Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - DEWEY ELECTRONICS CORP | Financial_Report.xls |
EX-32.1 - CERTIFICATION - DEWEY ELECTRONICS CORP | dewy_ex321.htm |
EX-31.2 - CERTIFICATION - DEWEY ELECTRONICS CORP | dewy_ex312.htm |
EX-31.1 - CERTIFICATION - DEWEY ELECTRONICS CORP | dewy_ex311.htm |
EX-32.2 - CERTIFICATION - DEWEY ELECTRONICS CORP | dewy_ex322.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
o 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 þ NO o
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 (§232.405 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 þ NO o
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 | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | þ |
(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 o NO þ
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 May 10, 2013.
THE DEWEY ELECTRONICS CORPORATION
THE DEWEY ELECTRONICS CORPORATION
MARCH 31,
|
JUNE 30,
|
|||||||
2013
|
2012
|
|||||||
ASSETS:
|
(unaudited)
|
|||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 394,304 | $ | 328,313 | ||||
Accounts receivable
|
1,036,199 | 1,244,462 | ||||||
Inventories
|
1,169,983 | 781,037 | ||||||
Contract costs and related estimated profits in excess of billings
|
908,149 | 927,078 | ||||||
Prepaid expenses and other current assets
|
77,718 | 69,502 | ||||||
TOTAL CURRENT ASSETS
|
3,586,353 | 3,350,392 | ||||||
PLANT, PROPERTY AND EQUIPMENT:
|
||||||||
Land and improvements
|
651,015 | 651,015 | ||||||
Building and improvements
|
1,948,165 | 1,948,165 | ||||||
Machinery and equipment
|
3,260,039 | 3,248,760 | ||||||
Furniture and fixtures
|
263,030 | 263,030 | ||||||
6,122,249 | 6,110,970 | |||||||
Less accumulated depreciation
|
5,238,038 | 5,191,705 | ||||||
884,211 | 919,265 | |||||||
DEFERRED COSTS
|
65,095 | 65,095 | ||||||
TOTAL ASSETS
|
$ | 4,535,659 | $ | 4,334,752 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Notes payable – current portion
|
$ | 364,822 | $ | 289,822 | ||||
Trade accounts payable
|
87,571 | 407,994 | ||||||
Accrued expenses and other liabilities
|
167,415 | 216,491 | ||||||
Accrued compensation and benefits payable
|
233,723 | 220,575 | ||||||
Accrued pension costs
|
128,357 | 65,792 | ||||||
TOTAL CURRENT LIABILITIES
|
981,888 | 1,200,674 | ||||||
LONG-TERM PORTION OF NOTE PAYABLE
|
6,102 | 17,292 | ||||||
LONG-TERM PENSION LIABILITY
|
915,282 | 1,013,706 | ||||||
TOTAL LIABILITIES
|
1,903,272 | 2,231,672 | ||||||
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; 1,693,397 shares issued and 1,362,031 shares outstanding at March 31, 2013 and June 30, 2012
|
16,934 | 16,934 | ||||||
Additional paid-in capital
|
2,882,842 | 2,880,571 | ||||||
Retained earnings
|
976,158 | 547,546 | ||||||
Accumulated other comprehensive loss
|
(756,519 | ) | (854,943 | ) | ||||
3,119,415 | 2,590,108 | |||||||
Less: Treasury stock 331,366 shares at cost
|
(487,028 | ) | (487,028 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY
|
2,632,387 | 2,103,080 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 4,535,659 | $ | 4,334,752 |
See accompanying notes to condensed financial statements
THE DEWEY ELECTRONICS CORPORATION
(UNAUDITED)
THREE-MONTHS ENDED
MARCH 31,
|
NINE-MONTHS ENDED
MARCH 31,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenues
|
$ | 2,175,254 | $ | 2,282,917 | $ | 7,009,139 | $ | 6,576,380 | ||||||||
Cost of Revenues
|
1,760,759 | 1,817,356 | 5,401,760 | 5,534,437 | ||||||||||||
Gross Profit
|
414,495 | 465,561 | 1,607,379 | 1,041,943 | ||||||||||||
Selling, General and Administrative
|
303,370 | 329,531 | 1,163,349 | 1,022,920 | ||||||||||||
Operating Income
|
111,125 | 136,030 | 444,030 | 19,023 | ||||||||||||
Interest Expense-Net
|
(2,225 | ) | (1,948 | ) | (4,680 | ) | (2,450 | ) | ||||||||
Other Expense–Net
|
(7,452 | ) | (1,520 | ) | (10,738 | ) | (3,348 | ) | ||||||||
Income Before Income Taxes
|
101,448 | 132,562 | 428,612 | 13,225 | ||||||||||||
Provision for Income Tax
|
-- | -- | -- | -- | ||||||||||||
Net Income
|
$ | 101,448 | $ | 132,562 | $ | 428,612 | $ | 13,225 | ||||||||
NET INCOME PER COMMON SHARE-BASIC
|
$ | 0.07 | $ | 0.10 | $ | 0.31 | $ | 0.01 | ||||||||
NET INCOME PER COMMON SHARE-DILUTED
|
$ | 0.07 | $ | 0.10 | $ | 0.31 | $ | 0.01 | ||||||||
Weighted average number of shares Outstanding:
|
||||||||||||||||
Basic
