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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 December 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 February 4, 2004.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page
No.
Part I Financial Information
Item 1 Consolidated Financial Statements 3
Consolidated Balance Sheets -
December 31, 2003 and June 30, 2003 4
Consolidated Statements of Operations -
Three and Six Months Ended December 31, 2003
and December 31, 2002 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2003
and December 31, 2002 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 4 Controls and Procedures 21
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 22
Item 4. Submission of Matters to a Vote of Security
Holders 22
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 December 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, 2003.
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
2003 2003
(UNAUDITED)
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $1,159,487 $1,989,703
ACCOUNTS RECEIVABLE, NET 1,267,492 756,265
INVENTORIES 981,387 552,180
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS
OF BILLINGS 691,294 1,079,702
DEFERRED TAX ASSET 105,682 105,682
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 141,033 158,905
TOTAL CURRENT ASSETS 4,346,375 4,642,437
PLANT, PROPERTY AND EQUIPMENT
- NET 1,058,257 903,431
CAPITALIZED DEVELOPMENT COSTS 873,028 752,400
DEFERRED LOAN FEES 49,069 54,019
TOTAL OTHER ASSETS 922,097 806,419
TOTAL ASSETS $6,326,729 $6,352,287
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $429,559 $336,445
ACCRUED EXPENSES AND OTHER
LIABILITIES 115,806 195,354
ACCRUED CORPORATE INCOME TAXES - 15,223
ACCRUED PENSION COSTS 6,056 6,056
CURRENT PORTION OF LONG-TERM
DEBT 60,938 60,938
TOTAL CURRENT LIABILITIES 612,359 614,016
LONG-TERM DEBT 297,265 327,734
LONG-TERM PENSION LIABILITY 308,913 278,913
DEFERRED TAX LIABILITY 564,214 564,214
DUE TO RELATED PARTY 200,000 200,000
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, par value $1.00;
authorized 250,000 shares,
issued and outstanding, none -- --
COMMON STOCK, par value $.01;
authorized 3,000,000 shares;
issued and outstanding
1,693,397 shares 16,934 16,934
PAID-IN CAPITAL 2,817,474 2,817,474
ACCUMULATED EARNINGS 2,183,914 2,207,346
ACCUMULATED OTHER
COMPREHENSIVE LOSS (183,642) (183,642)
4,834,680 4,858,112
LESS: TREASURY STOCK 333,866
SHARES AT COST (490,702) (490,702)
TOTAL STOCKHOLDERS' EQUITY 4,343,978 4,367,410
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,326,729 $6,352,287
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
2003 2002 2003 2002
REVENUES $1,387,072 $1,679,185 $2,573,846 $3,670,850
COST OF REVENUES 1,101,436 1,194,348 2,014,002 2,747,927
GROSS PROFIT 285,636 484,837 559,844 922,923
SELLING & ADMIN.
EXPENSES 324,435 332,207 576,828 580,692
OPERATING (LOSS)
/INCOME (38,799) 152,630 (16,984) 342,231
INTEREST EXPENSE 10,060 16,172 22,461 35,237
OTHER INCOME - NET 2,745 (10,317) (391) (22,923)
(LOSS)/INCOME BEFORE
INCOME TAXES (51,604) 146,775 (39,054) 329,917
INCOME TAX BENEFIT
(EXPENSE) 20,642 (58,710) 15,622 (131,967)
NET (LOSS)/INCOME ($30,962) $88,065 ($23,432) $197,950
======= ====== ======= =======
NET (LOSS)/INCOME
PER SHARE:
BASIC ($0.02) $0.07 ($0.02) $0.15
DILUTED ($0.02) $0.06 ($0.02) $0.14
WEIGHTED AVERAGE NUMBER
OF SHARES
OUTSTANDING
BASIC 1,359,531 1,339,531 1,359,531 1,339,531
DILUTED 1,422,031 1,384,919 1,422,031 1,382,475
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
2003 2002
CASH FLOWS FROM OPERATING
ACTIVITIES
NET (LOSS)/INCOME ($23,432) $197,950
ADJUSTMENTS TO RECONCILE NET
(LOSS)/INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
DEPRECIATION 37,141 51,150
AMORTIZATION OF LOAN FEES 4,950 2,100
DEFERRED INCOME TAXES - (100,000)
INCREASE IN ACCOUNTS RECEIVABLE (511,227) (243,324)
INCREASE IN INVENTORIES (429,207) (4,637)
DECREASE IN CONTRACT COSTS
