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 July 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 ¨
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
September 10, 2010 – 8,241,472
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
INDEX
|
Page
No.
|
|
|
Part
I. Financial Information:
|
|
|
Item
1 - Financial Statements:
|
|
|
Condensed
Consolidated Balance Sheets - July 31, 2010 and April 30,
2010
|
3
|
|
Condensed
Consolidated Statements of Operations Three Months Ended July 31, 2010 and
2009
|
4
|
|
Condensed
Consolidated Statements of Cash Flows Three Months Ended July 31, 2010 and
2009
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
6-10
|
|
Item
2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
10-16
|
|
Item
3 – Quantitative and Qualitative Disclosures about Market
Risk
|
16
|
|
Item
4T- Controls and Procedures
|
16-17
|
|
Part
II. Other Information:
|
|
|
Item
6 - Exhibits
|
17
|
|
Signatures
|
18
|
|
Exhibits
|
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2 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Condensed
Consolidated Balance Sheets
|
July
31,
|
April
30,
|
|||||||
|
2010
|
2010
|
|||||||
|
(UNAUDITED)
|
(AUDITED)
|
|||||||
|
(NOTE
A)
|
||||||||
|
(In
thousands except share data)
|
||||||||
|
ASSETS:
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 9,445 | $ | 9,954 | ||||
|
Marketable
securities
|
11,470 | 10,418 | ||||||
|
Accounts
receivable, net of allowance for doubtful accounts of $266
|
8,669 | 10,504 | ||||||
|
Costs
and estimated earnings in excess of billings
|
2,867 | 1,667 | ||||||
|
Inventories,
net
|
27,053 | 26,975 | ||||||
|
Prepaid
expenses and other
|
962 | 1,122 | ||||||
|
Total
current assets
|
60,466 | 60,640 | ||||||
|
Property,
plant and equipment, at cost, less accumulated depreciation and
amortization
|
6,672 | 7,015 | ||||||
|
Goodwill
and other intangible assets
|
218 | 218 | ||||||
|
Cash
surrender value of life insurance and cash held in trust
|
9,049 | 8,917 | ||||||
|
Investment
in and loans receivable from affiliates
|
3,837 | 3,813 | ||||||
|
Other
assets
|
817 | 817 | ||||||
|
Total
assets
|
$ | 81,059 | $ | 81,420 | ||||
|
LIABILITIES AND STOCKHOLDERS'
EQUITY:
|
||||||||
|
Current
liabilities:
|
||||||||
|
Short-term
credit and lease obligations
|
$ | 250 | $ | 246 | ||||
|
Accounts
payable - trade
|
2,350 | 1,720 | ||||||
|
Income
taxes payable
|
195 | 295 | ||||||
|
Accrued
liabilities
|
4,260 | 5,047 | ||||||
|
Total
current liabilities
|
7,055 | 7,308 | ||||||
|
Lease
obligation- noncurrent
|
377 | 441 | ||||||
|
Deferred
compensation
|
9,652 | 9,624 | ||||||
|
Deferred
rent and other liabilities
|
667 | 664 | ||||||
|
Total
liabilities
|
17,751 | 18,037 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock - $1.00 par value
|
- | - | ||||||
|
Common
stock - $1.00 par value
|
9,164 | 9,164 | ||||||
|
Additional
paid-in capital
|
49,628 | 49,580 | ||||||
|
Retained
earnings
|
5,778 | 5,271 | ||||||
| 64,570 | 64,015 | |||||||
|
Common
stock reacquired and held in treasury -at cost (922,467 shares at July 31,
2010 and 946,172 shares at April 30, 2010)
|
(4,437 | ) | (4,651 | ) | ||||
|
Accumulated
other comprehensive income
|
3,175 | 4,019 | ||||||
|
Total
stockholders' equity
|
63,308 | 63,383 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 81,059 | $ | 81,420 | ||||
See
accompanying notes to condensed consolidated financial
statements.
