UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2004
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-2892
THE DEWEY ELECTRONICS CORPORATION
(Exact name of registrant as specified in charter)
NEW YORK 13-1803974
(State of Incorporation) (I.R.S. Employer Identification No.)
27 Muller Road, Oakland, New Jersey 07436
(Address of principal executive offices) Zip Code
201-337-4700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form l0-K.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes ___ No _X_.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant, computed by reference to the
price at which the common stock was sold as of the close of business
on December 31, 2003: $3,210,979.
The number of shares outstanding of the registrant's common stock,
$.01 par value was 1,359,531 at September 2, 2004.
Documents Incorporated by Reference
Portions of the Company's definitive Proxy Statement for the 2004
Annual Meeting of Stockholders are incorporated herein by reference in
Part III.
THE DEWEY ELECTRONICS CORPORATION
TABLE OF CONTENTS
Item Page
PART I
1. Business 3
2. Properties 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
8. Financial Statements 21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
9A. Controls and Procedures 38
9B. Other Information 38
PART III
10. Directors and Executive Officers of the Registrant 39
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 39
13. Certain Relationships and Related Transactions 39
14. Principal Accountant Fees and Services 39
PART IV
15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 40
16. Signatures 41
PART I
Item 1. BUSINESS
The Dewey Electronics Corporation (the "Company") was incorporated in
the State of New York in 1955. It is a systems oriented military
electronics development, design and manufacturing organization based
in Oakland, New Jersey. The Company is organized into two operating
segments on the basis of the type of products offered. 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 business with 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
spare parts sales 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
various 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 August 31, 2004 amount to
approximately $11 million. As with the prior contract mentioned
above, 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.
The sales and operating profit of each industry segment and the
identifiable assets attributed to each segment for the last three
fiscal years ended June 30, 2004 are set forth in Note K - Operating
Segments of the Notes to the Financial Statements.
The Company expenses its research and development costs as incurred.
These costs consist primarily of salaries and material costs. For the
fiscal year ended June 30, 2004, the Company expensed $127,704 of
these costs. During the prior fiscal year, the Company had no
material research and development costs and there were no material
Company sponsored research and development costs in fiscal year 2002.
In fiscal year 2004, the Company entered into a research and
development contract with the U.S. Army. The costs incurred under
this contract are billed to the customer. There were no customer
sponsored research and development costs in fiscal year 2003 or 2002.
Compliance with Federal, state and local environmental provisions has
had no material effect upon capital expenditures, earnings or the
competitive position of the Company. In addition, there are no
material capital expenditures anticipated for environmental control
facilities.
As of August 30, 2004, the Company had a work force of 32 employees,
of whom 11 were technical or professional personnel. Last year at the
same date, the work force included 33 employees, of whom 10 were
technical or professional personnel. Fluctuations in the work force
sometimes also result from the seasonal nature of the leisure and
recreation segment of business.
ELECTRONICS SEGMENT
This segment accounted for 94% of total revenues in fiscal 2004, 99%
of total revenues in fiscal year 2003 and 95% of total revenues in
fiscal 2002.
In the electronics segment, revenues are recorded under defense
contracts (including research and development 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 A of the Notes to
Financial Statements.
The electronics segment of business provides most of the Company's
revenues. Virtually all of the electronic product revenues are
attributable to business with the Department of Defense of the Federal
Government or with other government contractors. Aside from
replacement part sales and other short-term business, the Company's
electronics segment revenues have in recent years been dependent upon
single projects. Thus, until 1997, a single program, the ADCAP
torpedo program with the U.S. Navy, was responsible for all of the
Company's electronics segment revenues from long-term projects.
Currently, the tactical generator set program of the U.S. Army
accounts for 90% of such revenues. The remaining 10% of long-term
contract revenues this year resulted from the Company's research and
development contract.
Since substantially all of the Company's electronics business is
derived from contracts with various agencies of the United States
Government (the "Government") or subcontracts with prime Government
contractors, the loss of substantial Government business would have a
material adverse effect on the business.
For the most part, working capital requirements for the electronics
segment of business are funded by progress payments provided by the
Government and receipts of billings made for delivery of product.
All of the Company's contracts with the Government are subject to the
standard provision for termination at the convenience of the
Government.
Although raw materials are generally available from a number of
suppliers, the Company is at times dependent upon a specific supplier
or a limited number of suppliers of material for a particular contract
and has occasionally experienced some delays in deliveries. Such
delays have not had a material effect on operations; however, the
Company cannot provide any assurances that future delays, if any, will
not have a material adverse effect.
Reference is made to Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
information regarding this segment.
LEISURE AND RECREATION SEGMENT
The leisure and recreation segment of business accounted for 6% of the
Company's revenues in fiscal year 2004, 1% of the Company's revenues
in fiscal year 2003 and 5% of the Company's revenues in fiscal year
2002.
Snowmaking equipment is sold to ski areas as original equipment or as
replacements for existing equipment. Most snowmaking equipment is
paid for in full at delivery to the customer. In other cases, such
equipment is sold under a sales contract that provides for a
substantial down payment and retention of a security interest in the
equipment until full payment is received. Typically, full payment is
made within one year. The Company has not experienced any losses due
to resale of the equipment following default by customers. The
Company services the equipment at the purchaser's expense after a
warranty period that typically expires at the end of the snowmaking
season in which the sale occurs. The Company's warranty reserves are
not significant.
The Company has sold snowmaking equipment to over three hundred
different locations in the United States and abroad. Marketing has
been performed by the Company's employees in the domestic market and
by distributors and representatives in foreign markets. In the past
several years, the foreign market represented a small amount of
revenues, all from the sales of parts.
For the most part, shipments are made and revenues recorded during the
second fiscal quarter. Production usually takes place in the first
and second quarters, and it is during this period that inventory has
been generated and working capital demands have been the greatest.
While there may be some temporary delays, problems regarding source
and availability of raw materials have had no material adverse effect
on operations of this segment.
Reference is made to Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
information regarding this segment.
Item 2. PROPERTIES
The Company's 49,200 square foot facility at 27 Muller Road, Oakland,
New Jersey, located on 90 acres of land owned by the Company, was
constructed in 1981. This facility houses executive offices and
manufacturing operations and is used primarily for the electronics
segment of business. Approximately 90% of this facility is being
utilized for production (one shift), staging and storage.
Under the terms of a mortgage note described in Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations, both the land and building are subject to the lien of a
mortgage securing indebtedness in the amount of $327,735 at June 30,
2004. The Company also has a line of credit with the Bank, under
which the Company may borrow up to an additional $500,000 that would
be secured by a lien on substantially all of the Company's machinery,
equipment and other personal property.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 2004.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded over-the-counter under the symbol
"DEWY.OB".
The table below sets forth the high and low market prices of the
Company's common stock for each quarter during the last two fiscal
years.
Quarterly Common Stock Price Range
Fiscal Year 2004 Fiscal Year 2003
Quarter High Low High Low
1st $4.50 $3.71 $4.31 $3.80
2nd 3.95 3.35 4.00 3.29
3rd 4.25 3.75 4.10 3.83
4th 3.99 2.75 4.75 3.35
Price information is based on over-the-counter market quotations,
which reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not necessarily represent actual transactions.
There were no dividends declared or paid during fiscal years 2004,
2003 and 2002. The Company has no plans to pay dividends in the
foreseeable future.
The number of holders of record of the Company's common stock as of
September 2, 2004 was 543.
