Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
or
__
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-2892
THE DEWEY ELECTRONICS CORPORATION
(Exact name of registrant as specified in charter)
NEW YORK 13-1803974
(State of Incorporation) (I.R.S. Employer Identification No.)
27 Muller Road, Oakland, New Jersey 07436
(Address of principal executive offices) Zip Code
201-337-4700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
(Title of class)
Indicate by check mark 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form l0-K.
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant, computed by
reference to the price at which the common stock was sold as
of the close of business on August 29, 2002: $3,378,565.
The number of shares outstanding of the registrant's common
stock, $.01 par value was 1,339,531 at August 29, 2002.
Page 1
THE DEWEY ELECTRONICS CORPORATION
TABLE OF CONTENTS
Item Page
PART I
1. Business 3
2. Properties 5
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
10. Directors and Executive Officers of the Registrant 34
11. Executive Compensation 34
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 34
13. Certain Relationships and Related Transactions 34
14. Controls and Procedures 34
PART IV
15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 35
16. Signatures 36
PART I
Item 1. BUSINESS
The Dewey Electronics Corporation (the "Company") was incorporated
in the State of New York in 1955. It is a systems oriented military
electronics development, design and manufacturing organization based
in Oakland, New Jersey. The Company is organized into two operating
segments on the basis of the type of products offered.
In the electronics segment, the Company is a producer of
sophisticated electronic and electromechanical systems for the Armed
Forces of the United States. Currently, the principal products of
this segment of business are manufactured either as prime contractor
or as subcontractor for the Department of Defense. In addition, the
Company's Pitometer Log Division is a long-established manufacturer
of ship speed and distance measuring instrumentation.
In the leisure and recreation segment, the Company, through its HEDCO
Division, designs, manufactures and markets advanced, sophisticated
snowmaking equipment.
There are no intersegment sales.
The sales and operating profit of each industry segment and the
identifiable assets attributed to each segment for the last three
fiscal years ended June 30, 2002 are set forth in Note L -
Operating Segments of the Notes to the Financial Statements.
During the last three fiscal years, there were no material
expenditures for Company-sponsored or customer-sponsored research
and development activities.
Compliance with Federal, state and local environmental provisions
has had no material effect upon capital expenditures, earnings or the
competitive position of the Company. In addition, there are no
material capital expenditures anticipated for environmental control
facilities.
As of August 29, 2002, the Company had a work force of 34 employees,
of whom 9 were technical or professional personnel. Last year at the
same date, the work force included 38 employees, of whom 9 were
technical or professional personnel. The reduction in workforce is
the result of revised production schedules in the electronics segment
of business. Fluctuations in the work force sometimes also result
from the seasonal nature of the leisure and recreation segment of
business.
ELECTRONICS SEGMENT
This segment of business accounted for 95% of total revenues in
fiscal year 2002, 99% of total revenues in fiscal 2001 and 96% of
total revenues in fiscal 2000.
The Company has been producing 2kW diesel operated tactical
generator sets for the U.S. Army since 1997. Under a contract
which was awarded in 1996, the Company received orders of
approximately $33 million and made deliveries to various
branches of the Armed Forces of the United States. The final
production order under this contract was received in November
2000 and deliveries of this order were completed in March 2002.
The Company has delivered a total of more than over 6,000 of
these lightweight diesel generators under the contract. Dewey
generators are currently being fielded by both active and reserve
components of the U.S. Armed Forces. They have been delivered
to Fort Bragg, Fort Campbell, the New Brigade Combat Team in
Fort Lewis and multiple installations throughout the United
States and Europe.
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 new contract is a
ten-year indefinite delivery, indefinite quantity contract that
replaces the initial contract described above, under which Dewey
Electronics has been the sole producer of this
generator for the Army since 1997.
As with the prior contract, this contract allows the Army to place
production orders annually and to place additional interim orders.
The total amount of orders placed to date is approximately
$6 million. The Company received most of these orders in March
and April 2002. As a result of the timing of the receipt of these
orders, fourth quarter revenues this year were lower than the
same period last year. The Company has begun production under
this contract and deliveries are scheduled to continue through
fiscal year 2003. The Company is anticipating the receipt of
additional orders, however, no assurance can be made that the Army
will place such orders or, if additional orders are placed,
the timing and amount of such orders.
The electronics segment of business provides most of the Company's
revenues. Virtually all of the electronic product revenues are
attributable to business with the Department of Defense (DOD)
of the Federal Government or with other government contractors.
Aside from replacement part and other short-term business, the
Company's electronics segment revenues have in recent years been
dependent upon single projects. Thus, until 1997 a single program,
the ADCAP torpedo program with the U.S. Navy, was responsible for
all of the Company's electronics segment revenues from long-term
projects, and currently the tactical generator set program of the
U.S. Army accounts for all such long-term revenues.
Since substantially all of the Company's electronics business is
derived from contracts with various agencies of the United States
Government (the "Government") or subcontracts with prime Government
contractors, the loss of substantial Government business would have
a material adverse effect on the business.
For the most part, working capital requirements for the electronics
segment of business are funded by progress payments provided by the
Government.
All of the Company's contracts with the Government are subject to
the standard provision for termination at the convenience of the
Government.
Although raw materials are generally available from a number of
suppliers, the Company is at times dependent upon a specific
supplier or a limited number of suppliers of material for a
particular contract and has occasionally experienced some delays
in deliveries. Such delays have not had a material effect on
operations; however, the Company cannot provide any assurances
that future delays, if any, will not have a material adverse
effect.
Reference is made to Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations for additional
information regarding this segment.
LEISURE AND RECREATION SEGMENT
The leisure and recreation segment of business accounted for 5% of
the Company's revenues in fiscal year 2002, 1% of the Company's
revenues in fiscal 2001 and 4% of the Company's revenues in
fiscal 2000.
Snowmaking equipment is sold to ski areas as original equipment
or as replacements for existing equipment. Most snowmaking
equipment is paid for in full at delivery to the customer.
In other cases, such equipment is sold under a sales contract
that provides for a substantial down payment and retention of
a security interest in the equipment until full payment is
received. Typically, full payment is made within one year.
The Company has not experienced any losses due to resale of
the equipment following default by customers. The Company
services the equipment at the purchaser's expense after a warranty
period that expires at the end of the snowmaking season in
which the sale occurs.
The Company has sold snowmaking equipment to over three hundred
different locations in the United States and abroad. Marketing
is performed by the Company's employees in the domestic market
and by distributors and representatives in foreign markets. In
fiscal 2002, the foreign market represented a small amount of
revenues, all from the sales of parts.
Orders for snowmaking equipment have normally been received during
the first and fourth quarters of the fiscal year, though this
pattern has been changing. For the most part, shipments are made
and revenues recorded during the second quarter. Production
usually takes place in the first and second quarters, and it is
during this period that inventory is generated and working
capital demands are the greatest.
While there may be some temporary delays, problems regarding
source and availability of raw materials have had no material
adverse effect on operations of this segment.