3 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Condensed
Consolidated Statements of Operations
Three
Months Ended July 31,
(Unaudited)
|
2010
|
2009
|
|||||||
|
(In
thousands except per share data)
|
||||||||
|
Net
revenues
|
$ | 12,124 | $ | 12,442 | ||||
|
Cost
of revenues
|
7,378 | 8,141 | ||||||
|
Gross
margin
|
4,746 | 4,301 | ||||||
|
Selling
and administrative expenses
|
2,795 | 2,567 | ||||||
|
Research
and development expense
|
1,162 | 1,075 | ||||||
|
Operating
profit
|
789 | 659 | ||||||
|
Other
income (expense):
|
||||||||
|
Investment
income
|
80 | 128 | ||||||
|
Equity
income (loss)
|
28 | (49 | ) | |||||
|
Interest
expense
|
(35 | ) | (44 | ) | ||||
|
Other
expense, net
|
(5 | ) | (40 | ) | ||||
|
Income
before provision for income taxes
|
857 | 654 | ||||||
|
Provision
for income taxes
|
350 | - | ||||||
|
Net
income
|
$ | 507 | $ | 654 | ||||
|
Net
income per common share:
|
||||||||
|
Basic
|
$ | 0.06 | $ | 0.08 | ||||
|
Diluted
|
$ | 0.06 | $ | 0.08 | ||||
|
Average
shares outstanding:
|
||||||||
|
Basic
|
8,233,570 | 8,164,627 | ||||||
|
Diluted
|
8,280,332 | 8,172,080 | ||||||
See
accompanying notes to condensed consolidated financial
statements.
4 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
Three
Months Ended July 31,
(Unaudited)
|
2010
|
2009
|
|||||||
|
(In
thousands)
|
||||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 507 | $ | 654 | ||||
|
Non-cash
charges to earnings
|
1,043 | 1,024 | ||||||
|
Net
changes in other assets and liabilities
|
(1,058 | ) | (495 | ) | ||||
|
Net
cash provided by operating activities
|
492 | 1,183 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchase
of marketable securities
|
(2,500 | ) | - | |||||
|
Proceeds
on redemption of marketable securities
|
1,500 | - | ||||||
|
Capital
expenditures
|
(243 | ) | (175 | ) | ||||
|
Net
cash used in investing activities
|
(1,243 | ) | (175 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Payment
of short-term credit and lease obligations
|
(70 | ) | (70 | ) | ||||
|
Net
cash used in financing activities
|
(70 | ) | (70 | ) | ||||
|
Net
(decrease) increase in cash and cash equivalents before effect of exchange
rate changes
|
(821 | ) | 938 | |||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
312 | (187 | ) | |||||
|
Net
(decrease) increase in cash and cash equivalents
|
(509 | ) | 751 | |||||
|
Cash
and cash equivalents at beginning of period
|
9,954 | 4,911 | ||||||
|
|
||||||||
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Cash
and cash equivalents at end of period
|
$ | 9,445 | $ | 5,662 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 31 | $ | 55 | ||||
|
Income
Taxes
|
$ | 450 | - | |||||
See
accompanying notes to condensed consolidated financial
statements.
5 of
18
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 July 31, 2010 and the results of its
operations and cash flows for the three months ended July 31, 2010 and
2009. The April 30, 2010 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, 2010 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:
|
Three
months ended July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Basic
EPS Shares outstanding (weighted
average)
|
8,233,570 | 8,164,627 | ||||||
|
Effect
of Dilutive Securities
|
46,762 | 7,453 | ||||||
|
Diluted
EPS Shares outstanding
|
8,280,332 | 8,172,080 | ||||||
The
computation of diluted earnings per share excludes those options and stock
appreciation rights (“SARS”) 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 and SARS in the computation
of earnings per share would have been antidilutive. The number of
excluded options and SARS for the three months ended July 31, 2010 and 2009 were
1,020,775 and 1,325,525, respectively.
NOTE C –
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
At July
31, 2010 and April 30, 2010, costs and estimated earnings in excess of billings
on uncompleted contracts accounted for on the percentage of completion basis
were approximately $2,867,000 and $1,667,000, respectively. Such
amounts represent revenue recognized on long-term contracts that had not been
billed at the balance sheet dates, net of amounts billed in excess of the
revenue recognized. Such amounts are billed pursuant to contract
terms. During the three months ended July 31, 2010 and 2009, revenue
recognized under percentage of completion contracts was approximately $5.1
million and $4.4 million, respectively.
