SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended March 31, 1996
Commission File No 0-2892
THE DEWEY ELECTRONICS CORPORATION
A New York Corporation
I.R.S. Employer Identification
No. 13-1803974
27 Muller Road
Oakland, New Jersey 07436
(201) 337-4700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of shares outstanding of the registrant's common
stock, $.01 par value was 1,339,531 at March 31, 1996.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Part I Financial Information Page No.
Condensed balance sheets -
March 31, 1996 and June 30, 1995 1
Condensed statements of income -
three and nine months ended
March 31, 1996 and March 31, 1995 2
Statements of cash flows for the
nine months ended March 31, 1996
and 1995 3
Notes to condensed financial statements 4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 10
THE DEWEY ELECTRONICS CORPORATION
CONDENSED BALANCE SHEET
MARCH 31 JUNE 30
1996 1995
(UNAUDITED) (AUDITED)*
ASSETS:
CURRENT ASSETS:
CASH $ 195,214 $578,314
ACCOUNTS & NOTES
RECEIVABLE 574,793 506,200
INVENTORIES 1,444,580 1,350,403
CONTRACT COSTS &
RELATED EST PROFITS
IN EXCESS OF
APPLICABLE
BILLINGS 1,434,303 1,188,189
PREPAID EXPENSES &
OTHER CURRENT ASSETS 24,558 47,019
TOTAL CURRENT ASSETS $3,673,448 $3,670,125
PLANT PROPERTY & EQUIP 1,173,951 1,203,241
OTHER ASSETS:
DEFERRED TAX ASSETS 573,917 587,338
OTHER NON CURRENT
ASSETS 90,629 93,919
TOTAL OTHER ASSETS 664,546 681,257
TOTAL ASSETS $5,511,945 $5,554,623
LIABILITIES &
STOCKHOLDERS EQUITY:
CURRENT LIABILITIES
TRADE ACCOUNTS PAY-
ABLE $312,352 $269,108
ACCRUED LIABILITIES 392,631 263,645
BILLINGS IN EXCESS
OF CONTRACT COSTS &
RELATED ESTIMATED
PROFITS 1,045,214 1,045,214
CURRENT PORTION OF
LONG TERM DEBT 329,690 322,608
TOTAL CURRENT
LIABILITIES $2,079,887 $1,900,575
LONG TERM PORTION OF
LONG TERM DEBT 2,171,443 2,413,565
OTHER LONG TERM
LIABILITY 57,318 57,318
DUE TO RELATED PARTY 200,000 200,000
STOCKHOLDERS EQUITY:
COMMON STOCK 16,934 16,934
PAID IN CAPITAL 2,835,360 2,835,360
RETAINED EARNINGS ( 1,328,846) (1,348,978)
1,523,448 1,503,316
LESS TREASURY STOCK AT
COST (520,150) (520,150)
TOTAL STOCKHOLDERS
EQUITY 1,003,298 983,165
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $5,511,945 $5,554,623
*- CONDENSED FROM AUDITED FINANCIAL STATEMENTS
1
THE DEWEY ELECTRONICS CORPORATION
CONDENSED INCOME STATEMENT
MARCH 31, 1996
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
$1,197,735 $1,604,130 REVENUES $3,152,239 $5,793,398
847,644 1,225,193 COST OF 2,138,338 4,520,068
REVENUES
350,091 378,937 GROSS PROFIT/ 1,013,901 1,273,330
(LOSS)
285,780 286,182 SELLING & ADM 806,783 833,216
EXPENSE
64,311 92,755 OPERATING 207,118 440,114
PROFIT/(LOSS)
61,126 62,793 INTEREST 186,478 213,215
EXPENSE
2,018 14,884 BANK FINANCING 6,054 44,651
FEES
(3,399) (2,134) OTHER (INCOME) (18,967) (14,670)
/EXPENSE
4,566 17,212 INCOME/ 33,553 196,917
(LOSS)BEFORE
TAXES
(5,402) 2,504 DEFERRED TAX (13,421) (49,076)
BENEFIT/EXPENSE)
($836) $19,716 NET INCOME/ $20,132 $147,841
(LOSS)
INCOME PER SHARE BEFORE TAXES
$0.00 $0.01 PRIMARY $0.03 $0.15
$0.00 $0.01 FULLY DILUTED $0.03 $0.15
NET INCOME PER SHARE:
$0.00 $0.01 PRIMARY $0.02 $0.11
$0.00 $0.01 FULLY DILUTED $0.02 $0.11
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
1,339,531 1,339,531 PRIMARY 1,339,531 1,339,531
1,339,531 1,339,531 FULLY DILUTED 1,339,531 1,339,531
2
THE DEWEY ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31,
1996 1995
CASH FLOWS FROM OPERATIONS:
NET INCOME $20,132 $147,841
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 96,741 92,269
(INCREASE)/DECREASE IN ACCOUNTS AND
NOTES RECEIVABLE (68,593) 127,836
(INCREASE)/DECREASE IN INVENTORIES (94,177) 58,678
(INCREASE)/DECREASE IN CONTRACT COSTS
AND RELATED ESTIMATED PROFITS IN EXCESS
