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 October 31, 2005
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 is an accelerated filer (as
defined in Exchange Act Rule 12 b-2). Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, par value $1.00
as of December 9, 2005 - 8,538,515
Page 1 of 23
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
October 31, 2005 and April 30, 2005 3-4
Condensed Consolidated Statements of Operations
Six Months Ended October 31, 2005 and 2004 5
Condensed Consolidated Statements of Operations
Three Months Ended October 31, 2005 and 2004 6
Condensed Consolidated Statements of Cash Flows
Six Months Ended October 31, 2005 and 2004 7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-17
Item 3- Quantitative and Qualitative Disclosures about Market Risk 17
Item 4- Controls and Procedures 17
Part II. Other Information:
Items 1, 2, 3 and 5 are omitted because they are not applicable
Item 4 - Results of votes of security holders 18
Item 6 - Exhibits 18
Signatures 19
Exhibits 20-23
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 31, April 30,
2005 2005
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 6,812 $ 6,701
Marketable securities 19,777 23,532
Accounts receivable, net of allowance for doubtful
accounts of $172 12,574 12,728
Inventories 23,159 22,948
Deferred income taxes 3,002 2,269
Prepaid expenses and other 895 1,362
-------- --------
Total current assets 66,219 69,540
Property, plant and equipment, at cost,
less accumulated depreciation and
amortization 6,340 6,770
Deferred income taxes 2,454 2,644
Cash surrender value of life insurance 6,078 5,838
Goodwill and other Intangible assets, net 551 591
Other assets 3,235 2,991
-------- --------
Total assets $ 84,877 $ 88,374
======== ========
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
October 31, April 30,
2005 2005
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable - trade $ 1,728 $ 1,896
Accrued liabilities and other 3,093 3,912
Income taxes payable 712 3,184
Dividend payable 854 852
-------- --------
Total current liabilities 6,387 9,844
Deferred compensation 7,952 7,812
Deferred gain and other liabilities 1,207 1,525
-------- --------
Total liabilities 15,546 19,181
-------- --------
Stockholders' equity:
Preferred stock - $1.00 par value - -
Common stock - $1.00 par value 9,164 9,164
Additional paid-in capital 45,462 45,289
Retained earnings 14,060 12,440
-------- --------
68,686 66,893
Common stock reacquired and held in treasury
-at cost, 625,424 shares at October 31, 2005
and 646,709 shares at April 30, 2005 (2,537) (2,601)
Accumulated other comprehensive income 3,182 4,901
-------- --------
Total stockholders' equity 69,331 69,193
-------- --------
Total liabilities and stockholders' equity $ 84,877 $ 88,374
======== ========
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
Six Months Ended October 31,
(Unaudited)
2005 2004
---- ----
(In thousands except per share data)
Net sales $22,556 $32,045
Cost of sales 14,361 21,008
------- -------
Gross margin 8,195 11,037
Selling and administrative expenses 5,077 6,188
Research and development expenses 2,951 2,825
------- -------
Operating profit 167 2,024
Other income (expense):
Investment income 2,666 829
Equity in Morion 229 128
Interest expense (59) (150)
Other income, net 767 57
------- -------
Income before minority interest and
provision for income taxes 3,770 2,888
Minority interest in loss of
consolidated subsidiary - (1)
------- -------
Income before provision for income taxes 3,770 2,889
Provision for income taxes 1,296 1,000
------- -------
Net income $ 2,474 $ 1,889
======= =======
Net income per common share
Basic $ 0.29 $ 0.22
====== ======
Diluted $ 0.29 $ 0.22
====== ======
Average shares outstanding
Basic 8,525,629 8,460,881
========= =========
Diluted 8,665,810 8,660,079
========= =========
See accompanying notes to consolidated condensed
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended October 31,
(Unaudited)
2005 2004
---- ----
(In thousands except per share data)
Net sales $11,499 $14,362
Cost of sales 7,401 9,103
------- -------
Gross margin 4,098 5,259
Selling and administrative expenses 2,533 2,895
Research and development expense 1,509 1,589
------- -------
Operating profit 56 775
Other income (expense):
Investment income 1,341 414
Equity in Morion 85 70
Interest expense (31) (72)
