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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 2002
Commission File No 0-2892
THE DEWEY ELECTRONICS CORPORATION
A New York Corporation
I.R.S. Employer Identification
No. 13-1803974
27 Muller Road
Oakland, New Jersey 07436
(201) 337-4700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of shares outstanding of the registrant's common
stock, $.01 par value was 1,339,531 at September 30, 2002.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page No.
Part I Financial Information
Item 1 Consolidated Financial Statements 1
Consolidated balance sheets -
September 30, 2002 and June 30, 2002 2
Consolidated statements of operations -
three months ended September 30, 2002
and September 30, 2001 3
Consolidated statements of cash flows for the
three months ended September 30, 2002 and 2001 4
Notes to consolidated financial statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Item 4 Controls and Procedures 16
Part II Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited, consolidated balance sheets, statements
of operations, and statements of cash flows are of The Dewey
Electronics Corporation. These consolidated financial statements
reflect all adjustments of a normal recurring nature, which are,
in the opinion of management, necessary for a fair presentation
of the financial position, results of operations and cash flows
for the interim periods reflected herein. The results reflected
in the unaudited statements of operations for the period ended
September 30, 2002 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, 2002.
1
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
2002 2002
(UNAUDITED) (AUDITED)*
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $2,760,266 $3,503,087
ACCOUNTS RECEIVABLE 376,500 267,331
INVENTORIES 532,085 506,817
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS OF
APPLICABLE BILLINGS 1,930,923 1,272,569
DEFERRED TAX ASSET 30,563 30,563
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 94,743 78,421
TOTAL CURRENT ASSETS 5,725,080 5,658,788
PLANT, PROPERTY AND EQUIPMENT
- (NET) 1,248,577 1,036,759
OTHER NON-CURRENT ASSETS 121,098 122,148
TOTAL ASSETS $7,094,755 $6,817,695
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $782,420 $467,427
ACCRUED LIABILITIES 130,000 149,016
ACCRUED CORPORATE INCOME TAXES 73,098 100,166
ACCRUED PENSION COSTS 126,543 113,043
CURRENT PORTION OF LONG-TERM DEBT 60,938 60,938
TOTAL CURRENT LIABILITIES 1,172,999 890,590
LONG-TERM PORTION OF LONG-TERM DEBT 873,438 888,672
OTHER LONG-TERM LIABILITY 61,172 61,172
DEFERRED TAX LIABILITY 424,212 524,212
DUE TO RELATED PARTY 200,000 200,000
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, par value $1.00;
authorized 250,000 shares,
issued and outstanding, none
COMMON STOCK, par value $.01;
authorized 3,000,000 shares;
issued and outstanding 1,693,397
shares 16,934 16,934
PAID IN CAPITAL 2,835,307 2,835,307
RETAINED EARNINGS 2,030,790 1,920,905
4,883,031 4,773,146
LESS TREASURY STOCK 353,866
SHARES AT COST (520,097) (520,097)
TOTAL STOCKHOLDERS' EQUITY 4,362,934 4,253,049
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $7,094,755 $6,817,695
*CONDENSEDFROM AUDITED FINANCIAL STATEMENTS
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
REVENUES $1,991,665 $2,666,053
COST OF REVENUES 1,553,579 1,980,901
GROSS PROFIT 438,086 685,152
SELLING & ADMIN EXPENSES 248,485 230,148
OPERATING INCOME 189,601 455,004
INTEREST EXPENSE 19,065 32,597
OTHER (INCOME)-NET (12,606) (3,560)
INCOME BEFORE INCOME TAXES 183,142 425,967
INCOME TAXES (73,257) (170,387)
NET INCOME $109,885 $255,580
NET INCOME PER SHARE:
BASIC $0.08 $0.19
DILUTED $0.08 $0.18
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 1,339,531 1,339,531
DILUTED 1,380,031 1,380,031
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
2002 2001
NET INCOME $ 109,885 $ 255,580
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH (USED IN)/
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 25,575 27,225
AMORTIZATION 1,050 1,050
DEFERRED INCOME TAXES (100,000) 0
(INCREASE)/DECREASE IN ACCOUNTS
RECEIVABLE (109,169) 51,891
INCREASE IN INVENTORIES (25,268) (207,679)
(INCREASE)/DECREASE IN CONTRACT
COSTS AND RELATED ESTIMATED
PROFITS IN EXCESS OF APPLICABLE
BILLINGS (658,354) 1,001,339
(INCREASE) IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS (16,322) (12,117)
INCREASE IN ACCOUNTS PAYABLE 314,993 52,178
(DECREASE)/INCREASE IN ACCRUED
LIABILITIES (19,016) 2,545
(DECREASE)/INCREASE IN ACCRUED
CORPORATE INCOME TAXES (27,068) 170,387
INCREASE/(DECREASE) IN ACCRUED
PENSION COSTS 13,500 (31,500)
TOTAL ADJUSTMENTS (600,079) 1,055,319
NET CASH (USED IN)/PROVIDED BY
OPERATING ACTIVITIES (490,194) 1,310,899
CASH FLOWS FROM INVESTING
ACTIVITIES:
EXPENDITURES FOR PLANT, PROPERTY
AND EQUIPMENT (237,393) (21,120)
NET CASH (USED IN) INVESTING
ACTIVITIES (237,393) (21,120)
CASH FLOWS FROM FINANCING
ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG-TERM
DEBT (15,234) (526,622)
NET CASH (USED IN) FINANCING
ACTIVITIES (15,234) (526,622)
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (742,821) 763,157
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,503,087 2,090,251
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,760,266 $2,853,408
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
