UNITED STATES
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 March 31, 2006
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 .
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer X
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X.
The number of shares outstanding of the registrant's common stock, $.01 par
value was 1,362,031 at May 5, 2006.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page No.
Part I Financial Information
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets -
March 31, 2006 and June 30, 2005 4
Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 2006
and March 31, 2005 5
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2006
and March 31, 2005 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 4. Controls and Procedures 24
Part II Other Information
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 25
Item 4. Submission of Matters to a Vote of Security
Holders 25
Item 6. Exhibits 25
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 March 31, 2006 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, 2005.
THE DEWEY ELECTRONICS CORPORATION
BALANCE SHEETS
UNAUDITED MARCH 31, JUNE 30,
2006 2005
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $936,607 $1,390,326
ACCOUNTS RECEIVABLE 779,413 756,215
INVENTORIES 1,419,396 1,398,105
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS OF
BILLINGS 1,238,291 772,507
DEFERRED TAX ASSET -- 9,471
PREPAID EXPENSES AND OTHER CURRENT
ASSETS 228,294 233,977
TOTAL CURRENT ASSETS 4,602,001 4,560,601
PLANT, PROPERTY AND EQUIPMENT - NET 630,096 614,535
CAPITALIZED DEVELOPMENT COSTS 703,799 703,799
DEFERRED TAXES -- 41,603
DEFERRED COSTS 10,000 10,000
LAND AND RELATED COSTS HELD FOR SALE 567,494 541,725
TOTAL OTHER ASSETS 1,281,293 1,297,127
TOTAL ASSETS $6,513,390 $6,472,263
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $809,777 $398,513
ACCRUED EXPENSES AND OTHER
LIABILITIES 141,614 30,498
ACCRUED COMPENSATION AND BENEFITS
PAYABLE 168,976 144,801
ACCRUED PENSION COSTS 4,861 4,861
NOTE PAYABLE 124,698 154,606
DUE TO RELATED PARTY 200,000 200,000
TOTAL CURRENT LIABILITIES 1,449,926 933,279
LONG-TERM PENSION LIABILITY 456,788 441,788
LONG-TERM PORTION OF NOTE PAYABLE -- 86,046
STOCKHOLDERS' EQUITY:
COMMON STOCK, par value $.01;
authorized 3,000,000 shares;
issued and outstanding
1,693,397 shares 16,934 16,934
PAID-IN CAPITAL 2,815,245 2,815,245
ACCUMULATED EARNINGS 2,544,550 2,949,024
ACCUMULATED OTHER COMPREHENSIVE
LOSS (283,025) (283,025)
5,093,704 5,498,178
LESS: TREASURY STOCK 333,866 SHARES
AT COST (487,028) (487,028)
TOTAL STOCKHOLDERS' EQUITY 4,606,676 5,011,150
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,513,390 $6,472,263
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2006 2005 2006 2005
REVENUES $2,170,870 $1,267,727 $5,261,509 $4,406,184
COST OF REVENUES 1,929,752 987,673 4,584,528 3,437,911
GROSS PROFIT 241,118 280,054 676,981 968,273
SELLING & ADMIN. EXPENSES 371,220 275,559 1,033,917 908,351
OPERATING (LOSS)/INCOME (130,102) 4,495 (356,936) 59,922
INTEREST EXPENSE 6,563 8,348 21,620 26,870
OTHER (INCOME) - NET (3,809) (2,991) (10,544) (8,846)
(LOSS)/INCOME BEFORE INCOME
TAXES (132,856) (862) (368,012) 41,898
INCOME TAX BENEFIT/(EXPENSE) 14,612 345 (36,462) (16,759)
NET (LOSS)/INCOME ($118,244) ($517) ($404,474) $25,139
NET (LOSS)/INCOME PER SHARE:
BASIC ($0.09) ($0.00) ($0.30) $0.02
DILUTED ($0.09) ($0.00) ($0.30) $0.02
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 1,362,031 1,359,531 1,362,031 1,359,531
DILUTED 1,362,031 1,402,420 1,362,031 1,403,827
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS)/INCOME $(404,474) $25,139
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 85,500 80,550
AMORTIZATION OF LOAN FEES -- 133,215
DECREASE IN DEFERRED TAXES 51,074 13,086
(INCREASE) IN ACCOUNTS RECEIVABLE (23,198) (120,189)
(INCREASE) IN INVENTORIES (21,291) (8,832)
(INCREASE)/DECREASE IN CONTRACT COSTS AND
RELATED ESTIMATED PROFITS IN EXCESS OF
APPLICABLE BILLINGS (465,784) 153,756
DECREASE/(INCREASE) IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS 5,684 (17,241)
INCREASE IN ACCOUNTS PAYABLE 411,264 34,119
INCREASE/(DECREASE) IN ACCRUED
LIABILITIES 135,291 (61,763)
INCREASE IN ACCRUED CORPORATE INCOME
TAXES -- 948
INCREASE IN ACCRUED PENSION COSTS 15,000 15,000
TOTAL ADJUSTMENTS 193,540 222,649
NET CASH (USED IN)/PROVIDED BY OPERATIONS (210,934) 247,788
