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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 March 31, 2003
Commission File No 0-2892
THE DEWEY ELECTRONICS CORPORATION
A New York Corporation
I.R.S. Employer Identification
No. 13-1803974
27 Muller Road
Oakland, New Jersey 07436
(201) 337-4700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
The number of shares outstanding of the registrant's common
stock, $.01 par value was 1,359,531 at April 30, 2003.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page No.
Part I Financial Information
Item 1 Consolidated Financial Statements 1
Consolidated Balance Sheets -
March 31, 2003 and June 30, 2002 2
Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 2003
and March 31, 2002 3
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2003 and March 31, 2002 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 4 Controls and Procedures 18
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 19
Item 4.Submission of Matters to a Vote of Security
Holders 19
Item 6. Exhibits and Reports on Form 8-K 22
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited, consolidated balance sheets, statements
of operations, and statements of cash flows are of The Dewey
Electronics Corporation. These consolidated financial statements
reflect all adjustments of a normal recurring nature, which are,
in the opinion of management, necessary for a fair presentation
of the financial position, results of operations and cash flows
for the interim periods reflected herein. The results reflected
in the unaudited statements of operations for the period ended
March 31, 2003 are not necessarily indicative of the results to
be expected for the entire year. The following unaudited
consolidated financial statements should be read in conjunction
with the notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in
Item 2 of Part I of this report, as well as the audited
consolidated financial statements and related notes thereto
contained in the Form 10-K filed for the fiscal year ended
June 30, 2002.
1
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2003 2002
(UNAUDITED) (AUDITED)*
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $2,717,728 $3,503,087
ACCOUNTS RECEIVABLE 150,559 267,331
INVENTORIES 508,927 506,817
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS
OF APPLICABLE BILLINGS 1,131,049 1,272,569
DEFERRED TAX ASSET 30,563 30,563
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 116,979 78,421
TOTAL CURRENT ASSETS 4,655,805 5,658,788
PLANT, PROPERTY AND EQUIPMENT
- NET 1,472,124 1,036,759
OTHER NON-CURRENT ASSETS 119,001 122,148
TOTAL ASSETS $6,246,930 $6,817,695
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $138,877 $467,427
ACCRUED LIABILITIES 159,486 149,016
ACCRUED CORPORATE INCOME
TAXES 69,753 100,166
ACCRUED PENSION COSTS 140,043 113,043
CURRENT PORTION OF LONG-
TERM DEBT 60,938 60,938
TOTAL CURRENT LIABILITIES 569,097 890,590
LONG-TERM PORTION OF LONG-TERM
DEBT 342,969 888,672
OTHER LONG-TERM LIABILITY 61,172 61,172
DEFERRED TAX LIABILITY 524,212 524,212
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 2,817,475 2,835,307
RETAINED EARNINGS 2,205,773 1,920,905
5,040,182 4,773,146
LESS: TREASURY STOCK 333,866
SHARES AT COST (490,702) (520,097)
TOTAL STOCKHOLDERS' EQUITY 4,549,480 4,253,049
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,246,930 $6,817,695
*CONDENSED FROM AUDITED FINANCIAL STATEMENTS
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
2003 2002 2003 2002
REVENUES $1,030,157 $1,922,849 $4,701,007 $6,737,614
COST OF
REVENUES 563,737 1,213,457 3,311,664 4,496,901
GROSS PROFIT 466,420 709,392 1,389,343 2,240,713
SELLING & ADMIN
EXPENSES 318,415 297,586 899,107 950,508
OPERATING INCOME 148,005 411,806 490,236 1,290,205
INTEREST EXPENSE 11,013 19,355 46,250 77,994
OTHER (INCOME)
-NET (7,871) (1,581) (30,794) (6,456)
INCOME BEFORE
INCOME TAXES 144,863 394,032 474,780 1,218,667
INCOME TAXES (57,945) (157,613) (189,912) (487,467)
NET INCOME $86,918 $236,419 $284,868 $731,200
NET INCOME PER
SHARE:
BASIC $0.06 $0.18 $0.21 $0.55
DILUTED $0.06 $0.17 $0.20 $0.53
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
BASIC 1,359,531 1,339,531 1,359,531 1,339,531
DILUTED 1,404,254 1,380,031 1,403,068 1,380,031
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
2003 2002
NET INCOME $284,868 $731,200
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 69,010 81,675
AMORTIZATION 3,150 3,150
DECREASE IN ACCOUNTS
RECEIVABLE 116,772 62,047
