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, 1998 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, 1998.
THE DEWEY ELECTRONICS CORPORATION
INDEX
Part I Financial Information Page No.
Item 1 Financial Statements 1
Condensed balance sheets -
December 31, 1998 and June 30, 1998 2
Condensed statements of operations -
Six months ended December 31, 1998
and December 31, 1997 3
Three months ended December 31, 1998
and December 31, 1997 4
Statements of cash flows for the six months
ended December 31, 1998 and 1997 5
Notes to condensed financial statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following unaudited Statements of Operations, Consolidated Balance
Sheets and Statements of Consolidated Cash Flows are of The Dewey Electronics
Corporation. These reports reflect all adjustments of a normal recurring
nature, which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim
periods reflected therein. The results reflected in the unaudited
Statements of Operations for the period ended December 30, 1998 are not
necessarily indicative of the results to be expected for the entire year.
The following unaudited Consolidated Financial Statements
should be read in conjunction with the notes thereto, and Management's
Discussion and Analysis of Financial Conditions and Result of Operations
set forth in Item 2 of Part I of this report, as well as the audited
financial statements and related notes thereto contained in the
Form 10-K filed for the fiscal year ended June 30, 1998.
1
THE DEWEY ELECTRONICS CORPORATION
CONDENSED BALANCE SHEET
DECEMBER 31, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)*
ASSETS:
CURRENT ASSETS:
CASH $ 179,338 $ 134,449
ACCOUNTS RECEIVABLE 698,880 449,534
INVENTORIES 1,149,945 1,050,027
CONTRACT COSTS & RELATED EST
PROFITS IN EXCESS OF APPLICABLE
BILLINGS 1,073,192 1,193,520
PREPAID EXPENSES & OTHER CURRENT
ASSETS 75,212 60,556
TOTAL CURRENT ASSETS $3,176,567 $2,888,086
PLANT PROPERTY & EQUIPMENT $ 911,975 $ 963,932
OTHER ASSETS:
DEFERRED TAX ASSETS 634,853 722,308
OTHER NON CURRENT ASSETS 135,162 138,876
TOTAL OTHER ASSETS 770,015 861,184
TOTAL ASSETS $4,858,557 $4,713,202
LIABILITIES & STOCKHOLDERS EQUITY:
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $ 282,130 $ 181,525
ACCRUED LIABILITIES 329,657 411,627
BILLINGS IN EXCESS OF CONTRACT
COSTS & RELATED ESTIMATED PROFITS 701,608 701,608
CURRENT PORTION OF LONG TERM DEBT 171,823 149,788
TOTAL CURRENT LIABILITIES $1,485,218 $1,444,548
LONG TERM PORTION OF LONG TERM DEBT $2,193,248 $2,219,746
OTHER LONG TERM LIABILITY 61,172 61,172
DUE TO RELATED PARTY $ 200,000 $ 200,000
STOCKHOLDERS' EQUITY:
COMMON STOCK, par value $.01;
authorized 3,000,000 shares;
issued and outstanding 1,693,397
in 1998 and 1997 16,934 16,934
PAID IN CAPITAL 2,835,360 2,835,360
RETAINED EARNINGS (1,413,225) (1,544,408)
1,439,069 1,307,886
LESS TREASURY STOCK 353,866 SHARES
AT COST (520,150) (520,150)
TOTAL STOCKHOLDERS' EQUITY $ 918,919 $ 787,736
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $4,858,557 $4,713,202
*CONDENSED FROM AUDITED FINANCIAL STATEMENTS
2
THE DEWEY ELECTRONICS CORPORATION
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31,
1998 1997
REVENUES $3,824,623 $1,330,416
COST OF REVENUES 3,095,520 994,204
GROSS PROFIT 729,103 336,212
SELLING & ADMIN EXPENSES 410,320 398,164
OPERATING PROFIT / (LOSS) 318,783 (61,952)
INTEREST EXPENSE (105,438) (103,164)
OTHER INCOME 5,293 1,378
INCOME/(LOSS) BEFORE INCOME TAXES 218,638 (163,738)
INCOME TAX (EXPENSE)/BENEFIT (87,455) 65,495
NET INCOME / (LOSS) $131,183 $(98,243)
NET INCOME/(LOSS) PER SHARE
BASIC $0.10 $(0.07)
DILUTED $0.10 $(0.07)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 1,339,531 1,339,531
DILUTED 1,339,531 1,339,531
3
THE DEWEY ELECTRONICS CORPORATION
STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
1998 1997
REVENUES $2,083,905 $627,963
COST OF REVENUES 1,656,148 522,310
GROSS PROFIT 427,757 105,653
SELLING & ADMIN EXPENSES 229,312 204,716
OPERATING PROFIT / (LOSS) 198,445 (99,063)
INTEREST EXPENSE (51,097) (53,227)
OTHER INCOME 43 555
INCOME / (LOSS) BEFORE INCOME TAXES 147,391 (151,735)
INCOME TAX (EXPENSE)/BENEFIT (58,955) 60,694
NET INCOME / (LOSS) $88,436 $(91,041)
NET INCOME/(LOSS) PER SHARE
BASIC $0.07 $(0.07)
DILUTED $0.07 $(0.07)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
BASIC 1,339,531 1,339,531
DILUTED 1,339,531 1,339,531
4
THE DEWEY ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
1998 1997
CASH FLOWS FROM OPERATIONS:
NET INCOME/(LOSS) $131,183 $(98,243)
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES:
DEPRECIATION 69,414 66,648
(INCREASE)/DECREASE IN ACCOUNTS
RECEIVABLE (249,346) 67,893
(INCREASE)/DECREASE IN
INVENTORIES (99,918) 42,542
DECREASE/(INCREASE) IN CONTRACT
COSTS AND RELATED ESTIMATED