Other income (expense), net 698 (1)
------- -------
Income before minority interest and
provision for income taxes 2,149 1,186
Minority interest in loss of
consolidated subsidiary - (20)
------- -------
Income before provision for income taxes 2,149 1,206
Provision for income taxes 817 352
------- -------
Net income $ 1,332 $ 854
======= =======
Net income per common share
Basic $ 0.16 $ 0.10
====== ======
Diluted $ 0.15 $ 0.10
====== ======
Average shares outstanding
Basic 8,531,238 8,487,145
========= =========
Diluted 8,674,280 8,666,792
========= =========
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended October 31,
(Unaudited)
2005 2004
---- ----
(In thousands)
Cash flows from operating activities:
Net income $ 2,474 $ 1,889
Non-cash (income) charges to earnings, net (1,512) 1,731
Net changes in other assets and liabilities (2,863) (759)
------- -------
Net cash (used in) provided by operating activities (1,901) 2,861
------- -------
Cash flows from investing activities:
Payment for acquisition (103) (830)
Proceeds from sale of marketable securities 12,568 1,000
Purchase of marketable securities (8,802) (2,272)
Purchase of fixed assets (933) (869)
Other - net - 68
------- -------
Net cash provided by (used in) investing activities 2,730 (2,903)
------- -------
Cash flows from financing activities:
Proceeds from short-term credit obligations - 22
Payment of cash dividend (852) (843)
Payment on long-term obligations - (1,864)
Other - net 21 74
------- -------
Net cash used in financing activities (831) (2,611)
------- -------
Net decrease in cash and cash equivalents
before effect of exchange rate changes (2) (2,653)
Effect of exchange rate changes
on cash and cash equivalents 113 13
------- -------
Net increase (decrease) in cash 111 (2,640)
Cash at beginning of period 6,701 5,699
------- -------
Cash at end of period $ 6,812 $ 3,059
======= =======
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management of 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 October 31, 2005 and the results of its operations and cash flows for the six
and three months ended October 31, 2005 and 2004. The April 30, 2005 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, 2005 Annual
Report to Stockholders. The results of operations for such interim periods are
not necessarily indicative of the operating results for the full year.
NOTE B - EARNINGS PER SHARE
Reconciliation of the weighted average shares outstanding for basic and
diluted Earnings Per Share are as follows:
Six months Three months
---------- ------------
Periods ended October 31,
2005 2004 2005 2004
---- ---- ---- ----
Basic EPS Shares outstanding
(weighted average) 8,525,629 8,460,881 8,531,238 8,487,145
Effect of Dilutive Securities 140,181 199,198 143,042 179,647
--------- --------- --------- ---------
Diluted EPS Shares outstanding 8,665,810 8,660,079 8,674,280 8,666,792
========= ========= ========= =========
Outstanding Options excluded *** 570,550 411,750 570,550 471,750
------- ------- ------- -------
*** The exercise price of these outstanding options was greater than the
average market price of the Company's common shares during the six and three
month periods ended October 31, 2005 and 2004. Since their inclusion in the
computation of earnings per share would have been antidilutive, these options
are excluded from such computation.
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable at October 31 and April 30, 2005 include costs and
estimated earnings in excess of billings on uncompleted contracts accounted for
on the percentage of completion basis of approximately $3,039,000 and
$4,138,000, respectively. Such amounts represent revenue recognized on long-term
contracts that had not been billed at the balance sheet dates. Such amounts are
billed pursuant to contract terms.
NOTE D - INVENTORIES
Inventories, which are reported net of reserves of $4,252,000 and
$4,289,000 at October 31 and April 30, 2005, respectively, consist of the
following:
October 31, 2005 April 30, 2005
(In thousands)
Raw materials and Component parts $10,745 $10,353
Work in progress 12,414 12,595
------- -------
$23,159 $22,948
======= =======
NOTE E- RELATED PARTY TRANSACTION
During the quarter ended October 31, 2005, the Company sold the remaining
building formerly owned by its French subsidiary to the president of Gillam-FEI.
