Blueprint
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☑
ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
For the
fiscal year ended June 30, 2016.
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
For the
transition period from to .
Commission
file number 0-2892
THE
DEWEY ELECTRONICS CORPORATION
(Exact
name of registrant as specified in its charter)
NEW
YORK
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|
13-1803974
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(State or other
jurisdiction of incorporation or
organization)
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(I.R.S. Employer
Identification No.)
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27 Muller Road,
Oakland, New Jersey
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07436
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(Address of
principal executive offices)
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Zip
Code
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201-337-4700
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. ☐ Yes ☑
No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. ☐Yes
☑ No
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 ☐ No
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). ☑ Yes ☐
No.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. __X__
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer
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☐
|
Accelerated
filer
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☐
|
Non-accelerated
filer
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☐
|
Smaller reporting
company
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☑
|
(Do not check if a
smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act): Yes ☐ No ☑.
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter: $
2,035,241 at December 31, 2015.
Indicate
the number of shares outstanding of each of the registrant’s
classes of common equity, as of the latest practicable
date: 1,366,731 shares of
common stock, par value $.01 per share, at September 26,
2016.
Documents
Incorporated by Reference
Portions
of the Company’s definitive Proxy Statement for the 2016
Annual Meeting of Shareholders are incorporated by reference in
Part III.
THE
DEWEY ELECTRONICS CORPORATION
TABLE
OF CONTENTS
Item
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Page
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PART I
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1
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Business
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3
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2
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Properties
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5
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3
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Legal Proceedings
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6
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4
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Mine Safety Disclosures
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6
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PART II
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5
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Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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6
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6
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Selected Financial Data
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6
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7
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Management's Discussion and Analysis of Financial Condition And
Results of Operations
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7
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7A.
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Quantitative and Qualitative Disclosures about Market
Risk
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14
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8
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Financial Statements and Supplementary Data
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15
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9
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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31
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9A.
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Controls and Procedures
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32
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9B.
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Other Information
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32
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PART III
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10
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Directors, Executive Officers and Corporate Governance
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33
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11
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Executive Compensation
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33
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12
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Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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33
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13
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Certain Relationships and Related Transactions,and Director
Independence
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33
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14
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Principal Accounting Fees and Services
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33
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PART IV
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15
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Exhibits, Financial Statement Schedules
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34
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PART
I
Item 1. BUSINESS
The
Dewey Electronics Corporation (the "Company") was incorporated in
the State of New York in 1955. Located in Oakland, New Jersey, the
Company is a systems oriented military electronics development,
design and manufacturing organization with a focus on compact
diesel power generation and power management
solutions.
Approximately
39% of the Company’s revenue is derived from the production
of power products, which consist of diesel operated tactical
generators and associated hardware, electronics, and spare parts
which are sold to various agencies of the U.S. Government and to
other defense contractors (for sale to the Department of Defense
and to foreign militaries). The balance of the Company’s
revenue is derived from orders for non-power products such as spare
parts and other electro-mechanical systems, including speed and
measurement instrumentation primarily for the U.S. Navy. Also
included in non-power products are sales to the U.S. Air Force
relating to the non-power product lines acquired from Goodman Ball
Incorporated (“Goodman Ball”) in fiscal
2013.
For
almost two decades the Company was the sole source provider of the
2kW diesel operated tactical generator set under long-term
contracts with the Department of Defense. These contracts were the
Company’s primary source of business. An initial contract was
awarded by the U.S. Army in 1996, and was replaced by a second one
in 2001. The second contract expired in fiscal 2013 and final
deliveries were made in fiscal 2014. The total amount of orders
delivered under both contracts amounted to approximately $84
million and approximately 20,000 2kW generators. Starting in fiscal
2013 the Company engaged in negotiations with the U.S. Army for a
new three year sole source contract to produce 2kW generators, but
in May of 2014 the Company was notified that the U.S. Army no
longer intended to award a prime contract.
Since
the completion of its last 2kW contract, the Company has continued
to produce the same 2kW generator for the Department of Defense
under individual purchase orders. It also sells the 2kW generator
through other companies to foreign militaries and continues to
explore other sales channels. Although the Company believes that it
is the only provider of this generator to the Department of Defense
and foreign militaries, it is not possible to predict whether,
when, or to what extent sales of the 2kW generator will
continue.
The
Company is, however, no longer dependent on the 2kW program as its
primary source of business. In the past few years the Company has
diversified its product offerings, and today the 2kW generator is a
small part of all the power products and services the Company
sells. In addition, as noted above, in fiscal 2016 sales of
non-power products accounted for 61% of the Company’s
revenues. In fiscal years 2015 and 2014 these sales were 27% and
18% of revenue respectively. The Company has also diversified its
customer base for power products and non-power products, within the
Department of Defense, as well as with foreign
countries.
In
response to its new business environment and to further evolve from
and build on its former successes, the Company has designed and is
rolling out an ambitious, multi-faceted long-term strategy to
achieve new opportunities for growth in both existing operations
and new directions. See “Long-Term Growth Strategy” in
Item 7 below (Management’s Discussion and Analysis of
Financial Condition and Results of Operations).
Compliance
with Federal, state and local environmental provisions has had no
material effect upon capital expenditures, income or the
competitive position of the Company. Accordingly, no material
capital expenditures are anticipated for environmental
compliance.
As of
September 23, 2016 the Company had a work force of 24 employees,
consisting of 23 full-time employees, and one part-time employee.
Fluctuations in the work force during the year generally result
from uneven contract requirements and variations in the mix of
products.
See
Item 7 below (Management's Discussion and Analysis of Financial
Condition and Results of Operations) for additional
information.
Operational Risks
You
should carefully consider the information described below, together
with all of the other information included in this Annual Report.
The following operational risks and uncertainties are not the only
ones we face however they are the ones our management believes are
material. If any of the following risks actually materialize, our
business, financial condition or results of operations could be
harmed. This Annual Report contains statements that are
forward-looking. These statements are based on current expectations
and assumptions that are subject to risks and uncertainties such as
those listed below and elsewhere in this Annual Report, which,
among others, should be considered in evaluating our future
performance.
Liquidity; Financing Activities
For the
fiscal year ended June 30, 2016, the Company had net income of
approximately $116,000 and net cash inflows from operations of
approximately $712,000. Net cash inflows from operations were
principally due to net income before depreciation, decreases in
accounts receivable and inventories, and an increase in accrued
pension costs, partially offset by decreases in accounts payable,
accrued expenses and other liabilities.
Management
believes that the Company’s current cash and its $500,000
line of credit, which currently expires November 30, 2016, combined
with progress payments as well as billings at the time of delivery
of products, will be sufficient to support short-term liquidity
requirements, working capital needs and capital expenditures at
their current or expected levels. However, if our performance
expectations fall short (including our failure to generate expected
levels of sales) or our expenses exceed expectations, or if the
commitment under the line of credit becomes unavailable, we may
need to secure additional financing and/or reduce our expenses to
continue our operations. Our failure to do so would have a material
adverse impact on our prospects and financial condition. There can
be no assurance that any contemplated additional financing will be
available on terms acceptable to us, if at all. If required, we
believe we would be able to reduce our expenses to a sufficient
level to continue to operate as a going concern.
See
“Financing Activities” in Item 7 below
(Management’s Discussion and Analysis of Financial Condition
and Results of Operations) for additional information regarding the
Company’s line of credit.
Government Defense Business
Historically,
virtually all of the Company’s revenues were derived from
U.S. Government defense business, comprised of business with the
U.S. Department of Defense or with other Government contractors.
Although our business is now more diverse, the Company’s
relationship with and revenues from these sources are significant
to its operations and the loss of substantial Government business
would have a material adverse effect on our business.
See
“Long-Term Growth Strategy” in Item 7 below
(Management’s Discussion and Analysis of Financial Condition
and Results of Operations) for additional information regarding
Company strategy.
Government Contracting; Competition
The
Government defense business is routinely subject to changes in
military procurement policies and objectives, as well as to
Government budgetary constraints. Periods of heightened national
security concerns and combat operations, as well as changing
political conditions within the Congress and/or the White House,
have often introduced new priorities and demands, external delays,
and increased uncertainty into the defense contracting marketplace.
In addition, the Department of Defense budgeting and planning
process is a rolling and extended timeline. Historically, the
process of including expenditures in this budget could take a
minimum of 12 to 24 months.
Automatic
budget cuts, known as “sequestration”, began in March
of 2013 and have resulted in significant contraction of spending
across the Department of Defense. They have also created
uncertainty in our customers about the continuation of funding for
our products and the availability of future funding to initiate new
programs. This uncertainty has led to a far larger reduction in
actual defense spending than just the legislated or mandated
sequestration reduction, primarily due to delays in contract awards
and the reduction or elimination of some
programs.
In
addition to sequestration cuts, over the last few years U.S. forces
returned from Iraq and Afghanistan with excess generators that
lessened the need for replacements. This excess equipment, combined
with a strategic regrouping within the Department of Defense around
ground combat, has continued the uncertainty and contraction of the
market for mobile power products.
The
foregoing factors are contributing to a more difficult and more
challenging business environment. This uncertainty as well as
the reduction in overall Government spending has continued through
the Government’s fiscal year, ended September 30, 2016 and we
can give no assurances that this uncertainty or reduction in
spending will end after this fiscal year.
Approval
of the Department of Defense budget does not guarantee that
budgeted expenditures will actually be made and, in particular,
that we will receive an award or order for a product. Among other
things, we bid for this business in competition with many defense
contractors, including firms that are larger in size and have
greater financial resources.
All of
our contracts with the federal Government are subject to the
standard provision for termination at the convenience of the
Government.