AND RELATED ESTIMATED PROFITS
IN EXCESS OF APPLICABLE
BILLINGS 388,408 86,869
DECREASE IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS 17,872 11,019
INCREASE/(DECREASE) IN ACCOUNTS
PAYABLE 93,114 (40,744)
DECREASE IN ACCRUED LIABILITIES (79,548) (50,883)
(DECREASE)/INCREASE IN ACCRUED
CORPORATE INCOME TAXES (15,223) 11,642
INCREASE IN ACCRUED PENSION
COSTS 30,000 34,500
TOTAL ADJUSTMENTS (463,720) (242,308)
NET CASH USED IN OPERATING
ACTIVITIES (487,152) (44,358)
CASH FLOWS FROM INVESTING
ACTIVITIES:
EXPENDITURES FOR PLANT,
PROPERTY AND EQUIPMENT (191,967) (43,118)
EXPENDITURES FOR CAPITALIZED
DEVELOPMENT COSTS (120,628) (351,147)
NET CASH USED IN INVESTING
ACTIVITIES (312,595) (394,265)
CASH FLOWS FROM FINANCING
ACTIVITIES:
PRINCIPAL PAYMENTS OF
LONG-TERM DEBT (30,469) (530,469)
NET CASH USED IN FINANCING
ACTIVITIES (30,469) (530,469)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (830,216) (969,092)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,989,703 3,503,087
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $1,159,487 $2,533,995
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
INTEREST PAID $22,564 $39,360
INTEREST RECEIVED 3,944 6,450
CORPORATE INCOME TAXES PAID 325 220,325
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for its Stock Option Plans. The
compensation cost for the stock-based employee compensation plan is
recognized using the intrinsic value method. The following table
illustrates the effect on net (loss)/income and net (loss)/income per
share if the Company had applied the fair value method to recognize
stock-based employee compensation.
3 Months Ended December 31
2003 2002
Net (loss)/income, as
Reported ($30,962) $88,065
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
Effects 4,979 --
Pro forma net (loss)/income ($35,941) $88,065
Earnings per share:
Basic - as reported ($.02) $.07
Basic - pro forma ($.03) $.07
Diluted - as reported ($.02) $.06
Diluted - pro forma ($.03) $.06
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Six Months Ended December 31
2003 2002
Net (loss)/income, as
Reported ($23,432) $197,950
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
Effects 8,565 --
Pro forma net (loss)/income ($31,997) $197,950
Earnings per share:
Basic - as reported ($.02) $.15
Basic - pro forma ($.02) $.15
Diluted - as reported ($.02) $.14
Diluted - pro forma ($.02) $.14
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
NOTE 2:REVENUE RECOGNITION
Revenues and estimated earnings under defense contracts (including
research and development contracts) are recorded using the percentage-
of-completion method of accounting, measured as the percentage of costs
incurred to estimated total costs for each contract. Provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined.
Since substantially all of the Company's electronics business comes
from contracts with various agencies of the United States Government or
subcontracts with prime Government contractors, the loss of Government
business would have a material adverse effect on this segment of
business.
In the Leisure and Recreation segment, revenues and earnings are
recorded when deliveries are made and title and risk of loss have been
transferred to the customer and collection is probable.
NOTE 3: CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
NOTE 4: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt and line of credit
borrowings are estimated based upon interest rates currently available
for borrowings with similar terms and maturities and approximate the
carrying values.
Due to the short-term nature of cash, accounts receivable, accounts
payable, accrued expenses and other current liabilities, their carrying
value is a reasonable estimate of fair value.
NOTE 5: INVENTORIES
Inventories are valued at lower of cost (first-in, first-out method) or
market. Components of cost include materials, direct labor and plant
overhead.