The sale price of the building was approximately $990,000 and was based upon an
independent appraisal of the building. The Company recognized a gain of
approximately $680,000 on the sale.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE F - SEGMENT INFORMATION
The Company operates under four reportable segments:
(1) Commercial Communications - consists principally of time and frequency
control products used in two principal markets- commercial
communication satellites and terrestrial cellular telephone or other
ground-based telecommunication stations.
(2) U.S. Government - consists of time and frequency control products used
for national defense or space-related programs.
(3) Gillam-FEI - the Company's Belgian subsidiary primarily sells wireline
synchronization and network monitoring systems.
(4) FEI-Zyfer - the products of the Company's subsidiary incorporate
Global Positioning System (GPS) technologies into systems and
subsystems for secure communications, both government and commercial,
and other locator applications.
The 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):
Six months Three months
Periods ended October 31,
2005 2004 2005 2004
---- ---- ---- ----
Net sales:
Commercial Communications $10,875 $20,121 $ 5,906 $ 8,807
U.S. Government 3,704 3,315 1,817 1,574
Gillam-FEI 4,059** 5,032 1,844** 2,292
FEI-Zyfer 5,132 4,177 2,687 2,143
less intersegment sales (1,214)** (600) (755)** (454)
------- ------- ------- -------
Consolidated sales $22,556 $32,045 $11,499 $14,362
======= ======= ======= =======
Operating profit (loss):
Commercial Communications $ 890** $3,411 $ 456** $1,447
U.S. Government (684) (399) (184) (319)
Gillam-FEI (428)** (839) (362)** (342)
FEI-Zyfer 715 120 382 158
Corporate (326) (269) (236) (169)
------ ------ ------ ------
Consolidated operating profit $ 167 $2,024 $ 56 $ 775
====== ====== ====== ======
** For the six and three month periods ended October 31, 2005,
includes Gillam-FEI intersegment sales of $372,000 to the
Commercial Communications segment for development of a wireline
synchronization product for ultimate production and sale in the
U.S. This amount was recorded as research and development expense
of the Commercial Communications segment. In the fiscal year 2006
periods, these transactions resulted in lower operating profits
in the Commercial Communications segment and reduced the reported
operating loss in the Gillam-FEI segment.
October 31, 2005 April 30, 2005
---------------- --------------
Identifiable assets:
Commercial Communications $27,025 $26,261
U.S. Government 5,962 6,245
Gillam-FEI 11,956 13,877
FEI-Zyfer 4,994 4,796
less intercompany balances (9,343) (9,892)
Corporate 44,283 47,087
------- -------
Consolidated Identifiable Assets $84,877 $88,374
======= =======
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE G - -COMPREHENSIVE INCOME
For the six months ended October 31, 2005 and 2004 total comprehensive
income was $755,000 and $3,809,000, respectively. Comprehensive income is
composed of net income or loss for the period plus the impact of foreign
currency translation adjustments and the change in the valuation allowance on
marketable securities.
NOTE H - EQUITY-BASED COMPENSATION
The Company applies the disclosure-only provisions of FAS 123, "Accounting
for Stock-Based Compensation," as amended by FAS 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," and continues to measure
compensation cost in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Historically, this has not resulted
in compensation cost upon the grant of options under a qualified stock option
plan. However, in accordance with FAS 123, as amended by FAS 148, the Company
provides pro forma disclosures of net earnings (loss) and earnings (loss) per
share as if the fair value method had been applied beginning in fiscal 1996.
The following table illustrates the effect on the Company's consolidated
statements of operations had compensation cost for stock option awards under the
plans been determined based on the fair value at the grant dates consistent with
the provisions of FAS 123 as amended by FAS 148:
Six months Three months
Periods ended October 31,
2005 2004 2005 2004
---- ---- ---- ----
(In thousands except per share data)
Net income, as reported $ 2,474 $ 1,889 $ 1,332 $ 854
Cost of stock options, net of tax (146) (341) (93) (145)
------- ------- ------- ------
Net income - pro forma $ 2,328 $ 1,548 $ 1,239 $ 709
======= ======= ======= ======
Earnings per share, as reported:
Basic $ 0.29 $ 0.22 $ 0.16 $ 0.10
====== ======= ====== ======
Diluted $ 0.29 $ 0.22 $ 0.15 $ 0.10
====== ======= ====== ======
Earnings per share- pro forma
Basic $ 0.27 $ 0.18 $ 0.15 $ 0.08
====== ======= ====== ======
Diluted $ 0.27 $ 0.18 $ 0.14 $ 0.08
====== ======= ====== ======
The weighted average fair value of each option has been estimated on the
date of grant using the Black-Scholes options pricing model with the following
weighted average assumptions used for grants in fiscal years 2006 and 2005:
dividend yield of 1.83%; expected volatility of 59%; risk free interest rate of
3.9%; and expected lives of six and one-half years.
