SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 2003
Commission File No 0-2892
THE DEWEY ELECTRONICS CORPORATION
A New York Corporation
I.R.S. Employer
Identification
No. 13-1803974
27 Muller Road
Oakland, New Jersey 07436
(201) 337-4700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
The number of shares outstanding of the registrant's common stock, $.01 par
value was 1,359,531 at November 3, 2003.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page No.
Part I Financial Information
Item 1 Consolidated Financial Statements 3
Consolidated Balance Sheets -
September 30, 2003 and June 30, 2003 4
Consolidated Statements of Operations -
Three Months Ended September 30, 2003
and September 30, 2002 5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2003
and September 30, 2002 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 4 Controls and Procedures 20
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security
Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited, consolidated balance sheets, statements of
operations, and statements of cash flows are of The Dewey Electronics
Corporation. These consolidated financial statements reflect all
adjustments of a normal recurring nature, which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods reflected
herein. The results reflected in the unaudited statements of operations
for the period ended September 30, 2003 are not necessarily indicative of
the results to be expected for the entire year. The following unaudited
consolidated financial statements should be read in conjunction with the
notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth in Item 2 of Part I of this
report, as well as the audited consolidated financial statements and
related notes thereto contained in the Form 10-K filed for the fiscal
year ended June 30, 2003.
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
2003 2003
(UNAUDITED)
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $1,878,233 $1,989,703
ACCOUNTS RECEIVABLE, NET 200,532 756,265
INVENTORIES 1,095,807 552,180
CONTRACT COSTS AND RELATED ESTIMATED
PROFITS IN EXCESS OF BILLINGS 975,178 1,079,702
DEFERRED TAX ASSET 105,682 105,682
PREPAID EXPENSES AND OTHER CURRENT ASSETS 161,083 158,905
TOTAL CURRENT ASSETS 4,416,515 4,642,437
PLANT, PROPERTY AND EQUIPMENT - NET 1,718,316 1,655,831
OTHER NON-CURRENT ASSETS 51,544 54,019
TOTAL ASSETS $6,186,375 $6,352,287
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $198,933 $336,445
ACCRUED EXPENSES AND OTHER LIABILITIES 154,962 195,354
ACCRUED CORPORATE INCOME TAXES 19,919 15,223
ACCRUED PENSION COSTS 6,056 6,056
CURRENT PORTION OF LONG-TERM DEBT 60,938 60,938
TOTAL CURRENT LIABILITIES 440,808 614,016
LONG-TERM DEBT 312,500 327,734
LONG-TERM PENSION LIABILITY 293,913 278,913
DEFERRED TAX LIABILITY 564,214 564,214
DUE TO RELATED PARTY 200,000 200,000
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; issued and outstanding
1,693,397 shares 16,934 16,934
PAID-IN CAPITAL 2,817,474 2,817,474
ACCUMULATED EARNINGS 2,214,876 2,207,346
ACCUMULATED OTHER COMPREHENSIVE LOSS (183,642) (183,642)
4,865,642 4,858,112
LESS: TREASURY STOCK 333,866 SHARES AT
COST (490,702) (490,702)
TOTAL STOCKHOLDERS' EQUITY 4,374,940 4,367,410
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,186,375 $6,352,287
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30
2003 2002
REVENUES $1,186,774 $1,991,665
COST OF REVENUES 912,566 1,553,579
GROSS PROFIT 274,208 438,086
SELLING & ADMIN EXPENSES 252,393 248,485
OPERATING INCOME 21,815 189,601
INTEREST EXPENSE 12,401 19,065
OTHER INCOME - NET (3,136) (12,606)
INCOME BEFORE INCOME TAXES 12,550 183,142
INCOME TAX EXPENSE (5,020) (73,257)
NET INCOME $7,530 $109,885
====== =======
NET INCOME PER SHARE:
BASIC $0.01 $0.08
DILUTED $0.01 $0.08
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 1,359,531 1,339,531
DILUTED 1,422,031 1,380,031
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 7,530 $109,885
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING
ACTIVITIES:
DEPRECIATION 18,570 25,575
AMORTIZATION 2,475 1,050
DEFERRED INCOME TAXES 0 (100,000)
DECREASE/(INCREASE) IN ACCOUNTS
RECEIVABLE 555,733 (109,169)
INCREASE IN INVENTORIES (543,627) (25,268)
DECREASE/(INCREASE) IN CONTRACT
COSTS AND RELATED ESTIMATED
PROFITS IN EXCESS OF APPLICABLE
BILLINGS 104,524 (658,354)
INCREASE IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS (2,178) (16,322)
(DECREASE)/INCREASE IN ACCOUNTS
PAYABLE (137,512) 314,993
DECREASE IN ACCRUED LIABILITIES (40,392) (19,016)
INCREASE/(DECREASE) IN ACCRUED
CORPORATE INCOME TAXES 4,696 (27,068)
INCREASE IN ACCRUED PENSION COSTS 15,000 13,500
TOTAL ADJUSTMENTS (22,711) (600,079)
NET CASH USED IN OPERATING
ACTIVITIES (15,181) (490,194)
