Martin B. Bloch - President, Chief Executive Officer and Director Alan Miller - Treasurer and Chief Financial Officer

Michael Amari - Americo Inc. Robert Smith – Center for Performance Investing Larry Lytton – Second Line Capital Management David Starkey – Smith Barney [Harden Madea] – Idea Group [Robert Lippard]

Welcome to the Frequency Electronics third quarter earnings release conference call. (Operator Instructions) I would like to turn the conference over to Martin B. Bloch, CEO and President, and Alan Miller, Chief Financial Officer. Martin B. Bloch: Joe Franklin will not join us. He is traveling on business

Under the Private Securities Litigation Reform Act of 1995, the statements in this conference call regarding 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 could cause or contribute to such differences are enumerated in our press release, and by making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this release. Martin B. Bloch: Alan, why don’t you at this time walk everybody through the financial performance for this quarter and the nine months, and then I’ll address the future of business and then we’ll turn over questions and answers.

For the quarter ended January 31, 2008, the company recorded revenues of $17.1 million compared to $12.1 million in the year ago quarter. This is a 41% increase in year-over-year revenues which were led by a better than 50% increase in revenues from satellite payload programs. Quarterly revenues from telecommunication infrastructure and non-space US government programs were also up from year ago levels. For the 9 months of fiscal 2008, total revenues are $50.1 million, an increase of 23% over the $40.8 million recorded over the same period in 2007. Cost of sales was $11.6 million compared to $8.3 million a year ago, yielding a gross margin of $5.5 million in the third quarter of this year compared to $3.8 million in the year ago period. The gross margin rate for this third quarter was 32% compared to 31% in the year ago quarter, and the third quarter results of this year represent a continued sequential improvement from the 30% gross margin rate realized in the first half of fiscal 2008. As we indicated previously, higher engineering costs in certain satellite programs, some of which were completed this quarter, kept margins at this lower than targeted level. We expect to realize improved margins in the fourth quarter of this year and into fiscal 2009. SG&A was $3.1 million compared to $2.9 million a year ago, and R&D was $1.5 million compared to $2.6 million a year ago. Both SG&A and R&D spending this year are in line with our targets of 20% and 10% of revenues respectively. Our challenge is to continue to bring down the cost of production and to significantly improve our gross margin rates. This should result in continued improvement in our operating margins which in the third quarter were $805,000. This is $2.5 million better than the year ago period, and more than double the operating profit realized in the preceding quarter of this fiscal year. Investments and other income were $586,000 in the fiscal third 2008 quarter which is comparable to the $650,000 realized a year ago. Net income for the third quarter of this fiscal year was $758,000 or $0.09 per diluted share. This is compared to a loss of $754,000 in the year ago quarter or $0.09 per diluted share. Now, just a quick word again on our effective cash rate, for the year to date we are at 42%. As we’ve indicated in previous calls, the $3 million gain on our Morion investment that was recorded in the first quarter will offset some of our loss tax carry forwards, as well any losses that are generated by our foreign subsidiaries do not generate any current tax benefits. Turning to the balance sheet, overall our cash and marketable securities stand at $15.7 million, which is about on par with where we began the year. You may recall that in the first quarter of this year, we reported negative cash from operations of $4.4 million. Had we collected in January of this year, the $1.3 million in cash that came in early February, we would be operating cash flow positive over the last two quarters of the current fiscal year. As of January 31, our accounts receivables stand at $20 million, of which about $8.7 million is in un-billed receivables, which is typical of these large long-term contracts. We do anticipate that in addition to the $1.3 million that was collected in early February that we will be billing and collecting over $6 million during the fourth quarter of this fiscal year on these longer-term contracts as we complete certain milestone events. Inventory is at $31.4 million which is about the same as where we began the fiscal year but down from the previous quarter. And finally a word on backlog, we stand at about $40 million of backlog which is slightly up from where we stood at the end of the second quarter of this fiscal year. Now this morning’s press release discussed in detail our current dividend policy. Several of you have suggested we buy back stock instead of pay a cash dividend. Obviously, in this current economic environment, it would be highly imprudent for us to do both, so absent any dividend payment, we believe we can justify some limited re-purchase of our stock. I’ll now turn the call back over to Martin. Martin B. Bloch: I just want to address a few technical points and then go into the future. Although our inventory is about flat, the inventory in the United States has improved, but with help of course from an increase in inventory evaluation due to the change in currency between the dollar and the euro. We are continuing to work the issues of reducing the inventory and having a good opportunity to do so. I now want to focus on this year. First of all, I want to congratulate the Frequency team for filling out their mission that we gave them, this is basically to work hard to increase revenue, which was #1 on our list, and they have achieved this and will continue to do so. Second of all, the wireless business is projected to be significantly down, and we have really no better visibility except that that’s where it’s going, and I think it’s reflected in what our customers are looking at. Thirdly, with respect to the wire lines, I’m happy to say that from zero, we see some significant positives and we expect to book this calendar year $1 to $2 million worth of business, and what’s more important is we’ve gone through all the hurdles, and we are approved and we are basically going through the first year of what they call trial by fire and having a limited number of the equipment in actual operation, and that is very encouraging to us. When it comes to space business that is the brightest spot on our horizon. We’ve booked a lot of business so far and we anticipate significant improvement in bookings over the next three to five months. I’m happy to report that we haven’t lost any of the proposals we have made. They just move to the right, and we have every indication that they will materialize over the next three to four months. With respect to government business, again our low-g sensitivity is gaining a lot of visibility, and our challenge at this time is to increase throughput as we have successfully done on the space business which has a big pay-up, and at the same time make it more affordable because the low-g sensitivity is required by the military in very large quantities. So, we have a challenge on our hands on how to be able to produce it in large quantities at an affordable price, and I’m sure we’ll achieve that objective. We made the commitment to our customers that this is our challenge over the next six months to do. I’m also happy to report that although some of the big proposals did not materialize up to date and they’ve slipped a little bit to the right, we have been able to book two satellite contracts that we didn’t expect for $9 plus million. Again, I want to emphasize Alan Miller’s commitment that we’re looking forward to continue improvement in revenue and to work very hard to improve the margins. But our number one marching orders to everybody is that improvement in revenue is very important because we can bring down the margins by improving the manufacturability, throughput, and economy of making it by the investment that we’ve made in automatic test equipment and by better training our personnel to have good throughput. I would like to at this time stop and let you have the opportunity for question and answers.