NOTE D -
INVENTORIES
Inventories,
which are reported at the lower of cost or market, consist of the
following:
|
July 31,
2010
|
April 30, 2010
|
|||||||
|
(In
thousands)
|
||||||||
|
Raw
Materials and Component Parts
|
$ | 11,779 | $ | 13,192 | ||||
|
Work
in Progress
|
12,318 | 11,039 | ||||||
|
Finished
Goods
|
2,956 | 2,744 | ||||||
| $ | 27,053 | $ | 26,975 | |||||
As of
July 31, 2010 and April 30, 2010, approximately $18.7 million and $18.2 million,
respectively, of total inventory is located in the United States, approximately
$7.6 million and $7.9 million, respectively, is located in Belgium and
approximately $800,000 and $900,000, respectively, is located in
China.
6 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
NOTE E –
COMPREHENSIVE INCOME
For the
three months ended July 31, 2010 and 2009, comprehensive (loss) income is
composed of (in thousands):
|
Three months ended July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
income
|
$ | 507 | $ | 654 | ||||
|
Foreign
currency translation adjustment
|
(930 | ) | 372 | |||||
|
Change
in market value of marketable securities
|
86 | 323 | ||||||
|
Comprehensive
(loss) income
|
$ | ( 337 | ) | $ | 1,349 | |||
NOTE F –
SEGMENT INFORMATION
The
Company operates under three reportable segments based on the geographic
locations of its subsidiaries:
|
|
(1)
|
FEI-NY
– operates out of New York and its operations consist 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
- operates out of Belgium and France and primarily sells wireline
synchronization and network management systems in non-U.S.
markets. All sales from Gillam-FEI to the United States are to
other segments of the Company.
|
|
|
(3)
|
FEI-Zyfer
– operates out of California and its products incorporate Global
Positioning System (GPS) technologies into systems and subsystems for
secure communications, both government and commercial, and other locator
applications. This segment also provides sales and support for
the Company’s wireline telecommunications family of products, including
US5G, which are sold in the United States
market.
|
The
FEI-NY segment also includes the operations of the Company’s wholly-owned
subsidiary, FEI-Asia. FEI-Asia 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 location rather than on the
specific types of customers or end-users. Consequently, the Company
determined that the segments indicated above most appropriately reflect the way
the Company’s management views the business.
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):
|
Three
months ended July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
revenues:
|
||||||||
|
FEI-NY
|
$ | 7,642 | $ | 7,065 | ||||
|
Gillam-FEI
|
2,973 | 2,474 | ||||||
|
FEI-Zyfer
|
2,497 | 4,249 | ||||||
|
Less
intercompany revenues
|
(988 | ) | (1,346 | ) | ||||
|
Consolidated
revenues
|
$ | 12,124 | $ | 12,442 | ||||
|
Operating
profit:
|
||||||||
|
FEI-NY
|
$ | 1,012 | $ | 87 | ||||
|
Gillam-FEI
|
117 | (20 | ) | |||||
|
FEI-Zyfer
|
(161 | ) | 656 | |||||
|
Corporate
|
(179 | ) | (64 | ) | ||||
|
Consolidated
operating profit
|
$ | 789 | $ | 659 | ||||
7 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
|
July 31, 2010
|
April 30, 2010
|
|||||||
|
Identifiable
assets:
|
||||||||
|
FEI-NY
(approximately $3.5 million in China)
|
$ | 35,568 | $ | 35,462 | ||||
|
Gillam-FEI
(all in Belgium or France)
|
18,683 | 19,594 | ||||||
|
FEI-Zyfer
|
7,098 | 7,413 | ||||||
|
less
intersegment balances
|
(14,139 | ) | (14,655 | ) | ||||
|
Corporate
|
33,849 | 33,606 | ||||||
|
Consolidated
identifiable assets
|
$ | 81,059 | $ | 81,420 | ||||
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
three month periods ended July 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 two notes receivable. The table below
summarizes these transactions:
|
Three
months ended July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
(in
thousands)
|
||||||||
|
Purchases
from:
|
||||||||
|
Elcom
|
$ | 35 | $ | 6 | ||||
|
Morion
|
17 | 166 | ||||||
|
Sales
to:
|
||||||||
|
Elcom
|
$ | 58 | $ | 25 | ||||
|
Morion
|
128 | 8 | ||||||
|
Interest
on Elcom notes receivable
|
$ | 25 | $ | 12 | ||||
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 year ended April 30, 2010, recorded
impairment charges in the amount $550,000 in addition to its equity share in the
income or loss of Elcom during the year. No impairment charges were
recorded during the three months ended July 31, 2010 and 2009.