Item 6. Selected Financial Data
(In thousands of dollars, except per share amounts)
Year ended June 30,
2004 2003 2002 2001 2000
Revenues (1) $6,015 $6,362 $8,916 $10,886 $10,409
Income before income
taxes(2) 242 477 1,459 1,838 1,543
Net income 773 286 876 1,103 926
Net income per share -
Basic .57 .21 .65 .82 .69
Net income per share -
Diluted .55 .20 .63 .80 .69
Cash dividends per
common share -- -- -- -- --
Total assets 6,482 6,352 6,818 6,618 5,325
Long-term obligations 248 1,371 1,674 2,269 1,924
Working capital 3,377 4,028 4,768 4,728 3,227
Stockholders' equity 5,159 4,367 4,253 3,378 2,275
(1) Revenues in fiscal year 2000 include $702 as a result of
notification of the final closeout of a contract with the U.S.
Navy.
(2) Income in fiscal year 2000 includes a charge for an inventory
provision in the amount of $353.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Financial Data" and the Company's Financial Statements,
including the related notes thereto, appearing elsewhere in this
Annual Report. Certain statements in this report may be deemed
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934. All statements, other than
statements of historical fact, that address activities, events or
developments that the Company or management intends, expects,
projects, believes or anticipates will or may occur in the future are
forward-looking statements. Such statements are based upon certain
assumptions and assessments made by management of the Company in light
of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes
to be appropriate. The forward-looking statements included in this
report are also subject to a number of material risks and
uncertainties, including but not limited to economic, governmental,
competitive and technological factors affecting the Company's
operations, markets, products, services and prices and specifically,
the factors discussed below under "Government Defense Business" 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.
The Company's operating cycle is long-term and includes various types
of products and varying delivery schedules. Accordingly, results of a
particular period or period-to-period comparisons of recorded revenues
and earnings may not be indicative of future operating results. The
following comparative analysis should be viewed in this context.
The sales and operating profit of each industry segment and the
identifiable assets attributed to each segment for the last three
fiscal years ended June 30, 2004, are set forth in Note K - Operating
Segments of the Notes to the Financial Statements.
Results of Operations
The Company's fiscal year ends on June 30. Accordingly, all
references to years in this Management's Discussion refer to the
fiscal year ended June 30 of the indicated year. Also, when referred
to herein, operating profit means net sales less operating expenses.
Some operating expenses, including general corporate expenses, have
been allocated by specific identification or based on labor for items
which are not specifically identifiable.
Revenues
Revenues this year were 6% lower than last fiscal year and 33% lower
than fiscal year 2002 which reflects a decrease in revenues in the
electronics segment and an increase in revenues in the leisure and
recreation segment. Information about the Company's operations in the
two segments are set forth in Note K - Operating Segments of the Notes
to the Financial Statements and are discussed in further detail below.
Electronic Products
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 A of the Notes to
Financial Statements.
Electronic product revenues accounted for 94% of total revenues in
2004, 99% of total revenues in 2003 and 95% of total revenues in 2002.
In fiscal year 2004, production efforts under the Company's contract
to provide the Armed Forces with diesel operated generator sets
provided approximately 57% of the electronic product revenues,
compared to approximately 82% in fiscal year 2003 and approximately
90% in fiscal year 2002. This decline in contribution to revenues is
the result of reduced orders and the resulting reduction in 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 2004 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 six-
month period ended June 30, 2004, production of the existing generator
orders resumed and is anticipated to continue through the 2005 fiscal
year. For additional information regarding this contract, see
"Government Defense Business" below.
In fiscal year 2004, orders received for replacement parts and for
equipment for previous Company contracts with the Department of
Defense provided approximately 36% of electronic product revenues,
compared to approximately 18% in fiscal year 2003 and approximately
10% in fiscal year 2002. Production efforts for these orders
increased as a result of increased orders from government agencies and
from shipbuilders. In past years, the Company had various long-term
contracts to provide the U.S. Navy with equipment, as well as other
branches of the Armed Forces.
In fiscal year 2004, the Company's research and development contract
with the U.S. Army provided the remaining electronic product revenues.
There were no such revenues in fiscal years 2003 and 2002. During
September 2003, the Company was awarded a "cost plus fixed fee"
research and development contract in the amount of $1.8 million. This
contract is for the research and development of improvements to the
current 2kW diesel operated generator set specifically at the request
of the U.S. Army for lighter, quieter models. For additional
information regarding this contract, see "Company Strategy" below.
The Company experiences variable amounts of material receipts from
time to time during the normal course of business. Material receipts
are dependent upon the receipt of orders, project requirements and
vendor delivery schedules. As the Company uses the percentage of
completion method of accounting to record revenues, material costs
have an impact upon recorded revenues (see Note 1, Revenue Recognition
of the Notes to Financial Statements).
The aggregate value of the Company's backlog of electronic products
not previously recorded as revenues was $3.2 million on June 30, 2004,
$1.9 million on June 30, 2003 and $3.9 million on June 30, 2002. Most
of this backlog was attributable to the U.S. Army contract for diesel
operated generator sets. It is estimated that the present backlog
will be billed during the next 12 months and recognized as fiscal year
2005 revenues.
Leisure and Recreation
In the leisure and recreation segment, revenues increased by
approximately $284,000. This is primarily the result of the sale of
snowmaking machines this year in the amount of $255,700. The
remaining increase in revenues is the result of increased sales of
replacement parts for machinery previously sold and no longer under
warranty. There were no snowmaking machines sold during fiscal year
2003 and there were $380,500 in revenues from snowmaking machine sales
in 2002. There were no export sales of snowmaking machines during the
last three fiscal years.
During 2003, the Company completed a review of this segment and its
position in this market. Following this review, enhancements were
designed to simplify the operation of the HEDCO snowmaker and made
available to provide remote control operations and monitoring as
options. In addition, the market for snowmaking machines has changed
in recent years. Rather than ordering machinery months ahead of
delivery times, customers are expecting product to be readily
available for immediate use. The last year in which the Company had a
backlog of orders for snowmaking machines was in 2001. In order to
remain competitive, the Company has produced some models for inventory
purposes.
Gross Profit
The Company's gross profit was $1,494,033 in 2004, $1,686,132 in 2003
and $2,803,112 in 2002.
Gross margin is the measure of gross profit as a percentage of net
sales. Gross margin for fiscal year 2004 was 25%, 27% in 2003 and 31%
in 2002. The Company's gross margin is affected by a variety of
factors including, among other items, production, mix of product,
product pricing and other costs, such as inventory adjustments and
research and development costs expensed in costs of goods sold.
The revenues and operating profit of each industry segment and the
identifiable assets attributed to each segment for the last three
fiscal years ended June 30, 2004 are set forth in Note K - Operating
Segments of the Notes to the Financial Statements.
Selling, General and Administrative Expenses
In 2004, selling, general and administrative expenses of $1,213,192
were 20% of revenues. In 2003, selling, general and administrative
expenses of $1,185,869 were 19%of revenues and in 2002 they were
$1,264,189 or 14% of revenues. For the three year period, selling,
general and administrative expenses have remained relatively level.
Interest Expense
Interest expense for the past three years amounted to $45,165 in 2004,
$57,079 in 2003 and $97,242 in 2002. This reduction in interest
expense is attributed to principal reduction payments made towards the
Company's mortgage note.
Other Income - Net
Amounts reported as other income represent the net effect of interest
and miscellaneous items such as the sale of scrap, bank transaction
fees and other like items.