(INCREASE) IN INVENTORIES (2,110) (119,836)
DECREASE IN CONTRACT COSTS
AND RELATED ESTIMATED
PROFITS IN EXCESS OF
APPLICABLE BILLINGS 141,520 1,512,483
(INCREASE) IN PREPAID
EXPENSES AND OTHER
CURRENT ASSETS (38,558) (34,290)
(DECREASE)/INCREASE IN
ACCOUNTS PAYABLE (328,550) 56,085
INCREASE/(DECREASE) IN
ACCRUED LIABILITIES 10,470 (9,782)
(DECREASE) IN ACCRUED
CORPORATE INCOME TAXES (30,413) (12,781)
INCREASE/(DECREASE) IN
ACCRUED PENSION COSTS 27,000 (29,500)
TOTAL ADJUSTMENTS (31,709) 1,509,251
NET CASH PROVIDED BY
OPERATING ACTIVITIES 253,159 2,240,451
CASH FLOWS FROM INVESTING
ACTIVITIES:
EXPENDITURES FOR PLANT,
PROPERTY AND EQUIPMENT (504,377) (174,632)
NET CASH (USED IN)
INVESTING ACTIVITIES (504,377) (174,632)
CASH FLOWS FROM FINANCING
ACTIVITIES:
PRINCIPAL PAYMENTS OF
LONG-TERM DEBT (545,703) (603,751)
TREASURY STOCK SOLD 11,562 0
NET CASH (USED IN)
FINANCING ACTIVITIES (534,141) (603,751)
NET (DECREASE)/INCREASE IN
CASH AND CASH
EQUIVALENTS (785,359) 1,462,068
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 3,503,087 2,090,251
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,717,728 $3,552,319
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
INTEREST PAID $48,932 $84,013
INTEREST RECEIVED $22,399 $8,506
CORPORATE INCOME TAXES
PAID $220,325 $485,000
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003
NOTE 1: REVENUE RECOGNITION
Revenues and estimated earnings under defense contracts are
recorded using the percentage-of-completion method of
accounting, measured as the percentage of costs incurred
to estimated total costs for each contract. Provisions
for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes
in job performance, job conditions, and estimated profitability
may result in revisions to costs and income and are recognized
in the period in which the revisions are determined.
Since substantially all of the Company's electronics business
comes from contracts with various agencies of the United
States Government or subcontracts with prime Government
contractors, the loss of Government business would have a
material adverse effect on this segment of business.
In the Leisure and Recreation segment, revenues and earnings
are recorded when deliveries are made and title and risk of
loss have been transferred to the customer or collection is
probable.
NOTE 2: CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with
a maturity of three months or less at the date of purchase
to be cash equivalents.
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt and line of
credit borrowings are estimated based upon interest rates
currently available for borrowings with similar terms and
maturities and approximate the carrying values.
Due to the short-term nature of cash, accounts receivable,
accounts payable, accrued expenses and other current
liabilities, their carrying value is a reasonable estimate
of fair value.
NOTE 4: INVENTORIES
Inventories are valued at lower of cost (first-in, first-out
method) or market. Components of cost include materials,
direct labor and plant overhead.
As there is no segregation of inventories as to raw
materials, work in progress and finished goods for interim
reporting periods (this information is available at year
end when physical inventories are taken and recorded),
estimates have been made for the interim period. These
estimates are consistent with those made in prior periods.
5
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003
March 31, 2003 June 30, 2002
Finished Goods $ 71,675 $ 68,258
Work In Process 128,043 137,268
Raw Materials 309,209 301,291
Total $508,927 $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 or changes in circumstances indicate that the
carrying values of long-lived assets may not be recoverable,
the Company evaluates the carrying values of such assets
using future undiscounted cash flows. Management believes
that, as of March 31, 2003, the carrying values of such
assets are not impaired.
6
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003
NOTE 9: EARNINGS PER SHARE
Basic net income per share is computed by dividing reported
net income available to common shareholders by weighted
average shares outstanding for the period. Diluted net
income per share is computed by dividing reported net
income available to common shareholders by weighted
average shares outstanding for the period, adjusted for
the dilutive effect of common stock equivalents, which
consist of stock options, using the treasury stock method.