(Operator Instructions) Your first question comes from Michael Amari - Americo Inc. Michael Amari - Americo Inc.: We don’t have any more real estate, right. We are out of that. We sold everything.

That’s correct. We do own property in Belgium, but for the most part, here in the United States, we are done with real estate. Michael Amari - Americo Inc.: In terms of the cash that you have, do have any exposure? Do you have any subprime exposure?

No, not subprime, not at all. Michael Amari - Americo Inc.: What are you making on the cash, a couple of percentage or something?

e.: Michael Amari - Americo Inc.: I guess that is that part of the reason why you have to remove the dividend, which we hope you would address soon because your investors really need the dividend and we are all strapped for cash at this time. Martin B. Bloch: Michael, you are the one who kept on talking why do you pay a dividend. Why don’t you deploy the money more successfully and that’s what we are doing. We deployed for growth and acquisitions. Michael Amari - Americo Inc.: You are doing absolutely great. You are turning from value to a growth company. It’s a time where most of the investors would like to see some sort of a dividend. Martin B. Bloch: I understand that. Michael, visualize that I personally am one of the large benefactors of the dividend, and I voted with the Board that this was the right thing to do at this time. Michael Amari - Americo Inc.: I understand. Well, I hope you will consider buyback if the stock tanks any further. Martin B. Bloch: We’re looking at it right now.

And we’ll take our next question from Robert Smith - Center for Performance Investing. Robert Smith - Center for Performance Investing: Let me first also share with you my surprise about the dividend. I feel this is ill advised, and I hope you will reconsider it. It’s what differentiated you. You distinguish yourself by having a strong balance sheet and a dividend, and eliminating the dividend I think is a poor choice. I really feel you should give very serious consideration to reversing this and reconsider it. I am speaking from the point of view of an investment professional.

