10-Q 1 0001.txt 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, 2000 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, 2000. THE DEWEY ELECTRONICS CORPORATION INDEX Part I Financial Information Page No. Item 1 Financial Statements 1 Condensed consolidated balance sheets - September 30, 2000 and June 30, 2000 2 Condensed consolidated statements of earnings - three months ended September 30, 2000 and September 30, 1999 3 Condensed consolidated statements of cash flows for the three months ended September 30, 2000 and 1999 4 Notes to condensed consolidated financial statements 5 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 condensed, consolidated balance sheets, statements of earnings, and statements of cash flows are of The Dewey Electronics Corporation. These condensed consolidated financial statements reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations and cash flows for the interim periods reflected herein. The results reflected in the unaudited statements of earnings for the period ended September 30, 2000 are not necessarily indicative of the results to be expected for the entire year. The following unaudited condensed consolidated financial statements should be read in conjunction with the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results 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, 2000. 1 THE DEWEY ELECTRONICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, JUNE 30, 2000 2000 (UNAUDITED) (AUDITED)* ASSETS: CURRENT ASSETS: CASH $1,153,561 $1,176,479 ACCOUNTS RECEIVABLE 1,387,697 1,349,965 INVENTORIES 539,927 534,181 CONTRACT COSTS & RELATED EST PROFITS IN EXCESS OF APPLICABLE BILLINGS 1,423,606 1,087,863 DEFERRED TAX ASSET 170,475 170,475 PREPAID EXPENSES & OTHER CURRENT ASSETS 61,144 33,849 TOTAL CURRENT ASSETS 4,736,410 4,352,812 PLANT PROPERTY & EQUIPMENT - (NET) 811,678 841,956 OTHER ASSETS: OTHER NON CURENT ASSETS 129,462 130,512 TOTAL OTHER ASSETS 129,462 130,512 TOTAL ASSETS $5,677,550 $5,325,280 LIABILITIES & STOCKHOLDERS EQUITY: CURRENT LIABILITIES: TRADE ACCOUNTS PAYABLE $341,291 $334,701 ACCRUED LIABILITIES 142,948 158,203 ACCRUED CORP INCOME TAXES 536,153 379,807 ACCRUED PENSION COSTS 146,271 155,772 CURRENT PORTION OF LONG TERM DEBT 103,343 97,827 TOTAL CURRENT LIABILITIES 1,270,006 1,126,310 LONG-TERM PORTION OF LONG-TERM DEBT 1,541,913 1,567,859 OTHER LONG-TERM LIABILITY 61,172 61,172 DEFERRED TAX LIABILITY 95,320 95,320 DUE TO RELATED PARTY 200,000 200,000 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; issued and outstanding 1,693,397 16,934 16,934 PAID IN CAPITAL 2,835,307 2,835,307 ACCUMMULATED EARNINGS/(DEFICIT) 176,995 (57,525) 3,029,236 2,794,716 LESS TREASURY STOCK 353,866 SHARES AT COST (520,097) (520,097) TOTAL STOCKHOLDERS' EQUITY 2,509,139 2,274,619 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $5,677,550 $5,325,280 *CONDENSED FROM AUDITED FINANCIAL STATEMENTS SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2 THE DEWEY ELECTRONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 REVENUES $2,267,404 $2,661,493 COST OF REVENUES 1,630,439 2,071,807 GROSS PROFIT 636,965 589,686 SELLING & ADMIN EXPENSES 201,976 200,784 OPERATING PROFIT 434,989 388,902 INTEREST EXPENSE 39,750 56,504 OTHER (INCOME)/EXPENSE 4,373 33 INCOME BEFORE INCOME TAXES 390,866 332,365 INCOME TAXES 156,346 132,945 NET INCOME $234,520 $199,420 INCOME PER SHARE BEFORE TAXES BASIC $0.29 $0.25 DILUTED $0.29 $0.25 NET INCOME PER SHARE: BASIC $0.18 $0.15 DILUTED $0.18 $0.15 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC 1,339,531 1,339,531 DILUTED 1,339,531 1,339,531 SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 THE DEWEY ELECTRONICS CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 CASH FLOWS FROM OPERATIONS: NET INCOME $234,520 $199,420 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION 38,475 34,706 AMORTIZATION 1,050 1,857 DEFERRED TAXES 0 132,945 (INCREASE)/DECREASE IN ACCOUNTS RECEIVABLE (37,732) 189,425 (INCREASE) IN INVENTORIES (5,746) (40,166) (INCREASE)/DECREASE IN CONTRACT COSTS AND RELATED ESTIMATED PROFITS IN EXCESS OF APPLICABLE BILLINGS (335,743) 147,762 (INCREASE) IN PREPAID EXPENSES AND OTHER CURRENT ASSETS (27,295) (17,434) INCREASE/(DECREASE) IN ACCOUNTS PAYABLE 6,590 (293,105) (DECREASE) IN ACCRUED LIABILITIES (15,255) (31,586) INCREASE IN ACCRUED CORPORATE INCOME TAXES 156,346 0 INCREASE IN ACCRUED PENSION COSTS (9,501) (9,000) TOTAL ADJUSTMENTS (228,811) 115,404 NET CASH PROVIDED BY OPERATIONS 5,709 314,824 CASH FLOWS FROM INVESTING ACTIVITIES: EXPENDITURES FOR PLANT, PROPERTY AND EQUIPMENT (8,198) (21,212) NET CASH USED IN INVESTING (8,198) (21,212) CASH FLOWS FROM FINANCING ACTIVITIES: PRINCIPAL PAYMENTS OF LONG-TERM DEBT (20,429) (13,101) PRINCIPAL PAYMENT OF LINE OF CREDIT 0 (200,000) NET CASH (USED IN) FINANCING (20,429) (213,101) NET INCREASE/(DECREASE) IN CASH (22,918) 80,511 CASH AT BEGINNING OF PERIOD 1,176,479 288,859 CASH AT END OF PERIOD $1,153,561 $ 369,370 SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 THE DEWEY ELECTRONICS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 NOTE 1: REVENUE RECOGNITION Revenues and estimated earnings under defense contracts are recorded using the percentage-of-completion method of accounting, measured as the percentage of costs incurred to estimated total costs for each contract. 