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 September 30, 1997
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 September 30, 1997.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Part I Financial Information Page No.
Condensed balance sheets -
September 30, 1997 and June 30, 1997 1
Condensed statements of income -
Three months ended September 30, 1997
and September 30, 1996 2
Statements of cash flows for the three months
ended September 30, 1997 and 1996 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 9
THE DEWEY ELECTRONICS CORPORATION
CONDENSED BALANCE SHEET
SEPTEMBER 30 JUNE 30
1997 1997
(UNAUDITED) (AUDITED)*
ASSETS:
CURRENT ASSETS:
CASH $290,935 $ 318,058
ACCOUNTS RECEIVABLE 263,506 377,478
INVENTORIES 1,056,084 1,057,338
CONTRACT COSTS & RELATED EST
PROFITS IN EXCESS OF APPLICABLE
BILLINGS 1,708,807 1,271,107
PREPAID EXPENSES & OTHER CURRENT
ASSETS 115,669 52,032
TOTAL CURRENT ASSETS $3,435,001 $3,076,013
PLANT PROPERTY & EQUIPMENT 1,051,937 1,085,260
OTHER ASSETS:
DEFERRED TAX ASSETS 426,081 421,280
OTHER NON CURRENT ASSETS 130,973 62,666
TOTAL OTHER ASSETS 557,054 483,946
TOTAL ASSETS $5,043,992 $4,645,219
LIABILITIES & STOCKHOLDERS EQUITY:
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $177,097 $116,082
ACCRUED LIABILITIES 375,251 407,644
BILLINGS IN EXCESS OF CONTRACT
COSTS & RELATED ESTIMATED
PROFITS 701,608 701,608
CURRENT PORTION OF LONG
TERM DEBT 48,157 342,604
TOTAL CURRENT LIABILITIES $1,302,113 $1,567,938
LONG TERM PORTION OF LONG TERM
DEBT 2,251,843 1,580,042
OTHER LONG TERM LIABILITY 62,699 62,699
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 (1,104,807) (1,097,604)
1,747,487 1,754,690
LESS TREASURY STOCK AT COST (520,150) (520,150)
TOTAL STOCKHOLDERS' EQUITY 1,227,337 1,234,540
TOTAL LIABILITIES & STOCKHOLDERS'EQUITY $5,043,992 $4,645,219
*- CONDENSED FROM AUDITED FINANCIAL STATEMENTS
1
THE DEWEY ELECTRONICS CORPORATION
CONDENSED INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
REVENUES $702,453 $954,187
COST OF REVENUES 471,894 754,610
GROSS PROFIT / (LOSS) 230,559 199,577
SELLING & ADMIN EXPENSES 193,448 228,140
OPERATING PROFIT / (LOSS) 37,111 (28,563)
INTEREST EXPENSE 49,937 59,960
BANK FINANCING FEES 0 2,018
OTHER (INCOME)/EXPENSE (823) (715)
INCOME / (LOSS) BEFORE TAXES (12,003) (89,826)
DEFERRED TAX BENEFIT/(EXPENSE) 4,801 35,930
NET INCOME / (LOSS) $(7,202) $(53,896)
INCOME PER SHARE BEFORE TAXES
PRIMARY $(0.01) $(0.07)
FULLY DILUTED $(0.01) $(0.07)
NET INCOME PER SHARE
PRIMARY $(0.01) $(0.04)
FULLY DILUTED $(0.01) $(0.04)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
PRIMARY 1,339,531 1,339,531
FULLY DILUTED 1,339,531 1,339,531
2
THE DEWEY ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
CASH FLOWS FROM OPERATIONS:
NET (LOSS)/INCOME $(7,202) $(53,896)
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 33,323 31,358
DECREASE/(INCREASE) IN ACCOUNTS
RECEIVABLES 113,971 507,314
DECREASE/(INCREASE) IN INVENTORIES 1,254 131,904
(INCREASE) IN CONTRACT COSTS AND
RELATED ESTIMATED PROFITS IN
EXCESS OF APPLICABLE BILLINGS (437,700) 51,211
(INCREASE) IN PREPAID EXPENSES AND
OTHER CURRENT ASSETS (63,637) (31,965)
INCREASE IN ACCOUNTS PAYABLE 61,015 9,536
(DECREASE) IN ACCRUED EXPENSES (32,393) (67,468)
(INCREASE) IN OTHER ASSETS (73,108) (34,919)
TOTAL ADJUSTMENTS $(397,275) $596,971
NET CASH (USED IN)/PROVIDED BY
OPERATIONS $(404,477) $543,075
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PLANT, PROPERTY AND
EQUIPMENT 0 0
NET CASH (USED IN) INVESTING 0 0
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG TERM
DEBT (1,922,646) (80,093)
DEBT REFINANCED 2,300,000 0
NET CASH PROVIDED BY/(USED IN)
FINANCING $377,354 ($80,093)
NET INCREASE/(DECREASE) IN CASH $(27,123) $462,982
CASH AT BEGINNING OF PERIOD 318,058 88,402
CASH AT END OF PERIOD $290,935 $551,384
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 three month period ended September 30,
1997 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2: CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit in banks and
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 3: 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.