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 July 31, 2010 and April 30, 2010 are as follows
(in thousands):
|
July 31, 2010
|
||||||||||||||||
|
Gross
|
Gross
|
Fair
|
||||||||||||||
|
Unrealized
|
Unrealized
|
Market
|
||||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
|
Fixed
income securities
|
$ | 10,572 | $ | 348 | $ | (30 | ) | $ | 10,890 | |||||||
|
Equity
securities
|
450 | 130 | - | 580 | ||||||||||||
| $ | 11,022 | $ | 478 | $ | (30 | ) | $ | 11,470 | ||||||||
|
April 30, 2010
|
||||||||||||||||
|
Gross
|
Gross
|
Fair
|
||||||||||||||
|
Unrealized
|
Unrealized
|
Market
|
||||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
|
Fixed
income securities
|
$ | 9,606 | $ | 261 | $ | (90 | ) | $ | 9,777 | |||||||
|
Equity
securities
|
450 | 191 | - | 641 | ||||||||||||
| $ | 10,056 | $ | 452 | $ | (90 | ) | $ | 10,418 | ||||||||
8 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
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
|
Total
|
||||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
|
July
31, 2010
|
||||||||||||||||||||||||
|
Fixed
Income Securities
|
$ | - | $ | - | $ | 970 | $ | (30 | ) | $ | 970 | $ | (30 | ) | ||||||||||
|
Equity
Securities
|
- | - | - | - | - | - | ||||||||||||||||||
| $ | - | $ | - | $ | 970 | $ | (30 | ) | $ | 970 | $ | (30 | ) | |||||||||||
|
April
30, 2010
|
||||||||||||||||||||||||
|
Fixed
Income Securities
|
$ | - | $ | - | $ | 3,438 | $ | (90 | ) | $ | 3,438 | $ | (90 | ) | ||||||||||
|
Equity
Securities
|
- | - | - | - | - | - | ||||||||||||||||||
| $ | - | $ | - | $ | 3,438 | $ | (90 | ) | $ | 3,438 | $ | (90 | ) | |||||||||||
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 July 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 three months ended July 31, 2010, the Company redeemed an available-for-sale
security in the amount of $1,500,000 and realized a loss of $27,800 on the
transaction which is included in the determination of net income for the
period. During the three months ended July 31, 2009, the Company did
not sell or redeem any available-for-sale securities. Accordingly,
there were no realized gains or losses included in the determination of net
income for that period.
Maturities
of fixed income securities classified as available-for-sale at July 31, 2010 are
as follows, at cost (in thousands):
|
Current
|
$ | 1,000 | ||
|
Due
after one year through five years
|
9,572 | |||
|
Due
after five years through ten years
|
- | |||
| $ | 10,572 |
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.
9 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
NOTE I -
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June
2009, the FASB issued standards which modified how a company determines when an
entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. These standards clarify
that the determination of whether a company is required to consolidate an entity
is based on, among other things, an entity’s purpose and design and a company’s
ability to direct the activities of the entity that most significantly impact
the entity’s economic performance. These standards require an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. These standards also require additional disclosures
about a company’s involvement in variable interest entities and any significant
changes in risk exposure due to that involvement. These standards are
effective for fiscal years beginning after November 15, 2009 and were effective
for the Company on May 1, 2010. The adoption of these standards did
not have a material impact on the financial condition, results of operations,
cash flows and disclosures of the Company.
NOTE J –
INCOME TAXES
The
Company has established a valuation allowance against all the deferred tax
assets of its domestic and foreign subsidiaries. Because of the full
valuation allowance, the provision for income taxes consists solely of taxes
currently due to taxing authorities in the United States. Any tax
provision or benefit realized from temporary tax differences is offset by
increases or decreases in the valuation allowance thus creating a higher than
normally expected effective tax rate. As of both July 31, 2010 and
April 30, 2010, the deferred tax asset valuation allowance is approximately $8.1
million.