Reference is made to Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations for additional
information regarding this segment.
Item 2. PROPERTIES
The Company's 49,200 square foot facility at 27 Muller Road,
Oakland, New Jersey, located on 90 acres of land owned by the
Company, was constructed in 1981. This facility houses
executive offices and manufacturing operations and is used
primarily for the electronics segment of business. Approximately
90% of this facility is being utilized for production (one
shift), staging and storage.
Under the terms of a mortgage note to Sovereign Bank described in
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, both the land and building are subject to
the lien of a mortgage securing indebtedness in the amount of $949,610.
The Company also has a line of credit with the Bank, under which the
Company may borrow up to an additional $500,000 that would be secured
by a lien on substantially all of the Company's machinery, equipment
and other personal property.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 2002.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded over-the-counter under the
symbol "DEWY.OB".
The table below sets forth the high and low market prices of the
Company's common stock for each quarter during the last two
fiscal years.
Quarterly Common Stock Price Range
Fiscal Year 2002 Fiscal Year 2001
Quarter High Low High Low
1st $4.45 $3.25 $3.25 $1.3125
2nd 5.00 4.05 3.625 2.3125
3rd 4.05 3.55 3.375 2.50
4th 4.35 3.95 3.80 2.25
Price information is based on over-the-counter market quotations,
which reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent
actual transactions.
There were no dividends declared or paid during the fiscal years
2002, 2001 and 2000. The Company has no plans to pay dividends
in the foreseeable future.
The number of holders of record of the Company's common stock as
of August 29, 2002 was 606.
Item 6. Selected Financial Data
(In thousands of dollars, except per share amounts)
Year ended June 30,
2002 2001 2000 1999 1998
Revenues $8,916 $10,886 $10,409(1) $8,632(3) $2,325
Income/(loss)
before income
taxes $1,459 $1,838 $1,543(2) $935(3) $ (748)
Net income/
(loss) $875 $1,103 $926(1)(2) $561(3) $ (447)
Net income/
(loss) per share
- basic $.65 $.82 $.69 $.42 $ (.33)
Net income/
(loss) per share
- diluted $.63 $.80 $.69 $.42 $ (.33)
Cash dividends
per common share -- -- -- -- --
Total assets $6,822 $6,618 $5,325 $5,776 $4,713
Long-term
Obligations $1,699 $2,269 $1,924 $2,427 $2,481
Working capital $4,793 $4,728 $3,227 $2,413 $1,444
Stockholders'
Equity $4,253 $3,378 $2,275 $1,349 $ 788
(1) Revenues in fiscal year 2000 include $702 as a result of
notification of the final closeout of a contract with the
U.S. Navy.
(2) Income in fiscal year 2000 includes a charge for an
inventory provision in the amount of $353.
(3) The increases in this selected financial data relate to the
Company's contract with the U.S. Army to supply diesel operated
tactical generator sets over five annual purchasing periods.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Financial Data" and the Company's Financial Statements,
including the related notes thereto, appearing elsewhere in this
Annual Report. Certain statements in this report may be deemed
"forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934. All statements, other than
statements of historical fact, that address activities, events or
developments that the Company or management intends, expects,
projects, believes or anticipates will or may occur in the future
are forward-looking statements. Such statements are based upon
certain assumptions and assessments made by management of the
Company in light of its experience and its perception of
historical trends, current conditions, expected future
developments and other factors it believes to be appropriate.
The forward-looking statements included in this report are also
subject to a number of material risks and uncertainties, including
but not limited to economic, governmental, competitive and
technological factors affecting the Company's operations, markets,
products, services and prices and specifically, the factors
discussed below under "Government Defense Business". Such
forward-looking statements are not guarantees of future
performance and actual results, developments and business
decisions may differ from those envisaged by such forward-
looking statements.
The Company's operating cycle is long-term and includes various
types of products and varying delivery schedules. Accordingly,
results of a particular period or period-to-period comparisons
of recorded revenues and earnings may not be indicative of future
operating results. The following comparative analysis should be
viewed in this context.
The sales and operating profit of each industry segment and the
identifiable assets attributed to each segment for the last
three fiscal years ended June 30, 2002, 2001, and 2000 are set
forth in Note L - Operating Segments of the Notes to the
Financial Statements.
Results of Operations
The Company's fiscal year ends on June 30. Accordingly, all
references to years in this Management's Discussion refer to
the fiscal year ended June 30 of the indicated year. Also,
when referred to herein, operating profit means net sales less
operating expenses. 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 other
income and expenses.
Revenues
Revenues this year were 18% lower than last fiscal year and 14%
lower than fiscal year 2000 as a result of lower revenues in
the electronic segment. The leisure and recreation segment
revenues had increased over both prior years and is discussed
further in the section entitled Leisure and Recreation.
Information about the Company's operations in the two segments
are set forth in Note L - Operating Segments of the Notes to
the Financial Statements.
Electronic Products
In the electronics segment, revenues 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. Elements of these costs
include material, labor and overhead expenses.
Electronic product revenues accounted for 95% of total revenues
in 2002, 99% of total revenues in 2001 and 96% of total revenues
in 2000.
In fiscal year 2002, 90% of the electronic product revenues were
derived from production efforts towards providing the Armed
Forces with diesel operated tactical generator sets. The
production of diesel operated tactical generator sets accounted
for 88% of the electronic segment revenues in fiscal year 2001
and 78% in 2000.
In 1996, the Company was awarded a contract with the U.S. Army
to supply tactical generator sets, which operate on diesel fuels.
This contract included five annual purchasing periods including
price escalations for each year, and the Army placed an annual
production order each year plus some additional orders. The
initial award funded $1 million in 1996 and the Company
received total orders under the contract of approximately $33
million. The Company has delivered a total of more than 6,000
of these lightweight diesel generators, and deliveries of the
final production order were made in March 2002. Dewey generators
under the contract are currently being fielded by both active
and reserve components of the U.S. Armed Forces. They have been
delivered to Fort Bragg, Fort Campbell, the New Brigade Combat
Team in Fort Lewis and multiple installations throughout the
United States and Europe.
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 described
above. As with the prior contract, this contract allows the
Army to place production orders annually and to place additional
interim orders. The total amount of orders placed to date is
approximately $6 million. The Company received most of these orders
in March and April 2002. As a result of the timing of the receipt
of these orders, fourth quarter revenues this year were lower than
the same period last year. The Company experiences variable
amounts of material receipts from time to time during the normal
course of business. Material receipts are dependent upon the
receipt of orders, project requirements and vendor delivery
schedules. As the Company uses the percentage of completion
method of accounting to record revenues, material costs have
an impact upon recorded revenues (see Note 1, Revenue
Recognition of the Notes to Financial Statements).
The Company has begun production under this contract and
deliveries are scheduled to continue through fiscal year 2003.
The Company is anticipating the receipt of additional orders,
however, no assurance can be made that the Army will place such
orders or, if additional orders are placed, the timing and
amount of such orders.