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. Since substantially all of the Company's electronics business comes from contracts with various agencies of the United States Government or subcontracts with prime Government contractors, the loss of Government business would have a material adverse effect on this segment of business. In the Leisure and Recreation segment, revenues and earnings are recorded when deliveries are made. NOTE 2: CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with a maturity of three months or less at the date of purchase to be cash equivalents. NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of the Company's long-term debt and line of credit borrowings are estimated based upon interest rates currently available for borrowings with similar terms and maturities and approximate the carrying values. Due to the short-term nature of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities, 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. 5 THE DEWEY ELECTRONICS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 2000 June 30, 2000 Finished Goods $ 67,000 $ 67,000 Work In Process 193,109 192,828 Raw Materials 279,818 274,353 ________ ________ Total $539,927 $534,181 ======= ======= NOTE 5: USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles require 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. Actual results could differ from those estimates. NOTE 6: PLANT, PROPERTY AND EQUIPMENT Plant, property and equipment are stated at cost. Allowance for depreciation 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. NOTE 7: LOAN FEES Loan fees are capitalized by the Company and amortized utilizing the straight-line basis over the term of the loan. NOTE 8: LONG-LIVED ASSETS 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 September 30, 2000, the carrying values of such assets are appropriate. 6 THE DEWEY ELECTRONICS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9: RECENT PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires companies to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We have adopted SFAS No. 133 in the first quarter of fiscal 2001, in accordance with the deferral provision in SFAS No. 137. The adoption of SFAS No. 133 did not have a material effect on our financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. We are required to adopt SAB 101 in the fourth quarter of fiscal 2001. We anticipate that the adoption of SAB 101 will not have a significant impact on our financial statements. NOTE 10: EARNINGS PER SHARE The weighted average number of shares outstanding used in the computation of earnings per share was 1,339,531 in each of the three-month periods ended September 30, 2000 and 1999. Since the computation of diluted earnings per share is not materially dilutive or anti-dilutive, the amounts reported for basic and diluted earnings per share are the same. 7 THE DEWEY ELECTRONICS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Form 10-Q 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 Form 10-Q 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. 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. Operating Segments The Dewey Electronics Corporation is organized into operating segments on the basis of the type of products offered. In the electronics segment, the Company produces sophisticated electronics and electromechanical systems for the Department of Defense and other projects performed as a subcontractor. In the leisure and recreation segment, the Company, through its HEDCO Division, designs, manufactures and markets advanced, sophisticated snowmaking equipment. There are no intersegment sales. Some operating expenses, including general corporate expenses, have been allocated by specific identification or based on labor for items which are not specifically identifiable. In computing operating profit, none of the following items have been added or deducted: interest expense, income taxes, and non-operating income and expenses. 