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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, 2004
Commission File No 0-2892
THE DEWEY ELECTRONICS CORPORATION
A New York Corporation
I.R.S. Employer
Identification
No. 13-1803974
27 Muller Road
Oakland, New Jersey 07436
(201) 337-4700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No .
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X.
The number of shares outstanding of the registrant's common stock, $.01
par value was 1,359,531 at May 7, 2004.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page
No.
Part I Financial Information
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets -
Mach 31, 2004 and June 30, 2003 4
Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 2004
and March 31, 2003 5
Consolidated Statements of Cash Flows for the
Nine Months Ended Mach 31, 2004
and March 31, 2003 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 March 31, 2004 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
MARCH 31, JUNE 30,
2004 2003
(UNAUDITED)
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 696,296 $1,989,703
ACCOUNTS RECEIVABLE, NET 1,160,346 756,265
INVENTORIES 1,029,546 552,180
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS
OF BILLINGS 1,111,289 1,079,702
DEFERRED TAX ASSET 105,682 105,682
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 153,239 158,905
TOTAL CURRENT ASSETS 4,256,398 4,642,437
PLANT, PROPERTY AND EQUIPMENT - NET 1,089,081 903,431
CAPITALIZED DEVELOPMENT COSTS 937,254 752,400
DEFERRED LOAN FEES 46,594 54,019
TOTAL OTHER ASSETS 983,848 806,419
TOTAL ASSETS $6,329,327 $6,352,287
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $354,341 $336,445
ACCRUED EXPENSES AND OTHER
LIABILITIES 167,394 195,354
ACCRUED CORPORATE INCOME TAXES 8,699 15,223
ACCRUED PENSION COSTS 6,056 6,056
CURRENT PORTION OF LONG-TERM DEBT 60,938 60,938
TOTAL CURRENT LIABILITIES 597,428 614,016
LONG-TERM DEBT 282,031 327,734
LONG-TERM PENSION LIABILITY 293,913 278,913
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 2,231,677 2,207,346
ACCUMULATED OTHER COMPREHENSIVE
LOSS (183,642) (183,642)
4,882,443 4,858,112
LESS: TREASURY STOCK 333,866 SHARES
AT COST (490,702) (490,702)
TOTAL STOCKHOLDERS' EQUITY 4,391,741 4,367,410
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,329,327 $6,352,287
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
2004 2003 2004 2003
REVENUES $1,605,040 $1,030,157 $4,178,886 $4,701,007
COST OF REVENUES 1,222,864 563,737 3,236,866 3,311,664
GROSS PROFIT 382,176 466,420 942,020 1,389,343
SELLING & ADMIN.
EXPENSES 292,582 318,415 869,410 899,107
OPERATING INCOME 89,594 148,005 72,610 490,236
INTEREST EXPENSE 10,446 11,013 32,907 46,250
OTHER INCOME 457 7,871 848 30,794
INCOME BEFORE INCOME
TAXES 79,605 144,863 40,551 474,780
INCOME TAX EXPENSE 31,842 57,945 16,220 189,912
NET INCOME $47,763 $86,918 $24,331 $284,868
======= ====== ======= =======
NET INCOME PER
SHARE:
BASIC $0.04 $0.06 $0.02 $0.21
DILUTED $0.03 $0.06 $0.02 $0.20
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING:
BASIC 1,359,531 1,359,531 1,359,531 1,359,531
DILUTED 1,402,031 1,404,254 1,402,031 1,403,068
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
2004 2003
CASH FLOWS FROM OPERATING
ACTIVITIES
NET INCOME $ 24,331 $ 284,868
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH USED IN
OPERATING ACTIVITIES:
DEPRECIATION 55,710 69,009
AMORTIZATION OF LOAN FEES 7,425 3,150
INCREASE/(DECREASE) IN
ACCOUNTS RECEIVABLE (404,081) 116,772
INCREASE IN INVENTORIES (477,366) (2,110)
(INCREASE)/DECREASE IN CONTRACT
COSTS AND RELATED ESTIMATED
PROFITS IN EXCESS OF
APPLICABLE BILLINGS (31,587) 141,520
DECREASE/(INCREASE) IN PREPAID
EXPENSES AND OTHER CURRENT
ASSETS 5,666 (38,558)
DEFERRED TAXES -- (100,000)
INCREASE/(DECREASE) IN ACCOUNTS
PAYABLE 17,896 (328,550)
(DECREASE)/INCREASE IN ACCRUED
LIABILITIES (27,960) 10,471
(DECREASE)/INCREASE IN ACCRUED
CORPORATE INCOME TAXES (6,524) 69,587
INCREASE IN ACCRUED PENSION COSTS 15,000 27,000
TOTAL ADJUSTMENTS (845,821) (31,709)
NET CASH (USED IN)/PROVIDED BY
OPERATING ACTIVITIES (821,490) 253,159
CASH FLOWS FROM INVESTING
ACTIVITIES:
EXPENDITURES FOR PLANT, PROPERTY