NOTE I - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued Statement No. 151 "Inventory Costs."
("FAS 151") This statement amends Accounting Research Bulletin No. 43, Chapter
4, "Inventory Pricing" and removes the "so abnormal" criterion that under
certain circumstances could have led to the capitalization of these items. FAS
151 requires that idle facility expense, excess spoilage, double freight and
re-handling costs be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." FAS 151 also requires that allocation
of fixed production overhead expenses to the costs of conversion be based on the
normal capacity of the production facilities. The provisions of this statement
are effective for fiscal years beginning after June 15, 2005; i.e., fiscal year
2007 for the Company. The adoption of FAS 151 is not expected to have a material
impact on the Company's financial position or results of operations.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In December 2004, the FASB issued Statement No. 123(R), "Stock-Based
Payment" ("FAS 123(R)"). FAS 123(R) supercedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and amends FAS No. 95, "Statement of Cash
Flows." Generally, the approach in FAS 123(R) is similar to the approach
described in FAS 123. FAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
FAS 123(R) requires that the fair value of such equity instruments be recognized
as an expense in the historical financial statements as services are performed.
Prior to FAS 123(R), only certain pro forma disclosures of fair value were
required. The provisions of this statement are effective for fiscal years
beginning after June 15, 2005; i.e., fiscal year 2007 for the Company. The
adoption of FAS 123(R) will have an impact on the Company's financial position
and results of operations similar to the pro forma disclosure in the
Equity-based Compensation disclosure in Note G.
In December 2004, the FASB issued Statement No. 153, "Exchange of
Non-monetary Assets", ("FAS 153") an amendment of Accounting Principles Board
Opinion No. 29 ("APB 29"), which differed from the International Accounting
Standards Board's ("IASB") method of accounting for exchanges of similar
productive assets. FAS 153 replaces the exception from fair value measurement in
APB 29, with a general exception from fair value measurement for exchanges of
non-monetary assets that do not have commercial substance. The statement is to
be applied prospectively and is effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005; i.e., August 1, 2005
for the Company. The adoption of FAS 153 is not expected to have a material
impact on the Company's financial position or result of operations.
In May 2005, the FASB issued Statement No. 154, "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.
3." ("FAS 154") This Statement requires retrospective application to prior
period financial statements of a voluntary change in accounting principle unless
it is impracticable and is effective for fiscal years beginning after December
15, 2005. Previously, most voluntary changes in accounting principle were
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. The Company will comply with
the provisions of FAS 154 although the impact of such adoption is not
determinable at this time.
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 10Q 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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 2005
Annual Report to Stockholders. The Company believes its most critical accounting
policies to be the recognition of revenue and costs on production contracts and
the valuation of inventory. Each of these areas requires the Company to make use
of reasoned estimates including estimating the cost to complete a contract, the
realizable value of its inventory or the market value of its products. Changes
in estimates can have a material impact on the Company's financial position and
results of operations.
