Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2009
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from__________to____________
Commission File No. 0-2892
THE DEWEY ELECTRONICS CORPORATION
A New York Corporation
I.R.S. Employer Identification No. 13-1803974
27 Muller Road
Oakland, New Jersey 07436
(201) 337-4700
Indicate by check mark whether the registrant has(1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES_X_ NO___
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(SS232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). YES X No ___
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer__ ___ Accelerated filer _____
Non-accelerated filer _____ Smaller reporting company__X_
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES___ NO_X_
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 1,362,031 at February 11,
2010.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Page No.
Part I Financial Information
Item 1. Condensed Financial Statements
Condensed Balance Sheets -
December 31, 2009(unaudited) and June 30, 2009 4
Condensed Statements of Operations -
Three and Six-months Ended December 31, 2009
and 2008 (unaudited) 5
Condensed Statements of Cash Flows for
the Six-months Ended December 31, 2009
and 2008 (unaudited) 6
Notes to Condensed Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Item 4T. Controls and Procedures 21
Part II Other Information
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 22
Item 4. Submission of Matters to a Vote of Security
Holders 22
Item 6. Exhibits 22
PART I: FINANCIAL INFORMATION
ITEM 1.CONDENSED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, JUNE 30,
2009 2009
(unaudited)
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 928,564 $ 518,600
ACCOUNTS RECEIVABLE 980,594 984,711
INVENTORIES 711,087 775,321
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS
OF BILLINGS 522,229 1,398,385
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 44,941 50,662
_________ _________
TOTAL CURRENT ASSETS 3,187,415 3,727,679
_________ _________
PLANT, PROPERTY AND EQUIPMENT:
LAND AND IMPROVEMENTS 651,015 651,015
BUILDING AND IMPROVEMENTS 1,885,653 1,885,653
MACHINERY AND EQUIPMENT 3,206,756 3,227,794
FURNITURE AND FIXTURES 237,168 235,777
_________ _________
5,980,592 6,000,239
Less accumulated depreciation 5,027,409 5,001,465
_________ _________
953,183 998,774
_________ _________
DEFERRED COSTS 65,095 65,095
_________ _________
TOTAL ASSETS $4,205,693 $4,791,548
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $370,957 $765,251
CUSTOMER DEPOSITS 13,517 -
ACCRUED EXPENSES AND OTHER
LIABILITIES 220,493 267,340
ACCRUED COMPENSATION AND BENEFITS
PAYABLE 130,603 223,913
ACCRUED PENSION COSTS 42,700 59,439
________ ________
TOTAL CURRENT LIABILITIES 778,270 1,315,943
________ _________
LONG-TERM PENSION LIABILITY 352,095 352,095
________ _________
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 1,693,397 at December
31, 2009 and June 30, 2009 16,934 16,934
ADDITIONAL PAID-IN CAPITAL 2,820,950 2,818,589
RETAINED EARNINGS 917,804 968,347
ACCUMULATED OTHER COMPREHENSIVE
LOSS (193,332) (193,332)
_________ _________
3,562,356 3,610,538
LESS: TREASURY STOCK 331,366 SHARES
at cost (487,028) (487,028)
_________ _________
TOTAL STOCKHOLDERS' EQUITY 3,075,328 3,123,510
_________ _________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $4,205,693 $4,791,548
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE-MONTHS ENDED SIX-MONTHS ENDED
DECEMBER 31 DECEMBER 31,
2009 2008 2009 2008
REVENUES $2,393,429 $2,821,062 $4,739,907 $5,204,260
COST OF REVENUES 1,960,528 1,997,713 3,942,387 3,856,012
__________ _________ _________ _________
GROSS PROFIT 432,901 823,349 797,520 1,348,248
SELLING,GENERAL &
ADMINISTRATIVE 417,855 460,898 841,873 965,153
_________ ________ ________ ________
OPERATING INCOME/(LOSS) 15,046 362,451 (44,353) 383,095
INTEREST EXPENSE (177) 0 1,387 0
OTHER INCOME/(EXPENSE)
- NET 1,217 (2,747) (4,803) (4,022)
________ _______ _______ _______
INCOME/(LOSS) BEFORE
INCOME TAXES 16,440 359,704 (50,543) 379,073
PROVISION FOR INCOME TAX 0 0 0 0
_______ _______ _______ ________
NET INCOME/(LOSS) $ 16,440 $ 359,704 $ (50,543) $ 379,073
========= ========== ========= ==========
NET INCOME/(LOSS)
PER COMMON SHARE
-BASIC $ 0.01 $ 0.26 $ (0.04) $ 0.28
NET INCOME/(LOSS)
PER COMMON SHARE
-DILUTED $ 0.01 $ 0.26 $ (0.04) $ 0.28
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
BASIC 1,362,031 1,362,031 1,362,031 1,362,031
DILUTED 1,363,665 1,363,165 1,362,031 1,363,617
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX-MONTHS ENDED
DECEMBER 31,
2009 2008
CASH FLOWS FROM OPERATING
ACTIVITIES
NET INCOME/(LOSS) $(50,543) $379,073
ADJUSTMENTS TO RECONCILE NET
INCOME/(LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION 52,652 54,759
STOCK OPTION COMPENSATION EXPENSE 2,361 440
GAIN ON SALE OF PLANT,PROPERTY
& EQUIPMENT (2,500) -
REDUCTION OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS - (23,815)
DECREASE IN ACCOUNTS RECEIVABLE 4,117 406,419
(INCREASE)/DECREASE IN INVENTORIES 64,234 (128,815)
(INCREASE)/DECREASE IN CONTRACT
COSTS & RELATED ESTIMATED
PROFITS IN EXCESS OF BILLINGS 876,156 (20,627)
(INCREASE)/DECREASE IN PREPAID
EXPENSES AND OTHER CURRENT
ASSETS 5,721 (20,597)
INCREASE IN CUSTOMER DEPOSITS 13,517 -
(DECREASE) IN ACCOUNTS PAYABLE (394,294) (360,029)
(DECREASE) IN ACCRUED EXPENSES AND
OTHER LIABILITIES (140,157) (11,794)
