities.  During the fiscal year 2010 period, the Company incurred
over $3.7 million of non-cash operating expenses, such as depreciation and
amortization and accruals for employee benefit programs.  These
non-cash expenses are comparable to the prior year.  In the nine month
period ended January 31, 2009, operating cash flow was diminished by the $1.6
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
provided by investing activities for the nine months ended January 31, 2010, was
$203,000 compared to a $6.0 million use of cash for the same period of fiscal
year 2009.  During the fiscal year 2010 period, a $500,000 marketable
security was redeemed and the Company received $220,000 on repayment of a note
from an affiliate.  These inflows were offset by the acquisition of
capital equipment in the amount of $517,000.  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 $423,000.  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 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, 2010, was
$1.3 million compared to $7.3 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 nine months of fiscal year 2009, the Company repurchased over 725,000
shares of its common stock at an average per share price of $4.29, or
approximately $3.1 million.  In addition, during fiscal year 2009, the
Company had net borrowings of $4.0 million against its line of credit and made
principal payments of $163,000 against a long-term capital
lease.


18 of
21


FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




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 January 31, 2010,
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 of approximately 10% of revenues to
achieve its development goals.  Internally generated cash will be
adequate to fund these development efforts.




As of
January 31, 2010, the Company's consolidated backlog amounted to approximately
$32 million.  Approximately 70% of this backlog is expected to be
realized in the next twelve months.  Included in the backlog at
January 31, 2010 is approximately $9 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.




Item 3.





Quantitative and Qualitative
Disclosures About Market Risk





Not applicable.







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, for the reasons
discussed below, as of January 31, 2010, the Company’s disclosure controls and
procedures were not effective 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.


19 of
21


FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES


(Continued)




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 January 31, 2010,
for the three quarters 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 January 31,
2010.  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 January 31, 2010 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





ITEM 6 -
Exhibits





31.1
      -
                      Certification
      by the Chief Executive Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
      -
                      Certification
      by the Chief Financial Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as
      adopted 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, as
      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, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.




20 of
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:
      March 17, 2010
              BY
              /s/ Alan MillerAlan MillerChief
      Financial Officer and TreasurerSigning
      on behalf of the registrant and
                as
      principal financial
officer


21 of
21