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PLANT, PROPERTY AND
EQUIPMENT (101,061) (66,425)
EXPENDITURES FOR CAPITALIZED
DEVELOPMENT COSTS -- (51,138)
COSTS CAPITALIZED WITH LAND HELD FOR
SALE (25,769) (85,322)
NET CASH (USED IN) INVESTING ACTIVITIES (126,830) (202,885)
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF DEBT (115,955) (35,547)
TREASURY STOCK SOLD -- 1,445
NET CASH (USED IN) FINANCING ACTIVITIES (115,955) (34,102)
NET (DECREASE)/INCREASE IN CASH (453,719) 10,801
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,390,326 1,604,475
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $936,607 $1,615,276
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
INTEREST PAID 21,620 27,204
INTEREST RECEIVED 10,544 7,880
CORPORATE INCOME TAXES PAID 7,825 2,825
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During the prior fiscal year ended June 30, 2005 the Company applied
Accounting Principles Board (APB) Opinion 25 and related interpretations in
accounting for its Stock Option Plans. Under APB No. 25, 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 for the three and nine
month periods end March 31, 2005.
In December 2004, the FASB issued SFAS No.123 (Revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). This new pronouncement requires compensation cost
relating to share-based payment transactions be recognized in financial
statements. That cost is measured based on the fair value of the equity or
liability instruments issued. SFAS No. 123R covers a wide range of share-
based compensation arrangements including stock options, restricted stock
plans, performance-based awards, stock appreciation rights, and employee
stock purchase plans. SFAS No. 123R replaces SFAS No. 123, "Accounting for
Stock-Based Compensation," and supersedes Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees." The Company has
adopted the provisions of SFAS No. 123R in fiscal year 2006 using a modified
version of prospective application. The Company did not grant, modify,
repurchase, or cancel any share based payment awards after the date of
adoption of SFAS No. 123R. All awards granted prior to July 1, 2005 had
fully vested prior to July 1, 2005. Therefore, there was no effect of
adopting SFAS 123R in the Company's financial statements.
Three Months Nine Months
Ended March 31, Ended March 31,
2005 2005
Net (loss)/gain, as reported ($517) $25,139
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
Effects 14,161 24,031
Pro forma net (loss)/gain ($14,678) $1,108
Earnings per share:
Basic - as reported ($.00) $.02
Basic - pro forma ($.01) $.00
Diluted - as reported ($.00) $.02
Diluted - pro forma ($.01) $.00
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006
NOTE 2: REVENUE RECOGNITION
Revenues and estimated earnings under 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 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 3: 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 4: 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 5: 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 made
following a physical review of existing materials at various stages including
specific identification of major cost elements. This process of estimating
inventory at various stages of production is consistent with prior periods.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31,2006
March 31, 2006 June 30, 2005
Finished Goods $249,838 $367,660
Work In Progress 327,235 298,771
Raw Materials 842,323 731,674
Total $1,419,396 $1,398,105
NOTE 6: 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 7: 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 8: CAPITALIZED DEVELOPMENT COSTS
Capitalized costs are for costs for efforts to improve and enhance the 2kW
generator set product line and involve, primarily, the adaptation of existing
technology, as well as, engineering and design to meet specific customer
requests. The scope of these efforts includes the development of a product,
which is in accordance with current customer requests and future
requirements. Company efforts are to address areas of sound reduction,
reduced weight, improved fuel consumption and environmental considerations.
The Company reviews these capitalized costs on a regular basis to assess
future recoverability through the existing contracts to which such costs
relate and expense such costs, if any, to the extent that they are not deemed
recoverable.