(DECREASE) IN ACCRUED PENSION
COSTS (16,739) (26,700)
_________ _________
TOTAL ADJUSTMENTS 465,068 (130,759)
_________ _________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 414,525 248,314
_________ _________
CASH FLOWS FROM INVESTING
ACTIVITIES:
EXPENDITURES FOR PROPERTY AND
EQUIPMENT (15,061) (26,509)
PROCEEDS FROM SALE OF ASSETS 10,500 -
_________ _________
NET CASH USED IN INVESTING
ACTIVITIES (4,561) (26,509)
_________ _________
CASH FLOWS FROM FINANCING
ACTIVITIES:
SHORT TERM BORROWINGS 250,000 --
REPAYMENT OF SHORT TERM BORROWINGS (250,000) --
________ ________
NET CASH USED IN FINANCING
ACTIVITIES -- --
________ ________
NET INCREASE IN CASH AND CASH
EQUIVALENTS 409,964 221,805
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 518,600 205,122
________ ________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 928,564 $426,927
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST RECEIVED $ 401 $ 238
INTEREST PAID $ 1,387 $ --
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Significant Accounting Policies
_______________________________
Basis of Presentation
---------------------
The accompanying unaudited condensed financial statements have been prepared
by The Dewey Electronics Corporation (the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC")for
interim reporting. Certain information and disclosures normally included in
notes to financial statements have been condensed or omitted pursuant to such
rules and regulations, but resultant disclosures are in accordance with
accounting principles generally accepted in the United States of America as
they apply to interim reporting. The condensed financial statements should
be read in conjunction with the financial statements and the notes thereto in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2009 (the "2009 Form 10-K").
In the opinion of the Company's management, the accompanying unaudited
condensed financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly, in all material respects,
the Company's financial position as of December 31, 2009, and the results of
operations for the three-months and six-months then ended and cash flows for
the six-months then ended. The results of operations and cash flows for the
period ended December 31, 2009 are not necessarily indicative of the results
of operations or cash flows to be expected for any subsequent quarter or the
full fiscal year ending June 30, 2010.
In accordance with Accounting Standards Codification ("ASC") Topic 855 the
Company evaluated subsequent events that occurred after December 31, 2009 up
through February 11, 2010. During this period no material subsequent events
came to our attention.
As of December 31, 2009, there have been no material changes to any of the
significant accounting policies described in our 2009 Form 10-K.
Revenue Recognition
===================
Revenues and estimated earnings under long-term defense contracts (including
research and development contracts, except as described below in this
paragraph) are recorded using the percentage-of-completion method of
accounting, measured as the percentage of costs incurred to estimated total
costs of each contract. For the Company's indefinite delivery, indefinite
quantity contract to provide 2kW generator sets to the military and for
orders from other government subcontractors for 2kW generators, percentage-
of-completion calculations are based on individual "Delivery Orders" which
are periodically received for specified quantities. For research and
development contracts total costs incurred are compared to total expected
costs for each contract. The Company currently has one development sub-
contract for which it recognizes revenue on a time and material basis as the
nature of the work performed precludes a meaningful estimate of total
expected costs. During the fiscal year ended June 30, 2009 the Company had
one development sub-contract to perform qualification tests for an EPA
compliant engine for use with its 2kW generator sets on which it did not
recognize revenue based on the percentage-of-completion method. In this sub-
contract, revenue was recorded with the successful completion of each
milestone in accordance with the contract terms. The sub-contract was
completed in January 2009.
The Company uses the percentage-of-completion method to recognize revenue for
its replacement parts business when the dollar amount of the order to be
delivered in a future period or periods is material, and the duration of the
work will span multiple reporting periods. Revenue and earnings for all
other orders for replacement parts (including orders for replacement parts
for snowmaking equipment) are recorded when deliveries of product are made
and title and risk of loss have been transferred to the customer and
collection is probable.
For those contracts where revenue has been recognized using the percentage-
of-completion method of accounting, 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.
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. These estimates include, among others,
lower of cost or market estimates for inventories, realization of deferred
tax assets, revenue recognition and certain accrued expenses. Actual results
could differ from those estimates.
Income Taxes
============
Under the asset and liability method of accounting for taxes under ASC Topic
740, "Income Taxes", 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.