The remaining revenues of the electronic segment revenues in
fiscal years 2002, 2001 and 2000 were the result of various
short term orders, more limited in scope, that were generally for
replacement parts for previously supplied Department of Defense
equipment and other projects performed as a subcontractor. A
large part of these other revenues continues to be attributable
to the Company's Pitometer Log Division, which manufactures speed
and distance measuring instrumentation for the U.S. Navy. The
Company has also been developing a small customer base, which
utilizes its specialized CNC machining centers.
The aggregate value of the Company's backlog of electronic products
not previously recorded as revenues was approximately $4 million
on June 30, 2002, $6 million on June 30, 2001 and $4 million on
June 30, 2000. Almost all of this backlog is attributable to
the U.S. Army contract for diesel operated tactical generator
sets. It is estimated that the present backlog will be shipped
during the next 12 months and recognized as fiscal year 2003
revenues.
Leisure and Recreation
In the leisure and recreation segment, sales of snowmaking machines
and related parts amounted to $470,169 in fiscal year 2002. In
fiscal years 2001 and 2000, sales amounted to $124,968 and
$375,546 respectively. There were no export sales of snowmaking
machines during the last three fiscal years.
More snowmaking machines were sold in fiscal year 2002 than in the
past several years. Competition in the foreign markets remains
stronger than in the domestic market and the Company is directing
its efforts in the domestic market. Due to changing economic
conditions and relatively poor ski season during fiscal year 2002,
this upcoming year does not appear to be as productive.
As of June 30, 2002, the Company had no backlog of orders for
snowmaking machines. Last year, the Company had $81,000 backlog
of orders for snowmaking machines. There was no backlog as of
June 30, 2000.
Gross Profit
Gross Profit was 31% in 2002, 27% in 2001 and 26% in 2000.
In the electronics segment, gross profit was 32% of revenues as
a result of continued production efforts towards the contract
for diesel operated tactical generator sets. In 2001,
gross profit was 27% and in 2000, gross profit was 30%.
Selling, General and Administrative Expenses
In 2002, selling, general and administrative expenses of $1,264,189
were 14% of revenues. In 2001 these expenses of $1,017,002 were
9% of revenues, and in 2000 they were $939,094 or 10% of revenues.
These increases were primarily the result of increased corporate
and professional fees incurred.
Interest Expense
Interest expense for the last three years amounted to $97,242 in
2002, $153,681 in 2001 and $204,283 in 2000. A voluntary principal
reduction payment of $500,000 was made in August 2001. Another
principal reduction payment of $28,485 was made in December 2001.
These additional payments reduced the principal amount on which
the interest is calculated, thereby reducing interest expense.
Also, on December 27, 2001, the Company renewed its mortgage
note agreement reducing the interest rate from a fixed rate
of 8.25% to the Banks prime rate plus .5% with a floor of 6%.
This lower interest rate also reduced interest expense.
Other Income-Net
The amounts reported as Other Income represent the net effect of
interest and miscellaneous items such as the sale of scrap,
discounts, bank transaction fees and other like items.
Other income of $17,511 for fiscal year 2002 was comprised of
interest income of $20,432 and the net expense of miscellaneous
bank fees and discounts of $2,921.
Other income of $21,836 for fiscal year 2001 was the result of
interest received in the amount of $7,785 and the net income of
miscellaneous items and scrap sales of $14,051.
During fiscal year 2000, Other Income of $4,592 was comprised
of interest income of $4,866 partially offset by the net
effect of miscellaneous items of $274.
Income Taxes
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards.
The provision for income taxes for the fiscal years 2002, 2001,
and 2000 was at an effective rate of 40%.
Inflation
Historically, inflation and price changes have not had a
material effect on operations.
Liquidity and Capital Resources
At June 30, 2002, the Company's working capital was $4,768,198
compared to $4,727,351 at June 30, 2001.
The ratio of current assets to current liabilities was 6.35
at June 30, 2002 and 5.87 the prior year.
During fiscal year 2002, operations provided $2,359,268 net cash
as compared to $1,074,114 net cash provided in 2001 and
$1,757,904 net cash provided in 2000.
During 2002, net cash provided by operations consisted primarily
of net income before depreciation and amortization, collections
of accounts receivable and the billing and collection of contract
costs and related estimated profits in excess of applicable
billings. These costs were billed as deliveries were made
on the Company's long-term projects.
In 2001, net cash provided by operations consisted primarily of
net income before depreciation and amortization, collections
of accounts receivable, reductions in inventories and the accrual
of corporate income taxes, all of which were almost entirely
offset by an increase in unbilled contract costs and related
estimated profits in excess of applicable billings.
This year, investing activities used $327,447 in net cash. This
amount consists of capital expenditures for building improvements,
tooling and equipment, which this year includes the Company's
investment in the expansion of existing technologies related to
its businesses and to support new business development. In fiscal
year 2001, net cash of $63,252 was used in investing activities
for capital expenditures for building improvements, tooling
and equipment. In fiscal year 2000, net cash of $116,229 was
used in investing activities for capital expenditures for
building improvements, tooling and equipment.
Net cash used in financing activities this year amounted to
$618,985 of principal payments made towards the Company's
long-term debt. Last year, the Company made principal
payments of $97,090.
The Company had a Mortgage Note payable to Sovereign Bank at
an interest rate of 8.25% per annum, payable in monthly
installments of approximately $20,000 with a final maturity
in year 2002.
On December 27, 2001, the Company and Sovereign Bank agreed
to revised terms of its mortgage note agreement. The renewed
agreement, among other items, revised the interest rate from
a fixed rate of 8.25% to the Bank's prime rate plus .5% with
a floor of 6%. In addition, the maturity date was extended
from October 2002 to January 2005.
The Company also has a line of credit agreement with Sovereign
Bank in the amount of $500,000 at the rate of .25% plus the
Bank's prime rate, which may be renewed on October 31 of each
year. The Bank had also agreed to extend the Company's line
of credit of $500,000 through October 2002 at the rate of the
Bank's prime rate plus .25%. As of June 30, 2002, there were
no outstanding borrowings against this line of credit facility.
The Mortgage Note is secured by a first mortgage on all of the
Company's land and its building. Borrowings under the line of
credit arrangement are secured by a first lien on all of the
Company's machinery, equipment and other personal property.
The Company also has a note payable to a co-founder (shareholder)
in the amount of $200,000. This note, bearing the interest rate
of 9% has been classified on its balance sheet as a long-term
liability because it is subordinate to the mortgage note with
the Bank.
The Company's borrowing capacity at June 30, 2002 remained above
its use of outside financing. Management believes that the
Company's anticipated cash flow from operations, combined with
its line of credit with Sovereign Bank, 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.
The Company had no material commitments for capital expenditures
as of the end of the 2002 fiscal year.
The Company owns approximately 90 acres of land and the building
it occupies in Bergen County, New Jersey, which are carried on
its books at a net value of approximately $700,000. This property
is adjacent to a full interchange of Interstate Route 287.