NOTE 9: INCOME TAXES
The income tax expense for the three and nine-month periods ended March 31,
2005 was at an effective rate of 40%. No income tax benefit has been
recorded against the net loss before taxes for the nine-months ended March
31, 2006.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006
NOTE 10: 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. Management
believes that, as of March 31, 2006, the carrying value of such assets are
not impaired.
NOTE 11: INCOME PER SHARE
Basic net income per share is computed by dividing reported net income
available to common shareholders by the weighted average shares outstanding
for the period. Diluted net income per share is computed by dividing
reported net income available to common shareholders by the 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 March 31,
2006 2005
Per Per
Loss Shares Share Loss Shares Share
Amount Amount
Basic net
(loss)/income
per common
share ($118,244) 1,362,031 ($.09) ($517) 1,362,031 ($.00)
Effect of
dilutive
Securities -- -- -- -- 40,389 --
Diluted net
(loss)
income per
common
Share ($118,244) 1,362,031 ($.09) ($517) 1,402,420 ($.00)
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006
Nine Months Ended March 31,
2006 2005
Per Per
Loss Shares Share Income Shares Share
Amount Amount
Basic net
(loss)/
income
per common
share ($404,474) 1,362,031 ($.30) $25,139 1,362,031 $.02
Effect of
dilutive
Securities -- -- -- -- 41,796 --
Diluted
Net
(loss)
income
per
common
Share ($404,474) 1,362,031 ($.30) $25,139 1,403,827 $.02
Stock options to purchase 40,000 shares of common stock were outstanding at
March 31, 2006, but were not included in the dilutive loss per share
computation because the effect would be antidilutive.
NOTE 12: SEGMENT INFORMATION
Information about the Company's operations in its two segments for the three-
month and nine-month periods ended March 31, 2006 and 2005 are as follows:
Three months ended Nine months ended
March 31, March 31,
2006 2005 2006 2005
Electronics Segment
Revenues $2,157,634 $1,257,704 $5,091,912 $4,206,272
Operating (Loss)
/Income (96,461) 29,587 (278,064) 160,539
Leisure and
Recreation
Segment
Revenues 13,236 10,023 169,597 199,912
Operating (Loss) (33,641) (25,092) (78,872) (100,617)
Total
Revenues 2,170,870 1,267,727 5,261,509 4,406,184
Operating (Loss)
/Income (130,102) 4,495 (356,936) 59,922
Interest Expense (6,563) (8,348) (21,619) (26,870)
Other Income 3,809 2,991 10,544 8,846
Income Tax Benefit/
(Expense) 14,612 345 (36,462) (16,759)
Net Income (118,244) (517) (404,474) 25,139
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006
NOTE 13: PENSION PLAN
Three months ended Nine months ended
March 31 March 31
2006 2005 2006 2005
Service cost $9,897 $7,067 $29,692 $21,200
Interest cost 16,898 15,708 50,696 47,125
Expected return on
plan assets (15,152) (13,551) (45,458) (40.651)
Amortization of prior
service cost -- -- -- --
Amortization of net
(gain) loss 9,128 4,786 27,382 14,358
Net periodic benefit
Cost $20,771 $14,010 $62,312 $42,032
Employer Contributions
The Company previously disclosed in its financial statements for the year
ended June 30, 2005, that it expects to continue to contribute within the
range of legally acceptable contributions as identified by the Plan's
enrolled actuary. As of March 31, 2006, $30,000 of contributions have been
made. The Company presently expects to continue to contribute within the
range of legally acceptable contributions as identified by the Plan's
enrolled actuary.
NOTE 14: Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS
No. 151 amends the guidance in Accounting Research Bulletins ("ARB") No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated
that "... under some circumstances, items such as idle facility expense,
excessive spoilage, double freight, and rehandling costs may be so abnormal
as to require treatment as current period charges... ." SFAS No. 151 requires
that those items be recognized as current period charges regardless of
whether they meet the criterion of "so abnormal." In addition, SFAS No. 151
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of SFAS No. 151 will apply to inventory costs beginning in fiscal
year 2007. The adoption of SFAS No. 151 is not expected to have a material
effect on the consolidated financial statements of the Company.
In April 2005, the FASB issued FASB Interpretation (FIN) 47, "Accounting for
Conditional Asset Retirement Obligations." This interpretation clarifies
that the entity is required to record a liability in financial statements for
the fair value of a conditional asset retirement obligation if the fair value
of the liability can be reasonably estimated. The "conditional asset
retirement obligation" terminology used in SFAS No. 143, "Accounting for
Asset Retirement Obligations," refers to a legal obligation to perform an
asset retirement activity in which the timing and (or) method of settlement
are conditional on a future event that may or may not be within the control
of the entity. The Company has adopted (FIN) 47 in fiscal year 2006. The
adoption of (FIN) 47 did not have a material impact on the Company's
financial statements.
