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 December 31, 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 December 31, 1997.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Part I Financial Information Page No.
Condensed balance sheets -
December 31, 1997 and June 30, 1997 1
Condensed statements of income -
Six months ended December 31, 1997
and December 31, 1996 2
Three months ended December 31, 1997
and December 31, 1996 3
Statements of cash flows for the six months
ended December 31, 1997 and 1996 4
Notes to condensed financial statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II Other Information
Item 4. Submission of Matters to a Vote
of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
THE DEWEY ELECTRONICS CORPORATION
CONDENSED BALANCE SHEET
DECEMBER 31, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)*
ASSETS:
CURRENT ASSETS:
CASH $ 25,526 $ 318,058
ACCOUNTS RECEIVABLE 309,585 377,478
INVENTORIES 1,014,796 1,057,338
CONTRACT COSTS & RELATED
EST PROFITS IN EXCESS
OF APPLICABLE BILLINGS 1,899,397 1,271,107
PREPAID EXPENSES & OTHER
CURRENT ASSETS 67,298 52,033
TOTAL CURRENT ASSETS $3,316,602 $3,076,013
PLANT PROPERTY & EQUIPMENT $1,033,982 $1,085,260
OTHER ASSETS:
DEFERRED TAX ASSETS 486,775 421,280
OTHER NON CURRENT ASSETS 142,138 62,666
TOTAL OTHER ASSETS $ 628,913 $ 483,946
TOTAL ASSETS $4,979,497 $4,645,219
LIABILITIES & STOCKHOLDERS EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $ 200,729 $ 116,082
ACCRUED LIABILITIES 385,230 407,644
BILLINGS IN EXCESS OF
CONTRACT COSTS &
RELATED ESTIMATED PROFITS 701,608 701,608
CURRENT PORTION OF LONG TERM
DEBT 45,410 342,604
TOTAL CURRENT LIABILITIES $1,332,977 $1,567,938
LONG TERM PORTION OF LONG TERM
DEBT $2,247,524 $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 (1,195,847) (1,097,604)
1,656,447 1,754,690
LESS TREASURY STOCK AT COST (520,150) (520,150)
TOTAL STOCKHOLDERS' EQUITY $1,136,297 $1,234,540
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $4,979,497 $4,645,219
*CONDENSED FROM AUDITED FINANCIAL STATEMENTS
1
THE DEWEY ELECTRONICS CORPORATION
CONDENSED INCOME STATEMENT
SIX MONTHS ENDED DECEMBER 31,
1997 1996
REVENUES $1,330,416 $2,001,182
COST OF REVENUES 994,204 1,605,530
GROSS PROFIT / (LOSS) 336,212 395,652
SELLING & ADMIN EXPENSES 398,164 485,651
OPERATING PROFIT / (LOSS) (61,952) (89,999)
INTEREST EXPENSE 103,164 113,789
BANK FINANCING FEES 0 4,036
OTHER (INCOME)/EXPENSE (1,378) (5,635)
INCOME / (LOSS) BEFORE TAXES (163,738) (202,189)
DEFERRED TAX BENEFIT/(EXPENSE) 65,495 80,875
NET INCOME / (LOSS) $ (98,243) $(121,314)
========= ========
INCOME PER SHARE BEFORE TAXES
PRIMARY $(0.12) $(0.15)
FULLY DILUTED $(0.12) $(0.15)
NET INCOME PER SHARE
PRIMARY $(0.07) $(0.09)
FULLY DILUTED $(0.07) $(0.09)
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
CONDENSED INCOME STATEMENT
THREE MONTHS ENDED DECEMBER 31,
1997 1996
REVENUES $627,963 $1,046,995
COST OF REVENUES 522,310 850,920
GROSS PROFIT / (LOSS) 105,653 196,075
SELLING & ADMIN EXPENSES 204,716 257,511
OPERATING PROFIT / (LOSS) (99,063) (61,436)
INTEREST EXPENSE 53,227 53,829
BANK FINANCING FEES 0 2,018
OTHER (INCOME)/EXPENSE (555) (4,920)
INCOME / (LOSS) BEFORE TAXES (151,735) (112,363)
DEFERRED TAX BENEFIT/(EXPENSE) 60,694 44,945
NET INCOME / (LOSS) $(91,041) $ (67,418)
====== =======
INCOME PER SHARE BEFORE TAXES
PRIMARY $(0.11) $(0.08)
FULLY DILUTED $(0.11) $(0.08)
NET INCOME PER SHARE
PRIMARY $(0.07) $(0.05)
FULLY DILUTED $(0.07) $(0.05)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