2. Accounting Standards Updates
================================
In June 2009, the FASB issued its final Statement of Financial Accounting
Standards ("SFAS") No. 168 - The Accounting Standards Codification "ASC" and
the Hierarchy of Generally Accepted Accounting Principles - a replacement of
FASB Statement No. 162. SFAS No. 168 made the FASB Accounting Standards
Codification, the single source of U.S. GAAP used by nongovernmental entities
in the preparation of financial statements, except for rules and interpretive
releases of the SEC under authority of federal securities laws, which are
sources of authoritative accounting guidance for SEC registrants. The ASC is
meant to simplify user access to all authoritative accounting guidance by
reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics
within a consistent structure; its purpose is not to create new accounting
and reporting guidance. The ASC supersedes all existing non-SEC accounting
and reporting standards and was effective for the Company beginning July 1,
2009. Following SFAS No. 168, the FASB will not issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead, it will issue Accounting Standards Updates. The FASB
will not consider Accounting Standards Updates as authoritative in their own
right; these updates will serve only to update the ASC, provide background
information about the guidance, and provide the bases for conclusions on the
change(s) in the ASC.
Accounting Standards Updates Not Yet Effective
==============================================
In October 2009, an update was made to "Revenue Recognition - Multiple
Deliverable Revenue Arrangements." This update removes the objective-and-
reliable-evidence-of-fair-value criterion from the separation criteria used
to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting, replaces references to "fair value" with
"selling price" to distinguish from the fair value measurements required
under the "Fair Value Measurements and Disclosures" guidance, provides a
hierarchy that entities must use to estimate the selling price, eliminates
the use of the residual method for allocation, and expands the ongoing
disclosure requirements. This update is effective for the Company beginning
July 1, 2010 and can be applied prospectively or retrospectively. Management
is currently evaluating the effect that adoption of this update will have, if
any, on the Company's financial position and results of operations when it
becomes effective.
Other Accounting Standards Updates not effective until after December 31,
2009, are not expected to have a significant effect on the Company's
financial position or results of operations.
3. Inventories
===============
Inventories consist of:
December 31, 2009 June 30, 2009
Finished Goods $45,652 $38,410
Work In Progress 119,676 144,493
Raw Materials 545,759 592,418
------- -------
Total $711,087 $775,321
======== ========
4. Taxes on Income
===================
The Company has provided a valuation allowance against its net deferred tax
assets as it believes that it is more likely than not that it will not
realize these tax attributes. The Company has approximately $806,000 and
$234,000 of federal and state net deferred tax assets respectively, primarily
arising from net operating loss carry-forwards, expiring beginning in 2012.
In the six month period ended December 31, 2009 these federal and state net
deferred tax assets increased by approximately $17,000 and $5,000,
respectively, as a result of a net loss for the six month period.
5. Earnings Per Share
======================
Net income (loss) per share has been presented pursuant to ASC Topic 260,
"Earnings per Share". Basic net income (loss) per share is computed by
dividing reported net income (loss) available to common shareholders by
weighted average shares outstanding for the period. Diluted net income
(loss) per share is computed by dividing reported net income (loss) 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 (loss) per common share
computations. Certain stock options were excluded from the computation of
earnings per share due to their anti-dilutive effect. For the three-months
ended December 31, 2009 and December 31, 2008, the number of shares excluded
from the calculation was 16,000 in both years.
For the six-month period ended December 31, 2009 and December 31, 2008, the
number of shares excluded from the calculation were 24,700 and 16,000
respectively.
Three-months Ended December 31,
2009 2008
Per Per
Income Shares Share Income Shares Share
Amount Amount
Basic
Net
Income
per
common
share $16,440 1,362,031 $.01 $359,704 1,362,031 $.26
Effect
Of
dilutive
Securities -- 1,634 -- -- 1,134 --
_______ _________ ____ ________ _________ ____
Diluted
Net
income
per
common
share $16,440 1,363,665 $.01 $359,704 1,363,165 $.26
======= ========= ==== ======== ========= ====
Six-months Ended December 31,
2009 2008
Per Per
Income Shares Share Income Shares Share
Amount Amount
Basic
net
income
/(loss)
Per
Common
Share $(50,543) 1,362,031 $(.04) $379,073 1,362,031 $.28
Effect
Of
dilutive
Securities -- -- -- -- 1,586 --
______ _____ ____ ________ ________ ___
Diluted
net
income/
(loss)
per
common
share $(50,543) 1,362,031 $(.04) $379,073 1,363,617 $.28
======== ========= ===== ======== ========= ====
6. Stock Option Plan
=====================
On December 2, 1998, the Employee Stock Option Committee adopted a Stock
Option Plan of 1998 which was amended and restated effective December 5,
2001, pursuant to which options to purchase a maximum of 85,000 shares of
common stock may be granted to executives and key employees. Incentive stock
options have been granted under the plan with an exercise price no less than
fair market value of the stock on the date of grant. Outstanding options
generally are exercisable for ten years from the date of grant, except that
one grant of 800 options is exercisable for a 5-year term. Outstanding
options have expiration dates ranging from September 12, 2010 to December 2,
2018.