|
1,362,031 | 1,362,031 | 1,362,031 | 1,362,031 | ||||||||||||
Diluted
|
1,362,040 | 1,364,110 | 1,362,031 | 1,363,432 |
THREE-MONTHS ENDED
|
NINE-MONTHS ENDED
|
|||||||||||||||
MARCH 31,
|
MARCH 31,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Other comprehensive income net of tax
|
||||||||||||||||
Net income
|
$ | 101,448 | $ | 132,562 | $ | 428,612 | $ | 13,225 | ||||||||
Amortization of actuarial gains and losses
|
32,808 | 9,043 | 98,424 | 27,129 | ||||||||||||
Comprehensive income
|
$ | 134,256 | $ | 141,605 | $ | 527,036 | $ | 40,354 |
See accompanying notes to condensed financial statements
THE DEWEY ELECTRONICS CORPORATION
NINE-MONTHS ENDED
|
||||||||
MARCH 31,
|
||||||||
2013
|
2012
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net income
|
$ | 428,612 | $ | 13,225 | ||||
Adjustments to reconcile net income to
|
||||||||
Net cash provided by operating activities:
|
||||||||
Depreciation
|
46,333 | 44,194 | ||||||
Stock based compensation expense
|
2,271 | 17,320 | ||||||
Provision for inventory reserve
|
12,117 | -- | ||||||
Decrease in accounts receivable and notes receivable
|
208,263 | 419,121 | ||||||
Decrease in allowance for doubtful accounts
|
-- | (6,907 | ) | |||||
Increase in inventories
|
(401,062 | ) | (135,760 | ) | ||||
Decrease/(increase) in contract costs and related estimated profits in excess of billings
|
18,929 | (348,476 | ) | |||||
Increase in prepaid expenses and other current assets
|
(8,216 | ) | (29,649 | ) | ||||
(Decrease)/increase in trade accounts payable
|
(320,423 | ) | 205,860 | |||||
Decrease in accrued expenses and other liabilities
|
(35,929 | ) | (112,207 | ) | ||||
Increase in accrued pension costs
|
62,565 | 19,931 | ||||||
Total adjustments
|
(415,152 | ) | 73,427 | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
13,460 | 86,652 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Expenditures for plant, property and equipment
|
(11,279 | ) | (82,649 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES
|
(11,279 | ) | (82,649 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Short-term borrowings
|
350,000 | 275,000 | ||||||
Repayment of short-term borrowings
|
(275,000 | ) | -- | |||||
Proceeds from long-term debt
|
-- | 44,466 | ||||||
Repayment of long-term debt
|
(11,190 | ) | (8,683 | ) | ||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
63,810 | 310,783 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
65,991 | 314,786 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
328,313 | 474,381 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 394,304 | $ | 789,167 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Interest paid
|
$ | 4,699 | $ | 2,450 |
See accompanying notes to condensed financial statements
THE DEWEY ELECTRONICS CORPORATION
(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, 2012 (the “2012 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 March 31, 2013, and the results of operations for the three months and nine months then ended and cash flows for the nine months then ended. The results of operations and cash flows for the period ended March 31, 2013 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, 2013.
As of March 31, 2013, there have been no material changes to any of the significant accounting policies described in our 2012 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, the ordering provision of which expired on September 30, 2011, and for orders from other Government subcontractors for 2kW generator sets, percentage-of-completion calculations are based on individual “Delivery Orders” which are periodically received for specified quantities. These calculations require management to estimate the cost to complete open orders. Changes between those estimates and the actual cost of completion of delivery orders impact the revenue recognition in each reporting period. Estimates are adjusted as necessary on a quarterly basis. For research and development contracts total costs incurred are compared to total expected costs for each contract. The Company has one development contract and one development sub-contract for which it recognizes revenues on a time and material basis.
Revenues and earnings for orders for replacement parts and other short term business (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.