OF APPLICABLE BILLINGS (246,115) 601,089
DECREASE/(INCREASE) IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS 22,461 (6,792)
INCREASE/(DECREASE) IN ACCOUNTS PAYABLE 43,244 (79,450)
INCREASE/(DECREASE) IN ACCRUED EXPENSES 128,986 (45,950)
DECREASE IN OTHER NON CURRENT ASSETS 16,711 71,860
TOTAL ADJUSTMENTS ($100,742) $819,540
NET CASH (USED IN)/PROVIDED BY OPERATIONS ($80,610) $967,381
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PLANT, PROPERTY AND
EQUIPMENT (67,450) (7,172)
NET CASH (USED IN) INVESTING ($67,450) ($7,172)
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG TERM DEBT (235,040) (772,968)
NET CASH (USED IN)/PROVIDED BY FINANCING ($235,040) ($772,968)
NET (DECREASE)/INCREASE IN CASH ($383,100) $187,241
CASH AT BEGINNING OF PERIOD 578,314 367,202
CASH AT END OF PERIOD $195,214 $554,443
3
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
interim periods.
The results of operations for the nine month period ended March
31, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: INVENTORIES
Inventories are valued at lower of cost (first-in, first-out
method) or market. Components of cost include materials, direct
labor and plant overhead.
As there is no segregation of inventories as to raw materials,
work in progress and finished goods for interim reporting periods
(this information is available at year end when physical
inventories are taken and recorded), estimates have been made for
the interim periods.
March 31, 1996 June 30, 1995
(UNAUDITED) (AUDITED)
Finished Goods $545,121 $445,001
Work In Process $396,498 $373,967
Raw Materials $502,961 $531,435
________ ________
Total $1,444,580 $1,350,403
======== ========
NOTE 3: NET INCOME PER SHARE
Net income per share for the three and nine months ended March
31, 1996 is based upon the weighted average number of shares
outstanding. For the periods ended March 31, 1996, and March 31,
1995, stock options have not been considered as the effect would
have been antidilutive. The number of shares used in the
computation of net income per share was: 1,339,531 in 1996 and
in 1995.
4
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4: INCOME TAXES
Effective July 1, 1993 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". This Statement supersedes SFAS No. 96, "Accounting for
Income Taxes", which was adopted by the Company in 1988.
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating loss and tax credit
carryforwards.
Federal income tax net operating loss carryforwards mainly arise
from temporary differences between financial and taxable income.
See Note G ("Taxes on Income") of the Notes to Financial
Statements in the Company's Form 10-K for the fiscal year ended
June 30, 1995, which describes the Company's loss carryforwards
available for financial reporting and tax return purposes.
NOTE 5: CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit in
banks and U.S. Treasury Securities with a maturity date not in
excess of three months. The carrying amount of cash and cash
equivalents approximates fair value due to the short maturity
of such investments.
NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the short term nature of accounts receivable and accounts
payable their carrying value is a reasonable estimate of fair
value.
5
THE DEWEY ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contain forward-looking
statements that should be read in conjunction with the continuing
statements appearing at the end of the discussion.
Nine months ended March 31, 1996 vs. 1995
Revenues for the first nine months this year were $3,152,239, a
decrease of $2,641,159 compared to last year's revenues for the
same period. This decrease in revenues is the result of a
reduction in both the electronic product segment and the leisure
product segment.
