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November
10, 2010
Ms. Leigh
Ann Schultz
Division
of Corporation Finance
United
States Securities and Exchange Commission
450 Fifth
Street, N.W.
Washington,
D.C. 20549
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Re:
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Frequency
Electronics, Inc.
Form
10-K for the fiscal year ended April 30, 2010
Filed
July 29, 2010
Definitive
Proxy Statement
Filed
August 27, 2010
File
No. 001-08061
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Dear Ms.
Schultz:
This
letter is in response to your letter dated October 27, 2010 to Alan Miller,
Chief Financial Officer of Frequency Electronics, Inc. (“Frequency” or the
“Company”). We appreciate and share in the Staff's objective to
ensure that the disclosures made by the Company reflect the highest level of
transparency.
Our
responses to your comments are set forth below.
Form 10-K for the
period ending April 30, 2010
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, page
16
Critical Accounting Policies
and Estimates, page 16
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1.
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In
future filings, when material, please provide critical accounting policy
for investments consistent with your response to comment 4 in your letter
to the staff dated October 7, 2009
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Company
Response
In future
filings, consistent with our prior response to comment 4 in our letter to the
staff dated October 7, 2009, we will add a section in Critical Accounting
Policies and Estimates that will note all of our investments in marketable
securities are Level 1 securities which trade on public markets and have current
prices that are readily available. In general our investments in
fixed price securities are only in the commercial paper of financially sound
corporations or the bonds of U.S. Government agencies. Thus, although
during our ownership period the value of such investments may fluctuate
significantly based on economic factors, the Company’s own financial strength
enables it to wait for the securities to either recover their value or to mature
such that any interim unrealized gains or losses are deemed to be
temporary.
Selling and Administrative
expenses – page 19
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2.
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We
see the significance of lower headcount on selling and administrative
expenses. In future filings please describe the underlying
business reasons for the decrease in headcount and quantify the number of
positions eliminated. Also, clarify the expected impact on your
business. In general the discussion of results of operations
should not only identify and quantify factors responsible for material
changes in financial statement items, but also describe the underlying
business reasons for the factors
cited.
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Company
Response
In our
future filings we will take this comment into account when preparing
management’s discussion and analysis for all expense
categories. While we acknowledge the need for some specificity in
quantifying the impact of certain changes in expenses, we would prefer to speak
in terms of percentages rather than providing a specific headcount increase or
decrease. We believe this would be more appropriate disclosure since
payroll and benefit information is both sensitive and subject to broad
interpretation as well as the fact that headcount can fluctuate throughout each
year.
Further,
we note that reductions in headcount during fiscal year 2010 were the result of
economic conditions already impacting the Company. Changes in
headcount, especially in selling and administrative areas, are typically a
response to business conditions and are generally not designed to drive an
increase or decrease in business. Thus, in explaining personnel
reductions and resulting changes in selling and administrative expenses in
future filings, we propose inserting the following phrase: “This reduction of
personnel was a response to the reduced level of business (or revenues) that the
Company experienced in fiscal year X compared to fiscal year Y.”
Item
8. Financial Statements
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3.
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We
see that subsequent to the filing of the Form 10-K, your independent
accountants, Eisner LLP, merged with Amper, Politziner & Mattia,
LLP. Please tell us how you considered the requirements of Form
8-K in assessing whether you should file an Item 4.01 Form 8-K to report
the change in accountants.
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Company
Response
When our
accountants, Eisner LLP, informed us of their anticipated merger with Amper,
Politziner & Mattia, LLP, we were advised by Eisner LLP that they were the
surviving entity and that the newly named firm, EisnerAmper LLP, constituted
merely a change in name. Operationally, Frequency is still served by
the same partners and senior level field auditors. Consequently,
there was no change in auditors and thus we were not required to file a Form 8-K
under Item 4.01
Note 3. Costs and Estimated
Earnings in Excess of Billings, page 35
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4.