The Company accounts for uncertain tax positions in accordance with Generally Accepted Accounting Principles in the U.S. Income tax positions must meet a more-likely-than-not recognition in order to be recognized in the financial statements. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense. As new information becomes available, the assessment of the recognition threshold and the measurement of the associated tax benefit of uncertain tax positions may result in financial statement recognition or derecognition.
Reclassification of Prior Year Balances
Certain prior year balances have been reclassified to conform to the current period financial statement presentation. This reclassification has no impact on the Company’s financial position, results of operations or cash flows.
2. Accounting Standards Updates
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04 (ASU No. 2011-4), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (IFRS). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity's use of a nonfinancial asset that is different from the asset's highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU No. 2011-04 requires prospective application for interim and annual periods beginning on or after December 15, 2011. The adoption of the provisions of ASU No. 2011-04 did not have a material impact on the Company's financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220):Presentation of Comprehensive Income which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under either method, an entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in this standard do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 did not have a material impact on the Company's financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220):Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Income in Accounting Standards Update No. 2011-05 which defers the effective date of provisions of ASU No. 2011-05 that relate to the presentation of reclassification adjustments on the face of the financial statements. ASU No. 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of the provisions of ASU No. 2011-12 did not have a material impact on the Company's financial position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends ASC 220, Comprehensive Income. This ASU requires the disclosure of amounts reclassified out of accumulated other comprehensive income by component and by net income line item. The disclosure may be provided either parenthetically on the face of the financial statements or in the notes. ASU No. 2013-02 is effective for reporting periods beginning after December 15, 2012. The adoption of the provisions of ASU No. 2013-02 did not have a material effect on the Company’s financial position or results of operations.
Other Accounting Standards Updates not effective until after March 31, 2013 are not expected to have a material effect on the Company’s financial position or results of operations.
3. Inventories
Inventories consist of:
March 31, 2013
|
June 30, 2012
|
|||||||
Finished Goods
|
$ | 25,432 | $ | 26,027 | ||||
Work In Progress
|
448,286 | 200,939 | ||||||
Raw Materials
|
696,265 | 554,071 | ||||||
Total
|
$ | 1,169,983 | $ | 781,037 |
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 $1,013,000 and $190,000 of federal and state net deferred tax assets respectively, primarily arising from net operating loss carry-forwards, which begin to expire in 2014. In the nine month period ended March 31, 2013 the Company’s federal and state net deferred tax assets were reduced by approximately $146,000 and $26,000, respectively, as a result of the net income for the period.
5. Earnings Per Share
Net income per share has been presented pursuant to ASC Topic 260, “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. For the three months ended March 31, 2013, outstanding stock options for 41,400 shares were excluded from the calculation of diluted net income due to the exercise price of the options exceeding the average share price for the quarter. For the three months ended March 31, 2012, options for 36,000 shares were excluded due to the exercise price of the options exceeding the average share price for the quarter.
For the nine months ended March 31, 2013, outstanding stock options for 46,500 shares were excluded from the calculation of diluted net income due to the exercise price of the options exceeding the average share price for the quarter. For the nine months ended March 31, 2012, outstanding stock options for 48,000 shares were excluded from the calculation of diluted net income due to the exercise price of the options exceeding the average share price for the quarter.
Three-months Ended March 31,
|
||||||||||||||||||||||||
2013
|
2012
|
|||||||||||||||||||||||
Net
Income
|
Shares
|
Per Share Amount
|
Net
Income
|
Shares
|
Per Share Amount
|
|||||||||||||||||||
Basic net income
|
||||||||||||||||||||||||
per common share
|
$ | 101,448 | 1,362,031 | $ | .07 | $ | 132,562 | 1,362,031 | $ | .10 | ||||||||||||||
Effect of dilutive Securitie
|
-- | 9 | -- | -- | 2,079 | -- | ||||||||||||||||||
Diluted net income per common share
|
$ | 101,448 | 1,362,040 | $ | .07 | $ | 132,562 | 1,364,110 | $ | .10 |
Nine-months Ended March 31,
|
||||||||||||||||||||||||
2013
|
2012
|
|||||||||||||||||||||||
Net
Income
|
Shares
|
Per Share Amount
|
Net
Income
|
Shares
|
Per Share Amount
|
|||||||||||||||||||
Basic net income
|
||||||||||||||||||||||||
per common share
|
$ | 428,612 | 1,362,031 | $ | .31 | $ | 13,225 | 1,362,031 | $ | .01 | ||||||||||||||
Effect of dilutive Securities
|
-- | -- | -- | -- | 1,401 | -- | ||||||||||||||||||
Diluted net income per common share
|
$ | 428,612 | 1,362,031 | $ | .31 | $ | 13,225 | 1,363,432 | $ | .01 |
6. Stock Option Plan
On September 22, 2011, the Board of Directors of the Company adopted the Company’s 2011 Stock Option Plan, which was approved by the shareholders of the Company on December 8, 2011. Under this plan options to purchase a maximum of 133,000 shares of common stock may be granted to any employee of the Company, including officers. Such options may be either incentive stock options or non-qualified options and must be granted with an exercise price no less than the fair market value of the stock on the date of the grant. No stock options have been granted under this plan.