As there is no segregation of inventories as to raw materials, work in
progress and finished goods for interim reporting periods (this
information is available at year end when physical inventories are
taken and recorded), estimates have been made for the interim period.
These estimates are consistent with those made in prior periods.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2003
December 31, 2003 June 30, 2003
Finished Goods $227,909 $ 93,288
Work In Progress 376,923 100,308
Raw Materials 376,555 358,584
Total $981,387 $552,180
======== =======
NOTE 6: USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 7: PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment are stated at cost. Allowance for
depreciation is provided on a straight-line basis over estimated useful
lives of three to ten years for machinery and equipment, ten years for
furniture and fixtures, and twenty years for building and improvements.
NOTE 8: CAPITALIZED DEVELOPMENT COSTS
Capitalized development costs consist of costs incurred for the
adaptation of the existing capabilities of the 2kW generator sets to
address the particular requirements and requests of the customer, the
Department of Defense. These costs will be expensed through cost of
sales associated with the related sales to the Department of Defense.
NOTE 9: LOAN FEES
Loan fees are capitalized by the Company and amortized utilizing the
straight-line basis over the term of the loan.
NOTE 10: INCOME TAXES
The income tax benefit/(expense) for the three and six-month periods
ended December 31, 2003 and 2002 was at an effective tax rate of 40%.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
NOTE 11: 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 December 31, 2003, the
carrying values of such assets are not impaired.
NOTE 12: EARNINGS PER SHARE
Basic net (loss)/income per share is computed by dividing reported net
(loss)/income available to common shareholders by weighted average
shares outstanding for the period. Diluted net (loss)/income per share
is computed by dividing reported net (loss)/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 (loss)/income per common
share computations.
Three Months Ended December 31,
2003 2002
Per Per
Loss Shares Share Income Shares Share
Amount Amount
Basic
net
(loss)
/income
per
common
share ($30,962) 1,359,531 ($.02) $88,065 1,339,531 $.07
Effect
Of
dilutive
Securities -- 62,500 -- -- 45,388 ($.01)
Diluted
net
(loss)
/income
per
common
share ($30,962) 1,422,031 ($.02) $88,065 1,384,919 $.06
Six Months Ended December 31,
2003 2002
Per Per
Loss Shares Share Income Shares Share
Amount Amount
Basic
net
(loss)
/income
per
common
share ($23,432) 1,359,531 ($.02) $197,950 1,339,531 $.15
Effect
Of
dilutive
securities -- 62,500 -- -- 42,944 ($.01)
Diluted
net
(loss)
/income
per
common
share ($23,432) 1,422,031 ($.02) $197,950 1,382,475 $.14
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
NOTE 13: RECENT PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities ("VIE's")" ("FIN 46"). This
interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," addresses when a company should include in its
financial statements the assets and liabilities of unconsolidated
VIE's. FIN 46 was effective for VIE's created or acquired after
January 31, 2003. In December 2003, the FASB completed deliberations
of proposed modifications to FIN 46 ("Revised Interpretations")
resulting in multiple effective dates based on the nature as well as
the creation date of the VIE. The Company does not enter into
arrangements with VIE's and thus does not anticipate that the adoption
of this statement will have a material impact on the Company's results
of operation or financial condition.
NOTE 14: SEGMENT INFORMATION
Information about the Company's operations in its two segments for the
fiscal quarters and six month periods ended December 31, 2003 and 2002
are as follows:
Three months ended Six months ended
December 31, December 31,
2003 2002 2003 2002
Electronics
Segment
Revenues $1,031,839 $1,619,790 $2,208,665 $3,592,085
Operating
(Loss)/Income (35,718) 164,767 14,916 369,413
HEDCO
Revenues 355,233 59,395 365,181 78,765
Operating
(Loss) (3,081) (12,137) (31,900) (27,182)
Total
Revenues 1,387,072 1,679,185 2,573,846 3,670,850
Operating
(Loss)
/Income (38,799) 152,630 (16,984) 342,231
Interest Expense (10,060) (16,172) (22,461) (35,237)
Other Income (2,745) 10,317 391 22,923
Income Tax
Benefit
(Expense) 20,642 (58,710) 15,622 (131,967)
Net (Loss)
/Income ($30,962) $88,065 ($23,432) $197,950
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2003
NOTE 15: RECLASSIFICATIONS
Certain prior period information has been reclassified to conform to
the current period's presentation.