Management continues to investigate possible options that may
provide additional revenues or be otherwise favorable to the
Company's stockholders equity.
Recent Pronouncements
On June 29, 2001, Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" was approved by the FASB.
SFAS No. 141 requires the purchase method of accounting be used
for all business combinations initiated after June 30, 2001.
The Company adopted SFAS No. 141 on July 1, 2001 and it has
determined that this statement had no material impact on its
financial position or results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible
Assets" was approved by the FASB. SFAS No. 142 changes its
accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease
upon adoption of this statement. The Company adopted SFAS No.
142 on July 1, 2002 and it has determined that this statement
will have no material impact on its financial position or
results of operations.
On June 29, 2001, SFAS No. 143 "Accounting for Asset Retirement
Obligations" was approved by the FASB. SFAS No. 143 requires
that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. The Company
is required to implement SFAS No. 143 on July 1, 2002 and it
has determined that this statement will have no material
impact on its financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". This statement
addresses financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of.
SFAS No. 144 supersedes FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. However, this statement retains the fundamental
provisions of Statement 121 for (a) recognition and measurement
of the impairment of long-lived assets to be held and used and
(b) measurement of long-lived assets to be disposed of by sale.
SFAS No. 144 is effective in fiscal year 2003. The Company has
determined that the adoption of this statement will not have an
impact on the financial statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections". In addition to amending and
rescinding other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions, SFAS No. 145
precludes companies from recording gains and losses from the
extinguishments of debt as an extraordinary item. SFAS No. 145
is effective in fiscal 2003. The Company does not expect the
adoption of this pronouncement to have a material impact on
the results of operations or financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The standard
requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at
the date of a commitment to an exit or disposal plan. Examples
of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a
restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after
December 31, 2002. The Company does not expect the adoption
of this pronouncement to have a material effect on the
results of operations or financial position.
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. Revenues from both sources have remained relatively stable
in recent years.
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 have been received as final deliveries were
being made on the prior contract and production of these orders
has begun. No assurances can be made that the Army will place
additional orders under this contract, or if additional orders
are placed, the timing and amount of such orders. See the
discussion above under "Electronics Segment".
The Company has many years of experience in contracting with the
Department of Defense in receiving government contracts for
diverse product lines. The Company continues to explore
other areas of business which will utilize its technical
expertise and production resources and are capable of
providing continued stability and growth. A small customer
base has been developing which utilizes the Company's CNC
machining centers.
Since substantially all of the Company's electronics business has
been derived from contracts with various agencies of the United
States Government (the "Government") or subcontracts with prime
Government contractors, the loss of substantial Government business
(includinga material reduction of orders under existing contracts)
would have a material adverse effect on the business.
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.
Other Developments
On June 18, 2002, the Company announced that, following the sudden
death of its founder, President and Chairman of the Board, Gordon
C. Dewey, its Board of Directors has elected Frances D. Dewey,
widow of Mr. Dewey, to the position of chairperson of the Board.
Mrs. Dewey, co-founder of the Company, has been active in the
Company's affairs since its inception, as a Director and in
various official capacities. She is currently Secretary of the
Corporation.
At its meeting on June 14, 2002, the Board also appointed
John H.D. Dewey (37) as Acting Chief Executive Officer of the
Company. John Dewey is the son of Gordon Dewey. Since 1999,
Mr. Dewey has been an active member of the Board, as well as
working on internal projects utilizing his experience in
management consulting and software engineering.
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, revenue and expenses.
These estimates and assumptions are affected by 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. 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. Critical accounting
policies for us include revenue recognition on contracts and
contract estimates, long-lived assets, and valuation of
deferred tax assets and liabilities
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 Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
Independent Auditors' Report 18
Financial Statements:
Balance Sheets, June 30, 2002 and 2001 19
Statements of Income, Years Ended June 30, 2002,
2001 and 2000 20
Statements of Stockholders' Equity, Years Ended June
30, 2002, 2001, and 2000 20
Statements of Cash Flows, Years Ended June 30, 2002,
2001, and 2000 21
Notes to the Financial Statements 22
All other schedules are omitted because they are not applicable
or the required information is shown in the Financial
Statements or the Notes thereto.
Independent Auditors' Report
Board of Directors of
The Dewey Electronics Corporation
Oakland, New Jersey
We have audited the accompanying balance sheets of The Dewey
Electronics Corporation as of June 30, 2002 and 2001, and the
related statements of income, stockholders' equity and
cash flows for each of the three years in the period ended
June 30, 2002. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of The Dewey Electronics Corporation at June 30,
2002 and 2001 and the results of its operations and its
cash flows for each of the three years in the period ended
June 30, 2002 in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
September 4, 2002
Parsippany, New Jersey
Balance Sheets
June 30,
2002 2001
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $3,503,087 $2,090,251
Accounts receivable (includes
U.S. Government receivable of
approximately $100,000 in 2002
and $1,234,000 in 2001) less
allowance for doubtful
accounts of $20,000 in 2002
and 2001 267,331 1,226,604
Inventories 506,817 501,680
Contract costs and related
estimated profits in excess
of billings 1,272,569 1,790,451
Deferred tax asset 30,563 35,105
Prepaid expenses and other
current assets 78,421 54,528
TOTAL CURRENT ASSETS 5,658,788 5,698,619
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 591,149 526,556
Building and improvements 1,873,333 1,856,333
Machinery and equipment 2,692,119 2,446,753
Furniture and fixtures 182,689 182,201
5,339,290 5,011,843
Less accumulated depreciation 4,302,531 4,218,806
1,036,759 793,037
OTHER NON-CURRENT ASSETS 122,148 126,330
TOTAL ASSETS $6,817,695 $6,617,986
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
Trade accounts payable $ 467,427 $ 318,058
Accrued expenses and other
Liabilities 149,016 188,093
Accrued corporate income taxes 100,166 196,221
Accrued pension costs 113,043 159,043
Current portion of long-term debt 60,938 109,853
TOTAL CURRENT LIABILITIES 890,590 971,268
LONG-TERM DEBT 888,672 1,458,742
OTHER LONG-TERM LIABILITIES 61,172 61,172
DEFERRED TAX LIABILITY 524,212 549,270
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 in 2002 and 2001 16,934 16,934
Paid-in capital 2,835,307 2,835,307
Accumulated earnings 1,920,905 1,045,390
4,773,146 3,897,631
Less: Treasury stock,
353,866 shares in 2002
and 2001, at cost (520,097) (520,097)