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB No. 20 and FASB Statement No. 3." This
SFAS No. 154 supersedes APB No. 20, "Accounting Changes," and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements." This
statement applies to all voluntary changes in accounting principle and
changes required by an accounting pronouncement in the unusual instance that
the pronouncement does not include specific transition provisions. SFAS No.
154 requires retrospective application to prior periods' financial statements
of changes in accounting principle, unless this would be impracticable. When
it is impracticable to determine the period-specific effects of an accounting
change on one or more individual prior periods presented, this statement
requires that the new accounting principle be applied to the balances of
assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable. This statement also requires that
if an entity changes its method of depreciation, amortization, or depletion
for long-lived, nonfinancial assets, the change must be accounted for as a
change in accounting estimate. This statement will be effective in fiscal
year 2007. Management does not expect this statement to have a material
effect on the financial statements.
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, 2005. 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 "Financing Activities", "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 operating segments on the basis of the
types of products offered. Each segment is comprised of separate and
distinct businesses: the Electronics segment - primarily business with the
Department of Defense, and the Leisure and Recreation segment - primarily
business with ski areas and resorts.
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 Electronics segment provides most of the Company's revenues and is
comprised mostly of the 2kW generator product line, two research and
development contracts (work under one was completed in September 2005) and
other various spare parts sales orders, more limited in scope and duration.
The 2kW generator product line is provided to the various branches of the
Armed Forces of the United States. Production is under a long-term contract
as well as short-term orders for limited quantities. The Company also
provides speed and measurement instrumentation primarily for the U.S. Navy
and other prime contractors such as shipbuilders. Orders are also received
for replacement parts and equipment for previous Company contracts with the
Department of Defense as well as other projects performed as a subcontractor.
In past years, the Company had various long-term contracts to provide the
U.S. Navy with various equipment.
The Company has been the sole source producer of the 2kW diesel operated
tactical generator set for the Department of Defense since 1997. Its initial
contract was awarded by the U.S. Army 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.
A new contract was awarded in September 2001 to provide the U.S. Army and
other Department of Defense Agencies with this same 2kW diesel operated
generator set. This contract is a ten-year indefinite delivery, indefinite
quantity contract which replaces the initial contract awarded in 1996. The
total amount of orders under the September 2001 contract placed through March
31, 2006 amount to approximately $18 million. As with the initial contract
mentioned above, this contract allows for the U.S. 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.
The Company's primary sources of revenue include products with long
manufacturing lead times. These products, in particular, are its 2kW
generator sets, and its HEDCO snowmaking machines. Recognizing this, the
Company has committed some of its resources to making a quantity of these
products readily available by producing them for inventory and sales. The
government sector has been ordering limited quantities of 2kW generator sets
for specific uses pursuant to short-term orders independent of the Company's
2kW contract.
Some operating expenses, including general corporate expenses, have been
allocated to each segment by specific identification or based on labor for
items which are not specifically identifiable.
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 March 31, 2006, consolidated revenues were
$2,170,870 and operations resulted in a loss of $130,102. During the same
period last year, consolidated revenues were $1,267,727 and operating income
was $4,495.
For the nine-month period ended March 31, 2006, consolidated revenues were
$5,261,509 and operations resulted in a loss of $356,936. During the same
nine-month period last year, consolidated revenues were $4,406,184 and
operating income was $59,922.
Revenues for the three-month period ended March 31, 2006 were higher compared
to the same three-month period last year, attributable to both segments,
while revenues for the nine-month period were higher in the Electronics
segment, and lower in the Leisure and Recreation segment, compared to the
same nine-month period last year. Results of operations by business segment
are discussed further below. Also, information about the Company's
operations in its two segments for the three-month and nine-month periods
this year and last year can be found in Note 12 of the Notes to Consolidated
Financial Statements.
Income Taxes
The income tax expense for the three and nine-month periods ended March 31,
2005 was at an effective rate of 40%. No income tax benefit has been
recorded against the net loss before taxes for the nine-months ended March
31, 2006.
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 costs 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 2 and Note 6 of
the Notes to Consolidated Financial Statements.