Other income of $6,410 for fiscal year 2004 was comprised of interest
income of $6,372, gain on sale of assets of $1,100, and the net
expense of miscellaneous items and scrap sales of $1,062.
In fiscal year 2003, other income of $34,218 includes interest income
of $32,088 and the net effect of miscellaneous fees and net discounts
of $2,130 income.
Other income of $17,511 for fiscal year 2002 was comprised of interest
income of $20,432 and the net expense of miscellaneous fees and
discounts of $2,921.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax bases of
asset and liabilities and their financial statement reported amounts
and for tax loss and credit carryforwards.
A valuation allowance is provided against deferred tax assets and
liabilities when it is determined to be more likely than not that the
difference will occur.
The Company determined that its deferred tax liability associated
with plant, property and equipment was no longer necessary
as a result of the statute of limitations closing for
that tax period.
The provision for income taxes was at an effective tax rate of
approximately (219.4%) for the fiscal year 2004 and approximately 40%
for the fiscal year's 2003, and 2002.
Inflation
Historically, inflation and price changes have not had a material
effect on operations.
Liquidity and Capital Resources
The Company's principal capital requirements are to fund working
capital needs and any debt servicing requirements and capital
expenditures. The Company's borrowing capacity has remained above its
use of outside financing. Management believes that the Company's
future cash flow from operations, combined with its existing line of
credit will be sufficient to support working capital requirements and
capital expenditures at their current or expected levels.
Management also believes that it can continue to meet the Company's
short-term liquidity needs through a combination of progress payments
on government contracts (based on costs incurred) and billings at the
time of delivery of products.
At June 30, 2004, the Company's working capital was $3,376,671
compared to $4,028,421 at June 30, 2003.
The ratio of current assets to current liabilities was 4.14 to 1 at
June 30, 2004 and 7.56 to 1 the prior year. This reduction was
primarily attributable to the classification of the Company's mortgage
note and related party note as current liabilities this year rather
than long-term debt. See "Financing Activities" below.
The following table is a summary of the Statements of Cash Flows in
the Company's Financial Statements:
Years ended June 30,
2004 2003 2002
Net Cash Provided by
(used in)
Operating activities $112,335 $(269,342) $2,359,268
Investing activities $(436,625) $(694,666) $(327,447)
Financing activities $(60,938) $(549,376) $(618,985)
Operating Activities:
Adjustments to reconcile net earnings to net cash provided by
operations are presented in the Statements of Cash Flows in the
Company's Financial Statements.
Cash provided by operating activities in fiscal year 2004 consisted
primarily of net income before depreciation and amortization. This
was partially offset by an increase in inventories and the net effect
of deferred income taxes.
During 2003, net cash used in operations was comprised primarily of
net income before depreciation and amortization and a decrease in
(billing of) contract costs and related estimated profits in excess of
billings. These amounts were more than offset primarily by an
increase in (not yet collected) accounts receivable, a decrease in
(payment of) accounts payable and a decrease (payments made) in
pension costs accrued.
During 2002, net cash provided by operations consisted primarily of
net income before depreciation and amortization, collections of
accounts receivable and the billing and collection of contract costs
and related estimated profits in excess of applicable billings. These
costs were billed as deliveries were made on the Company's long-term
projects.
Investing Activities:
During fiscal year 2004, investing activities used net cash of
$436,625. Of this amount, $285,559 was used for plant property and
equipment including a new machining center and $152,166 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 related to the generator to satisfy customer
needs. See "Company Strategy" below.
During 2003, investing activities used $694,666 in net cash, which was
used for expenditures for plant, property and equipment. Included in
this amount was $577,352, which was used by the Company to continue to
invest in efforts to improve technologies in its generator product
line, and $117,314 for expenditures for plant, property and equipment.
These efforts primarily involve engineering and design related
to the generator and other related fields of business.
During 2002, investing activities used $327,447 in net cash. This
amount consisted of $152,399 for capital expenditures for building
improvements, tooling and equipment, and $175,048 for the Company's
investment in the expansion of existing technologies related to
its businesses and to support new business development.
Financing Activities:
Net cash of $60,938 used in financing activities during fiscal year
2004 represents principal reduction payments made towards the
Company's mortgage note.
Net cash used in financing activities during 2003 amounted to
$549,376. Principal payments made towards the Company's long-term
debt of $560,938 includes a voluntary principal reduction payment of
$500,000. Proceeds from the sale of treasury stock sold through the
Company's employee stock option plan amounted to $11,562.
Net cash used in financing activities in 2002 amounted to $618,985 of
principal payments made toward the Company's long-term debt.
On December 27, 2001, the Company and its primary Bank agreed to
revised terms of its Mortgage Note agreement. The renewed agreement,
among other items, revised the interest rate from a fixed rate of
8.25% to the Bank's prime rate plus .5% with a floor of 6%. In
addition, the maturity date was extended from October 2002 to January
2005. Management believes that the Company's Mortgage Note agreement
will again be renewed, on terms to be determined.
The Company also has a line of credit agreement with Sovereign Bank in
the amount of $500,000 at the rate of .25% plus the Bank's prime rate,
which may be renewed on October 31 of each year. The Bank had also
agreed to extend the Company's line of credit of $500,000 through
October 2004 at the rate of the Bank's prime rate plus .25%. As of
June 30, 2004, there were no outstanding borrowings against this line
of credit facility. Management believes that this line of credit
agreement will again be renewed.
The Mortgage Note is secured by a first mortgage on all of the
Company's land and its building. Borrowings under the line of credit
arrangement are secured by a first lien on all of the Company's
machinery, equipment and other personal property.
The Company also has a note payable to a co-founder (shareholder) in
the amount of $200,000, bearing the interest rate of 9% per annum.
This note is unsecured and is subordinate to the Company's Mortgage
Note with the Bank. It has been classified on the balance sheet for
fiscal year 2004 as a short-term liability, since the Mortgage Note
has a maturity date of January 2005. If the Mortgage Note agreement
is renewed, this note would again be classified 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 the unused portion of
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
and is currently in negotiations with a prospective buyer.
Contractual Cash Obligations
The following table summarizes the Company's contractual cash
obligations as of June 30, 2004 and the estimated timing of future
cash payments.
Payments Due by Period
Less More
Than than
Total 1 Year 1-3 Year 3-5 Years 5 years
Long-Term Debt $ -- $ -- $-- $-- $--
Capital Lease
Obligations -- -- -- -- --
Operating Leases -- -- -- -- --
Purchase
Obligations (1) -- -- -- -- --
Mortgage Note
Payable (2) 327,735 327,735 -- -- --
Due to Related
Party (3) 200,000 200,000 -- -- --
Other Long-Term
Liabilities
Reflected on
the Balance
Sheet under GAAP
Long-Term
Pension
Liability (4) 247,363 -- 4,000 43,000 200,363
Total $775,098 $527,735 $4,000 $43,000 $200,363
(1) Purchase Obligations - As of June 30, 2004, the Company had no
material purchase obligations other than those obligations included as
liabilities in its Balance Sheet. Purchase orders for raw materials
or other goods and services are not included in the table above as
they typically represent authorizations to purchase rather than
binding agreements.
(2) Mortgage Note Payable - As of June 30, 2004, the Company had an
outstanding mortgage note with its primary bank. The current terms
provide for an interest rate equal to the bank's prime rate plus .5%
(with a floor of 6%) and maturity in January 2005. Management
believes that the Company's mortgage note agreement will be renewed,
on terms to be determined. See "Financing Activities" above and Note
E to the Notes to Financial Statements.