Suppliers
Although
raw materials are generally available from a number of suppliers,
the Company is at times dependent upon a specific supplier or a
limited number of suppliers of material for a particular contract.
The Company’s principal suppliers are: Martin Diesel Inc.,
Electro Mechanical Specialists, LLC and Dependable Precision
Manufacturing Inc. During fiscal year 2016, no suppliers accounted
for 10% or more of material purchases. See Note 1-B of the Notes to
the Financial Statements. We purchase components pursuant to
purchase orders and do not have long-term contracts with any
vendors. While there may be some temporary delays, problems
regarding source and availability of raw materials have had no
material adverse effect on operations. However, we cannot give any
assurances that these sources of supply will continue to be
available to us or, if any or all of these sources are not
available to us when we need them to be available, that the Company
will be able to implement alternative sources of supply without
undue delay or expense.
Item 2. PROPERTIES
The
Company's 49,200 square foot facility at 27 Muller Road, Oakland,
New Jersey was constructed in 1981. This facility houses the
Company’s executive offices and manufacturing operations.
Approximately 90% of this facility is being utilized for production
(one shift), staging and storage.
The
Company’s facility is located on 90 acres of land owned by
the Company adjacent to an interchange of Interstate Route 287.
Approximately 68 acres of land (including approximately 20 acres of
flat ground) are not being used by the Company in its operations.
For further information regarding the Company’s long-term
strategy with respect to its real estate holdings, see
“Long-Term Growth Strategy” under Item 7 below
(Management’s Discussion and Analysis of Financial Condition
and Results of Operations).
As
described in Item 1 above (Business), the Company has a $500,000
line of credit. Any loans drawn under the line of credit are
secured by a first lien on all of the Company’s accounts
receivable, machinery, equipment, other personal property and a
Commercial Mortgage Security Agreement on the Company’s real
property. As of the date of this Annual Report, the Company has
$250,000 of outstanding borrowings against this line of
credit.
Item 3. LEGAL PROCEEDINGS
No
material legal or environmental proceedings involving the Company
are pending.
Item 4. MINE SAFETY
DISCLOSURES
Not
applicable.
PART
II
Item 5. MARKET FOR REGISTRANTS’S COMMON
EQUITY AND RELATED STOCKHOLDERMATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company's common stock is traded over-the-counter under the symbol
"DEWY”.
The
table below sets forth the high and low market prices of the
Company's common stock for each quarter during the last two fiscal
years.
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Quarterly Common
Stock Price Range
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1st
Quarter
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$2.15
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$2.04
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$2.39
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$2.21
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2nd
Quarter
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2.34
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1.95
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2.33
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2.05
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3rd
Quarter
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2.34
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1.95
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2.45
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2.02
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4th
Quarter
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2.10
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1.90
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2.40
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2.05
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Price
information is based on over-the-counter market quotations, which
reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily represent actual
transactions.
There
were no dividends declared or paid during fiscal years 2016 and
2015. The Company has no plans to pay dividends in the foreseeable
future.
The
number of holders of record of the Company's common stock as of
September 26, 2016 was 257.
Item 6. SELECTED FINANCIAL
DATA
Not
applicable.
Item 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with the
Company’s Financial Statements, including the related notes
thereto, appearing elsewhere in this Annual Report. Certain
statements in this report may be deemed “forward-looking
statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934. All statements, other than
statements of historical fact that address activities, events or
developments that the Company or management intends, expects,
projects, believes or anticipates will or may occur in the future
are forward-looking statements. Such statements are based upon
certain assumptions and assessments made by management of the
Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other
factors it believes to be appropriate. The forward-looking
statements included in this report are also subject to a number of
material risks and uncertainties, including but not limited to
economic, governmental, competitive and technological factors
affecting the Company’s operations, markets, products,
services and prices and specifically, the factors discussed below
under “Long-Term Growth Strategy” and in Item 1 above
(Business – Operational Risks). Such forward-looking
statements are not guarantees of future performance and actual
results, developments and business decisions may differ from those
envisaged by such forward-looking statements.
The
Company’s operating cycle is long-term and includes various
types of products and varying delivery schedules. Accordingly,
results of a particular period or period-to-period comparisons of
recorded revenues and earnings may not be indicative of future
operating results. The following comparative analysis should be
viewed in this context.
Business Environment:
As
described in Item 1 above (Business) under “Operational Risks
– Government Contracting; Competition”, there has been
a significant reduction in Department of Defense spending due to
automatic federal budget cuts, known as
“sequestration”, that began in March of 2013. In
addition to sequestration cuts, over the last few years U.S. forces
returned from Iraq and Afghanistan with excess generators that
lessened the need for replacements. The foregoing factors are
contributing to a more difficult and more challenging business
environment.
Results of Operations:
The
Company’s fiscal year ends on June 30. Accordingly, all
references to years in this Management’s Discussion refer to
the fiscal year ended June 30 of the indicated year. Also, when
referred to herein, operating profit means net sales less operating
expenses.
Revenues
Revenues
and earnings for orders for replacement parts and other short term
business are recorded when deliveries of product are made and title
and risk of loss have been transferred to the customer and
collection is probable.
Revenues
and estimated earnings under long-term defense contracts (including
research and development contracts) are recorded using the
percentage-of-completion method of accounting, measured as the
percentage of costs incurred to estimated total costs of each
contract. These calculations require management to estimate the
cost to complete open orders. Changes between those estimates and
the actual cost of completion of delivery orders impact the revenue
recognition in each reporting period. Estimates are adjusted as
necessary on a quarterly basis. For research and development
contracts total costs incurred are compared to total expected costs
for each contract. As of June 30, 2016 and 2015, the Company had no
uncompleted contracts on which revenue has been recognized on a
percentage of completion basis.
For
those contracts where revenue has been recognized using the
percentage-of-completion method of accounting, provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined.
Revenues
in fiscal year 2016 were $765,188 lower when compared to fiscal
year 2015. The lower total for fiscal 2016 was primarily the result
of a decrease in revenues for power products (generators) partially
offset by an increase non-power products (rod meters and pumps),
when compared with fiscal 2015.
In
fiscal year 2016, production efforts to provide power products to
the U.S. Department of Defense, Government contractors, and foreign
militaries, which includes diesel operated tactical generator sets
and associated equipment, provided approximately 39% of revenues
compared to approximately 73% in fiscal year 2015. Non-power
products including replacement parts and other short-term business
provided approximately 61% of revenues in fiscal year 2016 and
approximately 27% of revenues in fiscal year 2015. Customer funded
research and development efforts provided no revenues in fiscal
2016 and less than 1% of revenues in fiscal 2015.
The
Company experiences variable amounts of material receipts from time
to time during the normal course of business. Material receipts are
dependent upon the receipt of orders, project requirements and
vendor delivery schedules. As the Company uses the
percentage-of-completion method of accounting to record revenues on
certain long-term contracts, material costs have an impact upon
recorded revenues (see Note 1-A, Revenue Recognition of the Notes
to Financial Statements).
The
aggregate value of the Company’s backlog of sales orders was
approximately $1.7 million on June 30, 2016 and approximately $3.2
million on June 30, 2015. It is estimated that a substantial
portion of this backlog will be billed during the next 12 months
and recognized as fiscal year 2017 revenues.
Gross Profit
Gross
profit is affected by a variety of factors including, among other
items, sales volume, product mix, product pricing, and product
costs.
The
Company earned a gross profit of $1,822,770 or 31% of revenues for
fiscal year 2016 compared to a gross profit of $1,734,772 or 26% of
revenues for fiscal year 2015. The higher gross profit for fiscal
year 2016 was the result of an increase in the proportion of higher
margin sales of non-power products (including rod meters and pumps)
when compared to fiscal 2015, and a more favorable product mix
within the Company’s replacement parts and short-term
business when compared to fiscal 2015.
Selling, General and Administrative Expenses
Selling,
General and Administrative Expenses for fiscal 2016 were $1,735,339
or 30% of revenues compared to $1,843,114 or 28% of revenues in
fiscal 2015. The most significant decreases in expense were
decreases in corporate expense of $148,000 and salaries and wages
of $79,000, which were partially offset by increases in consulting
fees of $84,000 and legal and professional fees of
$43,000.
Interest Expense
The
Company had interest expense of $20,368 in fiscal 2016 and interest
expense of $14,107 in fiscal 2015.
Other Expense-Net
Amounts
reported as other expense represent the net effect of interest
income and miscellaneous items such as the sale of scrap, bank
transaction fees and other like items.
Other
income of $49,056 for fiscal year 2016 was comprised of a property
tax refund (due to a successful real property tax appeal) in the
amount of $46,179 and scrap sales, partially offset by bank and
credit card fees.
Other
income of $2,389 for fiscal year 2015 was comprised of scrap sales
of $2,380 and a New Jersey state energy efficiency investment
rebate of $5,250, partly offset by bank fees of
$5,241.
Income/(Loss) Before Provision for Income Taxes
Income
before provision for income taxes for fiscal year 2016 was
$116,119. For the year ended June 30, 2015 loss before provision
for income taxes was $120,060.
Income Taxes
Deferred
tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of
assets and liabilities and their financial statement reported
amounts and for tax loss and credit carry-forwards.
A
valuation allowance is provided against deferred tax assets when it
is determined to be more likely than not that these amounts will
not be realized.
The
Company has provided a full valuation allowance against its net
deferred tax assets as it believes that it is more likely than not
that it will not realize these tax attributes. The Company has
approximately $997,000 and $117,000 of federal and state net
deferred tax assets, respectively, primarily arising from net
operating loss carry-forwards. These federal and state net
operating loss carry-forwards expire beginning in 2027 and 2017
respectively.