NOTE 4: INVENTORIES
Inventories are valued at lower of cost (first-in, first-out method) or
market. Components of cost include materials, direct labor and plant
overhead.
As there is no segregation of inventories as to raw materials, work in
progress and finished goods for interim reporting periods (this information
is available at year end when physical inventories are taken and recorded),
estimates have been made for the interim period.
September 30, 1997 June 30, 1997
(UNAUDITED) (AUDITED)
Finished Goods $208,576 $219,890
Work In Process $357,306 $344,032
Raw Materials $490,202 $493,416
________ ________
Total $1,056,084 $1,057,338
======= ========
4
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: USE OF ESTIMATES
The process of preparing financial statements in conformity with Generally
Accepted Accounting Principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the
date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
NOTE 6: PLANT, PROPERTY AND EQUIPMENT
Property, plant and equipment are stated at cost. Allowance for depreciation
and amortization is provided on a straight-line basis over estimated useful
lives of three to ten years for machinery and equipment, ten years for
furniture and fixtures, and twenty years for building and improvements.
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("SFAS 121"). This standard specifies
when assets should be reviewed for impairment, how to determine if an asset
is impaired, how to measure an impairment loss, and what disclosures are
necessary in the financial statements. The effect of adopting SFAS 121 is
not considered significant.
NOTE 7: NET INCOME PER SHARE
Net income per share for the three months ended September 30, 1997 is based
upon the weighted average number of shares outstanding. For the periods
ended September 30, 1997, and September 30, 1996, 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
1997 and in 1996.
5
THE DEWEY ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements that should be read in conjunction with the Company's Report on
Form 10-K for its fiscal year ended June 30, 1997. Reference is made
generally to the information contained in the Form 10-K.
Three months ended September 30, 1997 vs. 1996
- --------------------------------------------
For the first quarter of this fiscal year, revenues were $702,453, a
decrease of $251,734 from last year's first quarter revenues of $954,187.
This decrease in revenues is the result of a decrease in leisure segment
revenues discussed below.
Electronic product revenues during this quarter decreased by $6,702 (from
$686,527 last year to $679,825 this year). Leisure product revenues
decreased by $245,032 (from $267,660 to $22,628).
Electronic product revenues remained level with the same period last year.
In August 1996, the Company was awarded a contract with the U.S. Army for
the production of tactical generator sets over a five year period. The
contract initially funded $1 million for first article test units with
estimated production quantities for each of the next 5 years. The first
such production order in the amount of approximately $5 million was received
in May 1997 and was increased by approximately 11% in July 1997. This
project accounted for 49% of electronic segment revenues.
The remaining 51% of electronic product revenues was from various orders,
more limited in scope and duration, that were generally for replacement
parts for previously supplied Department of Defense equipment and other
projects performed as a subcontractor. A large part of such other revenues
continue to be attributable to the Company's Pitometer Log Division, which
manufactures speed and distance measuring instrumentation for the U.S. Navy.
In last year's first quarter, most of the Company's revenues were derived
from contracts under the U.S. Navy's MK48 ADCAP torpedo program. The MK48
ADCAP torpedo program is now substantially complete. The remaining 40% of
electronic product revenues were provided by short term projects.
As of September 30, 1997, the aggregate value of the Company's backlog of
electronic products not previously recorded as revenues was approximately
$5 million. It is estimated that most of this backlog will be recognized as
revenues during the 1998 fiscal year.