INTEREST PAID $ 19,145 $37,134
INTEREST RECEIVED $ 2,331 $ 4,285
CORPORATE INCOME TAXES PAID $200,325 $ --
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
NOTE 1: REVENUE RECOGNITION
Revenues and estimated earnings under defense contracts are
recorded using the percentage-of-completion method of
accounting, measured as the percentage of costs incurred
to estimated total costs for each contract. Provisions
for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes
in job performance, job conditions, and estimated profitability
may result in revisions to costs and income and are recognized
in the period in which the revisions are determined.
Since substantially all of the Company's electronics business
comes from contracts with various agencies of the United
States Government or subcontracts with prime Government
contractors, the loss of Government business would have a
material adverse effect on this segment of business.
In the Leisure and Recreation segment, revenues and earnings
are recorded when deliveries are made.
NOTE 2: CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with
a maturity of three months or less at the date of purchase
to be cash equivalents.
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt and line of
credit borrowings are estimated based upon interest rates
currently available for borrowings with similar terms and
maturities and approximate the carrying values.
Due to the short-term nature of cash, accounts receivable,
accounts payable, accrued expenses and other current
liabilities, their carrying value is a reasonable estimate
of fair value.
NOTE 4: INVENTORIES
Inventories are valued at lower of cost (first-in, first-out
method) or market. Components of cost include materials,
direct labor and plant overhead.
As there is no segregation of inventories as to raw materials,
work in progress and finished goods for interim reporting
periods (this information is available at year-end when physical
inventories are taken and recorded), estimates have been made
for the interim period. These estimates are consistent with
those made in prior periods.
5
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
September 30, 2002 June 30, 2002
Finished Goods $ 70,409 $ 68,258
Work In Process 136,955 137,268
Raw Materials 324,721 301,291
Total $532,085 $506,817
======= =======
NOTE 5: USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 6: PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment are stated at cost. Allowance for
depreciation is provided on a straight-line basis over estimated
useful lives of three to ten years for machinery and equipment,
ten years for furniture and fixtures, and twenty years for
building and improvements.
NOTE 7: LOAN FEES
Loan fees are capitalized by the Company and amortized utilizing
the straight-line basis over the term of the loan.
NOTE 8: LONG-LIVED ASSETS
Whenever events indicate that the carrying values of long-lived
assets may not be recoverable, the Company evaluates the
carrying values of such assets using future undiscounted
cash flows. Management believes that, as of September 30,
2002, the carrying values of such assets are not impaired.
6
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
NOTE 9: EARNINGS PER SHARE
Net income per share has been presented pursuant to the Financial
Accounting Standards Board (FASB) 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 table below sets forth the reconciliation of the numerators
and denominators of the basic and diluted net income per common
share computations.
Three Months Ended September 30,
2002 2001
Per Per
Income Shares Share Income Shares Share
Amount Amount
Basic net
income per
common share $109,885 1,339,531 $.08 $255,580 1,339,531 $.19
Effect of
dilutive
Securities -- 40,500 -- -- 40,500 --
Diluted net
income per
common share $109,885 1,380,031 $.08 $255,580 1,380,031 $.18
NOTE 10: RECENT PRONOUNCEMENTS
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 it has determined that this
statement had 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
implemented SFAS No. 143 on July 1, 2002 and it has determined
that this statement had no material impact on its financial
position or results of operations.
7
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144
replaces SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" and
establishes accounting and reporting standards for long-lived
assets to be disposed of by sale. This standard applies to all
long-lived assets, including discontinued operations. SFAS No.
144 requires that those assets be measured at the lower of
carrying amount or fair value less cost to sell. SFAS No. 144
also broadens the reporting of discontinued operations to include
all components of an entity with operations that can be
distinguished from the rest of the entity that will be eliminated
from the ongoing operations of the entity in a disposal
transaction. The Company implemented SFAS No. 144 on July 1,2002
The Company has determined that this statement did not have a
material impact on its results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission 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 has adopted this pronouncement and
determined that this statement did not have a material impact
on the results of operations or its 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.