Revenue Recognition
-------------------
Revenues under larger, long-term contracts, generally defined as orders in
excess of $100,000, are reported in operating results using the percentage of
completion method. For U.S. Government and other fixed-price contracts that
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. 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 contracts, revenue is recorded as units are delivered
with the related cost of sales recognized on each shipment based upon a
percentage of estimated final contract 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 contracts in the Company's Gillam-FEI and FEI-Zyfer segments, smaller
contracts or orders in the other business segments and sales of products and
services to customers are reported in operating results based upon shipment of
the product or performance of the services pursuant to contractual terms. 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, 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 reserves are established
for slow-moving and obsolete items and are based upon management's experience
and expectations for future business. Any changes in reserves arising from
revised expectations are reflected in cost of sales in the period the revision
is made.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
RESULTS OF OPERATIONS
The table below sets forth for the respective periods of fiscal years 2006
and 2005 the percentage of consolidated net sales represented by certain items
in the Company's consolidated statements of operations:
Six months Three months
Periods ended October 31,
2005 2004 2005 2004
---- ---- ---- ----
Net Sales
Commercial Communications 48.2% 62.8% 51.4% 61.3%
U.S. Government 16.4 10.3 15.8 11.0
Gillam-FEI 18.0 15.7 16.0 16.0
FEI-Zyfer 22.8 13.0 23.4 14.9
Less intersegment sales (5.4) (1.8) (6.6) (3.2)
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of Sales 63.7 65.6 64.4 63.4
----- ----- ----- -----
Gross Margin 36.3 34.4 35.6 36.6
Selling and administrative expenses 22.5 19.3 22.0 20.1
Research and development expenses 13.1 8.8 13.1 11.1
----- ----- ----- -----
Operating Profit 0.7 6.3 0.5 5.4
Other income, net & Minority interest 16.1 2.7 18.3 3.0
----- ----- ----- -----
Pretax Income 16.8 9.0 18.8 8.4
Provision for income taxes 5.8 3.1 7.1 2.5
----- ----- ----- -----
Net Income 11.0% 5.9% 11.7% 5.9%
===== ===== ===== =====
(Note: All dollar amounts in following tables are in thousands, except Net
Sales which are in millions)
Operating Profit
- ----------------
Six months Three months
Periods ended October 31,
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
$167 $2,024 ($1,857) (92%) $56 $775 ($719) (93%)
The decline in operating profits for the six and three months ended October
31, 2005 compared to the same periods of fiscal year 2005 is primarily the
result of the 30% and 20% decrease in revenues in the respective fiscal year
2006 periods. These declines were partially offset by improved gross margin and
lower selling and administrative expenses and research and development spending,
as discussed below.
Net income
- ----------
Six months Three months
Periods ended October 31,
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
$2,474 $1,889 $585 31% $1,332 $854 $478 56%
During the six and three month periods ended October 31, 2005, the Company
realized gains of $2.1 million and $1.1 million, respectively, on the sale of
certain marketable securities that were obtained upon the conversion of its REIT
units for the common stock of Reckson Associates Realty Corp. ("REIT stock")
(Refer to Item 2 of the Company's fiscal year 2005 Form 10-K as filed with the
Securities and Exchange Commission.) In addition, in the same periods of fiscal
year 2006, the Company recorded a gain of approximately $680,000 on the sale of
real property as discussed in Note E to the financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Net sales (in millions)
- ---------
Six months Three months
Periods ended October 31,
Segment 2005 2004 Change 2005 2004 Change
------- ---- ---- ------ ---- ---- ------
Commercial Communications $10.9 $20.1 ($9.2) (46%) $ 5.9 $ 8.8 ($2.9) (33%)
Gillam-FEI 4.1 5.0 (1.0) (19%) 1.8 2.3 (0.5) (20%)
US Government 3.7 3.3 0.4 12% 1.8 1.6 0.2 15%
FEI-Zyfer 5.1 4.2 1.0 23% 2.7 2.1 0.6 25%
Intersegment sales (1.2) (0.6) (0.6) (0.7) (0.4) (0.3)
----- ----- ----- ----- ----- -----
$22.6 $32.0 ($9.4) (30%) $11.5 $14.4 ($2.9) (20%)
===== ===== ===== ===== ===== =====
The decline in revenue for the six and three month periods ended October
31, 2005 compared to the same periods of fiscal year 2005 are principally the
result of reduced capital spending in the wireless infrastructure industry as
end-users continued to delay deployment of next-generation cellular base
stations. This reduction directly impacted revenues in the Commercial
Communications segment. Reduced telecommunications infrastructure spending in
Europe similarly impacted the Gillam-FEI segment. These revenue declines were
partially offset by increased revenues derived from US Government programs as
the Company continued work on several developmental, pre-production programs
under US Government contracts. The Company's FEI-Zyfer segment, which derives
approximately two-thirds of its revenues from government sources, also saw
revenues increase with increased US Government buying. The Company expects
revenues to improve over the balance of the fiscal year as a result of
additional new bookings, principally in the commercial satellite and U.S.