The following disclosures are based on stock options granted to employees of
the Company in the second quarter of fiscal 2009 (quarter ended December 31,
2008). For the three months ended December 31, 2009, the Company recorded
stock option compensation expense of $929 compared to stock option
compensation expense of $440 for the three months ended December 31, 2008.
For the six months ended December 31, 2009 the Company recorded stock option
compensation expense of $2,361 compared to stock option compensation expense
of $440 for the six month period ended December 31, 2008.
The Company used its historical stock price volatility to compute the
expected volatility for purposes of valuing stock options issued. The period
used for the historical stock price corresponded to the expected term of the
options and was between five and eight years. The expected dividend yield is
based on the Company's practice of not paying dividends. The risk-free rate
of return is based on the yield of U.S. Treasury Strips with terms equal to
the expected life of the options as of the grant date. The expected life in
years is based on historical actual stock option exercise experience. The
following weighted average assumptions were used in the valuation of stock
options granted in the second quarter of fiscal 2009.
December 31, 2008
Expected dividend yield --
Expected volatility 63.8%
Risk-free interest rate 1.87%
Expected life in years 6.7
Based on the assumptions in the table above, the grant date fair value of
stock options granted in the second quarter of fiscal 2009 was $5,704.
Stock option transactions for the Company's employee stock option plans for
the three and six months ended December 31, 2009 are as follows:
December 31, 2009
Three Months Six Months
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
Price Price
Beginning balance 25,200 3.09 25,200 3.09
Granted -- -- -- --
Exercised -- -- -- --
Cancelled or expired (500) 1.60 (500) 1.60
Ending balance 24,700 3.12 24,700 3.12
Options exercisable at
end of period 24,700 3.12 24,700 3.12
THE DEWEY ELECTRONICS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed financial statements, including the notes thereto, appearing
elsewhere in this Form 10-Q, and with the audited financial statements,
including the notes thereto, appearing in the Company's 2009 Form 10-K.
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 "Financing Activities", and
"Company Strategy" and in Item 1 (Description of Business - Operational
Risks) of the Company's 2009 Form 10-K. Such forward-looking statements are
not guarantees of future performance and actual results, developments and
business decisions may differ from those envisaged by such forward-looking
statements.
The Company's operating cycle is long-term and includes various types of
products and varying delivery schedules. Accordingly, results of a
particular period or period-to-period comparison of recorded revenues and
earnings may not be indicative of future operating results. The following
comparative analysis should be viewed in this context.
Critical Accounting Policies and Estimates
==========================================
The Company's 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.
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, and valuation of deferred tax assets and liabilities. For
additional discussion of the application of these and other accounting
policies, see Management's Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies and Note 1 of the Notes
to the Financial Statements included in the Company's 2009 Form 10-K.
Results of Operations - Revenues
===============================
Revenues and estimated earnings under long-term defense contracts (including
research and development contracts, except as described below in this
paragraph) are recorded using the percentage-of-completion method of
accounting, measured as the percentage of costs incurred to estimated total
costs of each contract. For the Company's indefinite delivery, indefinite
quantity contract to provide 2kW generator sets to the military and for
orders from other government subcontractors for 2kW generators, percentage-
of-completion calculations are based on individual "Delivery Orders" which
are periodically received for specified quantities. For research and
development contracts total costs incurred are compared to total expected
costs for each contract. The Company currently has one development sub-
contract for which it recognizes revenue on a time and material basis as the
nature of the work performed precludes a meaningful estimate of total
expected costs. During the fiscal year ended June 30, 2009 the Company had
one development sub-contract to perform qualification tests for an EPA
compliant engine for use with its 2kW generator sets on which it did not
recognize revenue based on the percentage-of-completion method. In this sub-
contract, revenue was recorded with the successful completion of each
milestone in accordance with the contract terms. The sub-contract was
completed in January 2009.
The Company uses the percentage-of-completion method to recognize revenue for
its replacement parts business when the dollar amount of the order to be
delivered in a future period or periods is material, and the duration of the
work will span multiple reporting periods. Revenue and earnings for all
other orders for replacement parts (including orders for replacement parts
for snowmaking equipment) are recorded when deliveries of product are made
and title and risk of loss have been transferred to the customer and
collection is probable.
For those contracts where revenue has been recognized using the percentage-
of-completion method of accounting, 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.
Revenues for the second quarter of fiscal year 2010, the three month period
ended December 31, 2009, were $427,633 lower when compared to same period in
2008. Revenues were lower due to a decrease in customer funded research and
development and a decrease in revenue from replacement parts and short-term
orders. These decreases were partly offset by increased production of
generator sets under the Company's prime contract to provide 2kW generator
sets to the U.S. Army as well as for delivery to other defense contractors
outside the Company's prime contract when compared to the same period in
fiscal year 2009.
For the three months ended December 31, 2009 production efforts to provide
the Armed Forces with diesel operated generator sets provided approximately
86% of revenues compared to approximately 62% in the second quarter of fiscal
year 2009 (quarter ended December 31, 2008). The Company's research and
development contracts provided approximately 3% of revenues in the second
quarter of fiscal 2010, and approximately 29% of revenues in the second
quarter of fiscal 2009. Replacement parts and other short-term business
provided approximately 11% of revenues in the second quarter of fiscal year
2010 and approximately 9% of revenues in the same period of fiscal 2009.