THE DEWEY ELECTRONICS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements, including the notes
thereto, appearing elsewhere in this Form 10-Q, and with the audited
consolidated financial statements, including the notes thereto,
appearing in the Company's Form 10-K for the fiscal year ended June 30,
2003. Certain statements in this report may be deemed "forward-looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of
historical fact, that address activities, events or developments that
the Company or management intends, expects, projects, believes or
anticipates will or may occur in the future are forward-looking
statements. Such statements are based upon certain assumptions and
assessments made by management of the Company in light of its
experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes to be
appropriate. The forward-looking statements included in this report
are also subject to a number of material risks and uncertainties,
including but not limited to economic, governmental, competitive and
technological factors affecting the Company's operations, markets,
products, services and prices and, specifically, the factors discussed
below under "Government Defense Business" and "Company Strategy". Such
forward-looking statements are not guarantees of future performance and
actual results, developments and business decisions may differ from
those envisaged by such forward-looking statements.
Operating Segments
The Company is organized into two principal operating segments on the
basis of the types of products offered to its customer base. Each
segment is comprised of separate and distinct businesses: the
electronics segment - primarily business with the Department of
Defense, and the leisure and recreation segment - primarily ski areas
and resorts.
In the electronics segment, the Company is a producer of electronic and
electromechanical systems for the Armed Forces of the United States.
The Company provides its products in this segment either as a prime
contractor or as a subcontractor for the Department of Defense.
The electronics segment is comprised mostly of the 2kW generator product
line, a research and development contract, and other various orders,
more limited in scope and duration. The 2kW generator product line is
provided to the various branches of the Armed Forces of the United
States. Production is for a long-term contract as well as short-term
orders for limited quantities. The Company also provides speed and
measurement instrumentation primarily for the U.S. Navy and other prime
contractors such as shipbuilders. Orders are also received for
replacement parts and equipment for previous Company contracts with the
Department of Defense as well as other projects performed as a sub-
contractor. In past years, the Company had various long-term contracts
to provide the U.S. Navy with equipment.
Under the 2kW diesel operated tactical generator set contract, the
Company has been the sole source 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.
A new contract was awarded in September 2001, to provide the U.S. Army
and other Department of Defense Agencies with this same 2kW diesel
operated generator set. This 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
January 31, 2004 amount to approximately $11 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 to each segment 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 December 31, 2003, consolidated
revenues were $1,387,072 and operations resulted in a loss of $38,799.
During the same period last year, consolidated revenues were $1,679,185
and operating income was $152,630.
For the six-month period ended December 31, 2003, consolidated revenues
were $2,573,846 and operations resulted in a loss of $16,984. During
the same six-month period last year, consolidated revenues were
$3,670,850 and operating income was $342,231.
This year's revenues were lower in the electronics segment and higher
in the leisure and recreation segment compared to the same three and
six 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 six month
periods this year and last year can be found in Note 14 of the Notes to
Consolidated Financial Statements.
Electronics Segment
In the electronics segment, revenues are recorded under defense
contracts using the percentage of completion method of accounting.
Revenues are recorded as work is performed based on the percentage that
actual incurred costs bear in comparison to estimated total costs
utilizing the most recent estimates of costs and funding. Since
contracts typically extend over multiple reporting periods, revisions
in cost and estimates during the progress of work have the effect of
adjusting earnings applicable to performance in prior periods in the
current period. When the estimated costs to complete a project
indicate a loss, provision is made for the anticipated loss in the
current period. For further information see Note 2 and Note 6 of the
Notes to Consolidated Financial Statements.