AND EQUIPMENT (241,360) (61,523)
EXPENDITURES FOR CAPITALIZED
DEVELOPMENT COSTS (184,854) (442,854)
NET CASH (USED IN) INVESTING
ACTIVITIES (426,214) (504,377)
CASH FLOWS FROM FINANCING
ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG
TERM DEBT (45,703) (545,703)
TREASURY STOCK SOLD - 11,562
NET CASH (USED IN) FINANCING
ACTIVITIES (45,703) (534,141)
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,293,407) (785,359)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,989,703 3,503,087
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 696,296 $2,717,728
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
INTEREST PAID $31,586 $48,932
INTEREST RECEIVED 5,268 22,399
CORPORATE INCOME TAXES PAID 20,950 220,325
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
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 income and net income per share if the
Company had applied the fair value method to recognize stock-based
employee compensation.
3 Months Ended March 31
2004 2003
Net income, as reported $47,763 $86,918
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects 4,935 4,935
Pro forma net income $42,828 $81,983
Earnings per share:
Basic - as reported $.04 $.06
Basic - pro forma $.03 $.06
Diluted - as reported $.03 $.06
Diluted - pro forma $.03 $.06
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Nine Months Ended March 31
2004 2003
Net income, as reported $24,331 $284,868
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects 14,847 5,963
Pro forma net income $9,484 $278,905
Earnings per share:
Basic - as reported $.02 $.21
Basic - pro forma $.01 $.21
Diluted - as reported $.02 $.20
Diluted - pro forma $.01 $.20
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
NOTE 2: REVENUE RECOGNITION
Revenues and estimated earnings under defense contracts (including
research and development contracts) are recorded using the percentage-
of-completion method of accounting, measured as the percentage of costs
incurred to estimated total costs for each contract. Provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined.
Since substantially all of the Company's electronics business comes
from contracts with various agencies of the United States Government or
subcontracts with prime Government contractors, the loss of Government
business would have a material adverse effect on this segment of
business.
In the Leisure and Recreation segment, revenues and earnings are
recorded when deliveries are made and title and risk of loss have been
transferred to the customer and collection is probable.
NOTE 3: CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
NOTE 4: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt and line of credit
borrowings are estimated based upon interest rates currently available
for borrowings with similar terms and maturities and approximate the
carrying values.
Due to the short-term nature of cash, accounts receivable, accounts
payable, accrued expenses and other current liabilities, their carrying
value is a reasonable estimate of fair value.
NOTE 5: INVENTORIES
Inventories are valued at lower of cost (first-in, first-out method) or
market. Components of cost include materials, direct labor and plant
overhead.
As there is no segregation of inventories as to raw materials, work in
progress and finished goods for interim reporting periods (this
information is available at year end when physical inventories are
taken and recorded), estimates have been made for the interim period.
These estimates are made following a physical review of existing
materials at various stages including specific identification of major
cost elements. This process of estimating inventory at various stages
of production is consistent with prior periods.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2004
March 31, 2004 June 30, 2003
Finished Goods $ 218,460 $ 93,288
Work In Progress 432,085 100,308
Raw Materials 379,001 358,584
Total $1,029,546 $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 method over the term of the loan.
NOTE 10: INCOME TAXES
The income tax expense for the three and nine-month periods ended March
31, 2004 and 2003 was at an effective tax rate of 40%.