(3) Due to Related Party - This note is subordinate to the Company's
mortgage note. If the mortgage note agreement is renewed, this note
would again be classified as a long-term liability. See "Financing
Activities" above and Note I to the Notes to Financial Statements.
(4) Long-Term Pension Liability - See Note G to the Notes to
Financial Statements.
Recent Pronouncements
In December 2003, the FASB issued Statement of Financial Standards No.
132 (revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88,
and 106, and a revision of FASB Statement No. 132." SFAS No. 132
(revised 2003) revises employers' disclosures about pension plans and
other postretirement benefit plans. It does not change the
measurement or recognition of those plans required by SFAS No. 87,
"Employers' Accounting for Pensions," SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The new
rules require additional disclosures about the assets, obligations,
cash flows, and net periodic benefit cost of defined benefit pension
plans and other postretirement benefit plans. The required
information will be provided separately for the Company's pension
plans. The new disclosures are included in the Company's fiscal year
2004 Financial Statements and certain interim disclosures will
commence with the first quarter of fiscal year 2005.
Government Defense Business
The electronics segment of business provides most of the Company's
revenues and is comprised of business with the U.S. Department of
Defense or with other government contractors. It consists of long-
term contracts and short-term business such as replacement parts.
Long-term contracts have been dependent upon single projects and until
1997, a single program, the ADCAP torpedo program with the U.S. Navy
was the primary source of the Company's revenues. In 1996, the
Company was awarded a contract with the U.S. Army to provide diesel
operated tactical generator sets. This program has since become the
Company's primary source of revenues.
On September 7, 2001, the Company was awarded a ten-year contract to
provide the U.S. Army and other Department of Defense Agencies with
2kW diesel operated generator sets. This ten-year indefinite
delivery, indefinite quantity contract 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. The amount of orders received under this contract
is approximately $11 million through June 30, 2004. Deliveries under
production orders placed through June 30, 2004 are scheduled to
continue during the current fiscal year.
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 partially responsible for the reduction in
revenues. The reduction in orders results from many factors. It
appears that our main customer, the Army, has satisfied the majority
of its outstanding requirements. It has been 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 and the Company is
working towards developing the 2kW generators to address its
customer's interest. See below under "Company Strategy." 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 through the 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.
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 some 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 Financial Statements
contained herein. 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, pensions, impairment of long-lived assets,
capitalized development costs, and valuation of deferred tax assets
and liabilities.
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.
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.
The Company has a defined benefit pension plan covering substantially
all of its employees. The Company accounts for its defined benefit
pension plan in accordance with SFAS No. 87 - "Employers' Accounting
for Pensions," which requires that amounts recognized in financial
statements be determined on an actuarial basis, rather than as
contributions are made to the plan. A significant element in
determining the Company's pension income or expense in accordance with
SFAS No. 87 is the expected return on plan assets. The Company's
disclosures about its pension plan are made in accordance with SFAS
132 (revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88,
and 106, and a revision of FASB Statement No. 132." SFAS No. 132
(revised 2003) revises employers' disclosures about pension plans and
other postretirement benefit plans. It does not change the
measurement or recognition of those plans required by SFAS No. 87,
"Employers' Accounting for Pensions," SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The new
rules require additional disclosures about the assets, obligations,
cash flows, and net periodic benefit cost of defined benefit pension
plans and other postretirement benefit plans. Accordingly, the
required information will be provided for the Company's pension plan.
The new disclosures are included in the Company's fiscal year 2004
Financial Statements and certain interim disclosures will commence
with the Company's Form 10-Q for the first quarter of fiscal year
2005.
The Company has capitalized certain development costs in accordance
with Statement of Financial Accounting Standards No. 2 (SFAS No.2) -
Accounting for Research and Development Costs. The Company has
$904,566 of capitalized development costs as of June 30, 2004 and had
$752,400 of capitalized development costs as of June 30, 2003. These
capitalized costs are for efforts to improve and enhance the 2kW
generator set product line and involve, primarily, the adaptation of
existing technology, as well as, engineering and design to meet
specific customer requests. The scope of these efforts includes the
development of a product which is in accordance with current customer
requests and future requirements. Company efforts are to address
areas of sound reduction, reduced weight and environmental
requirements. See "Company Strategy" above.
The Company has assumed, based upon the types of securities the plan
assets are invested in and the long-term historical returns of these
investments, that its assumed discount rate will be 6.11% in 2004,
compared with 5.83% in 2003. The Company's management
conducts an analysis which includes a review of plan
asset investments and projected future performance of those
investments to determine the plan's assumed long-term rate of return.
The assumed long-term rate of return of 7.5% on assets is applied to
the market-related value of plan assets at the end of the previous
year. This produces the expected return on plan assets that is
included in annual pension income or expense for the current year.
The cumulative difference between this expected return and the actual
return on plan assets is deferred and amortized into pension income or
expense over future periods. Since the value of the Company's pension
assets at fiscal year-end 2004 was less than the accumulated pension
benefit obligation, the Company recorded a $18,629 as non-cash
adjustment to other comprehensive loss in stockholders' equity and
reduced its long-term pension liability by $31,550. In 2003, the
Company had previously recorded a $183,642 non-cash charge to
stockholders equity and an additional long-term pension liability of
$306,071. These changes to equity did not affect net income and are
recorded net of deferred taxes. See Note G of the Notes to Financial
Statements for additional pension disclosures.
Item 8. FINANCIAL STATEMENTS
Index to Financial Statements
Page
Report of Independent Registered Public Accounting Firm 22
Financial Statements:
Balance Sheets, June 30, 2004 and 2003 23
Statements of Income, Years Ended June 30, 2004,
2003 and 2002 24
Statements of Stockholders' Equity, Years Ended June
30, 2004, 2003 and 2002 24
Statements of Cash Flows, Years Ended June 30, 2004,
2003 and 2002 25
Notes to the Financial Statements 26
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the Notes
thereto.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
The Dewey Electronics Corporation
Oakland, New Jersey
We have audited the accompanying balance sheets of The Dewey
Electronics Corporation (the "Company") as of June 30, 2004 and 2003,
and the related statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2004.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of The Dewey Electronics
Corporation at June 30, 2004 and 2003 and the results of its
operations and its cash flows for each of the three years in the
period ended June 30, 2004 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
September 28, 2004
Parsippany, New Jersey
The Dewey Electronics Corporation
Balance Sheets
June 30,
2004 2003
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $1,604,475 $1,989,703
Accounts receivable (includes U.S.