For the three-month period ended December 31, 2003, revenues in the
electronics segment were $587,951 lower than the same three-month
period last year. During the three-month period this year, the
production of 2kW generator sets provided 58% of electronics segment
revenue. During the same period last year, production of 2kW generator
sets provided 78% of electronics segment revenues. For the six-month
period ended December 31, 2003, revenues in the electronic segment were
$1,383,420 lower than the same six-month period last year. During the
six-month period this year, the production of 2kW generator sets
provided 67% of electronic segment revenue. During the same six-month
period last year, the production of 2kW generator sets provided 85% of
electronic product revenues. This decline in contributions to revenues
compared to last year is the result of reduced orders and the affected
production levels. It also reflects the impact of the Company
initiating an alternate delivery schedule for existing generator
orders, which was accepted by its customer. This revised delivery
schedule allowed the Company to focus production during this six-month
period on snowmaking machines for sales and inventory purposes. This
was intended to allow for faster delivery of these machines, see below
"Company Strategy". As a result, the Company experienced a reduced
production level towards the generators sets, and anticipates
production of the existing generator orders, which began late in the
second fiscal quarter, to continue through the fiscal year.
The Company's 2kW generator contract is discussed further in the
section "Government Defense Business" below. The Company's research
and development contract (see "Company Strategy" below) is currently at
its beginning stages and has not resulted in a material amount of
revenues. The segment's remaining revenues are derived principally
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.
Production efforts for these orders have increased compared to recent
years as a result of increased orders from government agencies and from
shipbuilders.
As of December 31, 2003, the aggregate value of the Company's backlog
of electronics product not previously recorded as revenues was
approximately $4.7 million. It is estimated that approximately $3.5
million of this backlog will be recognized as revenues during this
fiscal year ending June 30, 2004.
As of December 31, 2002, the aggregate value of the Company's backlog
of electronics product not previously recorded as revenues was
approximately $1 million.
Leisure and Recreation Segment
In the HEDCO Division, revenues were higher by $295,838 and $286,416
for the three and six-month periods ended December 31, 2003,
respectively, when compared to the same periods of last year. This is
the result of the sale of snowmaking machines this year. Last year, no
snowmaking machine sales were made as the Company reviewed its position
in this market. There has also been an increase in the sale of
replacement parts compared to last year.
During the past six months, the Company focused its production efforts
on snowmaking machines for sales and inventory purposes. For further
information, see below under "Company Strategy". It has also
redirected its marketing efforts to concentrate on a broader customer
base as well as optional enhancements to its machines.
Liquidity and Capital Resources
The Company's working capital at December 31, 2003 was $3,734,016
compared to $4,028,421 at June 30, 2003.
The ratio of current assets to current liabilities was 7.10 to 1 at
December 31, 2003 and 7.56 to 1 at June 30, 2003.
For the six-month period ended December 31, 2003, operating activities
used net cash of $487,152. This was the result primarily of several
factors. Net billings of contract costs and related estimated profits
in excess of applicable billings generated $388,408 of net billings.
As a result, accounts receivable increased by $511,227. Inventories
increased using cash in the amount of $429,207. This is the result of
the Company's efforts to produce snowmaking machines to be available
for sales. The Company has also begun to produce a small quantity of
2kW generator sets for inventory purposes. The government sector has
begun to order small quantities of 2kW generator sets for specific uses
pursuant to short term orders independent of the Company's 2kW
contract.
Expenditures for investing activities used net cash of $312,595 and
financing activities used net cash of $30,469. Of the expenditures for
investing activities, $120,628 was used by the Company to continue to
invest in efforts to improve its products and existing technologies in
its generator product line. These efforts primarily involve the
acquisition of existing technology as well as engineering and design
related to the generator and other related fields of business. The
remaining $191,967 was used for plant equipment. Of this amount,
$162,161 was used to purchase a new machining center. No material
amounts have been committed for plant equipment for the balance of this
fiscal year.
For the six-month period ended December 31, 2002, operating activities
used net cash of $44,358. This was the result primarily of net income
offset by an increase in accounts receivable. Expenditures for
investing activities used net cash of $394,265 and financing activities
used net cash of $530,469, as a result of principal payments made
towards the Company's long term debt. Of the expenditures for
investing activities, $351,147 was used by the Company to invest in
efforts to improve its products and existing technologies in its
generator product line.