TOTAL STOCKHOLDERS' EQUITY 4,253,049 3,377,534
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,817,695 $6,617,986
See notes to the financial statements
Statements of Income
Years ended June 30,
2002 2001 2000
Revenues $8,916,049 $10,886,100 $10,408,958
Cost of revenues 6,112,937 7,899,061 7,727,083
Gross profit 2,803,112 2,987,039 2,681,875
Selling, general and
administrative expenses 1,264,189 1,017,002 939,094
Operating profit 1,538,923 1,970,037 1,742,781
Interest expense (97,242) (153,681) (204,283)
Other income - net 17,511 21,836 4,592
Income before income
tax provision 1,459,192 1,838,192 1,543,090
Provision for income tax (583,677) (735,277) (617,230)
NET INCOME $875,515 $1,102,915 $925,860
NET INCOME PER COMMON
SHARE - BASIC $.65 $.82 $.69
NET INCOME PER COMMON
SHARE - DILUTED $.63 $.80 $.69
Statements of Stockholders' Equity
Treasury stock
Common Stock at cost
Paid-in Accumulated
Shares Amount capital Earnings/ Shares Amount
(Deficit)
Balance,
June 30,
1999 1,693,397 $16,934 $2,835,307 $(983,385) 353,866 $520,097
Net Income -- -- -- 925,860 -- --
Balance,
June 30,
2000 1,693,397 16,934 2,835,307 (57,525) 353,866 520,097
Net Income -- -- -- 1,102,915 -- --
Balance,
June 30,
2001 1,693,397 16,934 2,835,307 1,045,390 353,866 520,097
Net Income -- -- -- 875,515 -- --
Balance,
June 30,
2002 1,693,397 $16,934 $2,835,307 $1,920,905 353,866 $520,097
See notes to the financial statements
Statements of Cash Flows
Years ended June 30,
2002 2001 2000
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 875,515 $1,102,915 $925,860
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 83,725 112,170 154,318
Amortization 4,182 4,182 4,182
Deferred income taxes
Provision 20,516 223,888 234,183
Decrease/(Increase) in
accounts receivable 959,273 123,361 (129,553)
(Decrease) in doubtful
accounts -- -- (8,571)
(Increase)/Decrease in
inventories (5,137) 32,501 530,815
Decrease/(Increase) in
contract costs and
related estimated
profits in excess of
applicable billings 517,882 (702,588) 731,145
(Increase) in prepaid
expenses and other
current assets (23,893) (20,679) (5,474)
Increase/(Decrease) in
accounts payable 149,369 (16,643) (272,890)
(Decrease)/Increase in
accrued expenses and
other liabilities (39,077) 29,890 (90,600)
(Decrease)/Increase in
pension costs accrued (46,000) 3,271 3,050
(Decrease) in billings in
excess of contract costs
and related estimated
profits -- -- (701,608)
(Decrease)/Increase in
corporate income taxes (137,087) 181,846 383,047
Total adjustments 1,483,753 (28,801) 832,044
Net cash provided by
operating activities 2,359,268 1,074,114 1,757,904
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant,
property and equipment (327,447) (63,252) (116,229)
Net cash used in
investing activities (327,447) (63,252) (116,229)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments of
long-term debt (618,985) (97,090) (554,055)
Repayment of short term
Borrowings -- -- (200,000)
Net cash (used in) financing
Activities (618,985) (97,090) (754,055)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,412,836 913,772 887,620
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 2,090,251 1,176,479 288,859
CASH AND CASH EQUIVALENTS
AT END OF YEAR $3,503,087 $2,090,251 $1,176,479
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $103,271 $157,786 $206,159
Interest received $10,443 $7,785 $4,866
Corporate Income taxes paid $685,000 $329,543 $2,411
See notes to the financial statements.
Notes to the Financial Statements
Years ended June 30, 2002, 2001 and 2000
A. Summary of Significant Accounting Policies
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.
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.
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.
4. Inventories
Cost is determined by the first-in, first-out (FIFO) method.
Inventories are valued at the lower of cost or market. Components
of cost include materials, direct labor and factory overhead.
5. Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America require 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.
6. Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Allowance for
depreciation is provided on a straight-line basis over estimated
useful lives of three to ten years for machinery and equipment,
ten years for furniture and fixtures, and twenty years for
building and improvements.
7. Loan Fees
Loan fees are capitalized by the Company and amortized utilizing
the straight-line basis over the term of the loan.
8. Long-Lived Assets
Whenever events 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 June 30, 2002, the carrying
values of such assets are not impaired.
9. Recent Pronouncements
On June 29, 2001, Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" was approved by the FASB.
SFAS No. 141 requires the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. The
Company implemented SFAS No. 141 on July 1, 2001 and determined
that this statement had no material impact on its financial
position or results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible
Assets" was approved by the FASB. SFAS No. 142 changes its
accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company implemented SFAS No.
142 on July 1, 2002 and determined that this statement will have
no material impact on its financial position or results of
operations.
On June 29, 2001, SFAS No. 143 "Accounting for Asset Retirement
Obligations" was approved by the FASB. SFAS No. 143 requires
that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset. The Company
is required to implement SFAS No. 143 on July 1, 2002 and it
has determined that this statement will have no material
impact on its financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". This
statement addresses financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets
to be disposed of. SFAS No. 144 supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. However, this
statement retains the fundamental provisions of Statement
121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. SFAS No. 144
is effective in fiscal year 2003. The Company has determined
that the adoption of this statement will not have an impact
on the financial statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". In addition to amending
and rescinding other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions, SFAS
No. 145 precludes companies from recording gains and losses
from the extinguishments of debt as an extraordinary item.
SFAS No. 145 is effective in fiscal 2003. The Company does
not expect the adoption of this pronouncement to have a
material impact on the results of operations or financial
position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities". The
standard requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that
are associated with a restructuring, discontinued operation,
plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company
does not expect the adoption of this pronouncement to have a
material effect on the results of operations or financial position.
B. Inventories
Inventories consist of:
June 30,
2002 2001
Finished goods $68,258 $32,199
Work in progress 137,268 150,667
Raw materials 301,291 318,814
Net inventory $506,817 $501,680
C. Costs and Estimated Earnings on Uncompleted Contracts
June 30,
2002 2001
Costs incurred on contracts in
progress $29,699,515 $25,175,491
Estimated contract profit 10,583,373 8,272,681
40,282,888 33,448,172
Less: billings to date 39,010,319 31,657,721
$ 1,272,569 $1,790,451
Included in the accompanying balance sheets under the
following caption:
June 30,
2002 2001
Contract costs and related
estimated profits in
excess of applicable billings $1,272,569 $1,790,451
D. Stock Option Plan
On December 2, 1998, the Employee Stock Option Committee adopted
a Stock Option Plan of 1998 which granted incentive stock options
to various executives and key employees to purchase shares of
common stock. Options were granted at fair market value of
the stock on the date of grant and are exercisable over a
ten-year period beginning December 2, 1999 to September 12, 2010.
At the Annual Meeting of Stockholders on December 5, 2001, this
stock option plan was amended and restated among other things
to increase the number of shares which may be issued under
the plan by 25,000 shares, from 60,000 to 85,000.