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PLANT, PROPERTY AND
EQUIPMENT (81,055) (237,393)
NET CASH USED IN INVESTING ACTIVITIES (81,055) (237,393)
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG-TERM DEBT (15,234) (15,234)
NET CASH USED IN FINANCING ACTIVITIES (15,234) (15,234)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (111,470) (742,821)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,989,703 3,503,087
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $1,878,233 $2,760,266
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
INTEREST PAID $12,478 $19,145
INTEREST RECEIVED $1,969 $2,331
CORPORATE INCOME TAXES PAID $325 $200,325
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
NOTE 1: REVENUE RECOGNITION
Revenues and estimated earnings under defense contracts are recorded
using the percentage-of-completion method of accounting, measured as the
percentage of costs incurred to estimated total costs for each contract.
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.
Since substantially all of the Company's electronics business comes from
contracts with various agencies of the United States Government or
subcontracts with prime Government contractors, the loss of Government
business would have a material adverse effect on this segment of
business.
In the Leisure and Recreation segment, revenues and earnings are recorded
when deliveries are made and title and risk of loss have been transferred
to the customer and collection is probable.
NOTE 2: CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity
of three months or less at the date of purchase to be cash equivalents.
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt and line of credit
borrowings are estimated based upon interest rates currently available
for borrowings with similar terms and maturities and approximate the
carrying values.
Due to the short-term nature of cash, accounts receivable, accounts
payable, accrued expenses and other current liabilities, their carrying
value is a reasonable estimate of fair value.
NOTE 4:INVENTORIES
Inventories are valued at lower of cost (first-in, first-out method) or
market. Components of cost include materials, direct labor and plant
overhead.
As there is no segregation of inventories as to raw materials, work in
progress and finished goods for interim reporting periods (this
information is available at year end when physical inventories are taken
and recorded), estimates have been made for the interim period. These
estimates are consistent with those made in prior periods.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
September 30, 2003 June 30, 2003
Finished Goods $ 217,288 $ 93,288
Work In Progress 471,554 100,308
Raw Materials 406,965 358,584
Total $1,095,807 $552,180
======== =======
NOTE 5: 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. Actual results
could differ from those estimates.
NOTE 6: PLANT, PROPERTY AND EQUIPMENT
Plant, property 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.
NOTE 7: LOAN FEES
Loan fees are capitalized by the Company and amortized utilizing the
straight-line basis over the term of the loan.
NOTE 8: LONG-LIVED ASSETS
Whenever events or changes in circumstances indicate that the carrying
values of long-lived assets may not be recoverable, the Company evaluates
the carrying values of such assets using future undiscounted cash flows.
Management believes that, as of September 30, 2003, the carrying values
of such assets are not impaired.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
NOTE 9: EARNINGS PER SHARE
Basic net income per share is computed by dividing reported net income
available to common shareholders by weighted average shares outstanding
for the period. Diluted net income per share is computed by dividing
reported net income available to common shareholders by weighted average
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 table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share
computations.
Three Months Ended September 30,
2003 2002
Net Per Net Per
Income Shares Share Income Shares Share
Amount Amount
Basic
Net
income
per
common
share $7,530 1,359,531 $.01 $109,885 1,339,531 $.08
Effect
Of
dilutive
securities -- 62,500 -- -- 40,500 --
Diluted
Net
income
per
common
share $7,530 1,422,031 $.01 $109,885 1,380,031 $.08
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
Note 10: STOCK OPTION PLAN
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for its Stock Option Plans. The
compensation cost for the stock-based employee compensation plan is
recognized using the intrinsic value method. The following table
illustrates the effect on net income and net income per share if the
Company had applied the fair value method to recognize stock-based
employee compensation.