Revenues for the six-month period ended December 31, 2009 were $464,353 lower
when compared to the same period in 2008. This decrease in revenue is
attributable to a decrease in customer funded research and development
revenues partly offset by increases in revenues from both generator set
production and replacement parts during this six month period when compared
to the same period last year.
During the six-month period ended December 31, 2009, production efforts to
provide the Armed Forces with diesel operated generator sets provided
approximately 89% of revenues compared to approximately 72% in the same
period in 2008. The Company's research and development contracts provided
approximately 2% of revenues during the six-month period ended December 31,
2009, versus approximately 20% in the same period in 2008. Replacement parts
and other short-term business provided approximately 9% of revenues in the
six-month period ended December 31, 2009, and approximately 8% of revenues in
the same period in 2008.
In March 2007, the Company was awarded three related research and development
sub-contracts, in the aggregate amount of up to approximately $230,400, to
research and develop electronic controls for diesel fuel cell reformers.
Work on these sub-contracts began in the first quarter of fiscal year
2008(quarter ended September 30, 2007) and is expected to extend until the
third quarter of fiscal 2010. In April 2009 the Company was notified that an
additional option in one of the original sub-contracts above had been funded
in an amount up to $197,183. Work on this option phase of the sub-contract
is also expected to continue until the third quarter of fiscal 2010. (No
assurances can be given that the research and development services provided
by the Company over the term of these sub-contracts will equal the full
amounts set forth above.) No assurances can be given that the Company will
receive any future production orders as a result of these sub-contracts or
that the Company will be awarded any additional research and development
contracts or sub-contracts.
In July 2007, the Company received a sub-contract to develop an armored 3
kilowatt 28 volt DC auxiliary power unit that can be mounted on the back of
the United States Marine Corps (USMC) main battle tank, the Abrams M1A1. The
development sub-contract, for $646,400, was awarded by the USMC Tank Program
Office, in Quantico, VA, through a sub-contract administered by CACI,
Eatontown, NJ, and had the possibility of a follow-on production contract.
Work on this sub-contract also began in the first quarter of fiscal year
2008(quarter ended September 30, 2007) and continued into the quarter ending
September 30, 2008. In December 2008, the Company was notified that the USMC
had awarded the production contract to another company who was not part of
the development phase awarded in 2007.
In August 2007, the Company received a new contract to provide auxiliary
power systems for the USMC 'Logistic Vehicle'. This contract, awarded by the
USMC Systems Command, Quantico, VA, consists of a base year and three option
years, exercisable at the Government's option. The Logistics Vehicle Power
System (LVPS) is a diesel-powered 3.5 kilowatt 28 volt DC generator providing
power to equipment that protects against improvised explosive devices. It is
based on the Company's existing 2 kilowatt military tactical generator. A
delivery order for the LVPS, valued at approximately $2.4 million was
received in August 2007 and completed in December 2007. In July 2008, the
Company received a second delivery order valued at approximately $500,000 for
additional units which were delivered in January 2009. Work began to produce
these units during the first quarter of fiscal year 2009(quarter ended
September 30, 2008) and was substantially completed during the second quarter
of fiscal 2009. Subsequently, in January 2009, the Company received a third
delivery order valued at approximately $400,000 with deliveries made in July
and August 2009. While the Company was successful in obtaining these initial
orders, no assurance can be made that the Company will receive any future
production orders as a result of this contract.
In December 2007, the Company announced the award of a $985,976 sub-contract
from Fibertek, Inc. of Herndon, VA, as part of the U.S. Government's 2kW
Military Tactical Generator (MTG) Product Improvements - Engine. This sub-
contract covered the efforts to qualify an EPA compliant diesel engine for
use in the 2kW portable Military Tactical Generator product line. This
engineering and test effort was conducted at the Company's Oakland, NJ,
facility. Initial test efforts began during the third quarter of fiscal year
2008 (quarter ended March 31, 2008). First article testing revealed that the
replacement EPA compliant engine was incapable of providing the necessary
power output in the required range of operating conditions. As a result, the
Company does not expect this engine to replace the existing non-compliant
engine used in the 2kW product line. The Army has a waiver from the EPA to
continue using the non-compliant engine.
In May 2008, the Company received an award of $475,000 to develop a prototype
'idle reduction' system consisting of an environmental control unit and
diesel generator under a sub-contract from MTC Technologies of Eatontown, NJ.
The Company partnered with AMETEK Corporation of El Cajon, California to
develop this system to provide heating and cooling for US Army "long haul"
trucks independent of the vehicle's main engine. The generator developed by
the Company under this sub-contract, powers the environmental control unit
while also providing both AC and DC current for the vehicle. Work under this
sub-contract was substantially completed in December 2008 and delivery of the
prototype units to the customer was made in January 2009. No assurance can
be made that the Company will receive any future production orders as a
result of this sub-contract or that the Government will award the Company any
additional development contracts.
The aggregate value of the Company's backlog of sales orders was $1.4 million
on December 31, 2009 and $7.1 million on December 31, 2008. It is estimated
that most of the present backlog will be billed during the next 6 months and
be substantially recognized as fiscal year 2010 revenues.