Government receivable of approximately
$550,000 in 2004 and $750,000 in 2003)
less allowance for doubtful accounts
of $0 in 2004 and $10,138 in 2003 810,051 756,265
Inventories 925,501 552,180
Contract costs and related estimated
profits in excess of billings 965,606 1,079,702
Deferred tax asset 24,743 105,682
Prepaid expenses and other current assets 122,182 158,905
TOTAL CURRENT ASSETS 4,452,558 4,642,437
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 144,670 133,684
Building and improvements 1,873,333 1,873,333
Machinery and equipment 2,786,129 2,611,929
Furniture and fixtures 205,539 194,717
5,009,671 4,813,663
Less accumulated depreciation 4,434,216 4,378,125
575,455 435,538
LAND AND RELATED COSTS HELD FOR SALE 506,345 467,893
CAPITALIZED DEVELOPMENT COSTS 904,566 752,400
DEFERRED LOAN FEES 43,215 54,019
TOTAL OTHER ASSETS 1,454,126 1,274,312
TOTAL ASSETS $6,482,139 $6,352,287
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Trade accounts payable $255,029 $ 336,445
Accrued expenses and other liabilities 251,921 195,354
Accrued corporate income taxes 32,384 15,223
Accrued pension costs 8,818 6,056
Mortgage Note Payable 327,735 60,938
Due to Related Party 200,000 --
TOTAL CURRENT LIABILITIES 1,075,887 614,016
LONG-TERM DEBT -- 327,734
LONG-TERM PENSION LIABILITY 247,363 278,913
DEFERRED TAX LIABILITY -- 564,214
DUE TO RELATED PARTY -- 200,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00;
authorized 250,000 shares, issued
and outstanding, none -- --
Common stock, par value $.01;
authorized 3,000,000 shares;
issued and outstanding
1,693,397 in 2004 and 2003 16,934 16,934
Paid-in capital 2,817,474 2,817,474
Accumulated earnings 2,980,196 2,207,346
Accumulated other comprehensive loss (165,013) (183,642)
5,649,591 4,858,112
Less: Treasury stock, 333,866 shares
in 2004 and 2003 at cost (490,702) (490,702)
TOTAL STOCKHOLDERS' EQUITY 5,158,889 4,367,410
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,482,139 $6,352,287
Certain prior year information has been reclassified to conform to
current presentation.
See notes to the financial statements
The Dewey Electronics Corporation
Statements of Income
Years ended June 30,
2004 2003 2002
Revenues $6,015,303 $6,361,832 $8,916,049
Cost of revenues 4,521,270 4,675,700 6,112,937
Gross profit 1,494,033 1,686,132 2,803,112
Selling, general and
administrative expenses 1,213,192 1,185,869 1,264,189
Operating profit 280,841 500,263 1,538,923
Interest expense (45,165) (57,079) (97,242)
Other income - net 6,410 34,218 17,511
Income before income tax
Provision 242,086 477,402 1,459,192
Income tax benefit/(expense) 530,764 (190,961) (583,677)
NET INCOME $772,850 $286,441 $875,515
NET INCOME PER COMMON SHARE
- BASIC $.57 $.21 $.65
NET INCOME PER COMMON SHARE
- DILUTED $.55 $.20 $.63
See notes to the financial statements
Statements of Stockholders' Equity
Accumu- Treasury
Common Stock Accumu- Other stock
Paid-in lated Compre- at cost
Shares Amount capital Earnings/ hensive
(Deficit) (loss) Shares Amount
Balance,
June 30,
2001 1,693,397 $16,934 $2,835,307 $1,045,390 $-- 353,866 $(520,097)
Net income -- -- -- 875,515 -- -- --
Balance,
June 30,
2002 1,693,397 16,934 2,835,307 1,920,905 -- 353,866 (520,097)
Net income -- -- -- 286,441 -- -- --
Other
Compre-
hensive
expense,
net of
tax:
Minimum
pension
liability
adjustment -- -- -- --(183,642) -- --
Exercise
of stock
options -- -- (17,833) -- -- (20,000) 29,395
Balance,
June 30,
2003 1,693,397 16,934 2,817,474 2,207,346 (183,642) 333,866 (490,702)
Net
Income -- -- -- 772,850 -- -- --
Other
Compre-
hensive
income,
net of
tax:
Minimum
pension
liability
adjustment -- -- -- -- 18,629 -- --
Balance,
June 30,
2004 ,693,397 $16,934 $2,817,474 $2,980,196 $(165,013)333,866$(490,702)
See notes to the financial statements
The Dewey Electronics Corporation
Statements of Cash Flows
Years ended June 30
2004 2003 2002
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $772,850 $286,441 $ 875,515
Adjustments to
reconcile net
income to net
cash (used in)/
provided by
operating
activities:
Depreciation 107,190 75,594 83,725
Amortization of
loan fees 10,804 10,811 4,182
Gain on sale of assets (1,100) -- --
Deferred income tax
(benefit)/provision (564,214) (35,117) (20,505)
(Increase)/Decrease in
accounts receivable (43,647) (479,072) 959,273
(Decrease) in doubtful
accounts (10,138) (9,862) --
Increase in inventories (373,321) (45,363) (5,137)
Decrease in contract
costs and related
estimated profits
in excess of
applicable billings 114,096 192,867 517,882
Increase/(Decrease) in
prepaid expenses and
other current assets 36,723 (80,484) (23,893)
(Decrease)/Increase in
accounts payable (81,416) (130,982) 149,369
Increase/(Decrease) in
accrued expenses and
other liabilities 56,567 46,338 (39,077)
(Decrease)/Increase in
pension costs accrued (10,159) (15,570) (46,000)
Decrease in deferred
tax asset 80,939 -- --
Increase/(decrease) in
Accrued corporate
income taxes 17,161 (84,943) (96,066)
Total adjustments (660,515) (555,783) 1,483,753
Net cash (used in)/
provided by
operating activities 112,335 (269,342) 2,359,268
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant,
property and equipment (285,559) (117,314) (152,399)
Expenditures for
Capitalized
Development
Costs (152,166) (577,352) (175,048)
Proceeds from sale
of assets 1,100 -- --
Net cash (used in)
investing activities (436,625) (694,666) (327,447)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments of
long-term debt (60,938) (560,938) (618,985)
Treasury stock sold -- 11,562 --
Net cash used in
financing activities (60,938) (549,376) (618,985)
NET (DECREASE)/INCREASE
IN CASH AND CASH
EQUIVALENTS (385,228) (1,513,384) 1,412,836
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,989,703 3,503,087 2,090,251
CASH AND CASH EQUIVALENTS
AT END OF YEAR $1,604,475 $1,989,703 $3,503,087
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $45,464 $59,889 $103,271
Interest received 6,372 32,088 10,443
Corporate income taxes
Paid 20,950 220,325 685,000
See notes to the financial statements.
The Dewey Electronics Corporation
Notes to the Financial Statements
Years ended June 30, 2004, 2003 and 2002
A. Summary of Significant Accounting Policies
1. 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.
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.
2. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
3. Fair Value of Financial Instruments
The fair values of the Company's long-term debt and line of credit
borrowings are estimated based upon interest rates currently available
for borrowings with similar terms and maturities and approximate the
carrying values. The fair values approximate the carrying values.
Due to the short-term nature of cash, accounts receivable, accounts
payable, accrued expenses and other current liabilities, their
carrying value is a reasonable estimate of fair value.
4. Inventories
Cost is determined by the first-in, first-out (FIFO) method.
Inventories are valued at the lower of cost or market. Components of
cost include materials, direct labor and factory overhead.
5. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
6. Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Allowance for
depreciation is provided on a straight-line basis over estimated
useful lives of three to ten years for machinery and equipment, ten
years for furniture and fixtures, and twenty years for building and
improvements.
7. Capitalized Development Costs
The Company has capitalized certain development costs in accordance
with Statement of Financial Accounting Standards No. 2 (SFAS No.2) -
Accounting for Research and Development Costs. The Company has
$904,566 of capitalized development costs as of June 30, 2004 and had
$752,400 of capitalized development costs as of June 30, 2003. These
capitalized costs are for costs for efforts to improve and enhance the
2kW generator set product line and involve, primarily, the adaptation
of existing technology, as well as, engineering and design to meet
specific customer requests. The scope of these efforts includes the
development of a product which is in accordance with current customer
requests and future requirements. Company efforts are to address
areas of sound reduction, reduced weight and environmental
requirements.