The table below sets forth the reconciliation of the
numerators and denominators of the basic and diluted
net income per common share computations.
Three Months Ended March 31,
2003 2002
Net Per Net Per
Income Shares Share Income Shares Share
Amount Amount
Basic
Net
Income
per
Common
Share $86,918 1,359,531 $.06 $236,419 1,339,531 $.18
Effect
Of
dilutive
Securities -- 44,723 -- -- 40,500 (.01)
Diluted
Net
income
per
common
share $86,918 1,404,254 $.06 $236,419 1,380,031 $.17
Nine Months Ended March 31,
2003 2002
Net Per Net Per
Income Shares Share Income Shares Share
Amount Amount
Basic
Net
Income
per
common
share $284,868 1,359,531 $.21 $731,200 1,339,531 $.55
Effect
Of
dilutive
Securities -- 43,537 (.01) -- 40,500 (.02)
Diluted
Net
income
per
common
share $284,868 1,403,068 $.20 $731,200 1,380,031 $.53
7
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH, 2003
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.
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, and it 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.
8
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003
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 adopted this pronouncement on January 1, 2003
and it did not have a material effect on the results of
operations or financial position.
In November 2002, the FASB issued FASB Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of
Indebtedness of Others- an Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34" ("FIN 45"). FIN 45 elaborates
on the disclosures to be made by a guarantor in its
interim and annual financial statements about its
obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year-end.
However, the disclosure requirements in FIN 45 are
effective for financial statements of interim or annual
periods ending after December 15, 2002. Management has
determined that FIN 45 is not applicable as the Company
is not currently a guarantor of indebtedness or other
obligations.
In January 2003, the FASB issued FASB Interpretation No. 46,
" Consolidation of Variable Interest Entities - an
Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses
consolidation by business enterprises of variable interest
entities (formerly special purpose entities or SPEs).
In general, a variable interest entity is a corporation,
partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the
entity to support its activities. The objective of FIN 46
is not to restrict the use of variable interest entities
but to improve financial reporting by companies involved
with variable interest entities. FIN 46 requires a variable
interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both.
The consolidation requirements of FIN 46 apply to variable
interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after June
15, 2003. However, certain of the disclosure requirements
apply to financial statements issued after January 31, 2003,
regardless of when the variable interest entity was
established. Management has determined that FIN 46 is not
applicable as the Company is not currently associated with
any variable interest entities.
9
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003
NOTE 11: SEGMENT INFORMATION
Information about the Company's operations in its two
segments for the third fiscal quarters ended March 31,
2003 and 2002 is as follows:
Three months ended Nine months ended
March 31, March 31,
2003 2002 2003 2002
Electronics
Segment
Revenues $1,021,303 $1,906,121 $4,613,388 $6,412,631
Operating
Income $185,496 $426,555 $554,909 $1,305,248
HEDCO
Revenues $8,854 $16,728 $87,619 $324,983
Operating
(Loss) ($37,491) ($14,749) ($64,673) ($15,043)
Total
Revenues $1,030,157 $1,922,849 $4,701,007 $6,737,614
Operating
Income $148,005 $411,806 $490,236 $1,290,205
Interest
(Expense) (11,013) (19,355) (46,250) (77,994)
Other Income 7,871 1,581 30,794 6,456
Income Tax
(Expense) (57,945) (157,613) (189,912) (487,467)
Net
Income $86,918 $236,419 $284,868 $731,200
10
THE DEWEY ELECTRONICS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements, including the
notes thereto, appearing elsewhere in this Form 10-Q, and
with the audited consolidated financial statements, including
the notes thereto, appearing in the Company's Form 10-K for
the fiscal year ended June 30, 2002. Certain statements in
this report may be deemed "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange
Act of 1934. All statements, other than statements of
historical fact, that address activities, events or
developments that the Company or management intends,
expects, projects, believes or anticipates will or may
occur in the future are forward-looking statements.
Such statements are based upon certain assumptions
and assessments made by management of the Company in
light of its experience and its perception of historical
trends, current conditions, expected future developments
and other factors it believes to be appropriate. The
forward-looking statements included in this report are
also subject to a number of material risks and
uncertainties, including but not limited to economic,
governmental, competitive and technological factors
affecting the Company's operations, markets, products,
services and prices and, specifically, the factors
discussed below under "Government Defense Business"
and "Company Strategy". Such forward-looking statements
are not guarantees of future performance and actual
results, developments and business decisions may differ
from those envisaged by such forward-looking statements.