The Company believes that the delay in signing the Defense Appropriation Bill
until late December 2009 significantly reduced new delivery orders received
by the Company during the fiscal quarter ended December 31, 2009. As a
result the Company's backlog has been substantially reduced. The Company
believes that there is still demand for its products, particularly 2kW
generators, and (while no assurances can be given) that further orders will
be received during the 2010 fiscal year.
Gross Profit
============
The Company earned a gross profit of $432,901 (which was 18% of revenues) for
the three months ended December 31, 2009 compared to a gross profit of
$823,349 (which was 29% of revenues) for the same period in 2008.
Gross profit is affected by a variety of factors including, among other
items, product mix, product pricing, and product costs. The lower gross
profit for the second quarter of fiscal year 2010 is the result of several
factors. Principal among these is a change in product mix, with a decrease
in customer funded research and development efforts and an increase in
production of lower margin 2kW generators. The effect of this change in
product mix is that a higher percentage of overhead expense must be absorbed
by the 2kW generator sets which have a contractually fixed price, rather than
by research and development contracts where revenue is based on actual costs
incurred, thus resulting in an overall lower gross profit.
Gross profit in the second quarter of fiscal 2010 was further reduced by
continued increases in costs related to metals and transportation for
components for the 2kw generator set product line. The Company's 10-year
indefinite delivery, indefinite quantity prime contract for generator sets
with the U.S. Army, awarded in 2001 allows for a small annual increase in
selling price. Gross profit has been reduced as a result of costs increasing
faster than the selling price. The Company is in communication with the
Government and is continuing to pursue a pricing modification under the
contract. This is a labor intensive process and no assurances can be made
that the Government will agree to a modification, or that such a modification
would be equitable to the Company.
For the six-month period ended December 31, 2009 the Company's gross profit
was $797,520 (which was 17% of revenues) compared to a gross profit of
$1,348,248 (which was 26% of revenues) for the six-month period ended
December 31, 2008.
As with the three month period described above these lower results are due to
a shift in product mix with research and development efforts accounting for a
lower proportion of revenues in the first six months of fiscal 2010 when
compared to the same period in fiscal 2009. The reduced gross profit
resulting from less customer funded research and development was partly
offset by increased production of 2kW generator sets sold to other defense
contractors which made up a higher proportion of revenues in the first six
months of fiscal 2010 than in the first six months of fiscal 2009. The
selling price of these 2kW generators is reflective of current material costs
and provides a higher gross profit than 2kW generator sets sold to the
Government under the Company's prime contract on which the gross profit has
diminished over time due to material costs rising faster than price increases
allowed in the contract, as described above.
Selling, General and Administrative Expenses
============================================
Selling, General and Administrative expenses for the three months ended
December 31, 2009 were $417,855 or 17% of revenue compared to $460,898 or 16%
of revenue for the three month period ended December 31, 2008. The most
significant reductions in expense were for business development expense
(including consulting expenses), recruiting expenses, temporary help,
education expense and general corporate expense. These reductions were partly
offset by increased legal and professional fees and increased general
marketing expense.
Selling, General and Administrative expenses for the six-months ended
December 31, 2009 were $841,873 or 18% of revenue. For the six-months ended
December 31, 2008, Selling, General and Administrative expenses totaled
$965,153 or 19% of revenue. As with the three-month period above,
expenditures for the six-month period ended December 31, 2009 were lower when
compared with the same period last year primarily due to the same factors.
Interest Expense
================
The Company had a negative interest expense of $177 in the three month period
ended December 31, 2009 as a result of an adjustment to interest charged on
the Company's line of credit during the previous quarter of fiscal 2010. The
Company had no interest expense in the three month period ended December 31,
2008.
For the six-month period ended December 31, 2009 the Company recorded
interest expense of $1,387 while the Company had no interest expense in the
same six-month period ended December 31, 2008.
Other Expense/Income - Net
=========================
Amounts reported as other income or expense represent the net effect of
interest income and miscellaneous items such as the sale of scrap, bank
transaction fees and other like items.
Other income of $1,217 for the three months ended December 31, 2009 resulted
from a gain on the sale of an asset of $2,500 and interest income of $30
partly offset by bank fees and other charges of $1,313.
Other expense of $2,747 for the three months ended December 31, 2008 was
comprised of bank fees of $1,967 and State and Local Use Tax of $1,625 partly
offset by miscellaneous income of $845.
Other expense of $4,803 for the six months ended December 31, 2009 was
comprised of franchise taxes of $4,409 and bank fees of $3,295 partly offset
by a gain on the sale of an asset of $2,500 and interest income of $401.
Other expense of $4,022 for the six months ended December 31, 2008 was
comprised of bank fees of $3,309 and State and Local Use Tax of $1,625 partly
offset by miscellaneous income of $912.
Net Loss/Income before income taxes
===================================
Net income before income taxes for the three months ended December 31, 2009
was $16,440 and for the three months ended December 31, 2008 net income was
$359,704.
Results for the second quarter of fiscal year 2010 decreased when compared to
the same period in fiscal year 2009 primarily due to the lower gross profit
resulting from lower revenues and less favorable product mix for the quarter
which was partly offset by lower Selling, General and Administrative expenses
as discussed above.