We will take your input on the next Board meeting and review it. Robert Smith - Center for Performance Investing: Martin, you always told me to watch the backlog for future indications of where you are going, so we see a pretty flat backlog for six or nine months. Martin B. Bloch: You have to visualize that we shipped $10 million more, and yes, there has been some decrease in the backlog. That’s only because some of the major satellite programs just moved slightly to the right, and this is something that I am sure you’ve read in the paper. Some of the major, especially government, programs have moved out a couple of months, and we are expecting some major inputs on that respect. Robert Smith - Center for Performance Investing: Has your optimism for the new fiscal year at all changed? Martin B. Bloch: Not at all, it’s going to take a lot of work, but that’s what you are paying us for. Robert Smith - Center for Performance Investing: Are you out of the contracted programs that you were having difficulty with before? Martin B. Bloch: The two most difficult programs are all complete and out of the door, and there are a few more programs that have no more technical difficulties. It’s just a matter of getting the throughput in a short period of time. As you can see by reflecting in this quarter, there is a significant reduction in the research and development. Robert Smith - Center for Performance Investing: Yes, but when is this low margin stuff going to be finished? Martin B. Bloch: Well, hopefully this quarter. Robert Smith - Center for Performance Investing: You said that you are expecting the backlog to build with new contracts also in this quarter. Martin B. Bloch: What the government tells us in our contract is that it’s going to happen in the next three to five months on this, so if it happens within the three months, it’s going to be in this quarter, and we’ll keep you advised. Robert Smith - Center for Performance Investing: Your prior comments about the margins on the new business still hold also? Martin B. Bloch: We are looking forward to increased margins, no question about it. Robert Smith - Center for Performance Investing: That I know, but I mean the magnitude of what your objectives were and targets is still intact? Martin B. Bloch: Absolutely, we increased revenues. We have a fixed burden to carry on this. The margins will automatically go up. Robert Smith - Center for Performance Investing: Your comment about the wireless end of the business, can you just give me some additional color on that? Martin B. Bloch: What we hear from our major customers is that business is lull these days. No decisions are being made by the Chinese to implement it and the new roll out of base stations are lagging far behind. There are some bright lights on the horizon, but we don’t know how to characterize those. For example, we prototyped the WiMAX demonstrations in the three cities, and of course if you listen to them, they are going to buy a zillion units, but we are taking it with a grain of salt until we see it. Robert Smith - Center for Performance Investing: And which three cities are those? Martin B. Bloch: Chicago is one, someplace in North Carolina is another, and someplace in the Midwest. I don’t remember the exact cities, and the trials are now on the way. As a matter of fact, I am going out on Monday to get a briefing on this because we don’t really have a clear picture. Robert Smith - Center for Performance Investing: And could you elaborate a little on the Chinese situation question? Martin B. Bloch: The Chinese have come up with a simpler solution. They are going to have one-third of the cell phones that the population has, they’ll turn them off each day during the Olympic season since they cannot build out the infrastructure. Robert Smith - Center for Performance Investing: And what does that hold for subsequent to the Olympics? Martin B. Bloch: Well, eventually they are going to have to build up. There is no question about it. That is a population that has exceeded the number of cell phones. They are now the largest user of cell phones in the world, and the more cell phones you have, the more stations you need. The future over there, it will happen. When it’s going to happen, only the Chinese know.

Your next question will come from Larry Lytton - Second Line Capital Management. Larry Lytton – Second Line Capital Management: What’s the total long-term and short-term debt at the end of the quarter?

We entered into a couple of capital leases for some test equipment, so there is about $260,000 is in the current portion and we have about $900,000 in long term, so it’s about $1.2 million of capital equipment that we acquired. Larry Lytton – Second Line Capital Management: Right, but what will the Q show in terms of total debt?

The balance is about $5.7 million, and I think it’s in current. So it’s another $5.5 million still hanging on the credit line that we’ve drawn down. There’s $907,000 and $60,000 in long-term debt which is a capital lease obligation. Larry Lytton – Second Line Capital Management: What is the size of the credit line and are there any indenture issues there?