PRIMARY 1,339,531 1,339,531
FULLY DILUTED 1,339,531 1,339,531
3
THE DEWEY ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
1997 1996
CASH FLOWS FROM OPERATIONS:
NET (LOSS)/INCOME $(98,243) $(121,314)
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION 66,648 62,718
DECREASE/(INCREASE) IN
ACCOUNTS RECEIVABLE 67,893 497,002
DECREASE/(INCREASE) IN
INVENTORIES 42,542 230,965
(INCREASE)/DECREASE IN
CONTRACT COSTS AND RELATED
ESTIMATED PROFITS IN EXCESS
OF APPLICABLE BILLINGS (628,290) 27,608
(INCREASE) IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS (15,265) (25,342)
INCREASE/(DECREASE) IN
ACCOUNTS PAYABLE 84,647 (35,707)
(DECREASE) IN ACCRUED
EXPENSES (22,415) (20,691)
(INCREASE) IN OTHER ASSETS (144,967) (78,853)
TOTAL ADJUSTMENTS $(549,207) $657,700
NET CASH (USEDIN)/PROVIDED BY
OPERATIONS $(647,450) $536,386
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PLANT,
PROPERTY AND EQUIPMENT (15,370) (14,737)
NET CASH (USED IN) INVESTING $(15,370) $(14,737)
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG
TERM DEBT (1,929,712) (160,795)
DEBT REFINANCED 2,300,000 0
NET CASH PROVIDED BY/(USED IN)
FINANCING $370,288 $(160,795)
NET INCREASE/(DECREASE) IN
CASH $(292,532) $ 360,854
CASH AT BEGINNING OF PERIOD 318,058 88,402
CASH AT END OF PERIOD $25,526 $ 449,256
======= ========
4
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 six month period ended December 31, 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 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.
December 31, 1997 June 30, 1997
(UNAUDITED) (AUDITED)
Finished Goods $295,137 $219,890
Work In Process $316,157 $344,032
Raw Materials $404,502 $493,416
________ ________
Total $1,014,796 $1,057,338
======= =======
5
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 December 31, 1997 is based
upon the weighted average number of shares outstanding. For the periods
ended December 31, 1997, and December 31, 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.
6
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 the fiscal year ended June 30, 1997 (including the section
captioned "Current Business environment"). Reference is made generally to
the information contained in the Form 10-K.
Six months ended December 31, 1997 vs. 1996
Revenues for the first six months of this fiscal year were $1,330,416, a
decrease of $670,766 compared to last year's revenues for the same period.
Electronic product revenues decreased by $166,031 (from $1,245,354 last year
to $1,079,323 this year). Leisure product revenues decreased by $504,735
(from $755,828 last year to $251,093 this year).
In the electronic product segment, 46% of revenues were derived from a
contract with the U.S. Army for the production of tactical generator sets
and 54% of revenues were derived from various orders which are more limited
in scope and duration and 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.
The contract with the U.S. Army for the production of tactical generator sets
initially funded $1 million for first article test units with estimated
production quantities for each of the following five years. The first such
production order in the amount of $5 million was received in May 1997 and
was increased approximately 11% in July 1997. The first article test units
have been delivered to the U.S. Army and the Company is awaiting final
acceptance of these units by the Army before beginning production stages.
Final acceptance is expected to be received by the beginning of March 1998.