Net loss before income taxes for the six-month period ended December 31, 2009
was $50,543. For the same period in 2008 net income before income taxes was
$379,073.
Results for the six-month period ended December 31, 2009 decreased when
compared to the same period in fiscal year 2009 primarily due to the same
factors cited above for the three month period ended December 31, 2009.
Income Taxes
============
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts and for tax loss
and credit carry-forwards.
A valuation allowance is provided against deferred tax assets when it is
determined to be more likely than not that these amounts will not be
realized.
The Company has provided a valuation allowance against its net deferred tax
assets as it believes that it is more likely than not that it will not
realize these tax attributes. The Company has approximately $806,000 and
$234,000 of federal and state net deferred tax assets respectively, primarily
arising from net operating loss carry-forwards, expiring beginning in 2012.
In the six month period ended December 31, 2009 these federal and state net
deferred tax assets increased by approximately $17,000 and $5,000,
respectively, as a result of a net loss for the period.
Liquidity and Capital Resources
===============================
Historically, the Company's capital expenditures, debt servicing requirements
and working capital needs have been financed by cash flow from operations,
progress payments on various Government contracts (based on cost incurred)
and a line of credit of $500,000. The prior line of credit expired on
February 28, 2007 and was replaced in April 2009, as described in Note 10 of
the Notes to Financial Statements of the Company's 2009 Form 10-K. During
the first quarter of fiscal 2010 the Company borrowed $250,000 against this
line of credit, which it repaid during that quarter.
As of December 31, 2009, the Company had no material capital expenditure
commitments. Management believes that the Company's current cash and its
line of credit, combined with progress payments as well as billings at the
time of delivery of products will be sufficient to support short-term
liquidity requirements, working capital needs and capital expenditures at
their current or expected levels.
At December 31, 2009, the Company's working capital was $2,409,145 compared
to $2,611,184 at December 31, 2008.
The ratio of current assets to current liabilities was 4.10 to 1 at December
31, 2009 and 3.30 to 1 at December 31, 2008.
The following table is a summary of the Statements of Cash Flows in the
Company's Financial Statements:
Six Months ended December 31,
2009 2008
Net Cash Provided by(used in)
Operating activities $ 414,525 $ 248,314
Investing activities (4,561) (26,509)
Financing activities -- --
Operating Activities:
====================
Adjustments to reconcile net income to net cash used in operations are
presented in the Statements of Cash Flows in the Company's Financial
Statements.
Net cash provided by operating activities in the six-month period ended
December 31, 2009 was comprised primarily of net loss before depreciation and
amortization, decreases in contract costs and estimated related profits in
excess of applicable billings, inventories, and prepaid expense and an
increase in customer deposits, which were partly offset by decreases in
accounts payable, accrued expenses, and accrued pension expenses.
Net cash provided by operating activities in the six-month period ended
December 31, 2008 was comprised primarily of net income before depreciation
and a decrease in accounts receivable, which were partly offset by increases
in contract costs and estimated related profits in excess of billings and
inventories, along with decreases in accounts payable, accrued expenses and
accrued pension costs.
The Company expenses its research and development costs as incurred. These
costs consist primarily of salaries and material costs. For the six month
period ended December 31, 2009 and December 31, 2008, the Company expensed
$17,003 and $30,918 respectively, of research and development costs.
Research and development projects performed under contract for customers are
billed to the customer and are recorded as contract costs as they are
incurred.
Investing Activities:
====================
During the first six months of fiscal 2010, net cash of $4,561 was used in
investing activities. This net amount reflects the use of $15,061 for
capital expenditures, principally for demonstration and test equipment, and
the receipt of $10,500 from the sale of assets.
During the first six months of fiscal 2009, net cash of $26,509 was used in
investing activities all of which was used for capital equipment.
Financing Activities:
====================
The Company did not use any cash in financing activities during the six month
periods ended December 31, 2009 and 2008, respectively.
On April 27, 2009 the Company entered into a $500,000 line of credit with TD
Bank, NA. (See Note 10 of the Notes to Financial Statements in the Company's
2009 Form 10-K). As of the date of this Quarterly Report the Company has no
outstanding debt against this line of credit. The Company does not regard
this credit facility as vital to its continued operations.
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 68 undeveloped and unused acres of this property, by
its sale and/or development. This endeavor has become more complex with the
implications of New Jersey's "Highlands Water Protection and Planning Act".
The Act identifies approximately 400,000 acres of New Jersey as The Highlands
Preservation Area. Pursuant to the statute, this area has the most onerous
restrictions on future development. The Company's property is in this area,
and further development would not be permitted without a waiver or other
relief from the State. The Company continues to believe that there are
strong reasons why its property should not be subject to the severe
restrictions of the preservation area, and is attempting to affect a
solution.
Since the Act was passed in June of 2004, the State repeatedly delayed
promulgation of final regulations and a master plan. Originally expected in
2005, final regulations and a master plan were approved by Governor Corzine
on September 5, 2008. At the same time the Governor issued executive order
114 further defining the framework by which the Highlands Council, other
State agencies, and both county and municipal governments are to work
together. The Company believes that a regulatory environment is now
developing within which monetization of the land may be possible. In light
of these recent events, the Company is actively assessing its options.