The credit line I believe the draw is up to $11 million. Larry Lytton – Second Line Capital Management: Are you active in terms of expanding that?

No. Larry Lytton – Second Line Capital Management: If you look out basically over the next four quarters, we’ll be generating cash, we’ll be using cash, what type of cash generation or use would you expect?

We expect to be able to generate cash. As indicated in the call earlier, we have some major milestone billings that should take place this quarter, and will generate some very positive cash flow for us. We were impacted quite dramatically by the first quarter’s results, which put us quite a bit behind in this fiscal year. Larry Lytton – Second Line Capital Management: Next three to five months, you are hoping for some big bookings as things get released. What’s the magnitude of those bookings if you got all of it? Martin B. Bloch: We’ll choke. We are addressing a market that’s between $80 and $100 million. How much we capture of this is statistically we’ve been capturing 50% plus, so it would be a very significant injection in our backlog. Larry Lytton – Second Line Capital Management: And obviously the wireless business is terrible, and I guess its part of what you infrastructure, but just remind us, in this quarter how big was the telecom infrastructure revenues roughly?

Larry, we don’t really break it down with the specifics, but we did indicate that we were at par for the nine months with what we had recognized in the prior year. Last year we did I think about 35% to 40% of our revenues in telecom. Larry Lytton – Second Line Capital Management: If the business falls off the table, how difficult a drag is that? We’re not talking about 35% of the revenues going away. Martin B. Bloch: No. They are not disappearing. They are just going down, plus the fact that our growth in the satellite is more than making up for the shortfall in that area. It’s very fortunate that we address multiple markets, so if one gets slow down, we have the opportunities in the other two major markets.

Your next question is from David Starkey - Smith Barney. David Starkey – Smith Barney: I wanted to check on the accounts receivable situation. Do you expect a good chunk of payments to come in here and perhaps be paying down that line of credit over the next quarter?

We do expect some sizeable payments to be coming in. As I indicated, some of them have to be billed out because we have $8.7 billion that have yet even billed to the customer, at least as in January. We have subsequently billed some of that, and then we should collect that within 30 to 45 days after billing. David Starkey – Smith Barney: This whole question about the dividend and all that, I mean the dividend is fairly insignificant any way relative to the stock and everything. I would hope that at the same time you announced that, you did announce a stock buyback or something. There should be sort of a reason other than the credit markets. You are not really in a position to be hurt from the credit markets at all because you got cash in the bank, and you are not really borrowing in that sense. So it would be more or less a reason to me to be very adamant about buying the stock especially below book value where it is right now, so hopefully you guys will be able to announce something in that respect very soon. Martin B. Bloch: I understand David what you are saying, but I tell you our motivation is more motivated by the opportunity for growth than buying the stock. We will buy back stock in small amounts. We have great opportunities for growth and partnering and acquisitions, and those are the areas where we are looking for. The marching goal that you all gave us is increase the revenues because you know that eventually we can significantly increase the bottom line and that where everybody got the marching orders from. David Starkey – Smith Barney: Your R&D expenses are they going to stay on the downward trend now for a while, so with the increased revenue? Martin B. Bloch: They will stay on the downward trend for a couple of reasons. One of the reasons is that we have stopped the majority of our technical programs, and we are budgeting the investment in trying to get the low-g sensitivity more affordable and producible in larger quantity, but there’s more compared to the investment we made in satellites which has paid off very well. The second item for reducing the inventory is that we have been very fortunate to get a couple of programs from the government that are really paying a lot of the IR&D that we wanted to do, so both of them will keep the IR&D in the future down. David Starkey – Smith Barney: And a question about your subsidiaries that are overseas, Zyfer and that, are you going to stay with these things? They seem to be just kind of plodding along for you. Martin B. Bloch: Well, let’s take a look at them one at a time. Zyfer is not overseas. They are in Anaheim, California, and we acquired them for the technology. And we are in search of their technology that we hope to put into other systems. So as long as they don’t lose money, that’s not a big deal. When it comes to Gillam the main and only reason we acquired them is for the technology they have for the wire line, and that is a great potential for growth for the corporation on this. I want to remind you sooner or later there are 25,000 shells to be replaced. And at this moment, there is only two competitors addressing this market in the United States, and now that we are qualified, we hope to get a significant chunk of it. Again, if they can provide the technology and not lose money, they have more than fulfilled the mission. David Starkey – Smith Barney: Do you feel that the book value kind of understates the value of your technology? Martin B. Bloch: Definitely. David Starkey – Smith Barney: Given the times where we are and the potential for the improvement in the satellite and the government business now, have you been approached by anybody looking at your company? Martin B. Bloch: I don’t know if we are at liberty to discuss it at this time. No-comment is appropriate.