The changes in the number of shares under option are as follows:
Number of Shares Exercise Price
Balance June 30,1999 27,500 $ .5781
Exercised -- --
Balance, June 30, 2000 27,500 $ .5781
Granted during 2001 13,000 $1.625
Exercised -- --
Balance, June 30, 2001 40,500 $ .9141
Granted during 2002 -- --
Exercised -- --
Balance, June 30, 2002 40,500 $ .9141Weighted
Average
Exercisable at June 30,
2002 34,000 $ .7782
Also, at the Annual Meeting of Stockholders on December 5,
2001, the Company adopted a Stock Option Plan for Non-Employee
Directors. The number of shares issuable upon exercise of
options which may be granted under this Plan shall not exceed
50,000 shares of common stock. No options have been granted
under this plan.
The Company applies Accounting Principles Board (APB) Opinion
25 and related interpretations in accounting for the Plan.
Accordingly, no compensation cost has been recognized for
the Plan. Had compensation cost for the Plan been determined
consistent with Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" (SFAS 123), it
would not have any material impact on the financial statements
for 2002, 2001 and 2000, respectively.
E. Long-Term Debt
Long-term debt at June 30, consists of:
2002 2001
Mortgage Note payable to
Sovereign Bank due in
monthly installments of
$5,078 plus interest with
a final maturity in
January 2005. $949,610 $1,568,595
Less current portion: 60,938 109,853
$888,672 $1,458,742
On December 27, 2001, the Company and its primary Bank agreed to
revised terms of its mortgage note agreement. The renewed
agreement, among other items, revised the interest rate from
a fixed rate of 8.25% to the Bank's prime rate plus .5% with
a floor of 6%. In addition, the maturity date was extended from
October 2002 to January 2005.
The Mortgage Note is secured by a first mortgage on the Company's
land and its building. Borrowings under the line-of-credit
arrangement are secured by a first lien on all of the
Company's machinery, equipment and other personal property.
This borrowing arrangement with the bank contains no financial
ratio or other debt covenants. In June 2000, the Company made
a voluntary principal reduction payment of $500,000. An
additional voluntary reduction payment of $500,000 was made
in August 2001.
Aggregate annual principal payments applicable to long-term debt
for the years subsequent to June 30, 2002, based on the mortgage
loan agreement in place at June 30, 2002 are:
2003 60,938
2004 60,938
2005 827,734
$949,610
Management has evaluated its indebtedness and has determined
Based on interest rates and related terms that the fair value
of such debt approximates its carrying value.
The Bank had also agreed to provide a $500,000 line-of-credit
facility to be evidenced by promissory notes. This line of credit,
which may be renewed on an annual basis, was renewed in November
2001 at a rate of .25% plus the prime rate. The prime rate at
June 30, 2002 was 4.75%. There were no outstanding borrowings
against the line-of-credit facility at June 30, 2002. Any
outstanding borrowings under the line of credit will become
due and payable on October 31 of each year.
F. Taxes on Income
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes, and b) operating loss and tax
credit carryforwards.
Based on pre-tax income of $1,459,192, $1,838,192 and $1,543,090
for the years ended June 30, 2002, 2001 and 2000, respectively,
the relevant income and balance sheet accounts are detailed below:
Provision for income
Taxes Years ended June 30,
2002 2001 2000
Deferred
Federal ($16,795) $215,048 $200,728
State ($3,710) 8,840 33,455
Current
Federal 468,238 337,112 296,853
State 135,944 174,277 86,194
$583,677 $735,277 $617,230
Deferred tax assets and liabilities as of June 30, 2002
and June 30, 2001 consisted of the following:
Deferred tax assets: (Current) 2002 2001
Vacation accrual $30,563 $ 35,105
Deferred tax liabilities:
(Non-Current)
Depreciation $524,212 $ 549,270
Reconciliation of the U.S. Statutory rate with the Company's
effective tax rate is summarized as follows:
Years ended June 30,
2002 2001 2000
Federal statutory
Rate 34.0% 34.0% 34.0%
State income taxes net
of federal benefit 6.0% 6.0% 6.0%
Effective Rate 40.0% 40.0% 40.0%
G. Pension Plan
The Company has a non-contributory defined benefit retirement plan
covering all its employees. The plan is qualified under the
Internal Revenue Code. The method of determining the accrued
benefit of an employee is the amount equal to .8% of an
employee's average monthly salary times the number of years
employed by the Company, to a maximum of 35 years. The
Company's policy is to contribute the amounts allowable
under Internal Revenue Service regulations. The plan
assets are invested primarily in a fixed income investment
account.
Net pension expense consists of the following:
Years ended June 30,
2002 2001 2000
Service cost $22,753 $17,700 $14,281
Interest cost on
projected benefit
obligations 56,801 52,666 51,132
Expected return on assets (37,745) (37,503) (32,262)
Net amortization and
Deferrals 26,763 21,788 21,788
Net pension expense $68,572 $54,651 $54,939
In both 2002 and 2001, the Company recorded its minimum pension
liability as an other long-term liability and a corresponding
intangible asset included in other non-current assets. The
funded status of the plan and the amount recognized on the
balance sheet are as follows:
June 30,
2002 2001
Actuarial present value of
benefit obligations:
Accumulated benefit
Obligation $756,561 $723,527
Projected benefit obligation 835,513 793,827
Plan assets at fair value,
consisting of investments
held in a fixed income
investment account 498,686 506,429
Projected benefit obligation
in excess of plan assets 336,827 287,398
Unrecognized net gain/(loss)(172,984) (99,575)
Unrecognized net
Obligation -- (14,459)
Prior service cost not yet
recognized in net periodic
pension cost (7,325) (14,653)
Adjustment required to
recognize minimum
liability 101,357 58,387
Accrued pension cost $257,875 $217,098
Weighted average
assumptions as of
December 31:
Expected long-term rate
of return on plan assets: 7.5% 7.5%
Discount rate: 7.00% 7.5%
Salary increase: 3.5% 3.5%
H. Income Per Share
Net Income per share has been presented pursuant to the Financial
Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 128, "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 tables below set forth the reconciliation of the numerators
and denominators of the basic and diluted net income per
common share computations.
Twelve Months Ended June 30, 2002
Income Shares Per Share Amount
Basic Net Income
per common share $875,515 1,339,531 $.65
Effect of dilutive
Securities -- 40,500 --
Diluted net income
per common share $875,515 1,380,031 $.63
Twelve Months Ended June 30, 2001
Income Shares Per Share Amount
Basic Net Income
per common share $1,102,915 1,339,531 $.82
Effect of dilutive
Securities -- 37,900 --
Diluted net income
per common share $1,102,915 1,377,431 $.80
Twelve Months Ended June 30, 2000
Income Shares Per Share Amount
Basic Net Income per
common share $925,860 1,339,531 $.69
Effect of dilutive
Securities -- 12,080 --
Diluted net income
per common share $925,860 1,351,611 $.69
I. Related Party Transaction
Due to Related Party represents notes payable to a founder
(stockholder) of the Company, at an interest rate of 9% per
annum. The notes are due upon demand and are subordinate to
the mortgage note held by Sovereign Bank. The founder
(stockholder) agreed not to seek repayment of the notes until
the mortgage loan has been repaid. Accordingly, the notes
have been classified as long-term obligations.