Operating Segments
The Company is organized into two principal operating
segments on the basis of the types of products offered.
Each segment is comprised of separate and distinct
businesses: the electronics segment and the leisure
and recreation segment.
In the electronics segment, the Company is a producer
of electronic and electromechanical systems for the Armed
Forces of the United States. The Company provides its
products in this segment either as a prime contractor
or as a subcontractor for the Department of Defense.
The electronic segment is comprised mostly of the 2kW
Generator product line and the Pitometer Log Division's
products. Pitometer Log is a long-established manufacturer
of ship speed and distance measuring instrumentation.
Its primary customers are the U.S. Navy and other prime
contractors such as shipbuilders. Pitometer Log's
business is derived from various orders, limited in scope
and duration. These are generally for replacement parts and
equipment for previous Company contracts with the Department
of Defense as well as business from other projects
performed as a subcontractor.
Under the 2kW diesel operated tactical generator set contract,
the Company has been the sole producer for the Department of
Defense since 1997. The original contract was awarded in
1996 and final deliveries were made under that award in
March 2002. Deliveries were made to the various branches
of the Armed Forces of the United States.
11
In September 2001, the Company was awarded a new contract
to provide the U.S. Army and other Department of Defense
Agencies with this same 2kW diesel operated generator set.
This new contract is a ten-year indefinite delivery,
indefinite quantity contract which replaces the initial
contract awarded in 1996. The total amount of orders placed
through May 12, 2003 amount to approximately $9 million.
As with the prior contract, this contract allows for the
Army to place annual production orders and to place
additional interim orders. However, no assurances can
be made that further orders will be placed or, if they
are placed, the timing and amount of such orders.
In the leisure and recreation segment, the Company, through
its HEDCO Division, designs, manufactures and markets
advanced, sophisticated snowmaking equipment. It also
supplies replacement parts for items no longer covered
under warranty.
There are no intersegment sales.
Some operating expenses, including general corporate
expenses, have been allocated by specific identification
or based on labor for items which are not specifically
identifiable. In computing operating profit, none of
the following items have been added or deducted: interest
expense, income taxes, and non-operating income and
expenses.
Results of Operations
The Company's operating cycle is long-term and includes
various types of products and varying delivery schedules.
Accordingly, results of a particular period or period-to-
period comparison of recorded revenues and earnings may
not be indicative of future operating results. The
following comparative analysis should be viewed in
this context.
Consolidated Summary
For the three-month period ended March 31, 2003, consolidated
revenues were $1,030,157 and operating income was $148,005.
Last year, during the same period, consolidated revenues
were $1,922,849 and operating income was $411,806.
For the nine-month period ended March 31, 2003, consolidated
revenues were $4,701,007 and operating income was $490,236.
Last year, during the same nine-month period, consolidated
revenues were $6,737,614 and operating income was $1,290,205.
This year's revenues were lower in both the electronics
segment and the leisure and recreation segment compared
to the same three and nine month periods last year.
Results of operations by business segment are discussed
below in more detail. Also, information about the
Company's operations in its two segments for the three
and nine month periods this year compared to last year
can be found in Note 11 of the Notes to Consolidated
Financial Statements.
12
Electronics Segment
In the electronics segment, revenues are recorded under
defense contracts using the percentage of completion
method of accounting. Revenues are recorded as work is
performed based on the percentage that actual incurred costs
bear in comparison to estimated total costs utilizing the
most recent estimates of costs and funding. Since
contracts typically extend over multiple reporting periods,
revisions in cost and estimates during the progress of work
have the effect of adjusting earnings applicable to
performance in prior periods in the current period. When
the estimated costs to complete a project indicate a loss,
provision is made for the anticipated loss in the current
period. For further information see Note 1 and Note 5 of the
Notes to Consolidated Financial Statements.
For the three-month period ended March 31, 2003, revenues in
the electronics segment were $884,818 lower than the same three
- -month period last year. During the three-month period this
year, the production of 2kW generator sets provided 72% of
electronics segment revenue. During the same period last
year, production of 2kW generator sets provided 89% of
electronics segment revenues. This decline in contribution
to revenues is the result of reduced orders and the affected
production levels. The Company has been producing under its
contract for 2kW generator sets with deliveries being made
according to the government provided delivery schedule.