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
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 March 31, 2004, the
carrying values of such assets are not impaired.
NOTE 12: EARNINGS PER SHARE
Basic net income per share is computed by dividing reported net income
available to common shareholders by the weighted average shares
outstanding for the period. Diluted net income per share is computed
by dividing reported net income available to common shareholders by the
weighted average shares outstanding for the period, adjusted for the
dilutive effect of common stock equivalents, which consist of stock
options, using the treasury stock method.
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share
computations.
Three Months Ended March 31,
2004 2003
Per Per
Income Shares Share Income Shares Share
Amount Amount
Basic net income
per common share $47,763 1,359,531 $.04 $86,918 1,359,531 $.06
Effect of dilutive
Securities -- 42,500 ($.01) -- 44,723 --
Diluted net income
per common share $47,763 1,402,031 $.03 $86,918 1,404,254 $.06
Nine Months Ended March 31,
2004 2003
Per Per
Income Shares Share Income Shares Share
Amount Amount
Basic net income
per common share $24,331 1,359,531 $.02 $284,868 1,359,531 $.21
Effect of dilutive
securities -- 42,500 -- -- 43,537 ($.01)
Diluted net income
per common share $24,331 1,402,031 $.02 $284,868 1,403,068 $.20
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
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 operations or
financial condition.
NOTE 14: SEGMENT INFORMATION
Information about the Company's operations in its two segments for the
three and nine month periods ended March 31, 2004 and 2003 are as
follows:
Three months ended Nine months ended
March 31, March 31,
2004 2003 2004 2003
Electronics Segment
Revenues $1,597,660 $1,021,303 $3,806,325 $4,613,388
Operating Income 117,230 185,496 132,146 554,909
HEDCO
Revenues 7,380 8,854 372,561 87,619
Operating (Loss) (27,636) (37,491) (59,536) (64,673)
Total
Revenues 1,605,040 1,030,157 4,178,886 4,701,007
Operating Income 89,594 148,005 72,610 490,236
Interest Expense (10,446) (11,013) (32,907) (46,250)
Other Income 457 7,871 848 30,794
Income Tax Expense (31,842) (57,945) (16,220) (189,912)
Net Income $47,763 $86,918 $24,331 $284,868
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004
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 under the
September 2001 contract placed through April 30, 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 March 31, 2004, consolidated revenues
were $1,605,040 and operations resulted in a profit of $89,594. During
the same period last year, consolidated revenues were $1,030,157 and
operating income was $148,005.
For the nine-month period ended March 31, 2004, consolidated revenues
were $4,178,886 and operations resulted in a profit of $72,610. During
the same nine-month period last year, consolidated revenues were
$4,701,007 and operating income was $490,236.
Revenues for the three-month period this year were higher compared to
the same three-month period last year. This is attributable to the
electronics segment and is discussed further below in the results of
operations by business segment. Revenues for the nine-month period
this year were lower in the electronics segment and higher in the
leisure and recreation segment when compared to the same nine-month
period last year. This is also discussed in more detail below in the
discussion of operations by business segment. Also, information about
the Company's operations in its two segments for the three and nine-
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 costs and estimates during the progress of work have the effect of
adjusting earnings applicable to performance in prior periods in the
current period. When the estimated costs to complete a project
indicate a loss, provision is made for the anticipated loss in the
current period. For further information see Note 2 and Note 6 of the
Notes to Consolidated Financial Statements.
For the three-month period ended March 31, 2004, revenues in the
electronics segment were $576,357 higher than the same three-month
period last year. This is the result of timing differences in the
production efforts in the 2kW generator set contract. The production
of 2kW generator sets provided 71% of electronics segment revenues
during this three-month period and 72% of electronics segment revenues
during the same three-month period last year.
For the nine-month period ended March 31, 2004, revenues in the
electronics segment were $807,063 lower than the same nine-month period
last year. During the nine-month period this year, the production of
2kW generator sets provided 69% of electronics segment revenues.
During the same nine-month period last year, the production of 2kW
generator sets provided 82% of electronics segment revenues.