8. Loan Fees
Loan fees are capitalized by the Company and amortized utilizing the
straight-line basis over the term of the loan.
9. Impairment of Long-Lived Assets
The Company reviews the recoverability of all long-term assets,
including the related useful lives, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset
might not be recoverable. If required, the Company compares the
estimated undiscounted future net cash flows to the related asset's
carrying value to determine whether there has been an impairment. If
an asset is considered impaired, the asset is written down to fair
value, which is based either on discounted cash flows or appraised
values in the period the impairment becomes known. The Company wrote-
down approximately $50,356 of capitalized development costs in 2004.
There were no such write-downs in 2003, or 2002.
10. Income Taxes
The Company applies SFAS No. 109, "Accounting for Income Taxes."
Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change
in tax laws is recognized in the results of operations in the period
the new laws are enacted. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more likely
than not that such assets will be realized.
11. Recent Pronouncements
In December 2003, the FASB issued SFAS No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement
Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a
revision of FASB Statement No. 132." SFAS No. 132 (revised 2003)
revises employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans required by SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The new rules require
additional disclosures about the assets, obligations, cash flows, and
net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. Accordingly, the required information
will be provided for the Company's pension plan. The new disclosures
are included in the Company's fiscal year 2004 Financial Statements
and certain interim disclosures will commence with the first quarter
of fiscal year 2005.
B. Inventories
Inventories consist of:
June 30,
2004 2003
Finished goods $223,969 $93,288
Work in progress 300,474 100,308
Raw materials 401,058 358,584
$925,501 $552,180
C. Costs and Estimated Earnings on Uncompleted Contracts
June 30,
2004 2003
Costs incurred on
contracts in progress $11,861,960 $10,332,794
Estimated contract profit 3,184,484 2,346,080
15,046,444 12,678,874
Less: billings to date 14,080,838 11,599,172
$ 965,606 $ 1,079,702
Included in the accompanying balance sheets under the following
caption:
June 30,
2004 2003
Contract costs and related
estimated profits
in excess of applicable
billings $965,606 $1,079,702
D. Stock Option Plan
On December 2, 1998, the Employee Stock Option Committee adopted a
Stock Option Plan of 1998 which granted incentive stock options to
various executives and key employees to purchase shares of common
stock. Options were granted at fair market value of the stock on the
date of grant and are exercisable over a ten-year period beginning
December 2, 1999 to September 12, 2010. At the Annual Meeting of
Stockholders on December 5, 2001, this stock option plan was amended
and restated among other things to increase the number of shares which
may be issued under the plan by 25,000 shares, from 60,000 to 85,000.
The changes in the number of shares under option are as follows:
Number of
Shares Exercise Price
Balance, June 30,
2001 40,500 $.91 Weighted average
Granted during 2002 -- --
Exercised -- --
Balance, June 30,
2002 40,500 $.91 Weighted average
Granted during 2003 22,000 $3.93
Exercised (20,000) $(.58)
Balance June 30,
2003 42,500 $2.03
Weighted average
Granted during 2004 -- --
Exercised -- --
Balance at June 30,
2004 42,500 $2.03 Weighted average
Exercisable at June
30, 2004 31,500 $2.18 Weighted average
Also, at the Annual Meeting of Stockholders on December 5, 2001, the
Company adopted a Stock Option Plan for Non-Employee Directors. The
number of shares issuable upon exercise of options, which may be
granted under this Plan, shall not exceed 50,000 shares of common
stock. No options have been granted under this plan.
Listed below is a summary of the stock options outstanding and
exercisable at June 30, 2004.
Outstanding
Weighted Weighted
Exercise Average Average
Price Options Exercise Remaining
Price Life-Years
$.58 7,500 $.58 5.5
$1.63 13,000 $1.63 6.2
$3.93 22,000 $3.93 8.5
42,500
Exercisable
Weighted
Exercise Average
Price Options Exercise
Price
$.58 7,500 $.58
$1.63 13,000 $1.63
$3.93 11,000 $3.93
31,500
For purposes of the disclosure required under SFAS No. 148, the fair
value of each option was estimated on the grant date using the Black-
Scholes option-pricing model. The weighted average fair value of
options granted was $3.93 per option in 2003, and $1.625 per option in
2001.
For the past three fiscal years, the number of options exercisable at
fiscal year end was as follows: 31,500 at June 30, 2004, 20,500 at
June 30, 2003 and 42,500 at June 30, 2002.
E. Mortgage Note Payable
Mortgage Note Payable at June 30, consists of:
2004 2003
Mortgage Note payable to Sovereign
Bank due in monthly installments
of $5,078 plus interest with a
final maturity in January 2005. $327,735 $388,672
Less current portion: 327,735 60,938
$ -- $327,734
On December 27, 2001, the Company and its primary Bank agreed to
revised terms of its Mortgage Note agreement. The renewed agreement,
among other items, revised the interest rate from a fixed rate of
8.25% to the Bank's prime rate plus .5% with a floor of 6%. In
addition, the maturity date was extended from October 2002 to January
2005.
The Bank had also agreed to provide a $500,000 line-of-credit facility
to be evidenced by promissory notes. This line of credit, which may
be renewed on an annual basis, was renewed in November 2003 at a rate
of .25% plus the prime rate. The prime rate at June 30, 2004 was
4.25%. There were no outstanding borrowings against the line-of-
credit facility at June 30, 2004. Any outstanding borrowings under the
line of credit will become due and payable on October 31 of each year.
The Mortgage Note is secured by a first mortgage on the Company's land
and its building. Borrowings under the line-of-credit arrangement are
secured by a first lien on all of the Company's machinery, equipment
and other personal property. This borrowing arrangement with the bank
contains no financial ratio or other debt covenants. The Company made
voluntary principal reduction payment of $500,000 in November 2002.
Management has evaluated its indebtedness and has determined based on
interest rates and related terms that the fair value of such debt
approximates its carrying value.
F. Taxes on Income
The Company applies SFAS No. 109, "Accounting for Income Taxes."
Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change
in tax laws is recognized in the results of operations in the period
the new laws are enacted. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more likely
than not that such assets will be realized.
Based on pre-tax income of $242,086, $477,402 and $1,459,192, for the
years ended June 30, 2004, 2003 and 2002, respectively, the relevant
income and balance sheet accounts are detailed below:
Benefit/(Provision) for income taxes Years ended June 30,
2004 2003 2002
Deferred
Federal $374,538 $34,609 $16,795
State 108,737 508 3,710
Current
Federal $67,815 (182,603) (468,238)
State (20,326) (43,475) (135,944)
$530,764 ($190,961) ($583,677)
Deferred tax assets and liabilities as of June 30, 2004 and
June 30, 2003 consisted of the following:
Deferred tax assets: (Current) 2004 2003
Vacation accrual $-- $32,082
Depreciation 23,639 --
Pension payments made over expense 1,104 73,600
Total $24,743 $105,682
Deferred tax liabilities: (Non-
Current)
Depreciation and other -- 564,214
Total $ -- $564,214
Reconciliation of the U.S. statutory rate with the Company's
Effective tax rate is summarized as follows:
Years ended June 30,
2004 2003 2002
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes net of federal
Benefit 6.0 6.0 6.0
Reversal of prior year deferrals (259.4) -- --
Effective Rate (219.4%) 40.0% 40.0%
G. Pension Plan
The Company has a non-contributory defined benefit retirement plan
covering all its employees. The plan is qualified under the Internal
Revenue Code. The method of determining the accrued benefit of an
employee is the amount equal to .8% of an employee's average monthly
salary times the number of years employed by the Company, to a maximum
of 35 years. The Company's policy is to contribute the amounts
allowable under Internal Revenue Service regulations.