Your next question comes from [inaudible] - Idea Group. [Harden Madea] – Idea Group: I’ve obviously read the release, but clearly disappointed by the decision to suspend the dividend. I think it sends exactly the wrong signal without anything in its stead to enhance shareholder value at the exact same time or with the same use of proceeds or cash that you would otherwise have used. So I agree completely with the prior callers urging to announce some buyback authorization and not just announce, but to activate. And I think the marching orders as you described them, Martin, are not to grow revenue without growth and profitability. Growth in revenue doesn’t really help the value of your company unless it generates cash flow and profitability. Martin B. Bloch: I grossly disagree with you on this. You have to realize the structure of Frequency Electronics. We have a certain base of costs independent of revenue. If we do $30 million or we do $100 million, our basic infrastructure is about the same, so the first thing that we have to do in this to make the research and development investment and capital investment is to grow the revenue and the bottom line will have to improve. There are not if’s, but’s, or maybe’s. We’re not just doing it for growth of revenue, but once we grow the revenue, the bottomline will significantly improve, and I’d like to call your attention that you should read the language in the press release. We’re not suspending dividend because we don’t have anything better to do with the money. We are looking for significant opportunities in expanding Frequency’s business and looking for partnerships and acquisitions which we feel is a great opportunity right now. And talking to us you say you are disappointed. I want to emphasize again, I voted with the Board to do it, and I am one of the few people that’s most affected by it since I am the largest single stockholder. [Harden Madea] – Idea Group: I would say that there are absolutely ways to improve profitability without revenue growth that do not damage the company’s capability to grow nor generate intellectual capital and property that can ultimately translate into revenue growth and new business opportunities. And just looking at the size of Frequency Electronics, a run rate of SG&A of $12.5 or $13 million a year is quite high, and that’s not including research and development, so the combination of, let’s call it $5 million a quarter of R&D and SG&A. Martin B. Bloch: $5 million a quarter where do you get that? [Harden Madea] – Idea Group: Well, let’s look back at October and in fact this quarter it was $4.6 million for R&D and SG&A. That’s $20 million a year. That’s real money to shareholders that they need to have better visibility into your use of those corporate revenues. Clearly I think there is a disconnect. The stock is trading below book value. You suspended your dividend. You haven’t been clear about what it is you are going to use that cash for. You are not generating cash. You now have a new credit line. The business isn’t developing as you said it would, and that’s the only consistency that I see. Martin B. Bloch: And I presume that having a 3% growth in revenue is nothing, right? [Harden Madea] – Idea Group: You’re making $800,000 in operating profit on $17 million in revenue. Business is supposed to be generating 40% gross margins on this kind of revenue run rate, not 30%. Martin B. Bloch: And our goal is to achieve 50%. [Harden Madea] – Idea Group: Again, you’ve talked about these initiatives for as long as I’ve been a shareholder which I think is around six years, and I still haven’t seen it come to fruition. And some of your large shareholders are going to start to get frustrated, especially some of which require you to have a dividend, which just omitted. So there’s some disconnects between the way you are managing the company and the value that the public markets are going to apply to it if you can’t deliver on people’s expectations. Martin B. Bloch: If you have any specific recommendations, I would welcome. I’ve always respected your opinion, but we are finally making some significant breakthroughs on increasing our revenue, and the focus is to continue increasing revenue and to increase our margins, so it’s not falling on deaf ears and we are evaluating very carefully. I just want to tell you the investments we made in establishing the manufacturing line for high rail satellite hardware is paying off in big times. Yes, it was expensive to make the investment, but our bookings in that area are very positive, so I feel that we are on the right track, and we have to keep our eyes focused on both increasing the revenue and at the same to see what we can do to increase our margins to get to that 50% goal that we have, so we’re not forgetting it. [Harden Madea] – Idea Group: Again, I just can’t stress enough delivering on expectations and generating significantly profitable revenue growth. That’s what will move your stock up, not down. That’s what will allow you to pay a dividend, not omit one. That’s what will allow you to pursue strategic and accretive acquisitions. It’s strengthening your financial profile and your share price. Martin B. Bloch: Good advice and we’ll do the best to execute it. [Harden Madea] – Idea Group: Martin, have you given any consideration to changing your compensation structure as a method of reducing the overhead burden? Martin B. Bloch: You mean reducing salaries. [Harden Madea] – Idea Group: In particular, I think your bonus is pegged at about 8.5% of corporate profit before tax of the $20 million. If I remember right, you receive a percentage of the operating profit of the company as compensation.