For the three-month period ended March 31, 2006, revenues in the Electronics
segment were $899,930 higher than the same three-month period last year.
During the three-month period this year, production towards the 2kW generator
set contract provided 64% of Electronics segment revenues, the Company's
research and development contracts provided 8% of Electronics segment
revenues and various orders which are generally for replacement parts
provided 28% of Electronics segment revenues. During the same three-month
period last year, production towards the 2kW generator set contract provided
23% of Electronics segment revenues, the Company's research and development
contracts provided 37% of Electronics segment revenues and various orders
generally for replacement parts provided 40% of Electronics segment revenues.
The increase in revenues during the three-month period ended March 31, 2006
compared to March 31, 2005 is attributable to an increase in generator set
production towards contract requirements as well as an increase in orders for
replacement parts. The effect of these increases was partially offset by a
decrease in customer funded research and development. Revenue from customer
sponsored research and development decreased in amount and percent as a
result of the completion in September 2005 of billable work under the
Company's first research and development contract. The Company continued
internal development on some items through February 2006 and in the three-
month period ending March 2006 incurred $4,573 of costs which were expensed
in the current period.
This change in product mix during the three-month period ended March 31, 2006
compared to March 31, 2005 provided an increase in margin from generator set
production work which was outweighed by a decrease in margin from research
and development contracts as well as a reduction in higher margin work
towards various orders which are generally for replacement parts.
For the nine-month period ended March 31, 2006, revenues in the Electronics
segment were $885,640 higher than the same nine-month period last year.
During the nine-month period this year, production towards the 2kW generator
set contract provided 53% of Electronics segment revenues, the Company's
research and development contracts provided 19% of Electronics segment
revenues and various orders which are generally for replacement parts
provided 28% of Electronics segment revenues. During the same nine-month
period last year, production towards the 2kW generator set contract provided
34% of Electronics segment revenues, the Company's research and development
contracts provided 27% of Electronics segment revenues and various orders
generally for replacement parts provided 39% of Electronics segment revenues.
The increase in revenues during the nine-month period ended March 31, 2006
compared to the nine-month period ended March 31, 2005 is attributable to an
increase in production of 2kW generator sets and orders for replacement parts
which was partly offset by a decrease in customer sponsored research and
development.
The operating loss in the nine-month period ended March 31, 2006 compared to
operating income in the nine-month period ended March 31, 2005 is
attributable to a change in product mix. The increase in margin from
generator set production work was outweighed by a significant reduction in
contract research and development work and the reduction in higher margin
work towards various orders which are generally for replacement parts.
As of March 31, 2006, the aggregate value of the Company's backlog of
electronics product not previously recorded as revenues was approximately
$4.0 million. It is estimated that approximately $2.2 million of this
backlog will be recognized as revenues during this fiscal year ending June
30, 2006.
As of March 31, 2005, the aggregate value of the Company's backlog of
electronics product not previously recorded as revenues was approximately
$3.6 million.
Leisure and Recreation Segment
In the HEDCO Division, revenues were $3,213 higher for the three-month period
ended March 31, 2006 when compared to the same period last year. This
reflects fluctuations in the market for replacement parts for previously sold
snowmaking machinery. Revenues for the nine-month period ended March 31,
2006 were $30,315 lower than the same nine-month period last year as a result
of fewer sales of spare parts. The sale of snowmaking machines are recorded
when machinery has been delivered which historically has been during the
second fiscal quarter.
The operating loss recognized in the three month period ending March 31,2006
is greater than in the same period last year due to increased operating and
general and administrative costs. The loss during the nine-month period
ending March 31, 2006 was lower when compared to last year due to a change in
product mix of spare parts sold and the cessation of additional costs present
last year relating to the introduction of new enhancements to the general
product line.
As a result of a review of this segment completed by management during 2003,
enhancements to the machines were designed. These enhancements were and are
currently designed to simplify the operation of the HEDCO snowmaker and are
made available to provide remote control operations and monitoring as
optional features. The cost of developing these enhancements has been
expensed as incurred. In addition, the market for snowmaking machines has
changed in recent years. Rather than ordering machinery months ahead of
delivery times, customers are expecting product to be readily available for
immediate use. The last year in which the Company had a backlog of orders
for snowmaking machines was in 2001. In order to remain competitive, the
Company has produced some models for inventory purposes.
Liquidity and Capital Resources
The Company's principal capital requirements are to fund working capital
needs and any debt servicing requirements and capital expenditures. The
Company's borrowing capacity has remained above its use of outside financing.