Inflation
Historically,
inflation has not had a material effect on net sales and revenues
and on income from continuing operations. Management does not
believe that inflation in fiscal year 2016 had a material effect on
net sales and revenues.
Liquidity and Capital Resources
Historically,
the Company’s capital expenditures, debt servicing
requirements and working capital needs have been financed by cash
flow from operations, progress payments on various Government
contracts (based on cost incurred) and a $500,000 line of credit.
As of June 30, 2016, the Company had no material capital
expenditure commitments. Management believes that the
Company’s current cash and its line of credit, combined with
progress payments as well as billings at the time of delivery of
products will be sufficient to support short-term liquidity
requirements, working capital needs and capital expenditures at
their current or expected levels. However, if our performance
expectations fall short (including our failure to generate expected
levels of sales) or our expenses exceed expectations, or if the
commitment under the line of credit becomes unavailable, we will
need to secure additional financing and/or reduce our expenses to
continue our operations. Our failure to do so would have a material
adverse impact on our prospects and financial condition. There can
be no assurance that any contemplated additional financing will be
available on terms acceptable to us, if at all. If required, we
believe we would be able to reduce our expenses to a sufficient
level to continue to operate as a going concern.
For
additional information regarding the Company’s line of credit
and other financing matters, see “Financing Activities”
below.
At June
30, 2016, the Company’s working capital was $2,219,597
compared to $2,085,367 at June 30, 2015.
The
ratio of current assets to current liabilities was 3.73 to 1 at
June 30, 2016 and 2.23 to 1 at June 30, 2015.
The
following table is a summary of the Statements of Cash Flows in the
Company’s Financial Statements:
|
|
|
|
|
Net cash (used
in)/provided by
|
|
|
Operating
activities
|
$712,128
|
$(101,206)
|
Investing
activities
|
(19,984)
|
(31,303)
|
Financing
activities
|
(500,000)
|
-
|
Operating Activities:
Adjustments
to reconcile net income to net cash provided by/(used in)
operations are presented in the Statements of Cash Flows in the
Company’s Financial Statements.
Net
cash provided by operating activities in fiscal year 2016 was
comprised primarily of net income before depreciation, decreases in
accounts receivable and inventories, and an increase in accrued
pension costs, partially offset by decreases in accounts payable
and accrued expenses and other liabilities.
Net
cash used in operating activities in fiscal year 2015 was comprised
primarily of net loss before depreciation and amortization,
increases in accounts receivable, inventories and prepaid expenses
and other current assets, and a decrease in accounts payable,
partly offset by increases in accrued expenses and other
liabilities and accrued pension costs.
The
Company expenses its research and development costs as incurred.
These costs consist primarily of salaries and material costs. For
the fiscal years ended June 30, 2016 and 2015, the Company expensed
$0 and $3,071, respectively, of research and development costs.
Research and development projects performed under contract for
customers are billed to the customer and are recorded as contract
costs as incurred.
Investing Activities:
During
fiscal year 2016, net cash of $19,984 was used in investing
activities. The entire amount was used for capital expenditures,
principally for building improvements ($9,650), computer hardware
and software ($5,852), tooling ($3,820) and test equipment
($662).
During
fiscal year 2015, net cash of $31,303 was used in investing
activities. The entire amount was used for capital expenditures,
principally for the acquisition of additional production equipment
and computers.
Financing Activities:
The
Company maintains a $500,000 line of credit (the “Line of
Credit”) with TD Bank, NA (the “Bank”). The Line
of Credit expires on November 30, 2016.
The
Line of Credit provides among other things for an annual interest
rate on borrowings equal to the Bank’s prime rate plus 1.00%
and is subject to customary representations, covenants, and default
provisions in favor of the Bank. Any loans drawn under the Line of
Credit are secured by a first lien on all of the Company’s
accounts receivable, machinery, equipment, other personal property
and Commercial Mortgages on the Company’s real property. The
rate applicable to the Line of Credit at June 30, 2016 was
approximately 4.25%. The Company has previously utilized the Line
of Credit during periods of increased production requirements and
(subject to renewal of the Line of Credit as described below)
anticipates that it will continue to utilize this credit facility
during future periods of peak production activity.
As of
June 30, 2016 the Company had no outstanding borrowings against the
Line of Credit. During fiscal year 2015 the Company repaid $500,000
which it subsequently re-borrowed and the Bank gave the Company a
waiver for a temporary technical financial ratio covenant default.
The Company did not use any other cash in financing activities
during fiscal years 2016 and 2015. As of the date of this Annual
Report the Company has $250,000 of outstanding borrowings against
the Line of Credit.
The
Company is in discussions with the Bank to renew the Line of Credit
for an additional year. In the event the Line of Credit is not
renewed on terms acceptable to the Company, the Company will
consider other financing sources (though no assurances can be given
that such financing can be obtained or, if obtained, the timing
thereof).
The
Company is exploring avenues to monetize its real estate holdings.
For further information, see “Long-Term Growth
Strategy” below.
Accounting Standards Updates Not Yet Effective:
Accounting
Standards Updates first effective after June 30, 2016 are not
expected to have a material effect on the Company’s financial
position or results of operations. For further information, see
Note 2 of the Notes to the Financial Statements.
Long-Term Growth Strategy:
The
Company’s business environment over the last few years has
changed significantly due to governmental and industry
developments. There has been a significant reduction in Department
of Defense spending for new programs. This reduction began in 2013
with the automatic federal budget cuts called
“sequestration”. In 2014, the Department of Defense
notified us that it no longer would award a prime contract for 2kW
generators, leading to a reduction in demand for the
Company’s power products. Also, over the last few years U.S.
forces returned from Iraq and Afghanistan with excess generators
thus lessening demand for replacements.
In
response to this new business environment, the Company has designed
and is rolling out an ambitious, multi-faceted long-term strategy
to achieve new opportunities for growth in both existing operations
and new directions. In doing so, we will build upon our experience
in adapting to this challenging business environment, which has for
several years led us to aggressively pursue the diversification of
our product lines and our customer base, including an increased
focus on sales of non-power products (which, compared to 15% of
revenue in fiscal 2013, were 18% of revenue in fiscal 2014, 27% of
revenue in fiscal 2015 and 61% of revenue in fiscal 2016) and
foreign military sales (which, compared to 3% of revenue in fiscal
2013, were 68% of revenue in fiscal 2014, 42% of revenue in fiscal
2015 and 19% of revenue in fiscal 2016). Compared to a gross margin
of 20% in fiscal 2013, our gross margin (which has increased year
to year since fiscal 2012) was 26% in fiscal 2014, 26% in fiscal
2015 and 31% in fiscal 2016.
Our new
long-term strategy is intended to exploit the Company’s
existing strengths and build new capabilities in order to increase
revenue, market presence and ultimately profitability in both power
and non-power products and services. Key elements of our new growth
strategy include:
●
Increase Innovation and Extend our Technology
Capabilities. We plan to increase our investment in research
and development to prudently and selectively expand and enhance our
capabilities of product design and performance in both the power
and non-power contexts. We intend to leverage our core competencies
in power and related products with developments and applications
that will economically allow for new offerings to meet new and
different demands in our existing markets.
●
Expand our Sales and Marketing
Capabilities. We intend to increase our investment over time
in our sales organization to aggressively pursue existing and new
relationships with both domestic and foreign military customers of
power and non-power products and services. We believe that with a
modest investment in sales and marketing we can exploit our niche
presence, reputation and relationships to identify, target and
develop new customers and opportunities. We intend to engage one or
more experienced sales and/or marketing personnel to guide and
implement this initiative. In addition, we intend to pursue
strategic acquisitions to enhance and expand relationships with
customers and business partners as discussed below.
●
Increase Penetration with Existing
Customers. To complement our sales and marketing initiative
above, we intend to focus in particular on recent and existing
customers and business partners, including the Department of
Defense, who know us as reliable and competitive, to explore new
opportunities. Our goal is to demonstrate new and expanded
capabilities based in part on the favorable qualities of our
existing products and services as well as our strong reputation, to
sell additional products and services to our existing customers. We
believe that as a relatively small company, we can economically
mine existing relationships for new opportunities.
●
Pursue Strategic Acquisitions. We
intend to continue to opportunistically pursue selective
acquisitions and joint ventures to extend our presence into new
markets with new products and realize operational value from our
cost-effective facility, among other benefits. In 2013, the Company
acquired certain assets, rights of manufacture and intellectual
property from Goodman Ball, a maker of military equipment based in
Menlo Park, California. As part of this transaction, among other
things, the Company obtained certain product lines, contracts with
the Department of Defense and its prime contractors, and business
destined for foreign militaries. The Company believes that, by
adding the product lines to the Company’s list of offerings,
the acquisition provided a number of opportunities similar to those
described above. In fiscal 2016, the Company had sales of $2.8
million relating to those product lines acquired from Goodman Ball.
The Company’s long-term strategy includes growth through
acquisitions such as the one from Goodman Ball. Beginning last
year, the Company increased these acquisition efforts with a focus
on other small defense-related companies and/or product lines that
fit within the Company’s profile and complement our growth
goals. In this regard, management believes that the Company’s
best targets have revenue below $10 million, manufacturing that can
be brought into the Company’s factory, products in military
power and energy or that relate to our existing non-power products;
and customers and/or products that are on established long-term
programs. To the extent that such acquisitions are not financed
solely out of cash flow from the acquired business, the Company
will consider raising acquisition capital, which may include
monetizing certain real-estate holdings, either by debt financing
or sale.
●
Monetize Real Estate Assets for Growth.