Yes, but it’s less than that rate. Martin B. Bloch: Harden, I received zero last year. [Harden Madea] – Idea Group: Again, when you say there’s a fixed burden to carry, it’s only as fixed as you let it be. Martin B. Bloch: I’ll look it, but that’s really small potatoes compared to the burden that we have. Our burden is, you say G&A, it’s not just G&A, it’s SG&A. So the more you sell, the more expenses you have in selling it and the more commissions your pay, and there is a space and quality control system and the infrastructure that you build for building our sophisticated hardware. That’s where the bulk of the money is going into, and when we compared our remuneration to our peers, we were in the low 50 percentile, and we do that study periodically. For this, we hired an outside consultant and they compared it, and reported to us and to the Board because we want to stay competitive. So if you are attacking me personally, I will think about it. [Harden Madea] – Idea Group: No, I’m not attacking anyone. I am just offering up opportunities for profit improvement that don’t require revenue growth, which is really the modus operandi of a public company. It is to generate profit.

Our next question is from [Robert Lippard]. [Robert Lippard]: Just a comment from the last caller, I think he’s been around Frequency a long time. But if I have it right, didn’t we really make a transformation over the last 18 months into a whole new development of satellite business which of course costs a lot of money to do that. Martin B. Bloch: You’re absolutely right on this. We’re capturing approximately half a million dollars of payload, and we’re now going after in this step from $7 to $8 million per satellite and are putting development in process to capture larger portions of the payload, and this is where significant growth and profitability lies. You got it right on the money. [Robert Lippard]: And the other thing which seems clear to me, and I know you have no control over it, but in the wireless area, WiMAX, it seems like India is going to be a lot more active than maybe China, and I see a lot of growth there. You will see it of course through your suppliers because you deal with Alcatel, and I think they are in India and maybe Motorola or maybe both. Martin B. Bloch: They are both in India and they are both looking at a market which they expressed to us as gigantic, but we’ve heard so many stories from them. More than Frequency is selling, and we’re just waiting to see what materializes. There is no question that there is opportunity there, but I want to emphasize again, FEI’s large-scale opportunity lies in satellites. [Robert Lippard]: Well, just seek progress and we should have at least over the next three to four quarters, maybe some significant progress, and that’s what I’ll be looking for.

We have a follow-up question from Larry Lytton - Second Line Capital Management. Larry Lytton - Second Line Capital Management: A prior question talked about you feeling that the stock undervalues the technology or the infrastructure obviously trading at a discount to book value. Can you expand on why you think the stock is undervaluing the potential or undervaluing the assets? Martin B. Bloch: I am a good technologist, and I can see that future of products and development, but the mystery of the stock market I don’t know. I have no idea on how a stock is valued. It’s our job to generate value by increasing revenue and increasing our margins, and why our technology is not being valued, we are a hidden secret. Larry Lytton - Second Line Capital Management: But in terms of how much it would cost someone to reproduce that technology or whether there are strategic people out there who would love to have those type of issues. Martin B. Bloch: Those are definitely things that I think we do something about, and something that I can share with you is that we are exploring this to our technology and added value that we can offer to some of our bigger customers. You hit it right on the money.