Government industries, as well as increased capital spending for
telecommunication infrastructures.
Gross margin
- ------------
Six months Three months
Periods ended October 31,
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
$8,195 $11,037 ($2,842) (26%) $4,098 $5,259 ($1,161) (22%)
GM Rate 36.3% 34.4% 35.6% 36.6%
The decline in gross margins for the six and three months ended October 31,
2005, compared to the same periods of fiscal year 2005, are almost entirely due
to the decrease in revenues. Variations in gross margin rates are generally
attributable to product mix, with the Gillam-FEI segment in particular,
realizing higher margins in fiscal year 2006 on certain of its network
monitoring programs. This improvement is offset by lower margins in the
Company's US Government segment where the Company continued work on several
developmental, pre-production programs under US Government contracts. Gross
margin rates are lower than the Company's target of 40% because the lower sales
volume is insufficient to absorb all of the fixed overhead costs. With an
increase in sales, including conversion of the US Government developmental
contracts into initial low-rate production orders, the Company expects to
realize improving gross margin rates in future periods.
Selling and administrative expenses
- -----------------------------------
Six months Three months
Periods ended October 31,
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
$5,077 $6,188 ($1,111) (18%) $2,533 $2,895 ($362) (12%)
Most of the fiscal year 2006 decrease in selling and administrative costs
is attributable to decreased personnel costs both in terms of reduced headcount
as well as smaller accruals for incentive compensation plans due to lower
operating profits. Additional decreases were experienced in selling and
marketing expenses, including lower sales commissions as a result of decreased
sales and lower European-area marketing costs as the Company consolidated its
efforts there into its Gillam-FEI subsidiary. The ratio of selling and
administrative costs to net sales for the six and three months ended October 31,
2005, were 23% and 22%, respectively, which is greater than the Company's target
ratio of under 20% of revenues. The higher than targeted cost ratio is primarily
due to the revenue level in the fiscal year 2006 periods. In the comparable
fiscal year 2005 periods, the ratio of selling and administrative
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
costs to revenues was 19% and 20%, respectively. In future quarters of fiscal
year 2006, as revenues increase from the current level, the Company expects to
achieve its targeted ratio of costs to net sales.
Research and development expense
- --------------------------------
Six months Three months
Periods ended October 31,
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
$2,951 $2,825 $126 4% $1,509 $1,589 ($80) (5%)
Research and development spending in the first half of fiscal years 2006
and 2005 have remained fairly consistent, varying by less than 5% from the
comparable periods. During fiscal year 2006, the Company will make additional
investments in developing manufacturing process improvements for its new US5G
wireline synchronization product; improving and miniaturizing rubidium atomic
clocks, developing new GPS-based synchronization products and further enhancing
the capabilities of its line of crystal oscillators. The Company targets
research and development spending at approximately 10% of sales, but the rate of
spending can increase or decrease from quarter to quarter as new projects are
identified and others are concluded. The Company will continue to devote
significant resources to develop new products, enhance existing products and
implement efficient manufacturing processes. Where possible, the Company
attempts to obtain development contracts from its customers. For programs
without such funding, internally generated cash and cash reserves are adequate
to fund these development efforts.
Other income (expense)
- ----------------------
Six months Three months
Periods ended October 31,
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Investment income $2,666 $ 829 $1,837 222% $1,341 $ 414 $ 927 224%
Equity in Morion 229 128 101 79% 85 70 15 21%
Interest expense (59) (150) 91 61% (31) (72) 41 57%
Other income 767 57 710 NM 698 (1) 699 NM
------ ----- ------ ------ ----- ------
$3,603 $ 864 $2,739 317% $2,093 $ 411 $1,682 409%
The increase in investment income for the six and three months ended
October 31, 2005, is due to realized gains of approximately $2.1 million and
$1.1 million, respectively, recorded on the sale of a portion of the shares of
REIT stock which were obtained during fiscal year 2005 upon the conversion of
certain REIT units related to the Company's fiscal year 1998 sale and leaseback
of its headquarters building. Such gains were partially offset by lower interest
and dividend income due to a lower level of marketable securities held by the
Company as a result of the REIT stock sales.