3 Months Ended
September 30
2003 2002
Net income, as reported 7,530 109,885
Deduct: Total stock-
based employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
Effects 3,589 --
Pro forma net income $3,941 109,885
Earnings per share:
Basic - as reported $.01 $.08
Basic - pro forma $.00 $.08
Diluted - as reported $.01 $.08
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
NOTE 11: RECENT PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation No. 46, "
Consolidation of Variable Interest Entities - an Interpretation of ARB
No. 51" ("FIN 46"). FIN 46 addresses consolidation by business
enterprises of variable interest entities (formerly special purpose
entities or SPEs). In general, a variable interest entity is a
corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
The objective of FIN 46 is not to restrict the use of variable interest
entities but to improve financial reporting by companies involved with
variable interest entities. FIN 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both.
FIN 46 was effective for variable interest entities created or acquired
after January 1, 2003. As of October 9, 2003, the FASB deferred
compliance under FIN 46 from July 1, 2003 to the first period ending
after December 15, 2003 for variable interest entities created prior to
February 1, 2003. Management has determined that FIN 46 is not
applicable as the Company is not currently associated with any variable
interest entities.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement is
effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. The adoption
of this standard did not have a material impact on the Company's
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). The Statement is
effective for financial instruments entered into or modified after May
31, 2003. It applies in the first interim period beginning after
June 15, 2003, to entities with financial instruments acquired before May 1,
2003. The adoption of this statement did not have a material impact
on the Company's results of operation or financial condition.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
NOTE 12: SEGMENT INFORMATION
Information about the Company's operations in its two segments for the
first fiscal quarter ended September 30, 2003 and 2002 is as follows:
Three months ended
September 30,
2003 2002
Electronics Segment
Revenues $1,176,826 $1,972,295
Operating Income $50,634 $204,646
HEDCO
Revenues $9,948 $19,370
Operating (Loss) ($28,819) ($15,045)
Total
Revenues $1,186,774 $1,991,665
Operating Income $21,815 $189,601
Interest Expense (12,401) (19,065)
Other Income 3,136 12,606
Income Tax Expense (5,020) (73,257)
Net Income $7,530 $109,885
THE DEWEY ELECTRONICS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Form 10-Q, and with the audited consolidated financial
statements, including the notes thereto, appearing in the Company's Form
10-K for the fiscal year ended June 30, 2003. 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 "Government Defense Business" and "Company Strategy". 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.
Operating Segments
The Company is organized into two principal operating segments on the
basis of the types of products offered. Each segment is comprised of
separate and distinct businesses: the electronics segment and the
leisure and recreation segment.
In the electronics segment, the Company is a producer of electronic and
electromechanical systems for the Armed Forces of the United States. The
Company provides its products in this segment either as a prime
contractor or as a subcontractor for the Department of Defense.
The electronic segment is comprised mostly of the 2kW Generator product
line and the Pitometer Log Division's products. Pitometer Log is a long-
established manufacturer of ship speed and distance measuring
instrumentation. Its primary customers are the U.S. Navy and other prime
contractors such as shipbuilders. Pitometer Log's business is derived
from various orders, limited in scope and duration. These are generally
for replacement parts and equipment for previous Company contracts with
the Department of Defense as well as business from other projects
performed as a subcontractor.
Under the 2kW diesel operated tactical generator set contract, the
Company has been the sole producer for the Department of Defense since
1997. The original contract was awarded in 1996 and final deliveries
were made under that award in March 2002. Deliveries were made to the
various branches of the Armed Forces of the United States.
In September 2001, the Company was awarded a new contract to provide the
U.S. Army and other Department of Defense Agencies with this same 2kW
diesel operated generator set. This new contract is a ten-year
indefinite delivery, indefinite quantity contract which replaces the
initial contract awarded in 1996. The total amount of orders placed
through October 31, 2003 amount to approximately $10 million. As with
the prior contract, this contract allows for the Army to place annual
production orders and to place additional interim orders. However, no
assurances can be made that further orders will be placed or, if they are
placed, the timing and amount of such orders.
In the leisure and recreation segment, the Company, through its HEDCO
Division, designs, manufactures and markets advanced, sophisticated
snowmaking equipment. It also supplies replacement parts for items no
longer covered under warranty.
There are no intersegment sales.
Some operating expenses, including general corporate expenses, have been
allocated by specific identification or based on labor for items which
are not specifically identifiable. In computing operating profit, none
of the following items have been added or deducted: interest expense,
income taxes, and non-operating income and expenses.
Results of Operations
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 comparison of recorded revenues and
earnings may not be indicative of future operating results. The
following comparative analysis should be viewed in this context.