The contract schedule had included production stages to begin during this
second fiscal quarter.
In the first six months of last year, the tactical generator set project
accounted for 22% of electronic product revenues. The U.S. Navy's MK48 ADCAP
torpedo program, which in prior years had provided most of such revenues,
accounted for 33%. The remaining 45% of electronic product revenues was
derived from various orders, generally for replacement parts for previously
supplied Department of Defense equipment.
As of December 31, 1997, the aggregate value of the Company's backlog of
electronic products not previously recorded as revenues was approximately
$4 million, attributable to the tactical generator set contract.
Approximately one half of this backlog should be recognized as revenues
during the 1998 fiscal year.
7
As of December 31, 1996, the aggregate value of the Company's backlog of
electronic products not previously recorded as revenues was approximately
$1 million. Most of this backlog was accounted for by the tactical generator
set contract and was recorded as revenues during the 1997 fiscal year.
In the leisure and recreation segment, revenues decreased by $504,735 when
compared to the same six month period last year. The major portion of
revenues from this segment of business have been traditionally recorded
during the second quarter. Last year, sales of snowmaking machines began in
the first quarter and continued with a higher sales level during the second
quarter than experienced in recent years. This year, no machine sales were
made during the first quarter and the second quarter sales were lower than
last year. General market conditions are weaker as a result of last year's
overall poor season for domestic ski areas. Foreign markets continue to
be very competitive, however, the sales of replacement parts in these
areas remains level with prior years.
Overall, the Company experienced an operating loss for the six month period
of $61,952 compared to an operating loss of $89,999 last year. Costs in
overhead and administrative expenses are continuing to be reduced to help
offset lower revenues. The Company expects that these costs will continue
to be reduced.
Three Months Ended December 31, 1997 vs 1996
Revenues for the second quarter this year were $627,963 compared to
$1,046,995 last year. The decrease of $419,032 resulted from lower revenues
in the electronic segment of $159,329 and lower sales in the leisure and
recreation segment of $259,703 which were discussed above.
The operating loss for the second quarter this year was $99,063 and the
operating loss for the same period last year was $61,436.
See the discussion of six-month results above.
Liquidity and Capital Resources at December 31, 1997
The Company's working capital as of December 31, 1997 was $1,983,625.
This amount reflects an increase of $475,551 when compared to working
capital at June 30, 1997 of $1,508,074.
Working capital increased as a result of an increase in contract costs and
related estimated profits in excess of applicable billings in the amount of
$628,290, a reduction in the current portion of long term debt of $297,194
and an increase in prepaid expenses and other current assets of $15,265.
8
These increases in working capital were partially offset by an increase in
trade accounts payable and accrued expenses of $62,232, a reduction in
accounts receivable of $67,893, a reduction in inventories of $42,542 and
a reduction in cash balances of $292,532.
The Company expended $15,370 for plant, property and equipment during the
six month period. Last year, capital expenditures amounted to $14,737.
The Company has no material commitments for capital expenditures as of
December 31, 1997.
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 $19,598 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.
The Mortgage Note is secured by a first mortgage on all of the Company's land
and its building. Borrowings under the line-of-credit arrangement are secured
by a first lien on all of the Company's machinery, equipment 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.
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.
9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
On December 3, 1997, at the Company's annual meeting of shareholders, the
following five directors were elected to serve for the ensuing year.
Set forth below are the numbers of votes cast for, or withheld with respect
to, each such person (who were the only nominees for directors):
Name For Withheld
Alexander A. Cameron 1,111,264 14,877
Frances D. Dewey 1,111,264 14,877
Gordon C. Dewey 1,111,264 14,877
Peter Eustis 1,111,039 15,102
John G. McQuaid 1,109,241 16,877
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------------------
No reports on Form 8-K have been filed during the quarter ended
December 31, 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
2/11/97 _____________________________
Date Thom A. Velto, Treasurer
Principal Accounting Officer
2/11/97 ___________________________
Date Edward L. Proskey
Vice President, Operations
10
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