8
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
NOTE 11: SEGMENT INFORMATION
Information about the Company's operations in its two segments
for the first fiscal quarters ended September 30, 2002 and
2001 is as follows:
Three months ended
September 30,
2002 2001
Electronics Segment
Revenues $1,972,295 $2,649,911
Operating Income $ 204,646 $ 474,533
HEDCO
Revenues $ 19,370 $ 16,142
Operating (Loss) $(15,044) $(19,529)
9
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. 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 comparison
of recorded revenues and earnings, may not be indicative of
future operating results. The following comparative analysis
should be viewed in this context.
Operating Segments
The Company is organized into 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.
Some operating expenses, including general corporate expenses,
have been allocated by specific identification or based on
labor for items which are not specifically identifiable. In
computing operating profit, none of the following items have
been added or deducted: interest expense, income taxes, and
non-operating income and expenses.
10
Consolidated Results of Operations
For the first fiscal quarter this year, consolidated revenues
were $1,991,665, which is lower than the same period last year
by $674,388. The electronics segment incurred lower costs as
compared to the same period last year resulting in lower
revenues. (See below under "Electronics Segment" for a
discussion of how revenues are recorded in the electronics
segment.) In the leisure and recreation segment, revenues
were level with last year. Results of operations by segment
are discussed below in more detail.
First quarter consolidated net income amounted to $109,885
which is $.08 per basic and diluted share. Last year,
consolidated net income for the first quarter amounted to
$255,580, which was $.19 per basic share and $.18 per
diluted share.
Information about the Company's operations in its two segments
for the first fiscal quarters ended September 30, 2002 and
2001 is as follows:
Three months ended
September 30,
2002 2001
Electronics Segment
Revenues $1,972,295 $2,649,911
Operating Income $ 204,646 $ 474,533
HEDCO
Revenues $ 19,370 $ 16,142
Operating (Loss) $(15,044) $(19,529)
Electronics Segment
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.
Revenues in the electronics segment were lower than the first
quarter last year by $677,616. This reflects a reduced
production level due to the current orders from the Department
of Defense. Subsequent to the first quarter of last year,
revenues in this segment have remained at a consistent level
but lower than prior year quarters. This has continued through
this current fiscal quarter.
In 1996, the Company was awarded a contract with the U.S. Army
to supply diesel operated generator sets. This contract included
five annual purchasing periods and the Army placed an annual
production order each year plus some additional orders.
Deliveries of the final production order under this contract
were made in March 2002. 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 and the fact that as
production under the initial contract neared completion, the
requirement for the receipt of materials was reduced,
revenues 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 Company's contract with the U.S. Army to provide diesel
operated tactical generator sets provided 91% of the
electronics segment revenues during the first fiscal
quarter this year. Last year, during the first fiscal
quarter, the prior contract for generator sets provided 93%
of electronics segment revenues.
The remaining electronics segment revenues were derived from
various orders, more limited in scope and duration, that were
generally for replacement parts for previously supplied
Department of Defense equipment and other projects performed
as a subcontractor. A large part of such 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.
As of September 30, 2002, the aggregate value of the Company's
backlog of electronics product not previously recorded as
revenues was approximately $3 million. It is estimated that
all of this backlog will be recognized as revenues during
this fiscal year.
As of September 30, 2001, the aggregate value of the Company's
backlog of electronics product not previously recorded as
revenues was approximately $3 million.
HEDCO Division
In the leisure and recreation segment, revenues were higher by
$3,228, when compared to the first quarter of last year.
This is the result of a higher amount of snowmaking machine
replacement part sales than last year.
As of September 30, 2002, the Company has no backlog of orders
for snowmaking machines. As of September 30 last year, the
Company had a backlog for snowmaking machines of $232,500,
which was delivered during the second quarter last year.
12
The Company is exploring possible options with respect to this
division.
Liquidity and Capital Resources
The Company's working capital at September 30, 2002 was
$4,552,081 compared to $4,768,198 at June 30, 2002.
The ratio of current assets to current liabilities was
4.88 to 1 at September 30, 2002 and 6.35 to 1 at June 30,
2002.
For the three-month period ended September 30, 2002, operating
activities used net cash of $490,194. Expenditures for plant,
property and equipment used net cash of $237,393 and
financing activities used net cash of $15,234.
Net cash used by operations of $490,194 was primarily the result
of net income and an increase in accounts payable offset by
corporate income tax payments made, an increase in
accounts receivable, and an increase in unbilled contract
costs and related estimated profits in excess of applicable
billings.