The Company 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 and has been renewed. There were no borrowings against this
line of credit facility as of January 31, 2004.
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. For additional
information, see above under "Electronics Segment". 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 replaced the initial contract. The
Company has been the sole source producer of this generator for the
Army since 1997. These generators are currently being fielded by both
active and reserve components of the U.S. Armed Forces.
As with the prior contract, this new contract to supply 2kW diesel
operated generator sets allows for the U.S. Army to place production
orders annually and to place additional interim orders. Orders under
this new contract were received as final deliveries were being made on
the prior contract. Production of new orders continues. The amount of
orders received to date under this contract is approximately $11
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 contributing to the reduction in revenues.
Orders received on this contract in calendar year 2003 were
approximately $4.6 million compared to approximately $6.1 million
during calendar year 2002.
The reduction in orders results from many factors. It appears that our
main customer, the Army, has satisfied the majority of its outstanding
requirements. They are now placing orders as new requirements emerge,
and this is a slower process. Moreover, we now believe there is
competition in part of our market, from a larger 3kW generator that
operates more quietly than our current model. It does not compete in
the 'man-portable' segment of our market since this competing product
is twice as heavy. The Company's production contract for 2kW
generators prohibits changes to the unit's design and performance
characteristics. This allows the military procurement and logistics
infrastructure to standardize on a single set of requirements, and
avoid incremental change. Traditionally this has been advantageous to
both customer and supplier. However, with evolving requirements and
competition, this can be less advantageous.
As the contract allows, additional orders may be made by the 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
On September 9, 2003, the Company was awarded a "cost plus fixed fee"
research and development contract. This contract with the U.S. Army
Communications - Electronic Command, CECOM Acquisition Center,
Washington is in the amount of approximately $1.8 million. The
contract is for the research and development of improvements to the
current 2kW diesel operated generator set. Work on this contract is
being performed at the Company's location in Oakland, New Jersey and is
expected to continue into next fiscal year ending June 2005. There are
no assurances of future production orders as a result of this contract.
However, the Company will have the opportunity to present improvements
to the government.
The Company has continued to invest in its efforts to improve its
products and existing technologies. This effort is focused on the
enhancement of the existing generator set product line and involves,
primarily, the acquisition of existing technology, as well as
engineering and design. The scope of these efforts includes the
development of an improved product, which is in accordance with current
customer requests and future requirements. The Company is engaging in
efforts to address these requests in the areas of sound reduction,
reduced weight, fuel and environmental requirements.
Other companies have announced intentions of developing similar
products. Some of these companies have greater financial and/or
technical resources than we do. However, management believes that
despite inherent risks and uncertainties, these efforts are important
to the Company's business and future growth. As with all projects of
this nature, no assurances can be made that such product development
work will be successful or that the Company will achieve its desired
results. See the discussion above under "Liquidity and Capital
Resources".
The Department of Defense budgeting process is one of an extended time
frame. The process of including expenditures in its budget could take
a minimum of 12 to 24 months. In addition, approval of this budget
does not guarantee the expenditure actually being made and particularly
the receipt of an award by the Company.
The Company has many years of experience in contracting with the
Department of Defense and has received many contracts to provide
various types of products and services. Utilizing some of this
experience, the Company is continuing to explore other areas of
business, which are capable of providing continued stability and
growth.
The Company's primary sources of revenue include products with long
manufacturing lead times. These products, in particular, are its 2kW
generator sets, and its HEDCO snowmaking machines. Recognizing this,
the Company has committed some of its resources to making a small
quantity of these products readily available by producing them for
inventory and sales. The government sector has begun to order small
quantities of 2kW generator sets for specific uses pursuant to short
term orders independent of the Company's 2kW contract.
The market for snowmaking machines has changed in recent years. Rather
than order machinery months ahead of time, customers are expecting
product to be readily available for immediate use. In order to remain
competitive in this market, the Company is producing its models of
snowmaking machines for inventory purposes. It is also enhancing the
technical capabilities as optional items for these machines.