Consolidated Summary
For the three-month period ended September 30, 2003, consolidated
revenues were $1,186,774 and operating income was $21,815. Last year,
during the same period, consolidated revenues were $1,991,665 and
operating income was $189,601.
This year's revenues were lower in both the electronics segment and the
leisure and recreation segment compared to the same three-month period
last year. Results of operations by business segment are discussed below
in more detail. Also, information about the Company's operations in its
two segments for the three-month period this year compared to last year
can be found in Note 11 of the Notes to Consolidated Financial
Statements.
Electronics Segment
In the electronics segment, revenues are recorded under defense contracts
using the percentage of completion method of accounting. Revenues are
recorded as work is performed based on the percentage that actual
incurred costs bear in comparison to estimated total costs utilizing the
most recent estimates of costs and funding. Since contracts typically
extend over multiple reporting periods, revisions in cost and estimates
during the progress of work have the effect of adjusting earnings
applicable to performance in prior periods in the current period. When
the estimated costs to complete a project indicate a loss, provision is
made for the anticipated loss in the current period. For further
information see Note 1 and Note 5 of the Notes to Consolidated Financial
Statements.
For the three-month period ended September 30, 2003, revenues in the
electronics segment were $795,469 lower than the same three-month period
last year. During the three-month period this year, the production of
2kW generator sets provided 76% of electronics segment revenue. During
the same period last year, production of 2kW generator sets provided 91%
of electronics segment revenues. This decline in contributions to
revenues compared to last fiscal year is the result of reduced orders and
the affected production levels. It also reflects the initial impact of
the Company initiating an alternate delivery schedule for existing
generator orders, which was accepted by its customer. This revised
delivery schedule allowed the Company to focus production during its
first fiscal quarter of 2004, and is intended to allow the Company to
focus production during the second fiscal quarter of 2004, on snowmaking
machines for sales and inventory purposes. As a result, the Company
experienced a reduced production level towards the generators sets during
the first 2004 fiscal quarter, and anticipates production of the original
quantity which will begin late in the second fiscal quarter and continue
through the fiscal year.
The Company has been producing under its contract for 2kW generator sets
with deliveries being made according to the government provided delivery
schedule. Deliveries under these existing production orders are
scheduled to continue through May 2004. This is discussed further in the
section "Government Defense Business" below. The segment's remaining
revenues are derived principally from the Company's Pitometer Log
Division. Production efforts in this division have increased compared to
recent years as a result of increased orders from government agencies and
from shipbuilders. Pitometer Log revenues are derived from various
orders, more limited in scope and duration, which are generally for
replacement parts for previously supplied Department of Defense equipment
and other projects performed as a sub-contractor.
As of September 30, 2003, the aggregate value of the Company's backlog of
electronics product not previously recorded as revenues was approximately
$4.5 million. It is estimated that approximately $3.5 million of this
backlog will be recognized as revenues during this fiscal year ending
June 30, 2004.
As of September 30, 2002, the aggregate value of the Company's backlog of
electronics product not previously recorded as revenues was approximately
$3 million.
Leisure and Recreation Segment
In the HEDCO Division, revenues were lower by $9,422 for the three-month
period ended September 30, 2003, when compared to the same period of last
year.
Revenues for three-month periods this year and last year reflect the
sales of replacement parts no longer covered under warranty. This year,
these sales had a slower start than last year as ski areas began to
prepare for their season. No snowmaking machine sales were made in the
first period of either year. The sale of snowmaking machines has
historically been made during the second fiscal quarter. During the
month of October 2003, sales of snowmaking machines amounted to $243,200.
No snowmaking machine sales were made during the last fiscal year ended
June 30, 2003.
Liquidity and Capital Resources
The Company's working capital at September 30, 2003 was $3,975,707
compared to $4,028,421 at June 30, 2003.
The ratio of current assets to current liabilities was 10.02 to 1 at
September 30, 2003 and 7.56 to 1 at June 30, 2003.
For the three-month period ended September 30, 2003, operating activities
used net cash of $15,181. Expenditures for plant, property and equipment
used net cash of $81,055 and financing activities used net cash of
$15,234. Of the expenditures for plant, property and equipment, $43,187
was used by the Company to continue to invest in efforts to improve
technologies in its generator product line. These efforts primarily
involve engineering and design related to the generator and other related
fields of business. The remaining $37,868 was used for plant equipment.