However, generators are being manufactured at a lower
rate than last year due to declining customer requirements.
Deliveries under this existing production order are scheduled
to continue through March 2004. This is discussed further
in the section "Government Defense Business" below. The
segment's remaining revenues, derived principally from the
Company's Pitometer Log Division, have remained relatively
level in past years. Pitometer Log revenues are derived
from various orders, more limited in scope and duration,
which are generally for replacement parts for previously
supplied Department of Defense equipment and other projects
performed as a sub-contractor. The Company has also
been developing a small customer base which utilizes
its specialized CNC (Computer Numerical Control)
machining centers.
For the nine-month period ended March 31, 2003, revenues in
the electronics segment were $1,799,243 lower than the
same nine-month period last year. The production of 2kW
generator sets provided 82% of electronics segment
revenues during the nine-month period this year and 91% of
electronics segment revenues last year during the same
nine-month period.
As of March 31, 2003, the aggregate value of the Company's
backlog of electronics product not previously recorded as
revenues was approximately $3 million. It is estimated that
approximately $1 million of this backlog will be recognized
as revenues during this fiscal year ending June 30, 2003.
As of March 31, 2002, the aggregate value of the Company's
backlog of electronics product not previously recorded as
revenues was approximately $3 million.
Leisure and Recreation Segment
In the HEDCO Division, revenues were lower by $7,874 and
$237,364 for the three and nine-month periods ended March
31, 2003, respectively, when compared to the same periods
of last year.
13
Last year, higher snowmaking machine deliveries, which
included lease with purchase option agreements, increased
revenues. This year, no machine sales were made. The Company
has reviewed its position in this market and is redirecting
its marketing efforts, making enhancements to its machine
design and broadening its customer relations.
The Company is exploring possible strategic options with
respect to this division.
Liquidity and Capital Resources
The Company's working capital at March 31, 2003 was
$3,986,707 compared to $4,768,198 at June 30, 2002.
The ratio of current assets to current liabilities was
6.96 to 1 at March 31, 2003 and 6.35 to 1 at
June 30, 2002.
For the nine-month period ended March 31, 2003, operating
activities provided net cash of $253,159. Expenditures
for plant, property and equipment used net cash of $504,377
and financing activities used net cash of $534,141.
Net cash provided by operating activities of $253,159 was
primarily the result of net income of $284,868 combined with
the net effect of billing and collecting contract costs and
related estimated profits, collecting prior billings and
reducing vendor accounts payable.
For the nine-month period ended March 31, 2003, net cash
used for expenditures of plant, property and equipment of
$504,377 included the amount of $442,854, which was used by
the Company in its continued efforts to improve existing
technologies which would enhance its current product lines
and develop new revenue sources, both military and civilian.
Positive progress has been made in the areas of reduced sound
and weight for the generator product line. This is
anticipated to be reflected in working models to be used
for marketing purposes. The Company is currently working
with government representatives to ascertain requirements
and possible applications for the military. The Company
expects to continue investing in this and other technologies
over the next six-month period, although these investments
are anticipated to be at a lower level of funding.
Management believes that such initiatives, despite the
inherent risks and uncertainties, are important to the
Company's business and future growth. As with all
projects of this nature, no assurances can be made that
such efforts will be successful or that the Company
will achieve its desired results.
During the nine-month period ended March 31, 2003, financing
activities used net cash of $534,141, which includes a
voluntary principal reduction payment of $500,000 made
towards the Company's long-term mortgage debt with its
primary lender. The outstanding balance of the
Company's mortgage note agreement at March 31, 2003
was $403,907.
For the nine-month period ended March 31, 2002, operating
activities provided net cash of $2,240,451. Expenditures
for plant, property and equipment used net cash
of $174,632 and financing activities used net cash
of $603,751.
Last year net cash provided by operating activities resulted
primarily from net income and the billing and collection
of contract costs and related estimated profits.
14
Net cash used in financing activities included additional
principal reduction payments of $603,751 made towards the
Company's long-term debt.
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 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
as of March 31, 2003.