This decline in contribution 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 on snowmaking machines for sales and inventory purposes
during the first six months of the fiscal year. (The section below
"Company Strategy" further discusses strategy.) As a result, the
Company experienced a reduced production level towards the generator
sets during that period. During the three-month period ended March 31,
2004, production of the existing generator orders resumed and is
anticipated 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 has not resulted in a
material amount of revenues. The Company has completed its planning
analysis stages and is beginning its implementation and engineering
design review. The electronics segment 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 March 31, 2004, the aggregate value of the Company's backlog of
electronics product not previously recorded as revenues was
approximately $4.1 million. It is estimated that approximately $1.5
million of this backlog will be recognized as revenues during this
fiscal year ending June 30, 2004.
As of March 31, 2003, the aggregate value of the Company's backlog of
electronics product not previously recorded as revenues was
approximately $3.0 million.
Leisure and Recreation Segment
In the HEDCO Division, revenues were lower by $1,474 and higher by
$284,942 for the three and nine-month periods ended March 31, 2004,
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 and the Company reviewed its
position in this market. During the first six months of this fiscal
year, 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. There has also been an increase in the
sale of replacement parts compared to last year.
Liquidity and Capital Resources
The Company's working capital at March 31, 2004 was $3,638,345 compared
to $4,028,421 at June 30, 2003.
The ratio of current assets to current liabilities was 6.89 to 1 at
March 31, 2004 and 7.56 to 1 at June 30, 2003.
For the nine-month period ended March 31, 2004, operating activities
used net cash of $821,490. This was the result primarily of two
factors. Accounts receivable increased by $404,081 and inventories
increased using cash of $477,366. Of the increase in inventories,
$403,548 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 $426,214 and
financing activities used net cash of $45,703. Of the expenditures for
investing activities, $184,854 was used by the Company to continue to
invest in efforts to improve its products and existing technologies in
its generator product line. These expenditures primarily include the
acquisition of existing technology as well as engineering and design
related to the generator to satisfy customer needs. The remaining
$241,360 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 nine-month period ended March 31, 2003, operating activities
provided net cash of $253,159. This was the result primarily of net
income combined with the net effect of collections and reducing vendor
accounts payable. Expenditures for investing activities used net cash
of $504,377 and financing activities used net cash of $534,141, as a
result of principal payments made towards the Company's long-term debt.
Of the expenditures for investing activities, $442,854 was used by the
Company to invest in efforts to improve its products and existing
technologies in its generator product line.
The Company expenses its research and development costs as incurred as
overhead costs included in costs of goods sold. These costs consist
primarily of salaries and material costs. For the nine-month period
ended March 31, 2004, the Company expensed $122,909 of these costs.
For the same nine-month period last year, the Company expensed $11,207
of research and development costs.
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. There were no borrowings against this line of credit
facility as of April 30, 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. The Company
has also been developing existing technologies to meet its customer
needs for a lighter and quieter generator. This is further discussed
in the following section entitled "Company Strategy".
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. However, it does not
compete in the 'man-portable' segment of our market since this
competing product is twice as heavy. The customer is interested in a
product which is smaller, lighter and quieter. 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 specifically at the request
of the Army for lighter, quieter models. 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 contract requires the Company to present improvements to
the government.
The Company has continued to invest in its efforts to improve its
products and existing technologies. This effort is focused on the
enhancement of the existing generator set product line and involves,
primarily, the adaptation of existing technology, as well as
engineering and design to meet customer needs. 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 in all of these type of
projects, these efforts are important to the Company's business. As
with all projects of this nature, no assurances can be made that such
product development work will be successful or that the Company will
achieve its desired results. 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 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 5 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 March 31, 2004,
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
None
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------------------------------
See the accompanying Index to Exhibits to this quarterly report on Form
10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE DEWEY ELECTRONICS CORPORATION
/s/ John H.D. Dewey
Date: May 14, 2004 John H.D. Dewey
President and Chief Executive
Officer
/s/ Thom A. Velto
Date: May 14, 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: May 14, 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: May 14, 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 March
31, 2004 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, President and Chief Executive Officer
Date: May 14, 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 March
31, 2004 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: May 14, 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.