For the three-month period ended September 30, 2002, operating activities
used net cash of $490,194. Expenditures for plant, property and
equipment used net cash of $237,393 and financing activities used net
cash of $15,234. Of the expenditures for plant, property and equipment,
$233,092 was used by the Company to invest in efforts to improve
technologies in its generator product line.
The Company has a line of credit of $500,000 with its Bank at the rate of
he Bank's prime rate plus .25%, which is renewable annually at October 31
and has been renewed. There were no borrowings against this line of
credit facility as of September 30, 2003.
In addition, the Company also has a note payable to a co-founder
(stockholder) in the amount of $200,000 at an interest rate of 9% per
annum. This note is unsecured and subordinate to the mortgage note with
the Company's primary lender and has been classified on the Balance Sheet
as a long-term liability.
The Company owns approximately 90 acres of land and the building which it
occupies in Bergen County, New Jersey, adjacent to an interchange of
Interstate Route 287. The Company is continuing to actively pursue
possible methods of monetizing this property by its sale and/or
development. The Company has retained one of the largest commercial real
estate brokerage houses serving the New York - New Jersey region to
assist in these efforts.
The Company's borrowing capacity has remained above its use of outside
financing. Management believes that the Company's anticipated cash flow
from operations, combined with its line of credit, will be sufficient to
support working capital requirements and capital expenditures at their
current or expected levels. The Company continues to meet its short-term
liquidity needs arising out of electronic product operations through a
combination of progress payments on government contracts (based on costs
incurred) and billings at the time of delivery of products.
Government Defense Business
The electronics segment of business provides most of the Company's
revenues and is comprised of business with the U.S. Department of Defense
or with other government contractors. It consists of long-term contracts
and short-term business such as replacement parts.
Long-term contracts have been dependent upon single projects and until
1997, a single program, the ADCAP torpedo program with the U.S. Navy was
the primary source of the Company's revenues. In 1996, the Company was
awarded a contract with the U.S. Army to provide diesel operated tactical
generator sets. This program has since become the Company's primary
source of revenues.
On September 7, 2001, the Company was awarded a ten-year contract to
provide the U.S. Army and other Department of Defense Agencies with 2kW
diesel operated generator sets. This ten-year indefinite delivery,
indefinite quantity contract replaces the initial contract under which
the Company has been the sole producer of this generator for the Army
since 1997. These generators are currently being fielded by both active
and reserve components of the U.S. Armed Forces.
As with the prior contract, this new contract to supply 2kW diesel
operated generator sets allows for the U.S. Army to place production
orders annually and to place additional interim orders. Orders under
this new contract were received as final deliveries were being made on
the prior contract and production of these orders has begun. The amount
of orders received to date under this contract is approximately $10
million.
The Army has been ordering 2kW generators at a reduced volume when
compared to previous years. Thus, the Company is currently delivering at
a reduced rate, which is responsible for the reduction in revenues. The
production order which was placed in February 2003 further reduced this
delivery rate compared to previous orders. This reduction continued with
the order placed in September 2003. As the contract allows, additional
orders may be made by the Army, although no assurances can be made that
it will do so, or if there are additional orders, the amount and timing
thereof. Moreover, periods of heightened national security and war have
often introduced new priorities and demands, external delays, and
increased uncertainty into the defense contracting marketplace.
Management is continuing to explore additional sources of revenue as
discussed below in the section "Company Strategy".
It should be recognized that Department of Defense business is subject to
changes in military procurement policies and objectives and to government
budgetary constraints and that the Company bids for Department of Defense
business in competition with many defense contractors, including firms
that are larger in size and have greater financial resources.
All of the Company's contracts with the United States Government (the
"Government") are subject to the standard provision for termination at
the convenience of the Government.
Since substantially all of the Company's electronics business has been
derived from contracts with various agencies of the Government or
subcontracts with prime Government contractors, the loss of substantial
Government business (including a material reduction of orders under
existing contracts) would have a material adverse effect on the business.
Company Strategy
During this past fiscal quarter, the Company has continued to invest in
its efforts to improve its products and existing technologies. This
effort is focused primarily on the existing generator set product line
and involves market research, engineering and design. The scope of these
efforts includes the development of an improved product, which is in
accordance with current customer interests and future requirements. The
areas of such development include sound reduction, reduced weight, fuel
and environmental requirements. The Company has been working with
government representatives to coordinate our efforts.
Other companies have announced intentions of developing similar products.