J. Other Income
Other income/(expense) consists of the following for the year
ended June 30:
2002 2001 2000
Sales of scrap and
miscellaneous (expense)-net $(2,921) $14,051 $(274)
Interest $20,432 7,785 4,866
$17,511 $21,836 $4,592
K. Other Developments
On June 18, 2002, the Company announced that, following the sudden
death of its founder, President and Chairman of the Board,
Gordon C. Dewey, its Board of Directors had elected Frances
D. Dewey, widow of Mr. Dewey, to the position of chairperson
of the Board.
Mrs. Dewey, co-founder of the Company, has been active in the
Company's affairs since its inception, as a Director and in
various official capacities. She is currently Secretary of the
Corporation.
Also, at its meeting on June 14, 2002, the Board appointed John
H.D. Dewey (37) as Acting Chief Executive Officer of the
Company. John Dewey is the son of Gordon Dewey. Since 1999,
Mr. Dewey has been an active member of the Board, as well as
working on internal projects utilizing his experience in
management consulting and software engineering.
L. Operating Segments
The Company operates in two industries: electronics; and leisure
and recreation. Operations in the electronics industry is
primarily related to supplying electronics and electrical products
and systems for the United States Government as a prime contractor or
subcontractor. Operations in the leisure and recreation industry
involve the production and sale of snowmaking machinery and
servicing of such machinery at the purchaser's expense beyond
the warranty period. Total revenue by industry represents sales
to unaffiliated customers, as reported in the Company's Statement
of Income. There are no inter-segment sales.
Some operating expenses, including general corporate expenses,
have been allocated by specific identification or based on direct
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. Depreciation and amortization for the
electronics industry and the leisure and recreation industry,
respectively, was approximately $80,000 and $8,000 in 2002,
$105,000 and $11,000 in 2001 and $140,000 and $18,000 in 2000.
Capital expenditures for plant, property and equipment were
approximately $327,000 in 2002, $63,000 in 2001 and $116,000
in 2000.
Identifiable assets by industry are those assets that are used
in the Company's operations in each industry. Corporate assets
are principally cash, prepaid expenses, and other current
assets.
The following tables present information about reported segment
revenues, operating profit or loss, and assets, and reconcile
such segment information to the Company's consolidated totals:
Year ended June 30, 2002
(in thousands)
Leisure Total
Electronics and Company
Recreation
Total revenue $8,446 $ 470 $8,916
Operating profit/(loss) $1,555 $ (16) $1,539
Interest expense and other
income-net (80)
Profit before income taxes $ 1,459
Identifiable assets at
June 30, 2002 $2,465 $740 $3,205
Corporate assets 3,617
Total assets at
June 30, 2002 $6,822
Year ended June 30, 2001
(in thousands)
Leisure Total
Electronics and Company
Recreation
Total revenue $10,761 $ 125 $10,886
Operating profit/(loss) $2,040 $ (70) 1,970
Interest expense and other
income-net (132)
Profit before income taxes $ 1,838
Identifiable assets at
June 30, 2001 $3,875 $563 $4,438
Corporate assets 2,180
Total assets at
June 30, 2001 $6,618
Year ended June 30, 2000
(in thousands)
Leisure Total
Electronics and Company
Recreation
Total revenue $10,034 $375 $10,409
Operating profit/(loss) $2,162 $(419) 1,743
Interest expense and
other income-net (200)
Profit before income taxes $1,543
Identifiable assets
at June 30, 2000 $3,262 $683 $3,945
Corporate assets 1,380
Total assets at
June 30, 2000 $5,325
M. Unaudited Quarterly Financial Data
2002 Revenue Gross profit Net income Earnings per share
Basic Diluted
Sept.
30 $2,666,053 $685,152 $255,580 $.19 $.19
Dec.
31 2,148,712 846,169 239,201 .18 .17
Mar.
31 1,922,849 709,392 236,419 .18 .17
Jun.
30 2,178,435 562,399 144,315 .10 .10
Year $8,916,049 $2,803,112 $875,515 $.65 $.63
2001 Revenue Gross profit Net income Earnings per share
Basic Diluted
Sept.
30 $2,267,404 $636,965 $234,520 $.18 $.18
Dec.
31 2,365,480 722,418 233,840 .17 .17
Mar.
31 3,440,125 713,832 242,182 .18 .18
Jun.
30 2,813,091 913,824 392,373 .29 .27
Year $10,886,100 $2,987,039 $1,102,915 $.82 $.80
2000 Revenue Gross profit Net income Earnings per share
Basic Diluted
Sept.
30 $2,661,493 $589,686 $199,420 $.15 $.15
Dec.
31 2,091,283 448,682 78,528 $.06 $.06
Mar.
31 1,842,929 469,377 110,969 $.08 $.08
Jun.
30 3,813,253 1,174,130 536,943 $.40 $.40
Year $10,408,958 $2,681,875 $925,860 $.69 $.69
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the
Registrant is incorporated herein by reference from the
Company's definitive proxy statement for the 2002 Annual
Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION
Executive compensation information is incorporated herein by
reference from the Company's definitive proxy statement for
the 2002 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 403 of Regulation S-K
Information concerning security ownership of certain beneficial
owners and management is incorporated herein by reference from
the Company's definitive proxy statement for the 2002 Annual
Meeting of Stockholders.
Item 201(d) of Regulation S-K
Plan category (a) (b) (c)
Number of Weighted Number of
securities average securities
to be issued exercise remaining
upon exercise price available
of outstanding of for future
options, outstanding issuance
warrants and options, under equity
rights warrants compensation
and rights plans(excluding
securities
reflected in
column (a))
Equity
compensation
plans approved
by security
holders 40,500 $.9141 94,500
Equity
compensation
plans not
approved
by security
holders 0 0 0
Total 40,500 $.9141 94,500
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated herein
by reference from the Company's definitive proxy statement
for the 2002 Annual Meeting of Stockholders.
Item 14. CONTROLS AND PROCEDURES
There were no significant changes in internal controls or in
other factors that could significantly affect these controls
subsequent to the Company's evaluation in connection with
the annual audit.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) The following financial statements are included in
Part II Item 8:
Page
Independent Auditors' Report 18
Balance Sheets, June 30, 2002 and 2001 19
Statements of Income, Years Ended June 30,
2002, 2001 and 2000 20
Statements of Stockholders' Equity, Years Ended
June 30, 2002, 2001 and 2000 20
Statements of Cash Flows, Years Ended June 30,
2002, 2001 and 2000 21
Notes to Financial Statements 22
(2) Exhibits 38
A list of the exhibits required to be filed as part
of this report is set forth in the Index to Exhibits,
which immediately follows the signature page, and is
incorporated herein by this reference.
(b) Reports on Form 8-K
On June 18, 2002 the Registrant filed a Period Report on Form 8-K,
which contained press releases issued by the Registrant on June 3,
2002 and June 18, 2002.
On June 3, 2002, the Registrant announced, among other things,
the sudden death of the Company President and Chairman of the
Board, Gordon C. Dewey.