On December 2, 1998, the Company adopted its 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 this 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 for four grants totaling 13,500 options which are exercisable for a 5-year term. Outstanding options have expiration dates ranging from December 4, 2013 to September 21, 2021. No additional options may be granted under this plan.
The following disclosures are based on stock options granted to employees of the Company in the first quarter of fiscal 2012 (quarter ended September 30, 2011). There were no other stock options granted in fiscal 2012 or in the first three quarters of fiscal 2013 (ended March 31, 2013). For the three months ended March 31, 2013, the Company recorded no stock option compensation expense. For the three months ended March 31, 2012, the Company recorded stock option compensation expense of $2,885. For the nine months ended March 31, 2013, the Company recorded stock option compensation expense of $2,271 compared to stock option compensation expense of $17,320 for the nine month period ended March 31, 2012.
For the full fiscal year ending June 30, 2013, the Company expects approximately $2,271 in stock option compensation expense based on stock options already granted and assuming no further option grants during the remainder of the fiscal year. However, our assessment of the compensation expense will be affected by the number of stock options actually granted (if any) during the remainder of the year as well as the number of outstanding options that are forfeited.
Estimating stock option compensation expense requires assumptions regarding a number of complex and subjective variables. Key assumptions used to estimate the fair value of stock options include, the expected volatility of the Company’s stock price, expected employee option exercise behaviors, risk free interest rate over the option’s expected term, and the annual dividend yield. Compensation cost is recognized over the vesting period of the option using the straight line method.
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 ten 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 and assumes that no options will be forfeited.
The following weighted average assumptions were used in the valuation of stock options granted in the first quarter of fiscal 2012.
September 30, 2011
|
||||
Expected dividend yield
|
-- | |||
Expected volatility
|
76.8 | % | ||
Risk-free interest rate
|
1.27 | % | ||
Expected life in years
|
6.0 |
Based on the assumptions in the table above, the grant date fair value of stock options granted in the first quarter of fiscal 2012 was $11,354.
Stock option transactions for the Company’s employee stock option plans for the three and nine months ended March 31, 2013 are as follows:
March 31, 2013
|
||||||||||||||||
Three Months
|
Nine Months
|
|||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Average
|
Average
|
|||||||||||||||
Shares
|
Exercise Price
|
Shares
|
Exercise Price
|
|||||||||||||
Beginning balance
|
46,500 | $ | 2.00 | 62,500 | $ | 2.50 | ||||||||||
Granted
|
-- | -- | -- | -- | ||||||||||||
Exercised
|
-- | -- | -- | -- | ||||||||||||
Cancelled or expired
|
-- | -- | 16,000 | 3.93 | ||||||||||||
Ending balance
|
46,500 | $ | 2.00 | 46,500 | $ | 2.00 | ||||||||||
Options exercisable at end of period
|
46,500 | $ | 2.00 | 46,500 | $ | 2.00 |
7. Notes Payable
In August 2011 the Company entered into a 36 month, interest free, financing agreement with Wells Fargo Financial Leasing in the amount of $44,466 to finance the upgrade of the Company’s facility lighting. The loan is secured by the physical assets financed under this loan. As of March 31, 2013 the Company had an outstanding balance of $20,924 on this note.
On April 27, 2009 the Company entered into a $500,000 line of credit (the “Line of Credit”) with TD Bank, NA (the “Bank”). On November 2, 2011, the Company and the Bank entered into a modification of the Line of Credit, effective as of October 31, 2011, which reduced the maximum borrowing amount to $375,000, removed the minimum interest rate of 4.25% on outstanding borrowings and extended the Line of Credit to November 30, 2012. (See Note 9 of the Notes to Financial Statements in the Company's Form 10-K for the fiscal year ended June 30, 2012).
On November 16, 2012, the Company and the Bank entered into a further modification of the Line of Credit, effective as of November 30, 2012, which returned the maximum borrowing amount to $500,000 and extended the Line of Credit to November 30, 2013. No other terms of the Company’s revolving term note to the Bank (previously amended and restated as of October 31, 2011) were changed. As of March 31, 2013 the Company had $350,000 of outstanding debt against the Line of Credit. The Company has previously utilized this line of credit during periods of increased production requirements and anticipates that it will continue to utilize this credit facility during future periods of peak production activity.