As described in Item 2 (Properties) above, the Company’s real
estate holdings consist of approximately 90 acres of which
approximately 68 acres (including approximately 20 acres of flat
ground) are not used in our operations. The Company is exploring
avenues to monetize and deploy value that is locked up in these
assets. As with the strategic acquisitions described above, the
Company would consider prudent utilization of such assets to
facilitate operational growth that will be more accretive to
stockholders in the long term. Such assets also may be monetized to
acquire assets such as product lines as opposed to full businesses.
The Company will seek guidance from qualified finance professionals
to assist in evaluating and facilitating the Company’s
efforts in this regard.
We are
encouraged by the fact that in a recent successful real property
tax appeal, our building (including the land used in the
Company’s operations) was appraised for approximately $4.5
million, based on comparable values for 49,000 square feet of
commercial space. With respect to our unused land, although New
Jersey’s “Highlands Water Protection Act and Planning
Act” currently imposes severe restrictions on development, we
believe that there are strong reasons why this property should not
be subject to the restrictions on development. Further, while not
as valuable a potential use as development, we would consider a
transaction with a conservation organization as a means of avoiding
the expense and regulatory uncertainties inherent in a development
transaction.
●
Recruit, Retain, and Develop Talent.
The Company recognizes the need for excellent personnel in
facilitating its multi-pronged growth strategy. Accordingly, in
pursuing acquisitions (and depending on our financing situation) we
intend to deliberately and selectively focus on the recruitment,
development and retention of one or more technically sophisticated
personnel, experienced sales and marketing personnel, finance and
acquisition personnel, and other personnel, all of whom ideally
will be experienced in our industry with companies of similar
profile circumstances.
The
foregoing components of the Company’s long-term growth
strategy have been designed to work collectively on an integrated
basis, while individually advancing a separate portion of our
comprehensive growth plan. While we can give no assurances of
success, management believes that it is the right time and in the
stockholders’ best interests to accelerate and innovate these
growth and development efforts. This timing coincides with
management’s heightened belief that the Company’s
business prospects are underappreciated and its common stock is
undervalued. Management is committed to correcting these
misperceptions by aggressively pursuing its long-term growth
strategy and continuously evaluating and enhancing its
effectiveness.
Critical Accounting Policies and Estimates:
The
Company’s financial statements and accompanying notes are
prepared in accordance with accounting principles generally
accepted in the United States of America. Preparing financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses. These estimates and assumptions affect the application of
our accounting policies. Actual results could differ from these
estimates. Our significant accounting policies are described in the
Notes to the Financial Statements contained herein. Critical
accounting policies and estimates are those that require
application of management’s most difficult, subjective or
complex judgments, often as a result of matters that are inherently
uncertain and may change in subsequent periods. The Company’s
critical accounting policies and estimates include revenue
recognition on contracts and contract estimates, pensions,
impairment of long-lived assets, inventory valuation, and valuation
of deferred tax assets and liabilities.
Revenues
and estimated earnings under long-term defense contracts (including
research and development contracts) are recorded using the
percentage-of-completion method of accounting, measured as the
percentage of costs incurred to estimated total costs of each
contract. These calculations require management to estimate the
cost to complete open orders. Changes between those estimates and
the actual cost of completion of delivery orders impact the revenue
recognition in each reporting period. Estimates are adjusted as
necessary on a quarterly basis. For research and development
contracts total costs incurred are compared to total expected costs
for each contract. As of June 30, 2016 and 2015 the Company had no
uncompleted contracts on which revenue has been recognized on a
percentage of completion basis.
The
Company has a defined benefit pension plan covering substantially
all of its employees. FASB’s Accounting Standards
Codification 715 (ASC 715), “Compensation – Retirement
Benefits”, provides guidance on an employer’s
disclosure about plan assets of a defined benefit pension or other
postretirement plans.
With
regard to the Company’s pension plan, the Company has
assumed, based upon high quality corporate bond yields with similar
maturities as the benefit obligation, AA rated or higher, that its
assumed discount rate will be 3.50% as of June 30, 2016, which is
lower than the assumed discount rate of 4.00% as of June 30, 2015.
The Company’s management conducts an analysis which includes
a review of plan asset investments and projected future performance
of those investments to determine the plan’s assumed
long-term rate of return. The assumed long-term rate of return of
5.00% on assets is applied to the market-related value of plan
assets at the end of the previous year. This produces the expected
return on plan assets that is included in annual pension income or
expense for the current year. The cumulative difference between
this expected return and the actual return on plan assets is
deferred and amortized into pension income or expense over future
periods. The value of the Company’s pension assets at fiscal
year-end 2016 was less than the accumulated pension benefit
obligation, however, there was an increase in prepaid net periodic
benefit which resulted in the Company recording $39,000 as a
non-cash adjustment to other comprehensive income/(loss) in
stockholders’ equity and decreasing its long-term pension
liability by $39,000. In fiscal year 2015, the Company recorded
$85,363 as a non-cash adjustment to other comprehensive
income/(loss) in stockholders’ equity and increased its
long-term pension liability by $85,363. These changes to other
comprehensive loss did not affect net income and are recorded net
of deferred taxes. See Note6 of the Notes to Financial Statements
for additional pension disclosures.
The
Company reviews the recoverability of all long-term assets,
including the related useful lives, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived
asset might not be recoverable. If required, the Company compares
the estimated undiscounted future net cash flows to the related
asset’s carrying value to determine whether there has been an
impairment. If an asset is considered impaired, the asset is
written down to fair value, which is based either on discounted
cash flows or appraised values in the period the impairment becomes
known.
The
Company reviews the carrying costs of its inventories and assesses
whether the carrying costs of inventory items are likely to be
recoverable. At the end of fiscal year 2016 the Company determined
that an adjustment of $11,940 was required to reduce inventory
balances to net realizable value.
Under
the asset and liability method of accounting for taxes under ASC
Topic 740, “Income Taxes”, deferred tax assets and
liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The
effect on deferred tax assets and liabilities of a change in tax
laws is recognized in the results of operations in the period the
new laws are enacted. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more
likely than not, that such assets will be realized.
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not
applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Index to Financial Statements
|
|
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
17
|
|
|
|
|
Financial Statements:
|
|
|
|
|
|
|
|
Balance Sheets, June 30, 2016 and 2015
|
|
18
|
|
|
|
|
|
Statements of Operations, Years Ended June 30, 2016 and
2015
|
|
19
|
|
|
|
|
|
Statements of Comprehensive Income/(Loss), Years Ended June 30,
2016 and 2015
|
|
19
|
|
|
|
|
|
Statements of Stockholders' Equity, Years Ended June 30, 2016 and
2015
|
|
20
|
|
|
|
|
|
Statements of Cash Flows, Years Ended June 30, 2016 and
2015
|
|
21
|
|
|
|
|
|
Notes to the Financial Statements
|
|
22
|
All
other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the
Notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The
Board of Directors and Stockholders
The
Dewey Electronics Corporation
We have
audited the accompanying balance sheets of The Dewey Electronics
Corporation (the “Company”) as of June 30, 2016 and
2015, and the related statements of operations, comprehensive
income/(loss), stockholders’ equity, and cash flows for each
of the years then ended. The financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Dewey
Electronics Corporation as of June 30, 2016 and 2015, and the
results of its operations and its cash flows for each of the years
then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/
EisnerAmper, LLP
October
5, 2016
Iselin,
New Jersey
The
Dewey Electronics Corporation
|
|
|
Balance
Sheets
|
|
ASSETS:
|
|
|
CURRENT
ASSETS:
|
|
|
Cash and cash
equivalents
|
$539,742
|
$347,598
|
Accounts
receivable
|
497,862
|
1,329,327
|
Inventories
|
1,889,908
|
2,031,232
|
Prepaid expenses
and other current assets
|
106,047
|
73,204
|
|
|
|
TOTAL CURRENT
ASSETS
|
3,033,559
|
3,781,361
|
|
|
|
PROPERTY, PLANT AND
EQUIPMENT:
|
|
|
Land and
improvements
|
651,015
|
651,015
|
Building and
improvements
|
1,957,815
|
1,948,165
|
Machinery and
equipment
|
3,342,690
|
3,332,356
|
Furniture and
fixtures
|
268,700
|
268,700
|
|
6,220,220
|
6,200,236
|
Less accumulated
depreciation
|
(5,386,655)
|
(5,348,560)
|
|
833,565
|
851,676
|
|
|
|
DEFERRED
COSTS
|
65,095
|
65,095
|
|
|
|
TOTAL
ASSETS
|
$3,932,219
|
$4,698,132
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
CURRENT
LIABILITIES:
|
|
|
Notes payable
– current portion
|
$-
|
$500,000
|
Trade accounts
payable
|
123,495
|
348,253