NOTE K –
TREASURY STOCK TRANSACTIONS
During
the three month period ended July 31, 2010, the Company made a contribution of
23,705 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.
*********************
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, 2010
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.
10 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Revenue
Recognition
Revenues
under larger, long-term contracts which generally require billings based on
achievement of milestones rather than delivery of product, are reported in
operating results using the percentage of completion method. On
fixed-price contracts, which are typical for commercial and U.S. Government
satellite programs and other long-term U.S. Government projects, and which
require initial design and development of the product, revenue is recognized on
the cost-to-cost method. Under this method, revenue is recorded based
upon the ratio that incurred costs bear to total estimated contract costs with
related cost of sales recorded as the costs are incurred. Each month
management reviews estimated contract costs through a process of aggregating
actual costs incurred and updating estimated costs to completion based upon the
current available information and status of the contract. The effect
of any change in the estimated gross margin percentage for a contract is
reflected in revenues in the period in which the change is
known. Provisions for anticipated losses on contracts are made in the
period in which they become determinable.
On
production-type orders, revenue is recorded as units are delivered with the
related cost of sales recognized on each shipment based upon a percentage of
estimated final program costs. Changes in job performance may result
in revisions to costs and income and are recognized in the period in which
revisions are determined to be required. Provisions for anticipated
losses on contracts are made in the period in which they become
determinable.
For
customer orders in the Company’s Gillam-FEI and FEI-Zyfer segments or smaller
contracts or orders in the FEI-NY segment, sales of products and services to
customers are reported in operating results based upon (i) shipment of the
product or (ii) performance of the services pursuant to terms of the customer
order. When payment is contingent upon customer acceptance of the
installed system, revenue is deferred until such acceptance is received and
installation completed.
Costs and
Expenses
Contract
costs include all direct material, direct labor costs, manufacturing overhead
and other direct costs related to contract performance. Selling,
general and administrative costs are charged to expense as
incurred.
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. Inventory write downs are established
for slow-moving and obsolete items and are based upon management’s experience
and expectations for future business. Any changes arising from
revised expectations are reflected in cost of sales in the period the revision
is made.
11 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
RESULTS
OF OPERATIONS
The table
below sets forth for the respective periods of fiscal years 2011 and 2010 the
percentage of consolidated revenues represented by certain items in the
Company’s consolidated statements of operations:
|
Three
months ended July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
Revenues
|
||||||||
|
FEI-NY
|
63.0 | % | 56.8 | % | ||||
|
Gillam-FEI
|
24.5 | 19.9 | ||||||
|
FEI-Zyfer
|
20.6 | 34.1 | ||||||
|
Less
intersegment revenues
|
(8.1 | ) | (10.8 | ) | ||||
| 100.0 | 100.0 | |||||||
|
Cost
of revenues
|
60.9 | 65.4 | ||||||
|
Gross
margin
|
39.1 | 34.6 | ||||||
|
Selling
and administrative expenses
|
23.0 | 20.6 | ||||||
|
Research
and development expenses
|
9.6 | 8.7 | ||||||
|
Operating
Income
|
6.5 | 5.3 | ||||||
|
Other
income, net
|
0.6 | - | ||||||
|
Pretax
income
|
7.1 | 5.3 | ||||||
|
Provision
for income taxes
|
2.9 | - | ||||||
|
Net
income
|
4.2 | % | 5.3 | % | ||||
(Note:
All dollar amounts in following tables are in thousands, except Revenues which
are in millions)
Revenues
|
(in
millions)
|
||||||||||||||||
|
Three
months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
|
FEI-NY
|
$ | 7.6 | $ | 7.1 | $ | 0.6 | 8 | % | ||||||||
|
Gillam-FEI
|
3.0 | 2.5 | 0.5 | 20 | % | |||||||||||
|
FEI-Zyfer
|
2.5 | 4.2 | (1.8 | ) | (41 | )% | ||||||||||
|
Intersegment
sales
|
(1.0 | ) | (1.4 | ) | 0.4 | |||||||||||
| $ | 12.1 | $ | 12.4 | $ | (0.3 | ) | (3 | )% | ||||||||
The 3%
decrease in revenues for the three months ended July 31, 2010 compared to the
same period of fiscal year 2010, is due to the lower level of telecommunication
infrastructure revenues generated by the FEI-Zyfer segment. In the