The investment policy of the Company for its pension plan is to
maximize value within the context of providing benefit security for
plan participants. The plan assets are invested in a fixed income
investment account.
The Company expects to continue to contribute within the range of
legally acceptable contributions as identified by the Plan's enrolled
actuary.
The following tables provide information about changes in the benefit
obligation and plan assets and the funded status of the Company's
pension plan.
The information provided below is as of June 30 of the year indicated.
PENSION PLAN
2004 2003
Change in benefit obligation:
Benefit obligation at beginning
of year $1,050,379 $835,513
Service cost 28,434 25,488
Interest cost 58,760 55,516
Actuarial (gain)/loss (25,409) 177,453
Benefits paid plus
administrative expenses (83,778) (43,591)
Benefit obligation at end of year $1,028,386 $1,050,379
Change in plan assets:
Fair value of plan assets at
beginning of year $691,663 $498,686
Actual return on plan assets 28,306 26,568
Employer contributions 60,000 210,000
Benefits paid plus
administrative expenses (83,778) (43,591)
Fair value of plan assets at end
of year $696,191 $691,663
Funded status $(332,195) $(358,716)
Unrecognized actuarial loss 323,377 352,660
Accrued pension cost $(8,818) $(6,056)
Minimum Pension Liability $247,363 $278,913
Accumulated Benefit Obligation $950,110 $976,632
The following table lists the components of the net periodic benefit
cost of the pension plan and the assumptions used:
Pension Plan
2004 2003
Service cost-benefits earned
during the period $28,434 $25,488
Interest cost on projected benefit
Obligation 58,760 55,516
Expected return on plan assets (47,824) (35,869)
Amortization of actuarial loss 23,392 14,403
Net periodic pension cost $62,762 $59,538
Assumptions used in determination
of benefit cost:
Discount rate 6.11% 5.83%
Expected long-term rate of
return on assets 7.5% 7.5%
Rate of increase in compensation levels 3.0% 3.0%
The expected long-term rate of return on plan assets assumption is
based on an analysis conducted by management and the external
actuarial consultant. While the analysis gives appropriate
consideration to recent asset performance and actual returns in the
past, the assumption is primarily an estimated long-term, prospective
rate.
Assumptions used in determination of periodic obligation cost:
2004 2003
Discount rate 5.83% 7.00%
Rate of compensation
Increase 3.0% 3.0%
The following is the expected future payments
2004-2005 --
2005-2006 --
2006-2007 4,000
2007-2008 15,000
2008-2009 28,000
Years 2009-2014 308,000
H. Income Per Share
Net income per share has been presented pursuant to the Financial
Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share". Basic net income per share is
computed by dividing reported net income available to common
shareholders by weighted average shares outstanding for the period.
Diluted net income per share is computed by dividing reported net
income available to common shareholders by weighted average shares
outstanding for the period, adjusted for the dilutive effect of common
stock equivalents, which consist of stock options, using the treasury
stock method.
The tables below set forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share
computations.
Twelve Months Ended June 30, 2004
Income Shares Per Share Amount
Basic net income
per common share $772,850 1,359,531 $.57
Effect of dilutive
Securities -- 42,500 ($.02)
Diluted net income
per common share $772,850 1,402,031 $.55
Twelve Months Ended June 30, 2003
Income Shares Per Share Amount
Basic net income
per common share $286,441 1,359,531 $.21
Effect of dilutive
Securities -- 43,275 $(.01)
Diluted net income
per common share $286,441 1,402,806 $.20
Twelve Months Ended June 30, 2002
Income Shares Per Share Amount
Basic net income
per common share $875,515 1,339,531 $.65
Effect of dilutive
Securities -- 40,500 ($.02)
Diluted net income
per common share $875,515 1,380,031 $.63
I. Related Party Transaction
Due to Related Party represents notes payable to a founder
(stockholder) of the Company, at an interest rate of 9% per annum.
The notes are due upon demand and are subordinate to the mortgage note
held by Sovereign Bank. The founder (stockholder) agreed not to seek
repayment of the notes until the mortgage loan has been repaid.
J. Other Income
Other income/(expense) consists of the following for the years ended
June 30:
2004 2003 2002
Sales of scrap and
miscellaneous income/
(expense)-net $(1,062) $2,130 $(2,921)
Gain on sale of assets 1,100 -- --
Interest 6,372 32,088 20,432
$6,410 $34,218 $17,511
K. Operating Segments
The Company operates in two industries: electronics, and leisure and
recreation. Operations in the electronics industry is primarily
related to supplying electronics and electrical products and systems
for the United States Government as a prime contractor or
subcontractor. Operations in the leisure and recreation industry
involve the production and sale of snowmaking machinery and servicing
of such machinery at the purchaser's expense beyond the warranty
period. Total revenue by industry represents sales to unaffiliated
customers, as reported in the Company's Statements of Income. There
are no inter-segment sales.
Some operating expenses, including general corporate expenses, have
been allocated by specific identification or based on direct labor for
items which are not specifically identifiable. In computing operating
profit, none of the following items have been added or deducted:
interest expense, income taxes, and non-operating income.
Depreciation and amortization for the electronics industry and the
leisure and recreation industry, respectively, was approximately
$98,000 and $9,000 in 2004, $79,000 and $7,000 in 2003, and $80,000
and $8,000 in 2002. Capital expenditures were approximately $286,000
in 2004, $695,000 in 2003, and $327,000 in 2002.
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry. Corporate assets are
principally cash, prepaid expenses, and other current assets.
The following tables present information about reported segment
revenues, operating profit or loss, and assets, and reconcile such
segment information to the Company's totals:
Year ended June 30, 2004
(in thousands)
Leisure
Electronics and Total
Recreation Company
Total revenue $5,640 $ 375 $6,015
Operating profit/(loss) 379 (98) 281
Interest expense and other
income-net (39)
Profit before income taxes 242
Identifiable assets at
June 30, 2004 3,560 1,193 4,753
Corporate assets 1,751
Total assets at June 30, 2004 6,504
Year ended June 30, 2003
(in thousands)
Leisure
Electronics and Total
Recreation Company
Total revenue $6,270 $92 $6,362
Operating profit/(loss) 607 (107) 500
Interest expense and other
income-net (23)
Profit before income taxes 477
Identifiable assets at
June 30, 2003 3,427 671 4,098
Corporate assets 2,223
Total assets at June 30, 2003 6,321
Year ended June 30, 2002
(in thousands)
Leisure
Electronics and Total
Recreation Company
Total revenue $8,446 $ 470 $8,916
Operating profit/(loss) 1,555 (16) 1,539
Interest expense and
other income-net (80)
Profit before income taxes 1,459
Identifiable assets at
June 30, 2002 2,465 740 3,205
Corporate assets 3,613
Total assets at
June 30, 2002 6,818
L. Unaudited Quarterly Financial Data
2004 Revenue Gross profit Net income Earnings per share
Basic Diluted
Sept.
30 $1,186,774 $274,208 $7,530 $.01 $.01
Dec.
31 1,387,072 285,636 (30,962) (.02) (.02)
Mar.
31 1,605,040 382,176 47,763 .04 .03
Jun.
30 1,836,417 552,013 748,519 $.54 $.53
Year $6,015.303 $1,494,033 $772,850 $.57 $.55
2003 Revenue Gross profit Net income Earnings per share
Basic Diluted
Sept.