On June 18, 2002, the Registrant announced, among other things,
that its Board of Directors had elected Mrs. Frances D. Dewey to
the position of Chairperson of the Board. The Board had also
appointed John H.D. Dewey as Acting Chief Executive Officer of the
Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, The Dewey Electronics
Corporation has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
THE DEWEY ELECTRONICS CORPORATION
/s/ /s/
BY: John H.D. Dewey BY: Thom A. Velto, Treasurer
Acting Chief Executive Officer
DATE: September 26, 2002
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and
on the dates indicated:
/s/ Date: September 26, 2002
Alexander A. Cameron, Director
/s/ Date: September 26, 2002
Frances D. Dewey, Director
/s/ Date: September 26, 2002
John H.D. Dewey, Director
/s/ Date: September 26, 2002
James M. Link, Director
/s/ Date: September 26, 2002
Nathaniel Roberts, Director
CERTIFICATIONS
I, John H.D. Dewey, certify that:
1. I have reviewed this annual report on Form 10-K of The Dewey
Electronics Corporation;
2. Based on my knowledge, this annual 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 annual
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report.
Date: September 26, 2002
/s/ John H. D. Dewey
John H. D. Dewey
Acting Chief Executive Officer
I, Thom A. Velto, certify that:
1. I have reviewed this annual report on Form 10-K of The Dewey
Electronics Corporation;
2. Based on my knowledge, this annual 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
annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report.
Date: September 26, 2002
/s/ Thom A. Velto
Thom A. Velto
Treasurer
THE DEWEY ELECTRONICS CORPORATION
INDEX TO EXHIBITS
The following exhibits are filed as part of this report. For
convenience of reference, exhibits are listed according to the
numbers assigned in the Exhibit table to Regulation S-K.
Number Page No.
3(a)- Certificate on Incorporation as amended. This item was
filed as part of the Registrant's Form 10-K for the year ended
June 30, 1988 and is herein incorporated by reference. --
3(b)- By Laws as amended. This item was filed as part of the
Registrant's Form10-K for the year ended June 30, 1988 and
is herein incorporated by reference. --
4(a)- Agreement dated as of September 18, 1997 with Sovereign
Bank providing for the borrowing of $2,300,000 against
issuance of a mortgage note payable to the Bank. This item
was filed as part of the Registrant's Form 10-K for the year
ended June 30, 1997 and is herein incorporated by reference. --
4(a)- Mortgage note modification agreement dated December 27,
2001 with Sovereign Bank providing for reducing outstanding
balance to $975,000,reducing interest rate, and extending
term to January 1, 2005 (filed herewith) --
4(b)- Line of credit agreement dated as of September 18, 1997
with Sovereign Bank providing for the borrowing of up to $500,000.
This item was filed as part of the Registrant's Form 10-K for the
year ended June 30, 1997 and is herein incorporated by reference. --
4(c)- 2001 Stock Option Plan. This item was filed with the
Registrant's Definitive Proxy Statement for the 2001 annual
meeting of stockholders on December 5, 2001 and is
herein incorporated by reference. --
4(c)- Amendment and Restatement of the 1998 Stock Option Plan.
This item was filed with the Registrant's Definitive Proxy
Statement for the 2001 annual meeting of stockholders on
December 5, 2001 and is herein incorporated by reference. --
99.1 Certification of Acting 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). --
99.2 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 99.1
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 Annual Report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-K for the fiscal year
ended June 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, John H. D.
Dewey, Acting 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, Acting Chief Executive Officer
September 26, 2002
EXHIBIT 99.2
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 Annual Report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-K for the fiscal year
ended June 30, 2002 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
September 26, 2002
40
NOTE MODIFICATION AGREEMENT
This Agreement is made this 27th day of December, 2001 by and
between The Dewey Electronics Corporation, having an address
of 27 Muller Road, Oakland, NJ 074436 (the "Borrower") and
Sovereign Bank, having an address of 165 Passaic Avenue,
Fairfield, NJ 07004 (the "Lender").
Whereas, on September 18, 1997, the Borrower obtained from
Lender a loan evidenced by a Mortgage Note in the sum of Two
Million, Three Hundred Thousand and 00/100 ($2,300,000.00)
(the "Principal Amount") bearing the same date (the "Note").
The Note has a maturity date due and payable on October 1,
2002 (the "Maturity Date"); and
Whereas, the Note provides for interest at a fixed rate of
8.25% per annum (the interest " Rate"); and
Whereas, the Note provides that on October 1, 1997, a payment
of interest only will be due and payable, from the date hereof
to September 30, 1997. Thereafter, Borrower will make
consecutive monthly payments of principal and interest in
the amount of $19,597.51, beginning November 1, 1997, and
continuing on the same day of each month thereafter, with
one final payment due October 1, 2002, of all principal,
accrued unpaid interest, and fees, if any, not yet paid
(the "Monthly Payments"); and
Whereas, the outstanding principal balance on the Note as
of December 26, 2001 is One Million, Three Thousand, Four
Hundred Eighty Four and 50/100 Dollars ($1,003,484.50)
(the "Outstanding Balance); and
Whereas, it is mutually beneficial and agreeable to the
Borrower and Lender that the Note be modified.
Now Therefore, in consideration of the mutual benefits inuring
to Borrower and Lender, and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound
hereby, it is agreed that the Note is hereby modified as
described below.
1. Upon execution of this Agreement, the Borrower will make
a principal reduction on the Note, decreasing the Outstanding
Balance on the Note to Nine Hundred Seventy Five Thousand
and 00/100 Dollars ($975,000.00).
2. The Maturity Date on the Note will be extended to January 1,
2005.
3. The Interest Rate on the Note will be changed to a floating
rate of Sovereign Bank Prime Rate plus .50%, to change immediately
as and when the Sovereign Bank Prime Rate changes, with a floor
of 6.00%.
4. The Monthly Payments on the Note will be amended based on the
Outstanding Balance of $975,000.00. The Borrower will make (35)
consecutive monthly principal payments in the amount of $5,078.13
each, plus accrued interest, beginning February 1, 2002 and
continuing on the same day of each month thereafter, with one
final payment, due January 1, 2005 for all principal, accrued
unpaid interest and fees, if any, not yet paid. Payments are
based on a 16 year amortization schedule.
All terms of the Note will continue to be fully effective, except
to the extent that any of them are expressly changed by this
Agreement. The undersigned Borrower hereby confirms and
acknowledges that they have no defense, counterclaim or setoff
which could effect the enforceability of the Note and all other
Loan Documents and hereby reaffirm the validity of the Note and
all other Loan Documents.
In Witness hereof, the parties hereto have hereunto set their
hands and seal this 27th day of December, 2001.
WITNESS: LENDER
Sovereign Bank
/s/ By: /s/
Thom A. Velto Peter A. Thompson, Vice President
WITNESS BORROWER:
The Dewey Electronics Corporation
/s/ By: /s/
Thom A. Velto Gordon C. Dewey, President