The Company began to record equity income in Morion, Inc. during the second
quarter of fiscal year 2005, when the Company increased its ownership interest
in Morion to 36% of Morion's outstanding shares. Accordingly, the Company
changed its method of accounting from the cost to the equity method and restated
prior year financial statements to reflect the appropriate accounting method.
The 79% increase in equity income from Morion for the first half of fiscal year
2006 compared to the six months ended October 31, 2004 is because for most of
the first half of fiscal year 2005 the Company held only 19% of Morion's shares.
The ownership percentage was increased to 36% in the last month of that period.
The decrease in interest expense for the six and three month periods ended
October 31, 2005 resulted from repayment of the Company's line of credit by the
end of fiscal year 2005 as well as the conversion of its REIT units to REIT
stock, the impact of which is explained in the next paragraph.
Under the provisions of sale and leaseback accounting, until the REIT units
were converted, the Company's lease was accounted for as a financing.
Accordingly, a portion of its prior year annual rent payments were considered
interest expense. For fiscal year 2006, the Company no longer recognizes
interest expense but the entire lease payment is charged to rent expense. In
addition, under the caption "Other, income" the Company will recognize the
remaining deferred gain from the sale and leaseback transaction. For the six and
three months ended October 31, 2005, the amount of deferred gain recognized was
$176,000 and $88,000, respectively. In the year-ago period, Other, income
consisted
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
primarily of a governmental grant received by the Company's French subsidiary.
Other income and expense items included under this caption, with the exception
of the deferred gain recognition, are nonrecurring and generally are not
significant to pretax earnings.
During the quarter ended October 31, 2005, the Company sold the building
formerly owned by the Company's French subsidiary. Following the fiscal year
2004 staffing cutbacks in this entity, the building had been largely vacant and
available for sale. Upon receipt of an independent appraisal, the building was
sold to the president of the Company's subsidiary, Gillam-FEI. The Company
realized a gain on the sale of the building of approximately $680,000.
The Company is subject to taxation in several countries as well as the
states of New York and California. The statutory federal rates vary from 34% in
the United States to 35% in Europe. The effective rate is impacted by the income
or loss of certain of the Company's European and Asian subsidiaries which are
currently not taxed. In addition, the Company utilizes the availability of
research and development tax credits in the United States to lower its tax rate.
The Company's European subsidiaries have available net operating loss
carryforwards of approximately $2.4 million to offset future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $60 million at October 31, 2005, which is comparable to working
capital at April 30, 2005. Included in working capital at October 31, 2005 is
$26.6 million of cash, cash equivalents and marketable securities. The Company's
current ratio at October 31, 2005 is 10.4 to 1.
For the six months ended October 31, 2005, the Company used $1.9 million in
cash from operating activities compared to $2.9 million provided by operations
in the comparable fiscal year 2005 period. This significant decrease in cash
flows is due primarily to the first quarter payment of income taxes related to
the investment gains realized in the prior fiscal year as well as increases in
the value of the Company's accounts receivable and inventory. Cash flow from
operations for the second quarter of fiscal 2006 was a positive $2.8 million.
For the full fiscal year 2006, the Company expects to generate positive cash
flow from operating activities.
Net cash provided by investing activities for the six months ended October
31, 2005, was $2.7 million compared to a use of cash of $2.9 million for the
same period of fiscal year 2005. The principal source of cash was the sale or
redemption of certain marketable securities aggregating $3.8 million, net of
purchases of other marketable securities. The redemption of marketable
securities was primarily to pay the corporate income taxes mentioned above. The
Company also acquired capital equipment for approximately $933,000. The Company
may continue to acquire or sell marketable securities as dictated by its
investment strategies as well as by the cash requirements for its development
activities. Requirements for additional capital equipment are expected to be
less than $2.0 million during fiscal year 2006. Internally generated cash will
be adequate to acquire this capital equipment.
Net cash used in financing activities for the six months ended October 31,
2005, was $831,000 compared to cash used in financing activities in the amount
of $2.6 million during the comparable fiscal year 2005 period. Included in both
fiscal periods is payment of the Company's semiannual dividend in the amount of
$852,000 and $843,000, respectively. During fiscal year 2005, the Company repaid
$1.9 million of certain debt obligations.