We do have a follow-up question from Robert Smith - Center for Performance Investing. Robert Smith - Center for Performance Investing: One of the callers posed a question to Alan about where the cash and cash equivalents are invested, and Alan said that you’re not in subprime. Do you have any exposure what’s been happening with derivatives?

We are mostly in government agencies, so there are no derivatives out there. Robert Smith - Center for Performance Investing: Again, a previous caller did suggest that there are institutions who cannot hold your stock or would not buy your stock without a dividend, and that is true. I am not saying that they would be banging at the door to do this, but you are eliminating a certain percentage of institutional investors who would look at you. Martin B. Bloch: We understand that, and remember we did pay out $18 million worth of dividends over the past. Robert Smith - Center for Performance Investing: Well, I’m looking for another $50 million. Martin B. Bloch: Remember I am the largest single recipient. Robert Smith - Center for Performance Investing: You have to pay a dividend to get there, and I understand what you’re saying Martin, but total return on an investment is an important characteristic of the market, and actually many growth companies are now considering instituting dividends as opposed to companies that are paying dividends eliminating them. I again strongly suggest that you revisit this, and I’m hopeful that you will have an open mind and reflect up on it.

We’re looking to look at what can be the rational approach for a small high-tech company. Robert Smith - Center for Performance Investing: But Alan, it so differentiated you that you did pay a dividend. If someone who wanted to buy the stock and says look I’m getting 2.5% on my money while I am waiting, it is important characteristic when you look back at what returns have been to investors Over long stretches of time, the dividend is an important aspect of that.

And we do have a follow-up question from [Harden Madea] with Idea Group. [Harden Madea] – Idea Group: Alan, was the company cash flow positive in the quarter?

No, not this quarter. [Harden Madea] – Idea Group: I think through the six months if I remember correctly, because I don’t see the cash flow statement for the quarter, operations used $2.6 million for six months. What’s that usage through nine months?

Usage through the nine months is $4 million. As I indicated, we have collected about $1.5 million in early February that was due by January 31, but the customer didn’t pay us on time, so had that come in we would have been cash flow neutral for the quarter. [Harden Madea] – Idea Group: Is there any restriction in your current line of credit agreement that would prohibit the company from paying a dividend or buying back the stock?

No. [Harden Madea] – Idea Group: Are there any other reasons really that I can kind of get my arms around that are tangible for why the company decided today instead of 12 months ago or six months ago to suspend the dividend?

We looked at how have we obtained other opportunities out there, and one of the things we’ve explored a year ago was perhaps doing a secondary offering or doing some other private placements or things of that nature, and all these things are pretty much iffy in this current economic environment, so that’s one of the things we thought we’d be more prudent to simply hang on to the cash for right now until we see how things shake out in this current economic environment. [Harden Madea] – Idea Group: Can you describe to me then how the company internally is managing its cash from operations to generate inflows instead of outflows?