However, no assurances can be given that the Company's efforts will be
successful, that a satisfactory valuation will be achieved, or that
resolution will be timely.
In May 2008, the Company entered into a contract to sell a small parcel of
land, approximately 7 acres, for $205,000. The land is physically separated
from the main parcel of the Company's property by an interstate highway and
is contained within the Highlands Preservation Area. Among other things, the
sale of the land is subject to approval for development by the Highlands
Commission and various state and local government agencies. Accordingly, the
Company can make no assurance that the sale will be successfully consummated
or, if consummated, the timing thereof.
Accounting Standards Updates
============================
Refer to Note 2. Significant Accounting Policies in the Notes to the
Financial Statements section of this Quarterly Report.
Company Strategy
================
The Company has many years of experience in contracting with the Department
of Defense and has been successful in obtaining many contracts to provide a
wide array of products and services. Management believes that this
experience is a significant positive competitive factor. Management is
continuing to explore other areas of business with the Department of Defense,
which are capable of providing stability and growth.
The Company is focusing its efforts within the market for military compact
diesel power generation on select product categories which management
believes represent the best chances of successfully growing the Company's
business. Although no assurances can be made that such a strategy will be
successful, management believes that long-term growth can best be achieved
by: 1) growing the Company's market share in areas where the Company already
has a strong presence, 2) expanding into related markets with existing
products and capabilities, and 3) further taking advantage of the Company's
strengths by expanding into related product categories.
The Company faces competition in many areas and from companies of various
sizes, capabilities and resources. Competitive factors include product
quality, technology, product availability, price, and customer service.
Management believes that the reputation of the Company in these areas
provides a significant positive competitive factor. As part of its overall
business strategy management is continuing to reinforce customer awareness of
the Company's current and past performance as a Department of Defense
supplier, its product quality and reliability, and its historically strong
customer relationships.
In response to the U.S. Army's change in priorities away from long-term
product improvements regarding the 2kW Generator Program in 2007, management
re-evaluated its approach to the second and third strategic objectives
described above. Rather than continuing to develop new longer term internal
technologies, the Company is now attempting to capitalize on its previous
investments in technology to obtain business in related military power
markets and to expand into related military product categories.
Two recent contracts with the U.S. Department of Defense to develop
generators as auxiliary power units for vehicles are examples of the second
strategic objective, expanding into related power markets. The contract for
the Logistics Vehicle Power Supply "LVPS" (described under "Revenues" above)
utilizes the Company's core expertise in compact and highly reliable diesel
engine power generation. The recent contract to develop a prototype 'idle
reduction' system consisting of an environmental control unit and diesel
generator builds on the Company's recent accomplishments with vehicle mounted
auxiliary power units and management believes it will allow the Company to
further expand into related power applications while increasing its
technology base. In furtherance of the third strategic objective, expanding
into related military product categories, the Company is utilizing its
experience in military-grade portable power systems under three related
customer funded research and development sub-contracts where the Company will
design and prototype electronic controls for diesel fuel cell systems (See
"Revenues" above).
In the near term, continued growth in profitability and broadening the line
of product offerings are the Company's primary objectives. The recent
development contracts, and the customer-funded research and development sub-
contracts, described above contribute to this goal. The Company is
continuing to pursue possible partnering and sub-contracting relationships
with other companies and defense contractors that leverage the Company's
current expertise and technology in generators and auxiliary power units.
ITEM 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
================================================
The Company carried out, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and
Treasurer, an evaluation of the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the fiscal quarter covered by this Form 10-Q. Based upon that evaluation,
the Chief Executive Officer and Treasurer concluded that, as of December 31,
2009, the design and operation of the Company's disclosure controls and
procedures were effective.
Nonetheless, a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system
are met, and no evaluation of controls can provide absolute assurance that all
control issues have been detected.
Changes in Internal Control Over Financial Reporting
====================================================
There were no changes in the Company's internal control over financial
reporting during the fiscal quarter ended December 31, 2009 that materially
affected, or are reasonably likely to affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 4. Submission of Matters to a Vote of Security Holders
On December 9, 2009, at the Company's annual meeting of shareholders, the
following five directors were elected to serve for the ensuing year. Set
forth below are the number of votes cast for, or withheld with respect to,
each such person (who were the Company's nominees for directors):
Name For Withheld
John H.D. Dewey 1,179,866 16,850
James M. Link 1,193,011 3,705
John B. Rhodes 1,193,011 3,705
Nathaniel Roberts 1,192,894 3,822
Ronald Tassello 1,193,011 3.705
Item 6. Exhibits
------------------------------------------------------------------
See the accompanying Index to Exhibits to this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DEWEY ELECTRONICS CORPORATION
/s/ John H.D. Dewey
Date: February 12, 2010 John H.D. Dewey
President and Chief Executive Officer
/s/ Stephen P. Krill
Date: February 12, 2010 Stephen P. Krill
Treasurer
THE DEWEY ELECTRONICS CORPORATION
INDEX TO EXHIBITS
The following exhibits are included with this report. For convenience of
reference, exhibits are listed according to the numbers assigned in the
Exhibit table to Regulation S-K.
Number
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Treasurer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2 Certification of Treasurer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