prior year, revenues for that segment and market area benefited from additional
sales that had been delayed from the preceding fiscal quarter due to inventory
shortages. The lower fiscal year 2011 telecommunications revenues
were partially offset by increased revenues from the FEI-NY and Gillam-FEI
segments and the Company’s other two major market areas: satellite payloads and
non-satellite U.S. Government/DOD. For the fiscal year 2011 quarter,
revenues from satellite payload programs increased modestly compared to the same
period of fiscal year 2010 and accounted for 31% of consolidated
revenues. Revenues from U.S. Government/DOD non-space programs, which
are recorded in the FEI-NY and FEI-Zyfer segments, increased by more than 20%
year-over-year and accounted for more than 25% of consolidated revenue in the
quarter ended July 31, 2010 compared to approximately 20% of consolidated
revenues in the fiscal year 2010 quarter. Revenues from Gillam-FEI’s
non-telecommunication product line accounted for the increased fiscal year 2011
revenues in that segment. During the remainder of fiscal year 2011,
the Company expects to book additional new satellite payload business for both
U.S. Government and commercial applications and to realize increased revenues
from that market area. Similarly, the Company expects to realize
continued sales growth in U.S. Government/DOD non-space programs and from
wireline telecommunication infrastructure products.
12 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Gross
margin
|
Three months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
| $ | 4,746 | $ | 4,301 | $ | 445 | 10 | % | |||||||||
|
GM
Rate
|
39.1 | % | 34.6 | % | ||||||||||||
The
improvement in gross margin and gross margin rate for the three months ended
July 31, 2010 compared to the same period a year ago reflect the benefits of the
efficiency improvements which were implemented in the prior year and the
different mix of programs on which the Company is working in the fiscal year
2011 period. Of the Company’s three segments, the FEI-NY segment
experienced the largest gross margin rate improvement. The gross
margin rate recorded in the fiscal year 2011 period approaches the Company’s
targeted rate. The Company anticipates that its gross margin rates
for the remainder of fiscal year 2011 will be comparable to the current periods
and will show an improvement over the prior fiscal year.
Selling and administrative
expenses
|
Three
months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
| $ | 2,795 | $ | 2,567 | $ | 228 | 9 | % | |||||||||
For the
three months ended July 31, 2010 and 2009, selling and administrative expenses
were 23% and 21%, respectively, of consolidated revenues. The
increase in expenses in the fiscal year 2011 quarter compared to the same period
of fiscal year 2010 is primarily due to increased incentive compensation
expenses resulting from greater profitability. For the remainder of
fiscal year 2011, the Company expects selling and administrative expenses to be
incurred at approximately the same rate in dollars but could decrease as a
percentage of revenues as sales increase.
Research and development
expense
|
Three months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
|
|
$ | 1,162 | $ | 1,075 | $ | 87 | 8 | % | ||||||||
Research
and development expenditures represent investments intended to 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 three-month periods ended July 31, 2010 and 2009, was 10% and
9% of revenues, respectively, compared to the Company’s target of 10% of
revenues. R&D spending in fiscal year 2011 continued the
development of new satellite payload products, including new C and Ku band
beacon/telemetry transceivers, a new family of frequency generators and
converters, and new product introductions and improvements in the technology of
the Company’s GPS-based wireless products and 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 will continue to devote significant resources
to develop new products, enhance existing products and implement efficient
manufacturing processes. For the remainder of fiscal year 2011, 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.
13 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Operating
Income
|
Three
months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
| $ | 789 | $ | 659 | $ | 130 | 20 | % | |||||||||
Increased
gross margin from an improved gross margin rate partially offset by higher
operating expenses, particularly in the FEI-NY segment, enabled the Company to
record a 20% improvement in operating income for the three-months ended July 31,
2010, compared to the same period of fiscal year 2010. 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 2011.