One of the major keys to this whole thing is getting the billings done and meeting milestones in our long-terms contracts. As I indicated, our receivables have grown to $20 million and $8.5 million of that is in unbilled, so we have to really get our arms around some of these milestone programs and make sure we can get them out more timely than we have in the past. So that’s the very first step we have to take to make sure we improve the cash flow situation. Martin B. Bloch: The other thing that we’re doing from an operational point of view is really trying to improve the cost of products manufactured, and this is key. There is room for significant improvement on the space products with automated theft equipment that we’ve invested and built. And with better training and better understanding of the technology to improve the manufacturing cost, and that goes down straight to the bottomline, and we have a major effort in the company to do that. [Harden Madea] – Idea Group: I guess that process has been underway for some time now, and I think the results from those investments would have been thought to have been not generating results for now. Martin B. Bloch: It’s in the beginning. I want to quote to you some statistics. In 2006, Frequency Electronics shipped seven frequency generators out the door. In 2007, we had the challenge of bringing it to over 100. That’s more than almost 15 times forward, and that changes the nature of manufacturing and how you do it, and that required a significant investment in training of personnel and hiring personnel, which is an expensive process. They don’t grow on trees. Even if you get good people, it takes a certain training before they become productive and investments in capital equipment and automatic test equipment in order to be able to do it. We now are at the point where we can produce fairly large quantity of this frequency generators to take advantage of the business that’s growing very rapidly in the satellite industry, so we have made enormous progress on this, and I really want to congratulate the team at Frequency again for getting it accomplished. To increase manufacturing capacity of a high-technology complex product by a factor of 15 in one year is an enormous challenge, and now we have to build on it. [Harden Madea] – Idea Group: Is that fiscal ’06 or calendar ’06. Martin B. Bloch: In fiscal ’06, we shipped seven frequency generators. Fiscal ’07, I think we shipped 92. Don’t hold me to the exact numbers. In fiscal ’08, we will ship some place around 120. [Harden Madea] – Idea Group: And based on the changes in place or underway, what would your run rate of capacity be for the forward year? What would it be per day on a quarterly run rate? Martin B. Bloch: Well, quarterly is hard to predict, but our goal for the annual is to have a capacity of over 200. [Harden Madea] – Idea Group: But that will take time, and not just happen in fiscal ’09. Martin B. Bloch: Well, I’m fairly confident that will be at that rate in fiscal 2009 for sure if not sooner. We really made a lot of progress in that area of putting it through. The business opportunities and the demand of customers in terms of what they need on their product. We are working very hard to get to that capacity, and we have all the capital equipment in place, we have the automatic test sets in place and paid for, we have invested a lot in training of the people. Our population increased and went up by 33% from 2006. And that is a big investment. When you hire new people it takes time before they start producing. It isn’t like you are putting a salesperson on a common product. Each individual has to become an expert in that technology in order to become productive and we’ve made a lot of progress in that area, and now have to build on it. [Harden Madea] – Idea Group: I guess the other question would be is there any other external factor, either strategic discussions that are underway that might have influenced the Board’s decision to suspend the dividend?

If there were, we couldn’t tell you. Martin B. Bloch: Again read our press release and we’ve tried to be as truthful as we see it. We have opportunities at this moment for growth and prospering and acquisitions, and we felt that this is the prudent thing to do at this time. We are looking at buying back some stock and we will do so in small quantities from time to time, but primarily this is to look at our growth opportunities in front of us. [Harden Madea] – Idea Group: One other question regarding uses of cash or sources of cash, there are some assets on the balance sheet that when it comes to cash, somebody asked how cash and marketable securities are invested. Do you have any immediate liquidity or are there some lockout periods on your marketable securities?

The only question there really is market value of some of these securities. In the current environment, they may be under par at some point in time when we mark-to-market and so it’s reflected in the balance sheet. So it may be imprudent for us to liquidate them at this point and take a loss. We don’t have to. [Harden Madea] – Idea Group: In the 10-Q or K, you will show both cash and equivalents and marketable securities, but they are one together in the press release. Can you break those out for me?

Cash is $6.7 million, and the marketable securities are $9. [Harden Madea] – Idea Group: Did you sell any marketable securities?

We had a number of redemptions in the quarter. They were callable bonds, so they were redeemed. [Harden Madea] – Idea Group: And then there’s a cash surrender value of life insurance? At least on October 31, it was $7 million. What’s the value of that currently and other assets?

It’s about $7.5 million at this point in time including some cash proceeds on some life insurance that unfortunately came due as a couple people died. [Harden Madea] – Idea Group: What’s the marketability of that asset?

We haven’t really explored it. Some people have asked that question before, but that asset is there as an offset to the long-term deferred compensation liability on the other side of the balance sheet, so that’s why we really don’t tend to do anything with it at this point. Martin B. Bloch: Well, we want to thank everybody for the lively discussion. You gave us a lot of food for thought which we take very seriously. I want to express General Franklin’s parting remark and wishing all our Armed Services that are in harm’s way the best type of luck and good wishes, and again my great thanks to the employees that are working very hard to make progress and to all of you loyal stockholders that are interested in the company, and we will do our best to not disappoint you. We wish you a very gracious good bye.