8. Pension Plan
The Company has a non-contributory defined benefit retirement plan covering substantially all its employees. The impact of the plan on operations are as follows:
THREE-MONTHS ENDED
|
||||||||
MARCH 31,
|
||||||||
2013
|
2012
|
|||||||
Service cost-benefits earned during the period
|
$ | 16,861 | $ | 14,195 | ||||
Interest cost on projected benefit obligation
|
24,128 | 25,803 | ||||||
Expected return on plan assets
|
(20,514 | ) | (18,905 | ) | ||||
Amortization of actuarial loss
|
32,808 | 9,043 | ||||||
Net periodic pension cost
|
$ | 53,283 | $ | 30,136 |
NINE-MONTHS ENDED
|
||||||||
MARCH 31,
|
||||||||
2013
|
2012
|
|||||||
Service cost-benefits earned during the period
|
$ | 50,583 | $ | 42,584 | ||||
Interest cost on projected benefit obligation
|
72,384 | 77,409 | ||||||
Expected return on plan assets
|
(61,542 | ) | (56,715 | ) | ||||
Amortization of actuarial loss
|
98,424 | 27,129 | ||||||
Net periodic pension cost
|
$ | 159,849 | $ | 90,407 |
9. Asset Purchase
On February 20, 2013 the Company announced the purchase of certain assets, rights of manufacture and intellectual property from Goodman Ball Incorporated, a maker of military equipment based in Menlo Park, California. As part of this transaction, among other things, the Company agreed to assume responsibility to maintain certain Goodman Ball contracts with the US Department of Defense that pertain to the acquired product lines, and it took possession of some of Goodman Ball’s existing inventory for these product lines on a consignment basis and agreed to pay Goodman Ball as the inventory is sold to customers. The product lines acquired do not compete with existing product lines of the Company.
The Company believes that, by adding two generators to the Company’s list of offerings, this transaction provides a number of opportunities relating to the first and second strategic objectives referred to in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) under “Company Strategy. At the time of the acquisition, Goodman Ball had no backlog of production orders for these generators. Management believes that any material impact on the Company’s operating results or balance sheet, if it were to occur, would be after the second quarter of fiscal year 2014 (quarter ending December 31, 2014). If the Company is able to capitalize on these opportunities, there could be an accretive impact in subsequent period results, however we are unable to predict whether, when or to what extent these results will be achieved.
THE DEWEY ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 2012 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) of the Company’s 2012 Form 10-K under the subheading “Operational Risks”. 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.
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 2012 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, the ordering provision of which expired on September 30, 2011, and for orders from other Government subcontractors for 2kW generator sets, percentage-of-completion calculations are based on individual “Delivery Orders” which are periodically received for specified quantities. These calculations require management to estimate the cost to complete open orders. Changes between those estimates and the actual cost of completion of delivery orders impact the revenue recognition in each reporting period. Estimates are adjusted as necessary on a quarterly basis. For research and development contracts total costs incurred are compared to total expected costs for each contract. The Company has one development contract and one development sub-contract for which it recognizes revenues on a time and material basis.
Revenues and earnings for orders for replacement parts and other short term business (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 three month period ended March 31, 2013 were $107,663 lower when compared to the three month period ended March 31, 2012. Revenues were lower principally due to a decrease in revenues from the Company’s customer funded research and development efforts and a small decrease in revenues from the 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. The reductions were partly offset by a small increase in sales of replacement parts and other short-term business and a small increase in the contract price for 2kW generator sets for delivery orders placed under the Company’s prime contract with the U.S. Army prior to the expiration of the contract’s ordering provision.
For the three months ended March 31, 2013 production efforts to provide the Armed Forces with diesel operated generator sets provided approximately 78% of revenues compared to approximately 77% for the three months ended March 31, 2012. The Company’s research and development contract and sub-contract provided approximately 3% of revenues for the three months ended March 31, 2013, and approximately 8% of revenues in the same period in 2012. Replacement parts and other short-term business provided approximately 19% of revenues for the three months ended March 31, 2013 and approximately 15% of revenues in the same period in 2012.
Revenues for the nine-month period ended March 31, 2013 were $432,759 higher when compared to the nine-month period ended March 31, 2012. The higher revenues were attributable to increases in production of generator sets under the Company’s prime contract to provide 2kW generator sets to the U.S. Army prior to the expiration of the contracts ordering provision, as well as for delivery to other defense contractors outside the Company’s prime contract, a small increase in the contract price for 2kW generator sets for delivery orders placed under the Company’s prime contract with the US Army, and an increase in sales of replacement parts and other short-term business. Revenues from customer funded research and development decreased when compared to the same nine-month period last year.