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We
see that you present costs and estimated earnings in excess of billings as
a current asset. Please tell us whether you have contracts
where billings exceed costs and estimated earnings, including how those
contracts are presented in the balance sheet. If contracts in
an asset position have been netted with contracts in a liability position
in the balance sheet, please explain why you believe netting is
appropriate in GAAP.
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2
Company
Response
In the
ordinary course of business, Frequency does have a few contracts in process for
which billings exceed costs and estimated earnings. At April 30,
2010, such billings aggregated $1.2 million which were netted against $2.9
million in aggregate costs and estimated earnings in excess of
billings. Historically, the liability balance has been
immaterial. For example, at our prior fiscal year end, April 30,
2009, and at the end of the first quarter of our current fiscal year 2011, ended
July 31, 2010, the liability was $751,000 and $780,000, respectively, compared
to contract assets of $3.7 million and $4.0 million,
respectively. Based on total assets of approximately $80 million and
total liabilities of approximately $18 million, we believe the liability amounts
to be immaterial and a separate presentation of billings in excess of costs and
estimated earnings on the face of the balance sheet would not provide
significantly meaningful information. However, in future filings we
will consider disclosing the dollar amount of the liability in the footnotes to
our financial statements.
Item 15. Exhibits page
49
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5.
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Please
tell us why your independent accountants’ consent only references one of
your outstanding registration statements on Form S-8. If that
consent should also refer to those other outstanding registration
statements, please tell us when you intend to amend to include a revised
consent.
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Company
Response
Our
independent accountants will revise their consent to include all outstanding
registration statements on Form S-8. We intend to file an amended
Form 10-K with the revised consent by November 17, 2010.
Exhibits 31.1 and
31.2
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6.
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In
future filings, please ensure the exhibits required by Item 601(b)(31) of
Regulation S-K are in the exact form prescribed by that
item. We note, for example, Exhibits 31.1 and 31.2 include the
title of the certifying individual at the beginning of the
certification
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Company
Response
In future
filings, the Company’s exhibits will be in the form prescribed by Item
601(b)(31).
Definitive Proxy Statement
filed August 27, 2010
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7.
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Your
definitive proxy statement indicates that your annual meeting was to be
held on October 6, 2010. Please tell us when you intend to file
a Form 8-K to report the results of that shareholder
vote. Refer to Item 5.07 of Form
8-K. Also:
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·
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provide us your analysis
regarding the effect of such filing now on your ability to use short-form
registration statements. See Question 114.04 of our Securities
Act Forms Compliance and Disclosure Interpretations, available at
http://www.sec.gov/divisions/corpfin/guidance/safinterp.htm;
and
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·
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tell us whether your
outstanding registration statements on Form S-8 have been used to offer
and sell securities since the date of that
meeting.
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Company
Response
Upon
receipt of your comment letter dated October 27, 2010, the Company became aware
of its oversight and a Form 8-K under Item 5.07 was filed with the SEC on
Friday, October 29, 2010.
The
Company understands that, as a result of the untimely Form 8-K filing described
herein, the Company will not be eligible to use Form S-3 for a period of 12
months from the date the Form 8-K was filed, assuming all reports required to be
filed by the Company pursuant to Section 13, 14, or 15(d) of the Exchange Act
have been timely filed during such 12 month period.
With
respect to outstanding registration statements on Form S-8, Frequency has made
no offers to sell securities subsequent to its Annual Shareholders Meeting held
on October 6, 2010.
As you
requested in your letter dated October 27, 2010 we acknowledge the
following:
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The
Company is responsible for the adequacy and accuracy of the disclosure in
its filings;
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Staff
comments or changes to disclosure in response to staff comments in the
filing reviewed by the staff do not foreclose the Commission from taking
any action with respect to the
filing;
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The
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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We
welcome the opportunity to discuss any aspect of this letter with you
further.
Sincerely,
/s/ Alan
Miller
Alan
Miller
Secretary/Treasurer
and Chief Financial Officer
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