In addition, the Company also has a note payable to a co-
founder (stockholder) in the amount of $200,000 at an
interest rate of 9% per annum. This note is unsecured
and subordinate to the mortgage note with the Company's
primary lender and has been classified on the Balance
Sheet as a long-term liability.
The Company owns approximately 90 acres of land and the
building which it occupies in Bergen County, New Jersey,
adjacent to an interchange of Interstate Route 287. The
Company is continuing to actively pursue possible methods
of monetizing this property by its sale and/or development.
The Company has retained one of the largest commercial real
estate brokerage houses serving the New York - New Jersey
region to assist in these efforts.
The Company's borrowing capacity has remained above its use
of outside financing. Management believes that the Company's
anticipated cash flow from operations, combined with its
line of credit, will be sufficient to support working
capital requirements and capital expenditures at their
current or expected levels. The Company continues
to meet its short-term liquidity needs arising out of
electronic product operations through a combination of
progress payments on government contracts (based on costs
incurred) and billings at the time of delivery of products.
Government Defense Business
The electronics segment of business provides most of the
Company's revenues and is comprised of business with the
U.S. Department of Defense or with other government
contractors. It consists of long-term contracts and
short-term business such as replacement parts.
Long-term contracts have been dependent upon single projects
and until 1997, a single program, the ADCAP torpedo program
with the U.S. Navy was the primary source of the Company's
revenues. In 1996, the Company was awarded a contract with
the U.S. Army to provide diesel operated tactical
generator sets. This program has since become the
Company's primary source of revenues.
On September 7, 2001, the Company was awarded a ten-year
contract to provide the U.S. Army and other Department of
Defense Agencies with 2kW diesel operated generator sets.
This ten-year indefinite delivery, indefinite quantity
contract replaces the initial contract under which the
Company has been the sole producer of this generator for
the Army since 1997. These generators are currently
being fielded by both active and reserve components of the
U.S. Armed Forces.
15
As with the prior contract, this new contract to supply 2kW
diesel operated generator sets allows for the U.S. Army to
place production orders annually and to place additional
interim orders. Orders under this new contract were
received as final deliveries were being made on the prior
contract and production of these orders has begun. The
Company was awarded an annual production order for the
second year of the contract on February 26, 2003. The
amount of this production order is approximately $2.4
million. The amount of orders received to date under
this contract is approximately $9 million.
The Army has been ordering 2kW generators at a reduced volume
when compared to previous years. Thus, the Company is
currently delivering at a reduced rate, which is responsible
for the reduction in revenues. The production order which
was placed on February 26, 2003 further reduced this
delivery rate. As the contract allows, additional orders
may be made by the Army, although no assurances can be
made that it will do so, or if there are additional orders,
the amount and timing thereof. Moreover, periods of
heightened national security and war have often introduced
new priorities and demands, external delays, and increased
uncertainty into the defense contracting marketplace.
Management is continuing to explore additional sources of
revenue as discussed below in the section "Company Strategy".
It should be recognized that Department of Defense business is
subject to changes in military procurement policies and
objectives and to government budgetary constraints and that
the Company bids for Department of Defense business in
competition with many defense contractors, including firms
that are larger in size and have greater financial resources.
All of the Company's contracts with the United States
Government (the "Government") are subject to the standard
provision for termination at the convenience of the
Government.
Since substantially all of the Company's electronics business
has been derived from contracts with various agencies of the
Government or subcontracts with prime Government contractors,
the loss of substantial Government business (including a
material reduction of orders under existing contracts)
would have a material adverse effect on the business.
Company Strategy
The Company has increased its government sales and marketing
capacity. This is part of its existing strategy to build
stronger relations with its customers, while working to
develop new business.
The 2kW diesel operated tactical generator set, the
Company's principal revenue source, was recently approved
by the U.S. Army for use as an optional auxiliary power
unit (APU) on the Family of Medium Tactical Vehicles (FMTV).
The Department of Defense budgeting process is one of an
extended time frame. The process of including expenditures
in its budget could take a minimum of 12 to 24 months.
In addition, approval of this budget does not guarantee
the expenditure actually being made and particularly the
receipt of an award by the Company.
The Company has many years of experience in contracting with
the Department of Defense and has received many contracts
to provide various types of products and services.
Utilizing some of this experience, the Company is
continuing to explore other areas of business, which
are capable of providing continued stability and growth.