Electronic product revenues decreased by $2,471,099 compared to
the same nine month period last year (from $5,014,417 to
$2,543,318). Production curtailments due to engineering changes
in the Fleet Exercise Section (FES) project adversely impacted
this years first quarter and beginning of the second quarter
revenues. These engineering changes, initiated by the Company,
were required as a result of incomplete government-provided
drawings for the project. Production was delayed pending
government approval of the Companys proposed changes which was
not received until the end of the first fiscal quarter. FES
production resumed during the second quarter with a revised
delivery schedule. Although the Company expects that production
will continue more steadily, based on current backlog and present
orders, revenues and profits will be lower than in recent years.
It is expected however, that the Company will be profitable for
the remainder of this fiscal year.
For the nine month period this year, 77.9% of electronic product
revenues were the result of production efforts under the Navys
MK48 ADCAP Torpedo Program, of which the FES project provided
59.3%, the MK21 Exploder Assembly upgrade project provided 14.0%
and the original awards under the ADCAP Torpedo program provided
4.6%. The remaining 22.1% of electronic product revenues were
derived from various orders, limited in scope and duration, that
were generally for replacement parts for previously supplied
Department of Defense equipment and other projects.
In the first nine months of last year, 66.1% of electronic
product revenues were attributable to the ADCAP Torpedo Program,
of which the FES project provided 41.6%, the Exploder Assembly
upgrade project provided 22.6% and original awards provided 1.9%.
Revenues from short term, government related projects provided
the remaining 33.9%.
Delivery of the FES project is scheduled to be completed in
January 1997. The contract awarded for the upgrade of MK21
Exploder Assemblies requires the Navy to provide exploder
assemblies to be upgraded. Based on the current rate at which
the assemblies are being received, scheduled completion is
estimated to be July 1997. However, this delivery schedule is
still being reviewed.
6
As of March 31, 1996, the aggregate value of the Companys
backlog of electronic products not previously recorded as
revenues was approximately $1.2 million. It is estimated that
approximately $800,000 of this amount will be recognized as
revenues during the balance of the 1996 fiscal year. The
following were the approximate aggregate values on the following
dates of the Companys backlog of electronic products not
theretofore recorded as revenues: June 30, 1995 - $1 million;
March 31, 1995 - $2 million; December 31, 1994 $3 million; June
30, 1994 - $6 million.
Revenues from leisure products decreased by $170,060 (from
$778,981 to $608,921) compared to the same nine month period last
year, as the result of fewer snowmaking machines being sold
during the second quarter when the major portion of revenues from
this segment of business have been traditionally recorded.
Operating profit decreased by $232,997 compared to last year.
This was partially offset by lower interest expense resulting
from principal reduction payments being made and less accrual of
Bank financing fee expense.
Three Months Ended March 31, 1996 vs 1995
Revenues for the third quarter this year were $1,197,735 compared
to $1,604,130 last year. The decrease of $406,395 resulted from
a reduction in revenues in the electronic segment of $425,142,
due to a lower level of business activity. Revenues in the
Leisure segment of business increased by $18,747.
Reduced production levels in the electronics segment and
increased leisure segment sales of parts not covered under
warranty are reflected in revenues. The combined result is
$28,444 less operating income this year compared to last years
third quarter.
See the discussions of nine month results above.
Liquidity and Capital Resources at March 31, 1996
The Company's working capital as of March 31, 1996 was $1,593,561
compared to $1,769,550 at June 30, 1995. This reduction of
$175,989 can be attributed to an increase in trade payables and
accrued expenses.
For the nine month period ended March 31, 1996 operations used
$80,610 in net cash flow. This amount reflects the impact of
increased inventory levels during the period.
During the same period last year, operations provided $967,381 in
net cash flow as a result of the billing of contract costs and
related estimated profits. This cash flow was used to make
additional principal reduction payments of the Companys long
term debt.
7
Expenditures for plant, property and equipment used $67,450 of
which $40,000 was used towards the purchase of production
machinery which had previously been leased. Last year, capital
expenditures amount to $7,172 for the same period. Although it
is expected that expenditures will be made during the remainder
of the year, no significant capital expenditures are anticipated.