Management believes that the Company's future cash flow from operations,
combined with its existing line of credit will be sufficient to support
working capital requirements and capital expenditures at their current or
expected levels.
Management also believes that it can continue to meet the Company's short-
term liquidity needs through a combination of progress payments on government
contracts (based on costs incurred) and billings at the time of delivery of
products.
At March 31, 2006, the Company's working capital was $3,152,075 compared to
$3,627,322 at June 30, 2005.
The ratio of current assets to current liabilities was 3.17 to 1 at March 31,
2006 and 4.89 to 1 at June 30, 2005.
The following table is a summary of the Statements of Cash Flows in the
Company's Financial Statements:
Nine Months ended March 31,
2006 2005
Net Cash (used) in/ provided by
Operating activities ($210,934) 247,788
Investing activities ($126,830) ($202,885)
Financing activities ($115,955) ($34,102)
Operating Activities
Adjustments to reconcile net earnings to net cash used in operating
activities are presented in the Statements of Cash Flows in the Company's
Financial Statements.
During the nine month period ended March 31, 2006, net cash used in operating
activities was comprised primarily of net loss before depreciation and
amortization and increases in accounts receivable, inventory and contract
costs and related profits in excess of billings. These were partly offset by
a decrease in deferred taxes and increases in accounts payable and accrued
liabilities.
Net cash provided by operating activities in the nine month period ended
March 31, 2005 was comprised primarily of depreciation and amortization of
loan fees, a decrease in contract costs and related profits in excess of
billings, and an increase in accounts payable. These were partly offset by an
increase in accounts receivable and a decrease in accrued liabilities.
The Company expenses its research and development costs as incurred. These
costs consist primarily of material and labor costs. For the nine-month
period ended March 31, 2006, the Company expensed $45,886 of these costs.
For the same nine-month period last year, the Company expensed $50,943 of
research and development costs.
Investing Activities
During the nine-month period ended March 31, 2006, net cash used in investing
activities amounted to $126,830. Of this amount, $101,061 was used for
plant, property and equipment, and $25,769 was used by the Company for "land
and land costs held for sale".
During the nine-month period ended March 31, 2005, investing activities used
$202,885. Of this amount, $66,425 was used for plant, property and
equipment, and $85,322 was used for costs associated with "land and land
costs held for sale". The Company had also used $51,138 to continue to
invest in its capitalized development costs.
Financing Activities
Financing activities during the nine-month period ended March 31, 2006 used
$115,955 compared to $34,102 during the same period last year. These amounts
primarily represent principal reduction payments made toward the Company's
term loan agreement described below.
On February 24, 2005, the Company and Sovereign Bank (the "Bank") entered
into a Term Loan Agreement (the "Loan Agreement") that replaced, and
restructured the remaining balance due on, the Company's Mortgage Note
agreement with the Bank, which matured in January 2005. Pursuant to the Loan
Agreement, the Company borrowed $292,187 from the Bank for a term ending
February 23, 2007, at a fixed annual interest rate of 5.56 percent. This
loan, of which $124,698 was outstanding as of March 31, 2006, is secured by a
first lien on all of the Company's accounts receivable, machinery, equipment
and other personal property (the "Collateral") and is subject to customary
representations, covenants and default provisions in favor of the Bank.
The Company also has a line of credit agreement with the Bank in the amount
of $500,000 at an annual interest rate equal to the Bank's prime rate plus
..25 percent. As of March 31, 2006, there were no outstanding borrowings
against this line of credit facility. In the event that the Company borrows
funds under this line of credit facility, the loan would be co-collateralized
by the Collateral under the Loan Agreement. On November 9, 2005, this line
of credit agreement was renewed on the same terms and conditions to December
1, 2006.
During 1988, Gordon C. Dewey, the Company's co-founder, lent the Company a
total of $200,000. The Company's note payable is unsecured and bears
interest at the rate of 9 percent per annum. This note was subordinate to
the Company's Mortgage Note with the Bank, but is not subordinate to the new
Loan Agreement with the Bank described above. It is repayable upon demand by
Frances D. Dewey, Mr. Dewey's widow.
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.