16
The Company has been reinvesting its earnings into its own
future. It has been investing, and is continuing to invest,
in its existing products and technologies. This effort is
intended for initial benefit in the electronics segment.
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 projects of this nature no assurances can be made that
such product development work will be successful or that
the Company will achieve its desired results. See
the discussion above under "Liquidity and Capital
Resources."
On May 2, 2003, the U.S. Army Communications - Electronics
Command, CECOM Acquisition Center, Washington, released
information that its Research Development and Engineering
Center, Command and Control Directorate, Army Power Division,
Power Generation Branch, Fort Belvoir, Virginia "intends
to negotiate a cost plus fixed fee contract with Dewey
Electronics Corporation...". This would be focused on
designing and developing product improvements for
the existing generator in its military applications.
No assurances can be made that the Company will enter
into such a contract or, if one is entered into,
the amount and timing thereof.
Other Developments
On March 12, 2003, the Company announced that it had selected
Bill Wight, LLC to assist in the Company's marketing and
business development efforts, specifically with agencies and
services of the Department of Defense.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes are prepared
in accordance with accounting principles generally accepted
in the United States of America. Preparing financial
statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenues and expenses. These estimates and assumptions
affect the application of our accounting policies.
Actual results could differ from these estimates.
Our significant accounting policies are described
in the Notes to the Consolidated Financial Statements
herein and contained within the Company's Form 10-K
for the fiscal year ended June 30, 2002. Critical
accounting policies are those that require application
of management's most difficult, subjective or complex
judgments, often as a result of matters that are
inherently uncertain and may change in subsequent
periods. The Company's critical accounting policies
include revenue recognition on contracts and contract
estimates, long-lived assets, 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.
17
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
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 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.
18
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 10, 2003, the Company sold 10,000 shares of its
common stock, par value $.01 per share ("Common Stock"), for
a total price of $5,781.25, to an executive officer upon
exercise of stock options granted to such officer under
the Company's stockholder-approved 1998 Stock Option Plan
(the "Option Plan). On January 10, 2003, the Company sold
10,000 shares of Common Stock, for a total price of
$5,781.25, to another executive officer upon exercise of
stock options granted to such officer under the Option
Plan. The proceeds of such sales will be used for general
corporate purposes. As the basis for exemption from
registration under the Securities Act of 1933, as
amended (the "Act"), the Company is relying on Rule 506
of Regulation D such that the aforementioned transactions
do not involve any public offering within the meaning
of Section 4(2) of the Act.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
See the accompanying Index to Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of l934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
THE DEWEY ELECTRONICS CORPORATION
/s/
Date: May 15, 2003 John H.D. Dewey
President and Chief Executive Officer
/s/
Date: May 15, 2003 Thom A. Velto
Treasurer
19
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: May 15, 2003
/s/
John H. D. Dewey
President and Chief Executive Officer
20
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: May 15, 2003
/s/
Thom A. Velto
Treasurer
21
THE DEWEY ELECTRONICS CORPORATION
INDEX TO EXHIBITS
The following exhibits are included with this report. For
convenience of reference, exhibits are listed according
to the numbers assigned in the Exhibit table to Regulation
S-K.
Number
99.1 Certification of Chief Executive Officer pursuant to
18 U.S. C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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.
22
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 March 31, 2003 as
filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, John H. D. Dewey,
Chief Executive Officer of the Corporation, certify,
pursuant to 18 U.S.C. ss 1350, as adopted pursuant to ss
906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Corporation.
/s/
John H. D. Dewey, President and Chief Executive Officer
Dated: May 15, 2003
A signed original of this written statement required by
Section 906 has been provided to the Dewey Electronics
Corporation and will be retained by The Dewey
Electronics Corporation and furnished to the Securities
and Exchange Commission or its staff upon request.
23
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 March 31, 2003 as
filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Thom A.
Velto, Treasurer of the Corporation, certify, pursuant
to 18 U.S.C. ss 1350, as adopted pursuant to ss 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Corporation.
/s/
Thom A. Velto, Treasurer
Date: May 15, 2003
A signed original of this written statement required
by Section 906 has been provided to the Dewey
Electronics Corporation and will be retained by
The Dewey Electronics Corporation and furnished
to the Securities and Exchange Commission or its
staff upon request.
24