Other income
(expense)
|
Three
months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
|
Investment
income
|
$ | 80 | $ | 128 | $ | (48 | ) | (38 | )% | |||||||
|
Equity
income (loss)
|
28 | (49 | ) | 77 |
NM
|
|||||||||||
|
Interest
expense
|
(35 | ) | (44 | ) | 9 | 20 | % | |||||||||
|
Other
expenses, net
|
(5 | ) | (40 | ) | 35 | 88 | % | |||||||||
| $ | 68 | $ | (5 | ) | $ | 73 |
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. During the quarter ended July 31, 2010, the Company
redeemed a marketable security which resulted in a realized loss of
approximately $28,000. No gains or losses on marketable securities
were recorded during the same period of fiscal year 2010.
Equity
income (loss) in the fiscal year 2011 and 2010 periods represent the Company’s
share of the quarterly income or loss recorded by Elcom Technologies in which
the Company owns a 25% interest.
The
decrease in interest expense for the three months ended July 31, 2010 compared
to the same period of fiscal year 2010 is due to lower levels of credit and
lease obligations in the fiscal year 2011 quarter.
Other
expenses in the fiscal year 2011 quarter were insignificant compared to the
quarter ended July 31, 2009 in which period the Company recorded royalty expense
and certain foreign currency exchange losses at the Company’s overseas
subsidiaries. Such expenses were not incurred during fiscal year
2011.
Income Tax
Provision
|
Three months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
| $ | 350 | - | $ | 350 |
NM
|
|||||||||||
The
Company has established a valuation allowance against all the deferred tax
assets of its domestic and foreign subsidiaries. Because of the full
valuation allowance, the provision for income taxes consists solely of taxes
currently due to taxing authorities in the United States. Any tax
provision or benefit realized from temporary tax differences is offset by
increases or decreases in the valuation allowance thus creating a higher than
normally expected effective tax rate. As of both July 31, 2010 and
April 30, 2010, the deferred tax asset valuation allowance is approximately $8.1
million.
14 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
In the
first quarter of fiscal year 2010, the Company expected to carryforward a
portion of the tax loss incurred in the previous fiscal
year. Consequently, the Company did not expect to incur any current
tax expense even though it recorded pretax income for both financial reporting
and tax purposes. Subsequent to the end of the Company’s second
quarter, in November 2009, Congress changed the tax code enabling companies to
carry back tax losses up to five years rather than two
years. Consequently, the Company’s U.S. corporate tax return, filed
in January 2010, claimed full benefit for the loss incurred in fiscal year 2009
and received a tax refund during fiscal year 2010. In the second half
of fiscal year 2010, the Company recorded an additional tax benefit due to the
change in tax law but also recorded a tax provision on that year’s earnings
since the prior year tax loss had been fully utilized.
The
Company is subject to taxation in several countries as well as the states of New
York and California. The statutory federal rates are 34% in the
United States and Belgium. 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, 2010, the Company’s European
subsidiaries had available net operating loss carryforwards of approximately
$1.3 million, which will offset future taxable income. The domestic
U.S. tax loss carryforward for state income tax purposes is approximately $8.4
million in New York and $2.3 million in California.
Net
Income
|
Three
months ended July 31,
|
||||||||||||||||
|
Change
|
||||||||||||||||
|
2010
|
2009
|
$
|
%
|
|||||||||||||
| $ | 507 | $ | 654 | $ | (147 | ) | (22 | )% | ||||||||
As
discussed above, for the three months ended July 31, 2010, the Company recorded
a provision for income taxes but was not required to do so in the same period of
fiscal year 2010. Consequently, net income in fiscal year 2011 is
less than fiscal year 2010 even though pretax income for the period ended July
31, 2010 is greater than the prior year. The Company expects to
realize improved gross and operating margins throughout fiscal year 2011 and
anticipates that it will report a profit for the full year. However,
comparisons of net income to the prior year will be inconsistent due to the
change in tax law as discussed above.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company’s balance sheet continues to reflect a strong working capital position
of $53 million at July 31, 2010, similar to that at April 30,
2009. Included in working capital at July 31, 2010 is $20.9 million
of cash, cash equivalents and marketable securities. The Company’s
current ratio at July 31, 2010 is 8.6 to 1.
For the
three months ended July 31, 2010, the Company had positive cash flow from
operating activities of $492,000 compared to $1.2 million provided by operations
in the comparable fiscal year 2010 period. The primary sources of
cash in the fiscal year 2010 period were profitable operations and net increase
in trade payables. For the three months ended July 31, 2010 and 2009,
the Company incurred over $1.0 million of non-cash operating expenses, such as
depreciation and amortization and accruals for employee benefit
programs. For the balance of fiscal year 2011, the Company expects to
generate positive cash flow from operating activities.