Previously, on December 29, 2004, the Company had agreed to sell
approximately 68 undeveloped and unused acres of this land to K. Hovnanian
North Jersey Acquisitions, L.L.C. ("K. Hovnanian"), a wholly-owned
subsidiary of Hovnanian Enterprises, Inc., a residential real estate
developer and homebuilder. The Company's stockholders approved the sale of
this land at the Annual Stockholders meeting, which was held on March 8,
2005. Completion of the proposed land sale depended on, among other things,
a number of conditions being satisfied, including extensive regulatory and
rezoning approvals from New Jersey State and local entities. On June 2,
2005, the Company agreed to extend, from June 7, 2005 until September 7,
2005, the period (the "Investigation Period") during which K. Hovnanian was
permitted to conduct its investigation relating to the proposed purchase.
The Agreement of Sale provided that, during the Investigation Period, if K.
Hovnanian was not satisfied with the results of its investigation, it could
terminate the Agreement of Sale without explanation.
On July 25, 2005, the Company announced that it had received from K.
Hovnanian a notice terminating the Agreement of Sale. As a result of such
termination, the $200,000 deposit previously paid into escrow by K. Hovnanian
was returned to K. Hovnanian. As a result of this termination of the
Agreement of Sale, the Company had expensed $63,946 of related costs, which
had been capitalized as "Land and related costs held for sale". This amount
was expensed during the fourth quarter ended June 30, 2005.
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. This endeavor has become more complex with the implications of
New Jersey's "Highlands Water Protection and Planning Act". Although the Act
was passed in June of 2004, the specifics are still emerging. The Act
identifies approximately 400,000 acres of New Jersey as The Highlands
Preservation Area. Pursuant to the statute, this area has the most onerous
restrictions on future development. The Company's property is in this area,
and further development would not be permitted without a waiver or other
relief from the State. The Company believes that there are strong reasons
why its property should not be in the preservation area, and is attempting to
affect a solution. However, the Act is new, the associated regulations have
not yet been promulgated, and the new Governor and administration first took
office in January 2006. Accordingly, no assurances can be given that these
efforts will be successful or, if successful, the timing thereof.
Government Defense Business
Most of the Company's revenues are derived from government defense business,
which is comprised of business with the U.S. Department of Defense or with
other government contractors. The Company's government defense business
consists of long-term contracts and short-term orders such as for replacement
parts.
Historically, the Company's revenues from its government defense business
have been dependent upon single programs. Currently, the Company's primary
program is with the U.S. Army to provide diesel operated generator sets. 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 replaced the initial contract, which was awarded in 1996. The
Company has been the sole source producer of this generator set for the Armed
Forces since 1997. These generators continue to be provided for both active
and reserve components of various departments of the U.S. Armed Forces.
As with the initial contract, the current contract to supply 2kW diesel
operated generator sets allows for the U.S. Army to place annual production
orders and also place additional interim orders. The amount of orders
received under this contract is approximately $18 million through March 31,
2006. Deliveries of these orders are scheduled to continue through August
2006.
The composition of the Company's government defense business has been
evolving in recent years. Prior to the three-month period ended December 31,
2005, production efforts towards the 2kW generator set contract had been
decreasing as a result of reduced orders under the contract. However, in the
three-month period ending March 31, 2006 as in the previous three-month
period, production efforts towards the contract increased due to customer
orders.
During the nine-months ended March 31, 2006, production towards the 2kW
generator set contract provided 53% of Electronics segment revenue compared
to approximately 34% during the same period in fiscal year 2005 and
approximately 66% during the same period in fiscal year 2004. Replacement
parts and other short-term business provided approximately 28% of Electronics
segment revenue during the nine-months ended March 31 2006, approximately 39%
during the same period in fiscal year 2005, and approximately 31% during the
same period in fiscal year 2004. In addition the Company was awarded a
research and development contract on September 9, 2003 and another research
and development contract on September 28, 2004. Efforts toward these
research and development contracts provided approximately 19% of Electronics
segment revenues during the nine-months ended March 31, 2006, approximately
27% during the same period in fiscal year 2005 and approximately 3% during
the same period in fiscal year 2004 when the initial research and development
contract was awarded.
The long term reduction in generator set orders results from many factors.
It appears that the main customer, the U.S. Army, has satisfied the majority
of its outstanding requirements. It has been placing orders as new
requirements emerge, and this is a slower process. Moreover, the Company now
believes that there is competition in part of the market, from a larger 3kW
generator that operates more quietly than the Company's 2kW model. However,
it does not compete in the 'man-portable' segment of the market since the
competing product is twice as heavy. The customer is interested in a product
which is smaller, lighter and quieter and the Company is working towards
developing the 2kW generators to address its customer's request. See below
under "Company Strategy." The Company's production contract for 2kW
generators prohibits changes to the unit's design and performance
characteristics. This allows the military procurement and logistics
infrastructure to standardize on a single set of requirements, and avoid
incremental change. Traditionally this has been advantageous to both
customer and supplier. However, with evolving requirements and competition,
this can be less advantageous.