30 $1,991,665 $438,086 $109,885 $.08 $.08
Dec.
31 1,679,185 484,836 88,064 .07 .06
Mar.
31 1,030,157 466,420 86,918 .06 .06
Jun.
30 1,660,825 296,790 1,574 .00 .00
Year $6,361,832 $1,686,132 $286,441 $.21 $.20
2002 Revenue Gross profit Net income Earnings per share
Basic Diluted
Sept.
30 $2,666,053 $685,152 $255,580 $.19 $.19
Dec.
31 2,148,712 846,169 239,201 .18 .17
Mar.
31 1,922,849 709,392 236,419 .18 .17
Jun.
30 2,178,435 562,399 144,315 .10 .10
Year $8,916,049 $2,803,112 $875,515 $.65 $.63
M. Accounting for Stock-Based Compensation
In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company elected to account for its stock-based
compensation using the intrinsic value method under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As such, the Company does not recognize compensation
expense on non-qualified stock options granted to employees when the
exercise price of the options is equal to the market price of the
underlying stock on the date of the grant.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock option grants under the fair value
method prescribed by that Statement. Information with regard to the
number of options granted, market price of the grants, vesting
requirements, and the maximum term of the options granted appears by
plan type in the sections below. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
2004 2003
Risk-free interest rate 5.00% 5.00%
Expected volatility 80.0% 80.0%
Expected dividend yield 0.0% 0.0%
Weighted-average option life 2 years 2 years
Weighted-average grant-date
Fair value of options $3.93 $3.93
The estimated fair value of the option grants are amortized to expense
over the options' vesting period beginning January 1 of the following
year, due to the timing of the grants. The Company's pro forma
information for the years ended June 30, 2004, 2003, 2002 is as
follows:
Year Ended June 30
2004 2003 2002
Net income, as reported $772,850 $286,441 $875,515
Deduct: Total stock
- -based employee
Compensation expense
Determined Under fair
value based method for
all Awards, net of
related tax effects (18,398) (9,870) (0)
Pro forma net income $754,452 $276,571 $875,515
Earnings per share:
Basic - as reported $.57 $.21 $.65
Basic -pro forma $.55 $.21 $.65
Diluted - as reported $.55 $.20 $.63
Diluted - pro forma $.54 $.20 $.63
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. 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 year
covered by this Annual Report. Based upon that evaluation, the Chief
Executive Officer and Treasurer concluded that, as of June 30, 2004,
the design and operation of these disclosure controls and procedures
were effective. During the fourth fiscal quarter covered by this
Annual 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.
Item 9B. OTHER INFORMATION
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the
Registrant is incorporated herein by reference from the Company's
definitive proxy statement for the 2004 Annual Meeting of
Stockholders.
Item 11. EXECUTIVE COMPENSATION
Executive compensation information is incorporated herein by reference
from the Company's definitive proxy statement for the 2004 Annual
Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 403 of Regulation S-K
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's
definitive proxy statement for the 2004 Annual Meeting of
Stockholders.
Item 201(d) of Regulation S-K
Plan category (a) (b) (c)
Number of Weighted- Number of
Securities average securities
To be exercise remaining
issued upon price available
exercise of of for future
outstanding outstanding issuance
options, options, under
warrants warrants equity
and rights and rights compensation
plans
(excluding
securities
reflected
in column
(a))
Equity
compensation
plans
approved
by security
holders 42,500 $2.034 72,500
Equity
compensation
plans not
approved
by security
holders 0 0 0
Total 42,500 $2.034 72,500
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated herein by
reference from the Company's definitive proxy statement for the 2004
Annual Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information in response to this item is incorporated herein by
reference from the Company's definitive proxy statement for the 2004
Annual Meeting of Stockholders.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) The following financial statements are included in Part II
Item 8:
Page
Report of Independent Registered Public Accounting Firm 22
Balance Sheets, June 30, 2004 and 2003 23
Statements of Income, Years Ended June 30,
2004, 2003 and 2002 24
Statements of Stockholders' Equity, Years Ended
June 30, 2004, 2003 and 2002 24
Statements of Cash Flows, Years Ended June 30,
2004, 2003 and 2002 25
Notes to Financial Statements 26
(2) Exhibits 42
A list of the exhibits required to be filed as part
of this report is set forth in the Index to Exhibits,
which immediately follows the signature page, and is
incorporated herein by this reference.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Dewey Electronics Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized:
THE DEWEY ELECTRONICS CORPORATION
/s/John H.D. Dewey /s/ Thom A. Velto
BY: John H.D. Dewey BY: Thom A. Velto,
President and Chief Treasurer
Executive Officer
DATE: September 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
/s/ Alexander A. Cameron Date: September 28, 2004
Alexander A. Cameron,Director
/s/ Frances D. Dewey Date: September 28, 2004
Frances D. Dewey,Director
/s/ John H.D. Dewey Date: September 28, 2004
John H.D. Dewey,Director
/s/ James M. Link Date: September 28, 2004
James M. Link,Director
/s/ Nathaniel Roberts Date: September 28, 2004
Nathaniel Roberts,Director
THE DEWEY ELECTRONICS CORPORATION
INDEX TO EXHIBITS
The following exhibits are filed as part of this report. For
convenience of reference, exhibits are listed according to the numbers
assigned in the Exhibit table to Regulation S-K.
Number Page No.
3(a)Certificate of Incorporation as amended. This item was
filed as part of the Registrant's Form 10-K for the year ended June
30, 1988 and is herein incorporated by reference. --
3(b)By Laws as amended. This item was filed as part of the
Registrant's Form 10-K for the year ended June 30, 1988
and is herein incorporated by reference. --
4(a)-Agreement dated as of September 18, 1997 with Sovereign
Bank providing for the borrowing of $2,300,000 against issuance
of a mortgage note payable to the Bank. This item was
filed as part of the Registrant's Form 10-K for the year
ended June 30, 1997 and is herein incorporated by
reference. --
4(a)-Mortgage note modification agreement dated December 27,
2001 with Sovereign Bank providing for reducing outstanding
balance to $975,000,reducing interest rate, and extending
term to January 1, 2005 This item was filed as part of
the Registrants Form 10-K for the year ended June 30,
2002 and is herein incorporated by reference. --
4(b)-Line of credit agreement dated as of September 18, 1997
with Sovereign Bank providing for the borrowing of up to $500,000.
This item was filed as part of the Registrant's Form 10-K for
the year ended June 30, 1997 and is herein incorporated by reference.--
4(c)-2001 Stock Option Plan. This item was filed with the
Registrant's Definitive Proxy Statement for the 2001 annual
meeting of stockholders on December 5, 2001 and is herein
incorporated by reference.
4(c)-Amendment and Restatement of the 1998 Stock Option Plan.
This item was filed with the Registrant's Definitive Proxy
Statement for the 2001 annual meeting of stockholders on
December 5, 2001 and is herein incorporated by reference.
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 Certification of Treasurer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
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 (filed herewith).
32.2 Certification of Treasurer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Secton 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
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 annual report on Form 10-K 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: September 28, 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 annual report on Form 10-K 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: September 28, 2004
By: /s/ Thom A. Velto
Thom A. Veto,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 Annual Report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-K for the fiscal year ended
June 30, 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, Chief Executive Officer
Date: September 28, 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 Annual Report of The Dewey Electronics
Corporation (the "Corporation") on Form 10-K for the fiscal year ended
June 30, 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: September 28, 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.