PROFITS IN EXCESS
OF APPLICABLE BILLINGS 120,329 (628,290)
INCREASE IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS (14,657) (15,265)
INCREASE IN ACCOUNTS PAYABLE 100,605 84,647
DECREASE IN ACCRUED EXPENSES (81,970) (22,415)
DECREASE/(INCREASE) IN OTHER
ASSETS 91,169 (144,967)
TOTAL ADJUSTMENTS $ (64,374) $(549,207)
NET CASH PROVIDED BY/(USED IN)
OPERATIONS $66,809 $(647,450)
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PLANT,
PROPERTY AND EQUIPMENT $ (17,457) $ (15,370)
NET CASH USED IN INVESTING $ (17,457) $ (15,370)
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS OF LONG
TERM DEBT (24,463) (1,929,712)
REPAYMENT OF SHORT TERM
BORROWINGS (100,000) 0
SHORT TERM BORROWINGS 120,000 0
DEBT REFINANCED 0 2,300,000
NET CASH (USED IN)/PROVIDED BY
FINANCING $ (4,463) $ 370,288
NET INCREASE/(DECREASE) IN CASH $ 44,889 $(292,532)
CASH AT BEGINNING OF PERIOD 134,449 318,058
CASH AT END OF PERIOD $179,338 $ 25,526
=======
5
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit in banks.
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturity of such investments.
NOTE 2: 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 3: 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, 1998 June 30, 1998
(UNAUDITED) (AUDITED)
Finished Goods $323,332 $458,104
Work In Process $315,157 $159,757
Raw Materials $511,456 $432,166
________ ________
Total $1,149,945 $1,050,027
======= =======
NOTE 4: 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.
6
THE DEWEY ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: 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.
Whenever events indicate that the carrying values of Long-Lived assets may
not be recoverable, the Company evaluates the carrying values of such
assets using future undiscounted cash flows. Management believes that,
as of December 31, 1998, the carrying values of such assets are appropriate.
NOTE 6: NET INCOME PER SHARE
Net income per share for the three months ended December 31, 1998 is based
upon the weighted average number of shares outstanding. For the periods
ended December 31, 1998, and December 31, 1997, 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 1998 and in 1997.
7
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, 1998 (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, 1998 vs. 1997
Revenues for the six month period this year were $3,824,623 which is an
increase of $2,494,207 compared to last years revenues of $1,330,416.
This increase is the result of increased electronic product revenues.
Electronic product revenues increased by $2,519,943 (from $1,079,323 last
year to $3,599,266 this year). This increase is the result of production
efforts made on the Company's contract with the U.S. Army for tactical
generator sets. This contract accounted for 95% of the
electronic segment revenues.
Delivery of tactical generator sets had been scheduled to begin in March
1998. However, as a result of engineering changes initiated by the Company
and approved by the U.S. Army, deliveries were rescheduled to begin in
November 1998. The Company is adhering to this delivery schedule.
Since fiscal year end, June 30, 1998, the Company has received approximately
$7 million in additional orders for tactical generator sets. This brings
the total amount of orders received for the tactical generator sets
program to approximately $14 million. The Company anticipates
that the U.S. Army will continue to place additional orders, however,
no assurances can be made that they will do so.
The remaining 5% of electronic product revenues resulted 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.
Last year, the tactical generator set project accounted for 46% of
electronic segment revenues and the remaining 54% were derived from short
term projects.
As of December 31, 1998, the aggregate value of the Company's backlog of
electronic products not previously recorded as revenues was approximately
$8 million. It is estimated that approximately $3 million of this backlog
will be recognized as revenues during the 1999 fiscal year.
8
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.
In the leisure and recreation segment, revenues decreased by $25,734
compared to last year's revenues (from $251,093 to $225,357). The lower
revenues are attributable to lower machine sales than last year. An
additional sale of a snowmaking machine was recorded in
January 1999, which makes machine sale revenues comparable to those of
last year when no machine sales were recorded during the third fiscal
quarter. The sale of replacement parts in this segment have remained
level with last years. The Company does not anticipate
significant revenues from the sale of snowmaking machines for the
balance of the current fiscal year.