During the nine-month period ended March 31, 2013, production efforts to provide the Armed Forces with diesel operated generator sets provided approximately 82% of revenues compared to approximately 80% for the nine- month period ended March 31, 2012. The Company’s research and development contract and sub-contract provided approximately 2% of revenues during the nine-month period ended March 31, 2013, and approximately 7% in the same period in 2012. Replacement parts and other short-term business provided approximately 16% of revenues in the nine-month period ended March 31, 2013, and approximately 13% of revenues in the same period in 2012.
The aggregate value of the Company’s backlog of sales orders was $1.6 million on March 31, 2013 and $7.2 million on March 31, 2012. It is estimated that a significant portion of the present backlog will be billed during the next 3 months and be substantially recognized as fiscal year 2013 revenues.
Gross Profit
Gross profit is affected by a variety of factors including, among other items, sales volume, product mix, product pricing, and product costs.
The Company earned a gross profit of $414,495 or 19% of revenues for the three month period ended March 31, 2013 compared to a gross profit of $465,561 or 20% of revenues for the same three month period in 2012. The lower gross profit for the three months ended March 31, 2013 was primarily the result of lower revenues from customer sponsored research and development and production of 2kW generator sets, which were partly offset by a small increase in the contract price for 2kW generator sets for delivery orders placed under the Company’s prime contract with the U.S. Army prior to the expiration of the contract’s ordering provision, and a more favorable product mix.
For the nine month period ended March 31, 2013 the Company’s gross profit was $1,607,379 or 23% of revenues compared to a gross profit of $1,041,943 or 16% of revenues for the nine month period ended March 31, 2012. The higher gross profit for the nine months ended March 31, 2013 was the result of an increase in production volume, a more favorable product mix and a small increase in the contract price for 2kW generator sets for delivery orders placed under the Company’s prime contract with the U.S. Army prior to the expiration of the contract’s ordering provision.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses for the three months ended March 31, 2013 were $303,370 or 14% of revenues compared to $329,531 or 14% of revenues for the three month period ended March 31, 2012. The most significant changes in expense and the approximate amount of the changes were decreases in general corporate expense ($28,000), and company sponsored research and development ($12,000), partly offset by an increase in consulting fees ($17,000).
Selling, General and Administrative expenses for the nine months ended March 31, 2013 were $1,163,349 or 17% of revenues compared to $1,022,920 or 16% of revenues for the nine month period ended March 31, 2012. The most significant changes in expense and the approximate amount of the changes were increases in compensation expense ($91,000), company sponsored research and development ($31,000), general corporate expense ($22,000), marketing expense ($18,000), and consulting fees ($18,000), partly offset by a decrease in legal and professional fees ($22,000).
Interest Expense - Net
The Company had interest expense of $2,225 in the three month period ended March 31, 2013 compared to $1,948 of interest expense in the three month period ended March 31, 2012.
For the nine month period ended March 31, 2013 the Company had interest expense of $4,680 compared to $2,450 of interest expense in the nine month period ended March 31, 2012.
Other Expense/Income – Net
Amounts reported as other income or expense represent the net effect of interest income and miscellaneous items such as non-operating expense, the sale of scrap, bank transaction fees and other like items.
Other expense of $7,452 for the three months ended March 31, 2013 was comprised of unreimbursed expense of $10,626 in connection with the transaction with Goodman Ball Incorporated described under “Company Strategy” below, and bank fees of $881, partly offset by scrap sales of $4,055.
Other expense of $10,738 for the nine months ended March 31, 2013 was comprised of unreimbursed expense of $10,626 in connection with the transaction with Goodman Ball Incorporated described under “Company Strategy” below, and bank fees of $4,167, partly offset by scrap sales of $4,055.
Net Income Before Income Taxes
For the three months ended March 31, 2013, net income before income taxes was $101,448. For the three months ended March 31, 2012, net income before income taxes was $132,562.
Results for the three months ended March 31, 2013 were slightly lower when compared to the same period last year due to lower gross profit for the period which was partly offset by slightly lower Selling, General and Administrative expenses as noted above.
For the nine months ended March 31, 2013, net income before income taxes was $428,612. For the nine months ended March 31, 2012, net income before income taxes was $13,225.
Results for the nine months ended March 31, 2013 improved when compared to the same period last year principally as the result of a higher gross margin which was partly offset by increased Selling, General and Administrative expenses.