Some of these companies have greater financial and/or technical resources
than we do. However, management believes that despite inherent risks and
uncertainties, these efforts are important to the Company's business and
future growth. As with all projects of this nature, no assurances can be
made that such product development work will be successful or that the
Company will achieve its desired results. See the discussion above under
"Liquidity and Capital Resources".
The Department of Defense budgeting process is one of an extended time
frame. The process of including expenditures in its budget could take a
minimum of 12 to 24 months. In addition, approval of this budget does
not guarantee the expenditure actually being made and particularly the
receipt of an award by the Company.
The Company has many years of experience in contracting with the
Department of Defense and has received many contracts to provide various
types of products and services. Utilizing some of this experience, the
Company is continuing to explore other areas of business, which are
capable of providing continued stability and growth.
Other Developments
On September 9, 2003, the Company was awarded a "cost plus fixed fee"
research and development contract. This contract with the U.S. Army
Communications - Electronic Command, CECOM Acquisition Center, Washington
is in the amount of approximately $1.8 million. The contract is for the
research and development of improvements to the current 2kW diesel
operated generator set. Work on this contract will be performed at the
Company's location in Oakland, New Jersey and is expected to continue
into next fiscal year ending June 2005.
Critical Accounting Policies and Estimates
Our 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 Consolidated Financial Statements herein
and contained within the Company's Form 10-K for the fiscal year ended
June 30, 2003. Critical accounting policies 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 include revenue recognition on contracts and contract estimates,
long-lived assets, pensions and valuation of deferred tax assets and
liabilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting
Policies and Estimates", contained within the Company's Form 10-K for the
fiscal year ended June 30, 2003.
In the electronics segment, revenues and estimated earnings are recorded
under defense contracts using the percentage of completion method of
accounting, measured as the percentage of costs incurred to estimated
total costs at completion of each contract. See Note 1 to the
Consolidated Financial Statements.
For interim reporting periods, the Company does not segregate inventories
as to raw materials, work in progress and finished goods (this
information is available at year end when physical inventories are taken
and recorded). Estimates are made for interim reporting periods. See
Note 4 to the Consolidated Financial Statements.
ITEM 4. Controls and Procedures
The Company carried out, under the supervision and with the participation
of the Company's management, including its Chief Executive Officer and
Treasurer, an evaluation of the effectiveness of the design and operation
of the Company's 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 quarter covered by this report. Based upon that
evaluation, the Chief Executive Officer and Treasurer concluded that, as
of September 30, 2003, the design and operation of these disclosure
controls and procedures were effective. During the fiscal quarter
covered by this report, there have been no changes in the Company's
internal control over financial reporting that have materially affected,
or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
See the accompanying Index to Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DEWEY ELECTRONICS CORPORATION
/s/ John H.D. Dewey
Date: November 14, 2003 John H.D. Dewey
President and Chief Executive Officer
/s/ Thom A. Velto
Date: November 14, 2003 Thom A. Velto
Treasurer
THE DEWEY ELECTRONICS CORPORATION
INDEX TO EXHIBITS
The following exhibits are included with this report. For convenience of
reference, exhibits are listed according to the numbers assigned in the
Exhibit table to Regulation S-K.
Number
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 Certification of Treasurer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32.1 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).
32.2 Certification of Treasurer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith)
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John H. D. Dewey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dewey
Electronics Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 14, 2003
By: /s/John H.D. Dewey
John H.D. Dewey
President and Chief Executive
Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thom A. Velto, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dewey
Electronics Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 14, 2003
By: /s/Thom A. Velto
Thom A. Velto, Treasurer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-Q for the period ended
September 30, 2003 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, John H. D. Dewey, Chief Executive
Officer of the Corporation, certify, pursuant to 18 U.S.C. ss 1350, as
adopted pursuant to ss 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Corporation.
/s/ John H.D. Dewey
John H. D. Dewey, Chief Executive Officer
November 14, 2003
A signed original of this written statement required by Section 906 has
been provided to The Dewey Electronics Corporation and will be retained
by The Dewey Electronics Corporation and furnished to the Securities and
exchange commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-Q for the period ended
September 30, 2003 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Thom A. Velto, Treasurer of the
Corporation, certify, pursuant to 18 U.S.C. ss 1350, as adopted pursuant
to ss 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Corporation.
/s/ Thom A. Velto
Thom A. Velto, Treasurer
November 14, 2003
A signed original of this written statement required by Section 906 has
been provided to The Dewey Electronics Corporation and will be retained
by The Dewey Electronics Corporation and furnished to the Securities and
exchange commission or its staff upon request.
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