As the contract allows, additional orders may be made by the U.S. 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".
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 was
in the amount of approximately $1.8 million. The contract was for the
research and development of improvements to the current 2kW diesel operated
generator set specifically at the request of the Army for lighter, quieter
models. Work on this contract was performed at the Company's location in
Oakland, New Jersey and was completed in September 2005. On September 28,
2004, the Company was awarded a second "cost plus fixed fee" research and
development contract by the U.S. Army, in the amount of $1.5 million, for
work to be performed towards similar objectives. Work on this project is
expected to continue through September 2006. There are no assurances of
future production orders as a result of these contracts. However, both
contracts require the Company to present improvements to the government.
The Company has continued to invest in its efforts to improve its products
and existing technologies. This effort is focused on the enhancement of the
existing generator set product line and involves, primarily, the adaptation
of existing technology, as well as engineering and design to meet specific
customer requests. The scope of these efforts includes the development of an
improved product, which is in accordance with current customer requests and
future requirements. The Company is engaging in efforts to address these
requests in the areas of sound reduction, reduced weight, improved fuel
consumption and environmental considerations.
Other companies have announced intentions of developing similar products.
Some of these companies have greater financial and/or technical resources
than the Company. However, management believes that despite inherent risks
and uncertainties in all of these types of projects, these efforts are
important to the Company's business. 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.
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.
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
The Company's primary sources of revenue include products with long
manufacturing lead times. These products, in particular, are its 2kW
generator sets, and its HEDCO snowmaking machines. Recognizing this, the
Company has committed some of its resources to making a quantity of these
products readily available by producing them for inventory and sales. The
government sector has been ordering small quantities of 2kW generator sets
for specific uses pursuant to short term orders independent of the Company's
2kW contract.
The market for snowmaking machines has changed in recent years. Rather than
order machinery months ahead of time, customers are expecting product to be
readily available for immediate use. In order to remain competitive in this
market, the Company has produced some models of snowmaking machines for
inventory purposes. It is also enhancing the technical capabilities as
optional items for these machines.
Despite the inherent risks and uncertainties of investing in inventory,
management believes that the investments in inventory described above are
important to the Company's business and future growth.
The Company is focusing its efforts on select product categories where
management believes that the Company can grow its business. Although no
assurances can be made that such strategy will be successful, management
believes that long term growth can be achieved from three perspectives: 1)
growing the Company's market share in areas where it already has a strong
presence, 2) expanding into related markets, and 3) expanding its strengths
into related product categories.
As part of this strategy, the Company has been investing in existing
technologies to meet its customer's future requirements. Management is also
continuing to re-enforce the customer recognition of the Company's product
quality and customer relationships. The Company faces competition in many
areas and from companies of various sizes. Competitive factors include
product quality, technology, product availability, price and customer
service. Management believes that the reputation of the Company in these
areas provides a significant positive competitive factor.
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 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, pensions,
impairment of long-lived assets, capitalized development costs, and valuation
of deferred tax assets and liabilities.
Revenues and estimated earnings under 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 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.
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.
The Company has capitalized certain development costs for efforts to improve
and enhance the 2kW generator set product line. These efforts involve,
primarily, the adaptation of existing technology, as well as, engineering and
design to meet specific customer requests. The scope of these efforts
includes the development of a product, which is in accordance with current
customer requests and future requirements. Company efforts are to address
areas of sound reduction, reduced weight, improved fuel consumption and
environmental considerations. The Company reviews these capitalized costs on
a regular basis, to assess future recoverability through the existing
contracts to which such costs relate, and expenses such costs, if any, to the
extent they are not deemed recoverable. The Company had $703,799 of
capitalized development costs as of March 31, 2006 and as of June 30, 2005.
See "Government Defense Business" above.
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 March 31,
2006, 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. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits
------------------------------------------------------------------
See the accompanying Index to Exhibits to this quarterly report on Form 10-Q.
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: May 12, 2006 John H.D. Dewey
President and Chief Executive Officer
/s/ Stephen P. Krill
Date: May 12, 2006 Stephen P. Krill
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
31.2 Certification of Treasurer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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
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