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. During the quarter
ended October 31, 2005, the Company did not acquire any shares of its stock
under this authorization.
The Company will continue to expend resources to develop and improve
products for wireless and wireline communication systems which management
believes will result in future growth and continued profitability. During fiscal
year 2006, the Company intends to make a substantial investment of capital and
technical resources to develop new products to meet the needs of the U.S.
Government, commercial space and commercial communications marketplaces and to
invest in more efficient product designs and
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
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.
At October 31, 2005, the Company's backlog amounted to approximately $46
million compared to $31 million at April 30, 2005. Of this backlog,
approximately 80% is realizable in the next twelve months.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
Interest Rate Risk
- ------------------
The Company is exposed to market risk related to changes in interest rates
and market values of securities. The Company's investments in fixed income and
equity securities were $19.8 million and $17,000, respectively, at October 31,
2005. The investments are carried at fair value with changes in unrealized gains
and losses recorded as adjustments to stockholders' equity. The fair value of
investments in marketable securities is generally based on quoted market prices.
Typically, the fair market value of investments in fixed interest rate debt
securities will increase as interest rates fall and decrease as interest rates
rise. Based on the Company's overall interest rate exposure at October 31, 2005,
a 10% change in market interest rates would not have a material effect on the
fair value of the Company's fixed income securities or results of operations.
Foreign Currency Risk
- ---------------------
The Company is subject to foreign currency translation risk. The Company
does not have any near-term intentions to repatriate invested cash in any of its
foreign-based subsidiaries. For this reason, the Company does not intend to
initiate any exchange rate hedging strategies which could be used to mitigate
the effects of foreign currency fluctuations. The effects of foreign currency
rate fluctuations will be recorded in the equity section of the balance sheet as
a component of other comprehensive income. As of October 31, 2005, the amount
related to foreign currency exchange rates is a $3,530,000 unrealized gain. The
results of operations of foreign subsidiaries, when translated into US dollars,
will reflect the average rates of exchange for the periods presented. As a
result, similar results of operations measured in local currencies can vary
significantly upon translation into US dollars if exchange rates fluctuate
significantly from one period to the next.
Item 4.
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. Based on such evaluation, the Company's chief executive officer and
chief financial officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
Internal Control Over Financial Reporting.
------------------------------------------
There have not been any 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 period to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
PART II
ITEMS 1, 2, 3 and 5 are omitted because they are not applicable.
ITEM 4 - Results of votes of security holders.
On September 29, 2005, at the Annual Meeting of Stockholders, the following
matters were approved by the shareholders of the Company:
1. Elected the following six directors:
Votes For Votes Withheld
--------- --------------
a. Joseph P. Franklin 7,278,758 629,996
b. Martin B. Bloch 7,297,895 610,859
c. Joel Girsky 7,272,334 636,420
d. E. Donald Shapiro 7,293,157 615,597
e. S. Robert Foley, Jr. 7,293,798 614,936
f. Richard Schwartz 7,400,294 508,460
2. Ratified the appointment of Holtz Rubenstein Reminick LLP as independent
auditors for fiscal year 2006.
Votes For: 7,810,392 Votes Against: 92,336 Votes Abstaining: 6,026
3. Adopted the Frequency Electronics, Inc. 2005 Stock Award Plan.
Votes For: 4,046,765 Votes Against: 1,172,958 Votes Abstaining: 62,992
Broker non-votes: 2,656,039
ITEM 6 - Exhibits
31.1 - Certification by the Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 - Certification by the Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 - Certification by the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 - Certification by the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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: December 15, 2005 BY /s/ Alan Miller
------------------------
Alan Miller
Chief Financial Officer
and Controller
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Certification of CEO
I, Martin B. Bloch, Chief Executive Officer, 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(s) 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)) 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) 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;
(c) 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 B. Bloch December 15, 2005
------------------------
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, Chief Financial Officer, 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(s) 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)) 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) 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;
(c) 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 L. Miller December 15, 2005
---------------------------
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 October 31, 2005 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 B. Bloch December 15, 2005
-------------------------
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 October 31, 2005 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 L. Miller December 15, 2005
--------------------------
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.