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 $1,013,000 and $190,000 of federal and state net deferred tax assets, respectively, primarily arising from net operating loss carryforwards, which begin to expire in 2014. In the nine month period ended March 31, 2013 these federal and state net deferred tax assets decreased by approximately $146,000 and $26,000, respectively, as a result of the net income 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, described under “Financing Activities” below.
As of March 31, 2013, 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 March 31, 2013, the Company’s working capital was $2,604,465 compared to $1,858,672 at March 31, 2012.
The ratio of current assets to current liabilities was 3.65 to 1 at March 31, 2013 and 2.63 to 1 at March 31, 2012.
The following table is a summary of the Statements of Cash Flows in the Company’s Financial Statements:
Nine Months ended March 31,
|
||||||||
2013
|
2012
|
|||||||
Net cash provided by/(used in)
|
||||||||
Operating activities
|
$ | 13,460 | $ | 86,652 | ||||
Investing activities
|
(11,279 | ) | (82,649 | ) | ||||
Financing activities
|
63,810 | 310,783 |
Operating Activities:
Adjustments to reconcile net income to net cash provided by operations are presented in the Condensed Statements of Cash Flows in the Company’s Financial Statements.
Net cash provided by operating activities in the nine-month period ended March 31, 2013 was comprised primarily of net income before depreciation and amortization, a decrease in accounts receivable and contract costs and estimated related profits in excess of applicable billings and an increase in accrued pension costs, partly offset by increases in inventories and prepaid expenses and a decrease in accounts payable and accrued expenses.
Net cash provided by operating activities in the nine-month period ended March 31, 2012 was comprised primarily of net income before depreciation and amortization, a decrease in accounts receivable and increases in accounts payable and accrued pension costs, partly offset by increases in inventories, contract costs and estimated related profits in excess of applicable billings and prepaid expenses and a decrease in accrued expenses.
The Company expenses its research and development costs as incurred. These costs consist primarily of salaries and material costs. For the nine month period ended March 31, 2013 and March 31, 2012, the Company expensed $62,426 and $31,313 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 nine months of fiscal 2013, net cash of $11,279 was used in investing activities. The entire amount was used for capital expenditures, principally for the acquisition of computers and software.
During the first nine months of fiscal 2012, net cash of $82,649 was used in investing activities. The entire amount was used for capital expenditures, principally for the replacement and upgrade of facility lighting and the acquisition of additional demonstration and test equipment.
Financing Activities:
In August 2011 the Company entered into a 36 month, interest free, financing agreement with Wells Fargo Financial Leasing in the amount of $44,466 to finance the upgrade of the Company’s facility lighting. The loan is secured by the physical assets financed under this loan. During the first nine months of fiscal 2013 the Company repaid $11,190 of this loan. As of March 31, 2013 the Company had an outstanding balance of $20,924 on this note.
On April 27, 2009, the Company entered into a $500,000 line of credit (the “Line of Credit”) with TD Bank, NA (the “Bank”). On November 2, 2011, the Company and the Bank entered into a modification of the Line of Credit, effective as of October 31, 2011, which reduced the maximum borrowing amount to $375,000, removed the minimum interest rate of 4.25% on outstanding borrowings and extended the Line of Credit to November 30, 2012. (See Note 9 of the Notes to Financial Statements in the Company's Form 10-K for the fiscal year ended June 30, 2012).
On November 16, 2012, the Company and the Bank entered into a further modification of the Line of Credit, effective as of November 30, 2012, which returned the maximum borrowing amount to $500,000 and extended the Line of Credit to November 30, 2013. No other terms of the Company’s revolving term note to the Bank (previously amended and restated as of October 31, 2011) were changed.
In December 2011 the Company borrowed $275,000 against the Line of Credit which it repaid in August 2012. As of March 31, 2013 the Company had $350,000 of outstanding borrowings against the Line of Credit. The Company did not use any other cash in financing activities during the nine month periods ended March 31, 2013 and March 31, 2012, respectively.
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 the Governor 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 has developed within which monetization of the land may be possible. In light of these 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.
In November 2011, the Company and the buyer extended the sales contract described above until December 31, 2012 to allow the buyer additional time to gain the required approvals for development. In recognition of the additional expense on the part of the buyer to obtain the required development approvals the Company agreed to lower the contract price of the parcel by $50,000 to $155,000. In January 2013, the Company and the buyer further extended the sales contract until December 31, 2013 to allow the buyer additional time as described above. However, the Company can make no assurances that the required approvals will be granted, or if granted, the timing thereof.