The Company continues to meet its short term liquidity needs
arising out of electronic product operations through a
combination of progress payments on government contracts (based
on costs incurred) and billings at the time of delivery of
products.
On a long term basis, the Companys liquidity will be dependent
on the ability to maintain borrowing arrangements with National
Westminster Bank NJ (the Bank) or other lenders. The
Companys term loan agreement with the Bank requires monthly
principal payments of $18,400 plus accrued interest. The
interest rate is nine percent per annum.
The loan agreement requires that the Company maintain working
capital of $1,500,000 and net worth (excluding subordinated
shareholder loans, characterized as due to related party on
the balance sheet) of at least $750,000. The Company is also
required to have earnings before interest, taxes, depreciation
and amortization of intangibles (EBITDA) for each fiscal year
which shall exceed the current principal payments due plus all
interest payments due during such fiscal year and EBITDA shall
not be less than twice the aggregate amount of all interest
payments due for the same fiscal year. The loan agreement
contains other covenants.
The principal amount outstanding under the Companys term loan
agreement as of March 31, 1996 was $1,835,600. The amount
outstanding under its note to the New Jersey Economic Development
Authority was $492,013.
8
Business Uncertainties
Each of the Companys two business segments, electronic products
and leisure products, are experiencing intense competition and
the impact of the difficult economic environments as are other
companies in the same or similar industries.
Electronic Products
Most of the Companys revenues are derived from the electronic
product segment of its business. Virtually all electronic
product revenues are attributable to business with the Department
of Defense of the federal government (or with prime government
contractors). During the last two fiscal years and periods
subsequent thereto, projects derived from a single U.S. Navy
program, the MK48 ADCAP Torpedo Program, have been responsible
for all of the Companys long-term government contract revenues
and have accounted for from two-thirds to three-quarters of total
revenues from government-related business. The Company expects
that the U.S. navy will continue to consider this program as
necessary to national defense, and that the Company will continue
to participate in this program. However, there can be no
assurance that this will occur.
Electronic product revenues are determined by the percentage of
completion method of accounting. The use of estimates to
complete projects is required under this accounting method.
These estimates are reviewed by management on an ongoing basis
and are adjusted when necessary in the opinion of management. No
significant adjustments are anticipated to be made to current
estimates, but changes in contract requirements and the efforts
needed to meet such changes are normal events in the defense
electronics industry.
Leisure Products
Taking advantage of competitive pressures in the snowmaking
machine industry, ski areas have become reluctant to make
purchase commitments for machines in advance of required delivery
dates, forcing manufacturers to carry larger inventories and
adding to such uncertainties of the snowmaking machine business
as weather conditions.
Properties
The Company owns approximately 90 acres of land the building it
occupies in Bergen County, New Jersey, which are carried on its
books at approximately $1,000,000 but which are believed to have
a fair market value substantially in excess of this amount. This
property is adjacent to a full interchange of Interstate Route
287. The Company has for some time been exploring alternative
methods of increasing its shareholders equity by realizing the
value of this property, such as the sale of some or all of the
property, a sale lease-back arrangement or long-term financing.
The northern New Jersey real estate market has not been favorable
for such a transaction in recent years and no assurance can be
made that any transaction will occur.
9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
March 31, 1996.
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
May 15, 1996 __________________________
Date Thom A. Velto, Treasurer
Principal Accounting Officer
May 15, 1996 ________________________________
Date Edward L. Proskey
Vice President, Operations
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 195,214
<SECURITIES> 0
<RECEIVABLES> 574,793
<ALLOWANCES> 0
<INVENTORY> 1,444,580
<CURRENT-ASSETS> 3,673,448
<PP&E> 4,721,573
<DEPRECIATION> 3,547,622
<TOTAL-ASSETS> 5,511,945
<CURRENT-LIABILITIES> 2,079,887
<BONDS> 0
0
0
<COMMON> 16,934
<OTHER-SE> 986,364
<TOTAL-LIABILITY-AND-EQUITY> 5,511,945
<SALES> 0
<TOTAL-REVENUES> 3,152,239
<CGS> 0
<TOTAL-COSTS> 2,138,338
<OTHER-EXPENSES> 793,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,478
<INCOME-PRETAX> 33,553
<INCOME-TAX> (13,421)
<INCOME-CONTINUING> 20,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,132
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