For the three-month period ended September 30, 2001, operations
provided $1,310,899 which was primarily the result of net
income and the collection of billings made of contract
costs and related estimated profits in excess of applicable
billings.
For the three-month period ended September 30, 2002, net
cash used for expenditures of property, plant and equipment
of $237,393 consisted of $233,092 which was used by the
Company to continue investing in the expansion of existing
technologies. These enhanced technologies would be for use
initially in the electronics segment with respect to existing
products and, potentially, a new product line with industrial
applications. The Company expects to invest approximately the
same amount over the next six-month period in connection
with these initiatives. Management believes that such
initiatives, despite the inherent risks and uncertainties, are
important to the Company's business and future growth.
As with all ventures 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.
For the three-month period ended September 30, 2001, net cash
of $21,120 was used for expenditures of property, plant
and equipment.
Net cash used in financing activities of $15,234 was the result
of principal reduction payments made towards the Company's
mortgage note agreement with its primary Bank. Last year, net
cash used in financing activities of $526,622 included a
principal reduction payment of $500,000 in addition to
its monthly repayment schedule with the Company's Bank.
13
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. At September 30, 2002,
the outstanding balance of the mortgage note agreement was
$934,376.
The Company also has a line of credit of $500,000 with its
Bank at the rate of the Bank's prime rate plus .25%, which
is renewable annually at October 31. There were no
borrowings against this line of credit facility and the
Bank has agreed to extend this line of credit for
another year.
In addition, the Company also has a note payable to a co-
founder (stockholder) in the amount of $200,000 at an
interest rate of 9% per annum. This note is unsecured
and subordinate to the mortgage note with the Company's
primary lender and has been classified on the Balance
Sheet as a long-term liability.
The Company's borrowing capacity has remained above its
use of outside financing. Management believes that the
Company's anticipated cash flow from operations, combined
with its line of credit, will be sufficient to support
working capital requirements and capital expenditures at
their current or expected levels. The Company continues
to meet its short-term liquidity needs arising out of
electronic product operations through a combination of
progress payments on government contracts (based on costs
incurred) and billings at the time of delivery of products.
Government Defense Business
The electronics segment of business provides most of the
Company's revenues and is comprised of business with the
U.S. Department of Defense or with other government
contractors. It consists of long-term contracts and
short-term business such as replacement parts. 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.
14
As with the prior contract, this new contract to supply 2kW
diesel operated generator sets allows for the U.S. Army to
place production orders annually and to place additional
interim orders. Orders under this new contract were
received as final deliveries were being made on the prior
contract and production of these orders has begun. 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".
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.
The Company is continuing to invest in the expansion of
existing technologies. These enhanced technologies would be
for use initially in the electronics segment with respect
to existing products and, potentially, a new product line
with industrial applications. Management believes that
such initiatives, despite the inherent risks and uncertainties,
are important to the Company's business and future growth,
but as with all ventures of this nature no assurances
can be made that such product development work will be
successful or that the Company will achieve its desired
results. See the discussion above under "Liquidity and
Capital Resources."
The Company has many years of experience in contracting with
the Department of Defense 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.
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.
15
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,
revenues 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 Consolidated 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 Consolidated Financial
Statements.
For interim reporting periods, the Company does not
segregate inventories as to raw materials, work in
progress and finished goods (this information is
available at year-end when physical inventories are
taken and recorded). Estimates are made for interim
reporting periods. See Note 4 to the Consolidated
Financial Statements.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report,
the Company carried out, under the supervision and with the
participation of the Company's management, including its Acting
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 Rule 13a-14(c)
under the Securities Exchange Act of 1934). Based upon and
as of the date of that evaluation, the Acting Chief Executive
Officer and Treasurer concluded that the design and
operation of these disclosure controls and procedures
are effective. There were no significant changes in the
Company's internal controls or in other factors that could
significantly affect these internal controls subsequent
to the date of their evaluation.
16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this quarterly report on Form 10-Q.
No reports on Form 8-K have been filed during the quarter
ended September 30, 2002.
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/
Date: November 14, 2002 John H.D. Dewey
Acting Chief Executive Officer
/s/
Date: November 14, 2002 Thom A. Velto, Treasurer
17
CERTIFICATIONS
I, John H.D. Dewey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The
Dewey Electronics Corporation;
2. Based on my knowledge, this quarterly 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
quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/
John H. D. Dewey
Acting Chief Executive Officer
CERTIFICATIONS
I, Thom A. Velto, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The
Dewey Electronics Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report.
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
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 quarterly report.
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/
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
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)
20
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 quarterly report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-Q for the period ended
September 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, Acting Chief Executive Officer
Dated: November 14, 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 quarterly report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-Q for the period ended
September 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, Treasurer
Date: November 14, 2002