Operations resulted in an operating profit of $.16 per share compared to an
operating loss of $.12 per share last year. Net earnings per share were
$.10 per share compared to a net loss of $.07 per share last year.
Three Months Ended December 31, 1998 vs. 1997
Revenues for the second quarter this year were $2,083,905 compared to
$627,963 last year resulting in an increase of $1,455,942 in revenues.
This increase is primarily the result of increased electronic product
revenues.
The increase in electronic product revenues is the result of continued
efforts made towards the tactical generator project with the U.S. Army as
discussed above.
Last year, during the second quarter, the Company had been awaiting final
acceptance by the U.S. Army of it's first article test units. The contract
schedule had included production stages to begin during that second quarter.
In the leisure and recreation segment, revenues during the second quarter
decreased by $48,668 (from $228,465 to $179,797). This decrease is the
result of lower machine sales as discussed above and replacement parts
sales being higher in the first quarter and lower in the
second quarter compared to last year.
Operating profit for the second quarter this year was $.11 per share and
net income resulted in a profit of $.07 per share. Last year the Company's
operations resulted in a loss of $.11 per share and a net loss of $.07
per share.
Liquidity and Capital Resources at December 31, 1998
The Company's working capital as of December 31, 1998 was 2.14 to 1 compared
to 2.00 to 1 at June 30, 1998.
9
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.
Management believes that the Company's anticipated cash flow from
operations, combined with its line of credit with Sovereign Bank, will be
sufficient to support working capital requirements and capital expenditures
at their current or expected levels. Capital expenditures in the six month
period were $17,457 as compared with $15,370 in the comparable period last
year.
Year 2000 Issue
The "Year 2000 Issue" is a term used to describe potential problems created
by systems that are unable to accurately interpret dates after the year 1999.
The Company is preparing for the impact of the Year 2000 on its business.
This preparation includes the possible impact upon the Company resulting
from its customers and vendors.
As a prime contractor for the U.S. Government, the Company is required to
maintain precise records for job costing as well as provide timely and accurate
information. It is subject to periodic audits by government agencies of
its systems and controls. The Company has never had any difficulty in
meeting government requirements. However, the intrinsic problems
inherent in the year 2000 issue could be detrimental to the Company or any
other company in this type of business.
The Company has taken steps to have all of its computer systems in
compliance with the year 2000 date requirement before that date is reached.
The Company has reviewed its internal computer systems for compliance by
identifying and testing all of its internal systems.
In November 1996, the Company had hired an outside service to upgrade
hardware and make modifications to its main software. In conjunction with
this effort, the Company's main programs have become year 2000 compliant.
The cost of these services was $5,085.
Some surveys of key suppliers are being conducted and updated on an
on-going basis. Based on the information obtained to date, the Company does
not believe that there will be any significant impact that would adversely
affect the Company relative to the year 2000 issue. The Company is not
able to identify all external year 2000 issues such as those which may
exist at the supplier and customer levels.
The Company is continuing to work with its supplier base to access the
year 2000 status of vendors who provide critical materials and services.
To date, sufficient information has not yet been received from vendors to
confirm their preparedness for year 2000. Contingency planning is being
addressed particularly in anticipation of possible interruption of supplies
delivered by any key vendors. This planning includes the identification of
such critical suppliers and possible alternative course of action such as
alternate sources and, if possible, alternate materials.
10
The Company's most key vendor provides engines for the 2kW tactical
generator project for the U.S. Army. This vendor is the sole source
supplier of this particular component at the direction of the U.S. Army.
The Company has no indication that this supplier will not be able
to continue to provide its product, which could result in a delay of this
project. However, the Company is investigating other sources as well as
the use of other products. The U.S. Army is aware of this potential
situation and contingency plans are being made on an on-going basis.
Since the Company's main programs have already become year 2000 compliant,
future expenditures for this aspect are not anticipated. Contingency planning
for critical suppliers includes various plans for further development based
upon additional findings and progress made in this area. The Company, at
this time, has no reason to believe that supply deliveries
will be interrupted, however alternative actions being considered are
intended to eliminate any material financial impact on the Company. None
of the Company's products will be affected by the year 2000 issue.
11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
- ------------------------------------------------------------
On December 2, 1998, 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 1,127,377 9,646
Frances D. Dewey 1,127,279 9,744
Gordon C. Dewey 1,127,283 9,740
Peter Eustis 1,127,377 9,646
John G. McQuaid 1,125,377 11,646
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
No reports on Form 8-K have been filed during the quarter ended
December 31, 1998.
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
February 12, 1999 _________________________________
Date Thom A. Velto, Treasurer
Principal Accounting Officer
February 12, 1999 ________________________________
Date Edward L. Proskey
Vice President, Operations
12
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<PERIOD-END> DEC-31-1998
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