|
Accrued expenses
and other liabilities
|
236,665
|
443,798
|
Accrued
compensation and benefits payable
|
152,573
|
200,186
|
Accrued pension
costs
|
301,229
|
203,757
|
|
|
|
TOTAL CURRENT
LIABILITIES
|
813,962
|
1,695,994
|
|
|
|
|
|
|
LONG-TERM PENSION
LIABILITY
|
1,012,005
|
1,051,005
|
|
|
|
TOTAL
LIABILITIES
|
1,825,967
|
2,746,999
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
Preferred stock,
par value $1.00; authorized 250,000 shares, issued and
outstanding-none
|
--
|
--
|
|
|
|
Common stock, par
value $.01; authorized 3,000,000 shares; 1,693,397 shares issued
and 1,362,031 shares outstanding at June 30, 2016
and 2015, respectively
|
16,934
|
16,934
|
Additional paid-in
capital
|
2,882,842
|
2,882,842
|
Retained
earnings
|
546,747
|
430,628
|
Accumulated other
comprehensive loss
|
(853,243)
|
(892,243)
|
|
2,593,280
|
2,438,161
|
Less: Treasury
stock, 331,366 shares at June 30, 2016 and 2015,
at
cost
|
(487,028)
|
(487,028)
|
|
|
|
TOTAL STOCKHOLDERS'
EQUITY
|
2,106,252
|
1,951,133
|
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY
|
$3,932,219
|
$4,698,132
|
|
|
|
See accompanying
Notes to the Financial Statements
The Dewey Electronics Corporation
Statements of Operations
Years
Ended June 30,
|
|
|
|
|
|
Revenues
|
$5,846,048
|
$6,611,236
|
|
|
|
Cost of
revenues
|
4,023,278
|
4,876,464
|
|
|
|
Gross
profit
|
1,822,770
|
1,734,772
|
|
|
|
Selling, general
and administrative expenses
|
1,735,339
|
1,843,114
|
|
|
|
Operating income /
(loss)
|
87,431
|
(108,342)
|
|
|
|
Interest
expense
|
(20,368)
|
(14,107)
|
|
|
|
Other income
– net
|
49,056
|
2,389
|
|
|
|
Income /(loss)
before provision for income taxes
|
116,119
|
(120,060)
|
|
|
|
Provision for
income taxes
|
--
|
--
|
|
|
|
NET INCOME /
(LOSS)
|
$116,119
|
$(120,060)
|
|
|
|
NET INCOME /
(LOSS)PER COMMON SHARE – BASIC
|
$0.09
|
$(0.09)
|
NET INCOME /
(LOSS)PER COMMON SHARE – DILUTED
|
$0.09
|
$(0.09)
|
|
|
|
Weighted average
shares outstanding
|
|
|
Basic
|
1,362,031
|
1,362,031
|
Diluted
|
1,364,267
|
1,362,031
|
Statements of Comprehensive Income/(Loss)
|
Years
Ended June 30,
|
|
|
|
Net income /
(loss)
|
$116,119
|
$(120,060)
|
Amortization of
actuarial gains and losses
|
39,000
|
( 85,363)
|
|
|
|
Comprehensive
income/(loss)
|
$155,119
|
$(205,423)
|
See
accompanying Notes to the Financial Statements
The Dewey Electronics Corporation
Statements of Stockholders’ Equity
Years ended June 30, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2014
|
1,693,397
|
$16,934
|
$2,882,842
|
$550,688
|
$(806,880)
|
331,366
|
$(487,028)
|
$2,156,556
|
Net
loss
|
--
|
--
|
--
|
(120,060)
|
--
|
--
|
--
|
(120,060)
|
Minimum
pension
|
|
|
|
|
|
|
|
|
liability
adjustment
|
--
|
--
|
--
|
--
|
$(85,363)
|
--
|
--
|
(85,363)
|
Balance, June 30,
2015
|
1,693,397
|
$16,934
|
$2,882,842
|
$430,628
|
$(892,243)
|
331,366
|
$(487,028)
|
$1,951,133
|
|
|
|
|
|
|
|
|
|
Net
income
|
--
|
--
|
--
|
$116,119
|
--
|
--
|
--
|
$116,119
|
Minimum pension
liability adjustment
|
--
|
--
|
--
|
--
|
$39,000
|
--
|
--
|
$39,000
|
Balance, June 30,
2016
|
1,693,397
|
$16,934
|
$2,882,842
|
$546,747
|
$(853,243)
|
331,366
|
$(487,028)
|
$2,106,252
|
See the
accompanying Notes to the Financial Statements
The Dewey Electronics Corporation
Statements of Cash Flows
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
Net income
/(loss)
|
$116,119
|
$(120,060)
|
Adjustments to
reconcile net(loss)to net
|
|
|
Cash provided
by/(used in) operating activities:
|
|
|
Depreciation
|
38,095
|
36,431
|
Provision
for inventory reserve
|
11,940
|
46,329
|
Decrease/(Increase)
in accounts receivable
|
831,465
|
(70,033)
|
Decrease/(Increase)
in inventories
|
129,384
|
(116,997)
|
Increase
in prepaid expenses and other current
assets
|
(32,843)
|
(16,010)
|
Decrease
in accounts payable
|
(224,758)
|
(21,960)
|
(Decrease)/Increase
in accrued expenses and other liabilities
|
(254,746)
|
145,355
|
Increase
in accrued pension costs
|
97,472
|
15,739
|
|
|
|
Total
adjustments
|
596,009
|
18,854
|
|
|
|
Net cash provided
by / (used in) operating activities
|
712,128
|
(101,206)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
Expenditures for
property, plant and equipment
|
(19,984)
|
(31,303)
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
Short-term
borrowings
|
--
|
500,000
|
Repayment
of short-term borrowings
|
(500,000)
|
(500,000)
|
|
|
|
|
|
|
Net cash used in
financing activities
|
(500,000)
|
--
|
|
|
|
NET
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
192,144
|
(132,509)
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
|
347,598
|
480,107
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF YEAR
|
$539,742
|
$347,598
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
Interest
paid
|
$22,198
|
$14,107
|
See
the accompanying Notes to the Financial Statements
The
Dewey Electronics Corporation
Notes to the Financial Statements
Years ended June 30, 2016 and 2015
1. Business and Summary of Significant Accounting
Policies
The
Dewey Electronics Corporation is a systems oriented military
electronics development, design and manufacturing organization
based in Oakland, New Jersey with a focus on compact diesel power
generation solutions.
A.
Revenue Recognition
Revenues
and earnings for orders for replacement parts and other short term
business are recorded when deliveries of product are made and title
and risk of loss have been transferred to the customer and
collection is probable.
Revenues
and estimated earnings under long-term defense contracts (including
research and development contracts) are recorded using the
percentage-of-completion method of accounting, measured as the
percentage of costs incurred to estimated total costs of each
contract. These calculations require management to estimate the
cost to complete open orders. Changes between those estimates and
the actual cost of completion of delivery orders impact the revenue
recognition in each reporting period. Estimates are adjusted as
necessary on a quarterly basis. For research and development
contracts total costs incurred are compared to total expected costs
for each contract. As of June 30, 2016 and 2015 the Company had no
uncompleted contracts on which revenue has been recognized on a
percentage of completion basis.
For
those contracts where revenue has been recognized using the
percentage-of-completion method of accounting, provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined.
B.
Concentration Risks
Concentration of Credit Risks
The
Company is subject to concentrations of credit risk primarily from
cash and accounts receivable. The Company maintains accounts with
financial institutions which exceed the current federally insured
maximum of $250,000. The Company minimizes risks associated with
cash by periodically reviewing the credit quality of its primary
financial institutions. The Company’s accounts receivable are
principally with Department of Defense contractors and agencies of
the United States Department of Defense. One Department of Defense
contractor accounted for 44% of the Company’s accounts receivable
as of June 30, 2016. As of June
30, 2015 one Department of Defense contractor accounted for 71% of
the Company’s
accounts receivable.
Product Concentration Risk
In
fiscal 2016 the Company derived approximately 39% of its revenues
from the sale of power products, consisting of diesel operated
tactical generator sets and associated hardware and electronics. In
fiscal 2015 the Company derived approximately 73% of its revenues
from sales of these products.
Supplier Concentration Risks
The
Company is primarily dependent on four vendors to supply qualified
components for its generator products. During fiscal years 2016 and
2015, no supplier accounted for 10% or more of material
purchases.
Customer Concentration Risks
In
fiscal year 2016 the various agencies of the Department of Defense
accounted for approximately 50% of Company revenues. In fiscal year
2015 the various agencies of the Department of Defense accounted
for approximately 23% of Company revenues and two Department of
Defense contractors additionally accounted for approximately 18%
and 14% respectively, of Company revenues. No other customer
accounted for more than 10% of the Company’s revenues in
fiscal years 2016 or 2015.
C.
Liquidity
For the
fiscal year ended June 30, 2016, the Company had net income of
approximately $116,000 and net cash inflows from operations of
approximately $712,000. Net cash inflows from operations were
principally due to net income before depreciation, decreases in
accounts receivable and inventories, and increase in accrued
pension costs, partially offset by decreases in accounts payable,
accrued expenses and other liabilities. The Company believes that
the Company’s current cash and its line of credit (described
below), which currently expires November 30, 2016, combined with
progress payments as well as billings at the time of delivery of
products, will be sufficient to support short-term liquidity
requirements, working capital needs and capital expenditures at
their current or expected levels. However, if our performance
expectations fall short (including our failure to generate expected
levels of sales) or our expenses exceed expectations, or if the
commitment under the line of credit becomes unavailable, we may
need to secure additional financing and/or reduce our expenses to
continue our operations. Our failure to do so would have a material
adverse impact on our prospects and financial condition. There can
be no assurance that any contemplated additional financing will be
available on terms acceptable to us, if at all. If required, we
believe we would be able to reduce our expenses to a sufficient
level to continue to operate as a going concern.
Reference
is made to Note 8 “Credit Facility” under Notes to the
Financial Statements of this Annual Report for additional
information regarding this line of credit.
D. Cash
and Cash Equivalents
The
Company considers investments in all highly liquid debt instruments
with an original maturity of three months or less at the date of
purchase to be cash equivalents.
E.
Accounts Receivable
The
Company regularly reviews its trade receivables for probability of
collection. An assessment of the probability of collection of
delinquent accounts is made and an allowance is recorded when
collection becomes uncertain. There was no allowance for doubtful
accounts as of June 30, 2016 or June 30, 2015.