6
Most of the backlog is attributable to the first production order for
tactical generator sets, received in May 1997, under the contract with the
U.S. Army. Delivery of the first production order is scheduled to begin in
March 1998 and receipt of the second of the four remaining production orders
is expected around June 1998. While the contract with the Army includes
four additional annual orders and has the potential for total sales over
the remaining life of the contract of up to approximately $32 million,
there can be no assurance that the Army will order any additional amounts.
In the leisure and recreation segment, revenues decreased by $245,032
compared to last year revenues which included sales of snowmaking machines
during the first quarter. The major portion of revenues from this segment
of business have been traditionally recorded during the second quarter.
However, the Company does not expect that the sale of snowmaking machines
will meet last year levels.
Operations resulted in a profit of $.03 per share this year compared to a
loss of $.02 per share last year, as a result of higher profit margins in
both segments of business. The Company is still focused on reducing
overhead costs and expects to benefit from reductions already made since
last year.
Liquidity and Capital Resources at September 30, 1997
- ------------------------------------------------------
The Company's working capital as of September 30, 1997 was $2,132,888
compared to $1,508,074 at June 30, 1997. The increase of $624,814 is
attributable to a reduction in the current portion of long term debt in the
amount of $294,447, a reduction in accounts receivables of $113,971 due to
collections, an increase in prepaid expenses of $63,637 and an increase in
contract costs and related estimated profits in excess of applicable
billings in the amount of $437,700.
The current portion of long term debt was reduced as a result of new
borrowing arrangements which the Company entered into with Sovereign Bank
(the 'Bank') on September 18, 1997. Under this new agreement:
- - The Company borrowed $2,300,000 at an interest rate of 8.25% per annum,
repayable in monthly installments of approximately $20,000 with a final
maturity in year 2002, evidenced by delivery of a mortgage note payable to
the Bank (the "Mortgage Note").
- - The Bank agreed to provide up to an additional $500,000 under a line-of-
credit agreement, to be evidenced by promissory notes bearing interest at a
rate 3/4 of 1% over prime that will become due and payable on October 31,
1998. In the Bank's discretion, this line of credit may be renewed for a
further period or periods.
7
The Mortgage Note will be secured by a first mortgage on all of the
Company's land and its building. Borrowings under the line-of-credit
arrangement will be secured by a first lien on all of the
Company's machinery, equipment other personal property.
Approximately $1,900,000 of the proceeds from the issuance of the Mortgage
Note was applied to the prepayment in full of the outstanding balances due
from the Company to Fleet Bank under its secured term loan agreement with
the Company and to New Jersey Economic Development Authority under a
mortgage note. The interest rate on the prepaid indebtedness was 9% per
annum. The prepaid indebtedness was secured by liens on virtually all of
the Company's real and personal property. Under the former term loan
agreement, the Company was subject to numerous affirmative and negative
covenants containing working capital, net worth and other financial
criteria. The new borrowing arrangements with the Bank contain no such
financial covenants.
For the three month period ending September 30, 1997 $404,477 net cash was
used in operations as a result of an increase in contract costs and related
estimated profits in excess of applicable billings. Reduced accounts
receivable of $113,971 was used to increase prepaid expenses and other assets.
During the same period last year, $543,075 net cash flow was provided by
operations as a result of reduced accounts receivable during the period of
$507,314 which at the end of the period was reflected in cash balances.
No expenditures were made for investing activities this year and last year
during the first quarters.
It is during the first quarter that the greatest demand is made on working
capital due to the strong inventory requirements and investment required to
produce snowmaking machines for sale in subsequent fiscal quarters.
The Company continues to meet its short term liquidity needs through a
combination of progress payments on government contracts (based on costs
incurred) and billings at the time of delivery of products.
On a long term basis, the Company's liquidity will be dependent on the
ability to maintain borrowing arrangements with its new lender
Sovereign Bank or other lenders.
The Company had no material commitments for capital expenditures as of
September 30, 1997.
8
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
September 30, 1997.
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
November 14, 1997 _________________________________
Thom A. Velto, Treasurer
Principal Accounting Officer
November 14, 1997 ________________________________
Edward L. Proskey
Vice President, Operations
9
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