Accounting Standards Updates
Refer to Note 2. Significant Accounting Policies in the Notes to the Condensed 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 has been focused within the market for military compact diesel power generation and is expanding its capabilities to also include power management solutions aimed at delivering power systems with high fuel efficiency that are engineered for operation in austere environments or for unattended operation over extended periods. Although no assurances can be made that this new initiative will be successful, management believes it is a strong addition to the Company’s long-term strategy for growth and targeted diversification. This strategy has three parts: 1) growing the Company’s profitability in areas where the Company already has a strong presence, 2) focused diversification into related markets with existing products and capabilities, and 3) further taking advantage of the Company’s strengths by additional expansion 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 expand and 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.
The ordering provision under the Company’s 10 year indefinite delivery, indefinite quantity contract with the U.S. Army to supply 2kW generator sets expired at the end of September 2011. Deliveries of orders received prior to the expiration of the contract are scheduled to continue through September 2013. The U.S. Army previously announced that it was not issuing a new multiple year fixed price contract and would transfer the 2kW Generator Program to a 'sustainment' command. However, management now believes that it is possible that the U.S. Army may put out for competitive bidding and award a new contract for 2kW generator sets within the next 12 to 24 months. No assurances can be given that the U.S. Army will take such action (or if taken, the timing thereof) or that the Company would be awarded any such new contract.
The Company anticipates that the Government will continue to require the Company’s 2kW generators, which can be ordered under individual “Purchase Orders”. The Company also continues to work toward having these generators available on the General Services Administration’s GSA.gov website as well as through other websites and sales channels. Most importantly, with the expiration of the 2kW contract the Company is able to set new pricing on future orders which could be adjusted on an annual basis (although new pricing would be restricted by defense acquisition regulations and comprehensive government auditing). We are unable to predict whether, when or to what extent the Government will continue to place orders for these generators. However, we have made some progress toward achieving the first strategic objective described above during the last quarter of fiscal year 2012 and the first three quarters of fiscal year 2013 with improved margin on the existing generator product line reversing a downward trend over the past several years.
In approaching the second and third strategic objectives of targeted diversification, the Company is 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.
On February 20, 2013 the Company announced the purchase of certain assets, rights of manufacture and intellectual property from Goodman Ball Incorporated, a maker of military equipment based in Menlo Park, California. As part of this transaction, among other things, the Company agreed to assume responsibility to maintain certain Goodman Ball contracts with the US Department of Defense that pertain to the acquired product lines, and it took possession of some of Goodman Ball’s existing inventory for these product lines on a consignment basis and agreed to pay Goodman Ball as the inventory is sold to customers. The product lines acquired do not compete with existing product lines of the Company.
The Company believes that, by adding two generators to the Company’s list of offerings, this transaction provides a number of opportunities relating to the first and second strategic objectives described above (growing profitability in areas where the Company already has a strong presence, and expanding into related markets). At the time of the acquisition, Goodman Ball had no backlog of production orders for these generators. Management believes that any material impact on the Company’s operating results or balance sheet, if it were to occur, would be after the second quarter of fiscal year 2014 (quarter ending December 31, 2014). If the Company is able to capitalize on these opportunities, there could be an accretive impact in subsequent period results, however we are unable to predict whether, when or to what extent these results will be achieved.
The Company continues to act on the second strategic objective, working to expand into related power markets. Using our expertise in Direct Current power generation we have expanded our capabilities to include entire power systems integrating our traditional diesel power generation with renewable power sources, energy storage, power distribution and power management. The solutions remain man-portable or of similar scale and management believes that our best opportunities involve austere locations or unattended operation. For example we are providing power for another company’s trailer mounted military remote monitoring systems. This type of integration delivers fuel savings as compared to traditional diesel generators while also enabling the optional integration of opportunistic power sources such as solar and wind. These accomplishments build on the Company’s previous accomplishments with vehicle mounted auxiliary power units, while also working with a growing group of partner companies. Management believes these activities can lead to expanded business with new types of military power requirements while also increasing our technical capabilities. 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 a customer funded research and development sub-contract where the Company is designing and prototyping electronic controls and power conversion devices for diesel fuel cell systems.
In the near term, continued profitability and broadening the line of product offerings are the Company’s primary objectives. The customer sponsored development sub-contract described above as well as internal Company sponsored development efforts 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 diesel generators, auxiliary power units and now power management.
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 March 31, 2013, 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 March 31, 2013 that materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
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 | |||
Date: May 13, 2013
|
By:
|
/s/ John H.D. Dewey | |
John H.D. Dewey | |||
President and Chief Executive Officer | |||
Date: May 13, 2013 | /s/ Stephen P. Krill | ||
Stephen P. Krill | |||
Treasurer |
THE DEWEY ELECTRONICS CORPORATION
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 |
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