F.
Inventories
Cost is
determined by the first-in, first-out (FIFO) method. Inventories
are valued at the lower of cost or market. Components of inventory
cost include materials, direct labor and overhead that have not
been charged to specific contracts.
G. Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. These estimates include, among others, lower of
cost or market estimates for inventories, realization of deferred
tax assets, allowances for doubtful accounts, revenue recognition
and certain accrued expenses. Actual results could differ from
those estimates.
H.
Property, Plant, and Equipment
Property,
plant, and equipment are stated at cost. Allowance for depreciation
is provided on a straight-line basis over estimated useful lives of
three to ten years for machinery and equipment, ten years for
furniture and fixtures, and twenty years for building and
improvements.
I.
Development Costs
The
Company expenses its research and development costs as incurred.
These costs consist primarily of salaries and material costs. For
the fiscal years ended June 30, 2016 and 2015, the Company expensed
$0 and $3,071 respectively, of research and development costs.
Research and development projects performed under contracts for
customers are billed to the customer and are recorded as contract
costs as incurred.
J.
Impairment of Long-Lived Assets
The
Company reviews the recoverability of all long-term assets,
including the related useful lives, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived
asset might not be recoverable. If required, the Company compares
the estimated undiscounted future net cash flows to the related
asset’s carrying value to determine whether there has been an
impairment. If an asset is considered impaired, the asset is
written down to fair value, which is based either on discounted
cash flows or appraised values in the period the impairment becomes
known. There were no impairments of long-term assets in the years
ended June 30, 2016 and 2015.
K.
Income Taxes
Under
the asset and liability method of accounting for taxes under ASC
Topic 740, “Income Taxes”, deferred tax assets and
liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The
effect on deferred tax assets and liabilities of a change in tax
laws is recognized in the results of operations in the period the
new laws are enacted. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more
likely than not, that such assets will be realized.
The
Company accounts for uncertain tax positions in accordance with
Generally Accepted Accounting Principles in the U.S. Income tax
positions must meet a more-likely-than-not recognition in order to
be recognized in the financial statements. The Company recognizes
potential accrued interest and penalties related to unrecognized
tax benefits within operations as income tax expense. As new
information becomes available, the assessment of the recognition
threshold and the measurement of the associated tax benefit of
uncertain tax positions may result in financial statement
recognition or de-recognition.
L.
Deferred Costs
The
Company is continuing to actively pursue possible methods of
monetizing the undeveloped and unused portion of its property, by
its sale and/or development. To that end the Company has deferred
$65,095 as of June 30, 2016 and 2015 of costs incurred related to
these efforts.
M. Fair
Value Measurements
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (i.e. an exit
price). The accounting guidance includes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure
fair value. The three levels of the fair value hierarchy are as
follows:
Level 1
– Unadjusted quoted prices for identical assets or
liabilities in active markets;
Level 2
– Inputs other than quoted prices in active markets for
identical assets and liabilities that are observable either
directly or indirectly for substantially the full term of the asset
or liability; and
Level 3
– Unobservable inputs for the asset or liability, which
include management’s own assumption about the assumptions
market participants would use in pricing the asset or liability,
including assumptions about risk.
N.
Stock Based Compensation
The
Company computes the value of stock options granted under its Stock
Option Plans using the Cox-Roth-Rubenstein Binomial Tree Method.
The value of the options are then amortized over the vesting period
of the options using the straight-line method. No stock options were granted
in fiscal years 2016 or 2015.
2. Accounting Standards Updates Not Yet Effective
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (ASU) 2014-09 Revenue from
Contracts with Customers, which outlines a single comprehensive
model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. This
ASU requires an entity to recognize revenue depicting the transfer
of goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. It will also result in
enhanced revenue related disclosures. ASU 2014-09 originally
provided that it would be effective for fiscal years, and interim
reporting periods within those years, beginning after December 15,
2016. However, in August 2015, the FASB issued Accounting Standards
Update (ASU) 2015-14 Revenue from Contracts with Customers -
Deferral of Effective Date, which deferred the effective adoption
date of “ASU 2014-09” to apply to fiscal years and
interim reporting periods within those years beginning after
December 15, 2017.
In
August 2014, the FASB issued Accounting Standards Update (ASU)
2014-15 Presentation of Financial Statements – Going Concern,
which provides guidance on determining when and how to disclose
going-concern uncertainties in the financial statements. This ASU
requires management to perform interim and annual assessments of an
entity’s ability to continue as a going concern within one
year of the date the financial statements are issued. An entity
must provide certain disclosures if “conditions or events
raise substantial doubt about the entity’s ability to
continue as a going concern.” This ASU applies to all
entities and is effective for annual periods ending after December
15, 2016, and interim periods thereafter, with early adoption
permitted.
In
July 2015, the FASB issued Accounting Standards Update (ASU)
2015-11, "Inventory (Topic 330): Simplifying the Measurement of
Inventory" Which requires an entity to measure in scope inventory
at the lower of cost and net realizable value. Subsequent
measurement is unchanged for inventory measured using LIFO or the
retail inventory method. This ASU does not apply to inventory that
is measured using last-in, first-out (LIFO) or the retail inventory
method. This ASU applies to all other inventory, which includes
inventory that is measured using first-in, first-out (FIFO) or
average cost. It is effective for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal
years, and should be applied prospectively with earlier application
permitted as of the beginning of an interim or annual reporting
period.
In
November 2015, the FASB issued Accounting Standards Update (ASU)
2015-17, “Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes”, which requires an entity
to classify deferred tax liabilities and assets as noncurrent in a
classified statement of financial position. This ASU will align the
presentation of deferred income tax assets and liabilities with
International Financial Reporting Standards (IFRS). It applies to
all entities and, for public business entities, is effective for
annual periods ending after December 15, 2016, including interim
periods within those annual periods, with early adoption
permitted.
The
Company expects to adopt the ASUs described above when effective
and is currently evaluating the effect on its financial statements.
Other Accounting Standards Updates first effective after June 30,
2016 are not expected to have a material effect on the
Company’s financial position or results of
operations.
3. Inventories
Inventories
consist of:
|
|
|
|
|
|
|
|
Finished
goods
|
$66,652
|
$115,563
|
Work in
progress
|
944,267
|
752,711
|
Raw
materials
|
878,989
|
1,162,958
|
|
$1,889,908
|
$2,031,232
|
4. Accrued Expenses and Other Liabilities
|
|
|
|
|
|
|
|
Customer
deposits
|
$43,586
|
$15,956
|
Accrued audit &
accounting
|
83,088
|
83,088
|
Accrued warranty
reserve
|
39,089
|
66,083
|
Other accrued
expenses
|
70,902
|
278,671
|
|
|
|
|
$236,665
|
$443,798
|
5. Stock Option Plan
On
September 22, 2011, the Board of Directors of the Company adopted
the Company’s 2011 Stock Option Plan (the “2011
Plan”), which was approved by the shareholders of the Company
on December 8, 2011. Under this plan options to purchase a maximum
of 133,000 shares of common stock may be granted to any employee of
the Company, including officers. Such options may be either
incentive stock options or non-qualified options and must be
granted with an exercise price no less than the fair market value
of the stock on the date of the grant. No stock options have been
granted under this plan.
On
December 2, 1998, the Company adopted its Stock Option Plan of 1998
(the “1998 Plan”) which was amended and restated
effective December 5, 2001, pursuant to which options to purchase a
maximum of 85,000 shares of common stock may be granted to
executives and key employees. Incentive stock options have been
granted under this plan with an exercise price no less than fair
market value of the stock on the date of grant. As of June 30,
2016, outstanding options were exercisable for ten years from the
date of grant, except for one grant totaling 4,700 options which
were exercisable for a five year term, and had expiration dates
ranging from September 21, 2016 to September 21, 2021. No
additional options may be granted under this plan.
There
were no stock options granted in fiscal 2016 or in fiscal 2015. The
Company recorded no stock option compensation expense in either
fiscal year 2016 or fiscal year 2015.
The
changes in the number of shares under option are as
follows:
|
|
Weighted Average
Exercise Price
|
Balance at June 30,
2014
|
37,200
|
$2.02
|
|
|
|
Granted during
2015
|
--
|
|
|
|
|
Expired
|
(4,000)
|
2.47
|
|
|
|
Balance at June 30,
2015
|
33,200
|
1.96
|
|
|
|
|
|
|
Granted during
2016
|
--
|
|
|
|
|
Expired
|
(12,500)
|
2.03
|
|
|
|
Balance at June 30,
2016
|
20,700
|
$1.92
|
Exercisable at June
30, 2016
|
20,700
|
$1.92
|
At the
Annual Meeting of Stockholders on December 5, 2001, the Company
adopted a Stock Option Plan for Non-Employee Directors (the
“Directors Plan”). The number of shares issuable upon
exercise of options which may be granted under this plan shall not
exceed 50,000 shares of common stock. No options have been granted
under this plan.
Listed
below is a summary of the stock options outstanding and exercisable
at June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
$1.60
|
2,300
|
$1.60
|
2.4
|
2.24
|
6,000
|
2.24
|
3.8
|
2.00
|
6,000
|
2.00
|
4.5
|
1.71
|
4,700
|
1.71
|
0.2
|
1.55
|
1,700
|
1.55
|
5.2
|
|
|
|
|
|
20,700
|
$1.92
|
3.14
|
As of
June 30, 2016, stock options outstanding and exercisable had an
intrinsic value of $2,613.