Net cash
used in investing activities for the three months ended July 31, 2010 and 2009,
was $1.2 million and $175,000, respectively. In the fiscal year 2011
quarter, the Company redeemed a marketable security in the amount of $1.5
million and invested in additional marketable securities for $2.5
million. In both fiscal years, the Company acquired property, plant
and equipment in the amount of $243,000 and $175,000,
respectively. 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. Property, plant and
equipment purchases for all of fiscal year 2011 are expected to be less than
$1.0 million. Internally generated cash is adequate to acquire this
level of property, plant and equipment.
Net cash
used in financing activities for the three months ended July
31, 2010 and 2009, was $70,000 each quarter which consisted solely of
payments against the Company’s capital lease obligation.
15 of
18
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 July 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 2011, the Company intends to make a
substantial investment of capital and technical resources to develop and acquire
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. The Company may also
pursue acquisitions to expand its range of products and may use internally
generated cash and external funding in connection with such
acquisitions.
As of
July 31, 2010, the Company's consolidated backlog amounted to approximately $32
million. Approximately 75% of this backlog is expected to be filled
in the next twelve months. Included in the backlog at July 31, 2010
is approximately $7 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.
The
Company believes that its liquidity is adequate to meet its operating and
investment needs through at least April 30, 2011.
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 July 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.
16 of
18
FREQUENCY
ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Management’s Report on
Internal Control over Financial Reporting
Management
of the Company 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, 2010, 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 July 31, 2010,
for the first quarter of fiscal year 2011, there were no substantial changes
made to the Company’s internal control over financial reporting since
management’s assessment of April 30, 2010, and therefore the weaknesses
previously identified by management continued to exist at July 31,
2010. Please refer to the Company’s Annual Report on Form 10-K for
the year ended April 30, 2010 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 July 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.
|
17 of
18
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:
September 14, 2010
|
BY
|
/s/ Alan Miller | |
|
Alan
Miller
|
|||
|
Secretary/Treasurer
and Chief Financial Officer
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|||
|
Signing
on behalf of the registrant and as
principal
financial
officer
|
|||
18 of
18
Exhibit
31.1
CERTIFICATION
PURSUANT TO
SECTION
302 OF
THE
SARBANES-OXLEY ACT OF 2002
Certification of
CEO
I, Martin
B. Bloch, certify that:
1. I
have reviewed this quarterly report on Form 10-Q of Frequency Electronics,
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, 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;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
|
/s/ Martin
Bloch
|
September
14, 2010
|
|
|
Martin
B. Bloch
|
||
|
Chief
Executive Officer
|
Exhibit
31.2
CERTIFICATION
PURSUANT TO
SECTION
302 OF
THE
SARBANES-OXLEY ACT OF 2002
Certification of
CFO
I, Alan
L. Miller, certify that
1. I
have reviewed this quarterly report on Form 10-Q of Frequency Electronics,
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, 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;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
|
/s/ Alan
Miller
|
September
14, 2010
|
|
|
Alan
L. Miller
|
||
|
Chief
Financial Officer
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
ADOPTED
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of
CEO
In
connection with the Quarterly Report of Frequency Electronics, Inc. (the
“Company”) on Form 10-Q for the period ended July 31, 2010 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Martin
B. Bloch, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
|
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
/s/ Martin
Bloch
|
September
14, 2010
|
|
|
Martin
B. Bloch
|
||
|
Chief
Executive Officer
|
A signed
original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
This
certification accompanies this Report on Form 10-Q pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by
such Act, be deemed filed by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except to the extent that the Company specifically incorporates it
by reference.
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
ADOPTED
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of
CFO
In
connection with the Quarterly Report of Frequency Electronics, Inc. (the
“Company”) on Form 10-Q for the period ended July 31, 2010 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Alan L.
Miller, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
/s/ Alan
Miller
|
September
14, 2010
|
|
|
Alan
L. Miller
|
||
|
Chief
Financial Officer
|
A signed
original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
This
certification accompanies this Report on Form 10-Q pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by
such Act, be deemed filed by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except to the extent that the Company specifically incorporates it
by reference.