Despite the inherent risks and uncertainties of investing in inventory,
management believes that the investments in inventory described above
are important to the Company's business and future growth.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United
States of America. Preparing financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. These estimates and assumptions
affect the application of our accounting policies. Actual results
could differ from these estimates. Our significant accounting policies
are described in the Notes to the Consolidated Financial Statements
herein and contained within the Company's Form 10-K for the fiscal year
ended June 30, 2003. Critical accounting policies are those that
require application of management's most difficult, subjective or
complex judgments, often as a result of matters that are inherently
uncertain and may change in subsequent periods. The Company's critical
accounting policies include revenue recognition on contracts and
contract estimates, long-lived assets, pensions and valuation of
deferred tax assets and liabilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies and Estimates", contained within the Company's Form
10-K for the fiscal year ended June 30, 2003.
In the electronics segment, revenues and estimated earnings are
recorded under defense contracts using the percentage of completion
method of accounting, measured as the percentage of costs incurred to
estimated total costs at completion of each contract. See Note 2 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 6 to the Consolidated Financial Statements.
The Company estimates its income taxes using an estimated annual
effective tax rate for the annual period. See Note 10 of the Notes to
the Consolidated Financial Statements.
ITEM 4. Controls and Procedures
The Company carried out, under the supervision and with the
participation of the Company's management, including its Chief
Executive Officer and Treasurer, an evaluation of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the fiscal quarter
covered by this report. Based upon that evaluation, the Chief
Executive Officer and Treasurer concluded that, as of December 31,
2003, the design and operation of these disclosure controls and
procedures were effective. During the fiscal quarter covered by this
report, there have been no changes in the Company's internal control
over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
None
Item 4. Submission of Matters to a Vote of Security Holders
On December 3, 2003, at the Company's annual meeting of shareholders,
the following five directors were elected to serve for the ensuing
year. Set forth below are the numbers of votes cast for, or withheld
with respect to, each such person (who were the Company's nominees for
directors):
Name For Withheld
Alexander A. Cameron 1,142,436 3,346
Frances D. Dewey 1,143,188 2,594
John H.D. Dewey 1,142,504 3,278
Nathaniel Roberts 1,143,237 2,545
James M. Link 1,143,237 2,545
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------------------------------
See the accompanying Index to Exhibits to this quarterly report on Form
10-Q.
The following reports on Form 8-K were filed by the Company during the
period covered by this report:
On December 22, 2003, the Company filed a current report on Form 8-K
announcing, among other things, that the Company had received a
delivery order to provide the U.S. Army and other Department of Defense
agencies with its diesel operated 2kW light-weight generators.
On December 4, 2003, the Company filed a current report on Form 8-K
announcing, among other things, that the stockholders voted to re-elect
the Company's directors.
On October 7, 2003, the Company filed a current report on Form 8-K,
which contained a press release issued by the Company on October 7,
2003, announcing its results for the period ended June 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE DEWEY ELECTRONICS CORPORATION
/s/ John H.D. Dewey
Date: February 13, 2004 John H.D. Dewey
President and Chief Executive Officer
/s/ Thom A. Velto
Date: February 13, 2004 Thom A. Velto
Treasurer
THE DEWEY ELECTRONICS CORPORATION
INDEX TO EXHIBITS
The following exhibits are included with this report. For convenience
of reference, exhibits are listed according to the numbers assigned in
the Exhibit table to Regulation S-K.
Number
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Treasurer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Treasurer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John H. D. Dewey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dewey
Electronics Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: February 13, 2004
By: /s/John H.D. Dewey
John H.D. Dewey
President and Chief Executive
Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thom A. Velto, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dewey
Electronics Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: February 13, 2004
By: /s/Thom A. Velto
Thom A. Velto, Treasurer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-Q for the period ended
December 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
John H. D. Dewey, Chief Executive Officer
Date: February 13, 2004
A signed original of this written statement required by Section 906 has
been provided to The Dewey Electronics Corporation and will be retained
by The Dewey Electronics Corporation and furnished to the Securities
and exchange commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-Q for the period ended
December 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
Thom A. Velto, Treasurer
Date: February 13, 2004
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.