6. Taxes on Income
Deferred
tax assets and liabilities as of June 30, 2016 and 2015 consisted
of the following:
Deferred Tax
assets/(liabilities):
|
|
|
Current
|
|
|
Vacation
accrual
|
$51,376
|
$51,933
|
Deferred
compensation
|
--
|
9,985
|
Inventory
reserve
|
49,683
|
44,815
|
Prepaids
|
(27,763)
|
(19,069)
|
|
73,296
|
87,664
|
Less
valuation allowance
|
(73,296)
|
(87,664)
|
Total current
deferred tax asset
|
--
|
--
|
Non-current
|
|
|
Pension
|
525,556
|
501,152
|
Depreciation
|
(27,118)
|
(30,945)
|
Net
operating loss
|
542,344
|
615,601
|
|
1,040,782
|
1,085,808
|
Less
valuation allowance
|
(1,040,782)
|
(1,085,808)
|
Total
non-current deferred tax assets
|
--
|
--
|
Total deferred tax
assets
|
$--
|
$--
|
The
Company has provided a valuation allowance against its net deferred
taxes as it believes that it is more likely than not that it will
not realize the tax attributes. In fiscal 2016, the Company
recorded a valuation allowance against its deferred tax assets as
it believes that it is more likely than not that it will not
realize the tax attributes. Federal and state net operating loss
carry-forwards expire in 2027 through 2035 and 2017 through 2022,
respectively.
As of
June 30, 2016, the Company has approximately $1,503,000 and
$514,000 of federal and state, respectively, net operating loss
carry-forwards expiring beginning in 2017 through
2035.
Income
tax (benefit)/expense consists of the following:
|
|
|
|
|
Federal
|
|
|
Current
|
$--
|
$--
|
Deferred
|
37,599
|
(21,473)
|
State:
|
|
|
Current
|
--
|
--
|
Deferred
|
7,026
|
(514)
|
|
44,625
|
(21,987)
|
|
|
|
Change in valuation
allowance
|
(44,625)
|
21,987
|
Income tax
expense
|
$--
|
$--
|
The
reconciliation of the Federal statutory rate with the
Company’s effective tax rate is summarized as
follows:
|
|
|
|
|
Federal statutory
rate
|
34.00%
|
34.00%
|
State tax net of
federal benefit
|
6.05
|
0.43
|
Other/Expiration of
NOL
|
(1.62)
|
(16.12)
|
Change to carrying
value of deferred tax
assets
|
--
|
--
|
Change in valuation
allowance
|
(38.43)
|
(18.31)
|
Effective
rate
|
0.00%
|
0.00%
|
The
Company adopted ASC Topic 740, which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements.
This interpretation prescribes a recognition threshold, and a
measurement attribute for the financial statement recognition and
measurement of a tax position taken, or expected to be taken, in a
tax return. There were no significant matters determined to be
unrecognized tax benefits taken or expected to be taken in a tax
return that have been recorded on the Company’s financial
statements for the years ended June 30, 2016 or 2015.
Additionally,
ASC Topic 740 provides guidance on the recognition of interest and
penalties related to income taxes. There were no interest or
penalties related to income taxes that have been accrued or
recognized as of and for the years ended June 30, 2016 and
2015.
The
Company files corporate tax returns in the United States, both in
the Federal jurisdiction and in various state jurisdictions. The
Company is subject to tax examination for fiscal tax years of 2012
through 2015.
7. Pension
Plan
The
Company has a non-contributory defined benefit retirement plan
covering substantially all its employees which is qualified under
the Internal Revenue Code (the Plan). In general, employees can
receive an amount per month equal to 0.8% multiplied by their years
of service (up to a maximum of 35 years of service) multiplied by
their average monthly earnings (based on earnings during the five
years preceding retirement), up to a specified maximum of $850 per
month for life assuming normal retirement at age 65. Upon the
employee’s death, 50% of the monthly benefit is payable to
the employee’s spouse for life. The Company’s policy is
to contribute the amounts allowable under Internal Revenue Service
regulations.
The
investment policy of the Company for its pension plan is to
maximize value within the context of providing benefit security for
Plan participants. The Plan assets are invested in a fixed income
investment account.
The
Company has assumed, based upon high quality corporate bond yields
with similar maturities as the benefit obligation, AA rated or
higher, that its assumed discount rate will be 3.50% as of June 30,
2016, which is lower than the assumed discount rate of 4.00% as of
June 30, 2015. The Company’s management conducts an analysis
which includes a review of plan asset investments and projected
future performance of those investments to determine the
plan’s assumed long-term rate of return.
The
Company expects to continue to contribute within the range of
legally acceptable contributions as identified by the Plan’s
enrolled actuary. The Company made cash contributions to the Plan
of approximately $107,000 and $192,000
in fiscal years 2016 and 2015, respectively. The estimated
fiscal year 2017 minimum contribution to the Plan is approximately
$80,000.
The
following tables provide information about changes in the benefit
obligation and Plan assets and the funded status of the
Company’s pension plan.
|
|
|
Change in benefit
obligation:
|
|
|
Benefit
obligation at beginning of year
|
$3,286,682
|
$2,990,505
|
Service
cost
|
48,096
|
62,074
|
Interest
cost
|
129,189
|
117,645
|
Actuarial
(gain)/loss
|
75,553
|
184,822
|
Benefits
paid plus administrative expenses
|
(75,382)
|
(68,364)
|
Benefit obligation
at end of year
|
$3,464,138
|
$3,286,682
|
|
|
|
Change in plan
assets:
|
|
|
Fair
value of plan assets at beginning of Year
|
$2,031,920
|
$1,836,846
|
Actual
return on plan assets
|
87,711
|
71,905
|
Employer
contributions
|
106,655
|
191,533
|
Benefits
paid plus administrative expenses
|
(75,382)
|
(68,364)
|
Fair value of plan
assets at end of year
|
$2,150,904
|
$2,031,920
|
Funded
status
|
(1,313,234)
|
(1,254,762)
|
Unrecognized net
loss
|
1,012,005
|
1,051,005
|
Accrued pension
expense
|
$(301,229)
|
$(203,757)
|
|
|
|
|
|
|
Weighted-average
assumptions
|
|
Discount
rate
|
3.50%
|
4.00%
|
Expected
return on plan assets
|
5.00%
|
5.25%
|
Rate of
compensation increase
|
2.75%
|
3.00%
|
Measurement
Date
|
07/01/2016
|
07/01/2015
|
Set
forth below is a summary of the amounts reflected in the
Company’s Balance Sheet at the end of the last two fiscal
years:
June 30,
2016
|
|
Total accrued
pension liability
|
$(1,313,234)
|
$(1,254,762)
|
Accumulated other
comprehensive loss,
pre-tax
|
1,012,005
|
1,051,005
|
Net amount
recognized
|
$(301,229)
|
$(203,757)
|
The
accumulated benefit obligation for the Plan was $3,464,138 and
$3,286,682 at June 30, 2016, and 2015, respectively.
Other
changes in Plan assets and benefit obligations recognized in the
Other Comprehensive Loss for each fiscal year are as
follows:
|
|
|
Change in net loss
/(gain)
|
$95,263
|
$210,193
|
Amortization of net
loss
|
(134,263)
|
(124,830)
|
|
$(39,000)
|
$85,363
|
Accumulated
Other Comprehensive Loss consisted of the following amounts that
had not, as of year-end, been recognized in net benefit
cost.
|
|
|
|
|
|
Unrecognized net
loss
|
$1,012,005
|
$1,051,005
|
Amounts
included in Accumulated Other Comprehensive Loss as of June 30,
2016 that are expected to be recognized as a component of benefit
cost during fiscal 2016 consist of amortization of net loss of
$134,263.
Components
of periodic pension costs as of June 30, 2016 and 2015 are as
follows:
|
|
|
Service
cost-benefits earned during the period
|
$48,096
|
$62,074
|
Interest cost on
projected benefit obligation
|
129,189
|
117,645
|
Expected return on
plan assets
|
(107,421)
|
(97,276)
|
Amortization of
actuarial loss
|
134,263
|
124,830
|
|
|
|
Net periodic
pension cost
|
$204,127
|
$207,273
|
Weighted Average
Assumptions for Net Periodic Pension Expense
|
|
|
|
|
|
Discount
rate
|
4.00%
|
4.00%
|
Expected
long-term rate of return on assets
|
5.25%
|
5.25%
|
Rate of
increase in future compensation levels
|
3.00%
|
3.00%
|
Retirement
Plan for Employees of Dewey Electronics Corporation’s
weighted average asset allocations at June 30, 2016, and 2015, by
asset category are as follows:
|
|
|
Asset
Category
|
|
|
Fixed
Funds with Guaranteed Interest Rates
|
100%
|
100%
|
Total
|
100%
|
100%
|
Fair Value of Plan Assets
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (i.e. an exit
price). See Note 1-M, “Fair Value Measurements,” for a
description of the fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The following
is a description of the valuation methodologies used for assets and
liabilities measured at fair value.
All of
the Plan’s investments are in fixed funds with guaranteed
interest rates which are valued using evaluated bid prices based on
a compilation of observable market information or a broker quote in
a non-active market. Inputs used vary by type of security, but
include spreads, yields, rate benchmarks, rate of prepayment, cash
flows, rating changes and collateral performance and type. All
fixed income funds are included as a Level 3
measurement.
The
following table sets forth a summary of changes of fair value of
the Retirement Plan’s Level 3 assets for the fiscal year
ended June 30, 2016.
|
|
Balance, June 30,
2015
|
$2,031,920
|
Actual return on
plan assets
|
87,711
|
Purchases and
sales
|
31,273
|
Transfers in and/or
out of Level 3
|
-
|
Balance June 30,
2016
|
$2,150,904
|
The
expected future benefit payments for the years ended June 30, are
as follows:
2017
|
$142,000
|
2018
|
$158,000
|
2019
|
$161,000
|
2020
|
$164,000
|
2021
|
$172,000
|
Five years
thereafter
|
$889,000
|
8. Earnings Per Share
Net
income/(loss) per share has been presented pursuant to ASC Topic
260, “Earnings per Share”. Basic net income/(loss) per
share is computed by dividing reported net income/(loss) available
to common shareholders by the weighted average number of shares
outstanding for the period. Diluted net income/(loss) per share is
computed by dividing reported net income/(loss) available to common
shareholders by the weighted average number of shares outstanding
for the period, adjusted for the dilutive effect of common stock
equivalents, which consist of stock options, using the treasury
stock method.
The tables below set forth the reconciliation of the numerators and
denominators of the basic and diluted net income/(loss) per common
share computations. Certain stock options were excluded from the
computation of earnings per share due to their anti-dilutive
effect. The weighted average numbers of such shares are 7,762 and
33,200, respectively, for the years ended June 30, 2016 and
2015.
|
|
|
|
|
|
Basic net income
per common share
|
$116,119
|
1,362,031
|
$.09
|
Effect of dilutive
securities
|
--
|
2,236
|
--
|
Diluted net income
per common share
|
$116,119
|
1,364,267
|
$.09
|
|
|
|
|
|
|
|
Basic net loss per
common share
|
$(120,060)
|
1,362,031
|
$(0.09)
|
Effect of dilutive
securities
|
--
|
--
|
--
|
Diluted net loss
per common share
|
$(120,060)
|
1,362,031
|
$(0.09)
|
9. Credit Facility
The
Company maintains a line of credit (the “Line of
Credit”) with TD Bank, NA (the “Bank”) for
$500,000. The Line of Credit expires on November 30,
2016.
The
Line of Credit provides among other things for an annual interest
rate on borrowings equal to the Bank’s prime rate plus
1.00%and is subject to customary representations, covenants, and
default provisions in favor of the Bank. Any loans drawn under the
Line of Credit are secured by a first lien on all of the
Company’s accounts receivable, machinery, equipment, other
personal property and Commercial Mortgages on the Company’s
real property. The rate applicable to the Line of Credit at June
30, 2016 was approximately 4.25%. The Company has previously
utilized the Line of Credit during periods of increased production
requirements and (subject to renewal of the Line of Credit as
described below) anticipates that it will continue to utilize this
credit facility during future periods of peak production activity.
As of June 30, 2016, the Company had no outstanding borrowings
against the Line of Credit. As of the date of this Annual Report,
the Company has an outstanding balance against the Line of Credit
of $250,000.
The
Company is in discussions with the Bank to renew the Line of Credit
for an additional year. In the event the Line of Credit is not
renewed on terms acceptable to the Company, the Company will
consider other financing sources (though no assurances can be given
that such financing can be obtained or, if obtained, the timing
thereof).
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item
9A. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company carried out, under the supervision and with the
participation of the Company’s management, including the
Chief Executive Officer and Controller, an evaluation of the
effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the fiscal year covered by this Annual Report. Based on this
evaluation, the Chief Executive Officer and Controller concluded
that, as of June 30, 2016, the design and operation of the
Company's disclosure controls and procedures were
effective.
Nonetheless,
a control system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute
assurance that all control issues have been detected.
Management’s
Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934). The Company’s internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles.
Management
conducted an evaluation of the effectiveness of the Company’s
internal control over financial reporting as of June 30, 2016 based
on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on this evaluation, management concluded that the
Company’s internal control over financial reporting was
effective as of June 30, 2016 based on those criteria issued by
COSO.
Because
of its inherent limitation, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Company’s internal control over
financial reporting during the fiscal quarter ended June 30, 2016
that materially affected, or are reasonably likely to affect, the
Company’s internal control over financial
reporting.
Item 9B. OTHER INFORMATION
None
PART
III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information
in response to this Item is incorporated herein by reference from
the Company’s definitive proxy statement for the 2016 Annual
Meeting of Stockholders.
The
Company’s Code of Ethics is available at our website at
www.deweyelectronics.com
Item 11. EXECUTIVE
COMPENSATION
Information
in response to this Item is incorporated herein by reference from
the Company's definitive proxy statement for the 2016 Annual
Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item
403 of Regulation S-K
Information
in response to this Item is incorporated herein by reference from
the Company's definitive proxy statement for the 2016 Annual
Meeting of Stockholders.
Item 201(d) of Regulation S-K
Equity Compensation Plan Information as of June 30,
2016
|
|
|
|
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
|
Weighted-average exercise price of outstanding options, warrants
and rights
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column
(a))
|
Plan
Category
|
|
|
|
|
|
|
|
Equity compensation
plans approved by security holders
|
20,700
|
$1.922
|
183,000
|
|
|
|
|
Equity compensation
plans not approved by security holders
|
--
|
--
|
--
|
|
|
|
|
Total
|
20,700
|
$1.922
|
183,000
|
All of
the outstanding options (column a) were granted under the
Company’s 1998 Plan.
Securities
available for future issuance (column c) consist of 133,000 options
available for grant under the Company’s 2011 Plan and 50,000
options available for grant under the Company’s Directors
Plan.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
AND DIRECTOR INDEPENDENCE
Information
in response to this Item is incorporated herein by reference from
the Company’s definitive proxy statement for the 2016 Annual
Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Information
in response to this Item is incorporated herein by reference from
the Company’s definitive proxy statement for the 2016 Annual
Meeting of Stockholders.
PART
IV
Item 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
A list
of the exhibits required to be filed as part of this report is set
forth in the Index to Exhibits, which immediately follows the
signature page, and is incorporated herein by this
reference.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Dewey Electronics Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized:
THE
DEWEY ELECTRONICS CORPORATION
/s/
|
|
|
/s/
|
|
John H.D.
Dewey
|
|
|
Donna M.
Medica
|
|
President and Chief
Executive Officer
|
|
|
Controller |
|
DATE:
October 5, 2016
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates
indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
John
H.D. Dewey
|
|
Director |
|
October
5, 2016 |
John H.D.
Dewey
|
|
|
|
|
|
|
|
|
|
/s/
James
M. Link
|
|
Director |
|
October
5, 2016 |
James M.
Link
|
|
|
|
|
|
|
|
|
|
/s/
Nathaniel
Roberts
|
|
Director |
|
October
5, 2016 |
Nathaniel
Roberts
|
|
|
|
|
|
|
|
|
|
/s/ Robert
Meissner
|
|
Director |
|
October 5,
2016 |
Robert
Meissner
|
|
|
|
|
|
|
|
|
|
/s/
Ron
Tassello |
|
Director |
|
October 5,
2016 |
Ron
Tassello |
|
|
|
|
|
|
|
|
|
THE
DEWEY ELECTRONICS CORPORATION
INDEX
TO EXHIBITS
The
following exhibits are filed as part of this report. For
convenience of reference, exhibits are listed according to the
numbers assigned in the Exhibit table to Regulation
S-K.
Number |
|
|
|
|
|
3
|
(a)
|
Certificate of Incorporation as amended. This item was filed as
partof the Registrant's Form 10-K for the year ended June 30, 1988
and isherein incorporated by reference.
|
|
|
|
3
|
(b)
|
By Laws as amended. This item was filed as part of the Registrant's
Form 10-K for the year ended June 30, 1988 and is herein
incorporated by reference.
|
|
|
|
10
|
(a)
|
2011 Stock Option Plan. This item was filed with the
Registrant’s Definitive Proxy Statement for the 2011 annual
meeting of stockholders on December 8, 2011 and is herein
incorporated by reference.
|
|
|
|
10
|
(b)
|
2001 Stock Option Plan for Non-Employee Directors. This item was
filed with the Registrant’s Definitive Proxy Statement for
the 2001 annual meeting of stockholders on December 5, 2001 and is
herein incorporated by reference.
|
|
|
|
10
|
(c)
|
Amendment and Restatement of the 1998 Stock Option Plan. This item
was filed with the Registrant’s Definitive Proxy Statement
for the 2001 annual meeting of stockholders on December 5, 2001 and
is herein incorporated by reference.
|
|
|
|
10
|
(d)
|
Form of Grant Letter for the 1998 Stock Option Plan. This item was
filed as part of the Registrant’s Form 10-K for the year
ended June 30, 2010 and is herein incorporated by
reference.
|
|
|
|
10
|
(e)
|
Letter from TD Bank N.A. to The Dewey Electronics Corporation dated
December 1, 2015. This item was filed with the Registrant’s
Form 10-Q for the period ended December 31, 2015 and is herein
incorporated by reference.
|
|
|
|
10
|
(f)
|
Amended and Restated Revolving Term Note made by The Dewey
Electronics Corporation in favor of TD Bank N.A. dated November 8,
2013. This item was filed with the Registrant’s Form 10-Q for
the period ended September 30, 2013 and is herein incorporated by
reference.
|
|
|
|
10
|
(g)
|
Loan and Security Agreement between The Dewey Electronics
Corporation and TD Bank, NA dated April 20, 2009. This item was
filed with the Registrant’s Form 10-Q for the period ended
March 31, 2009 and is herein incorporated by
reference.
|
|
|
|
10
|
(h)
|
Commercial Mortgage and Security Agreement and Assignment of Leases
and Rents between The Dewey Electronics Corporation and TD Bank, NA
dated November 8, 2013. This item was filed with the
Registrant’s Form 10-Q for the period ended September 30,
2013 and is herein incorporated by reference.
|
|
|
|
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
|
|
Certification of Controller Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
|
|
Certification of Controller pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith)
|