8 Consolidated Results of Operations Consolidated revenues for the first quarter this year were $394,089 lower than they were last year. Cost of revenues were $441,368 lower than the same period last year, and general administration expenses increased by $1,192. As a result, operating income increased over last year by $46,086 which is $.03 per share. In June 2000, the Company made a voluntary principal reduction payment toward its mortgage in the amount of $500,000. This principal payment reduced interest expenses during the first quarter this year. First quarter net income after taxes amounted to $234,520 or $.18 per share this year compared to $199,420 or $.15 per share last year. Information about the Company's operations in the two segments for the first fiscal periods ended September 30, 2000 and 1999 is as follows: Three months ended September 30, 2000 1999 Electronic Segment Revenues $2,240,665 $2,648,918 Operating Income $ 442,349 $ 424,655 HEDCO Revenues $ 26,739 $ 12,575 Operating (Loss) $ (7,360) $ (35,753) Electronics Segment In the electronics segment, both revenues and cost of revenues were lower during the first quarter this year as compared to the same period last year. Revenues are recorded under defense contracts using the percentage of completion method of accounting, measured as the percentage of costs incurred to estimated total costs for each contract. Fewer material receipts during the first quarter this year as compared to last year resulted in lower revenues. Continued production under the Company's contract with the U.S. Army for diesel operated tactical generator sets provided 87% of the electronic segment revenues this year. This program accounted for 93% of electronic segment revenues last year during the same three-month period. 9 The remaining 13% and 7% of electronics segment revenues for the three- month period ended September 30, 2000 and 1999, respectively, was derived 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 continues 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 diesel operated tactical generator sets allows for orders to be placed at any time through August 2001. Though it is not obligated to do so, the Army has placed an annual production order each year plus some additional orders. The amount of orders for this product has amounted to approximately $22 million since its initial award which funded $1 million in 1996. The Company has been receiving smaller generator set orders throughout the contract period, in addition to annual production orders, for delivery to the Army, Navy, Air Force and the Marines. The Department of Defense had issued a fuel policy requiring that all mobile electric power sets use diesel fuels only and that those using gasoline fuels be eliminated. As of September 30, 2000, the aggregate value of the Company's backlog of electronic products not previously recorded as revenues was approximately $2 million. It is estimated that all of this backlog will be recognized as revenues during the fiscal year ending June 30, 2001. As of September 30, 1999, the aggregate value of the Company's backlog of electronic products not previously recorded as revenues was approximately $2.5 million. HEDCO Division In the leisure and recreation segment, revenues were higher by $14,164 during the first quarter ended September 30, 2000, when compared to the same periods last year. This increase in revenues is attributed to a higher volume of snowmaking machine part sales than last year. Traditionally, the major portion of revenues in this segment are recorded during the second quarter when snowmaking machines are normally delivered. The Company has not received any orders for snowmaking machines for export this year or last year. Liquidity and Capital Resources The Company's working capital at September 30, 2000 was $3,466,404 compared to $3,226,502 at June 30, 2000. The ratio of current assets to current liabilities was 3.73 to 1 at September 30, 2000 and 3.86 to 1 at June 30, 2000. 10 For the three-month period ended September 30, 2000, $5,709 was provided by operations. During the same period last year, operating activities provided $314,824. "Contract costs and related estimated profits in excess of applicable billings" increased by $335,743 as production efforts increase towards diesel operated tactical generator set orders scheduled for delivery during the third fiscal quarter. Accrued corporate income taxes amounted to $156,346 for this first quarter. 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 three-month period were $8,198 as compared with $21,212 in the comparable period last year. The Company does not anticipate any significant capital expenditures for the remainder of this fiscal year. 11 PART II - OTHER INFORMATION Item 4. Submission of Matters to a vote of Security Holders ----------------------------------------------------------- None Item 6. Exhibits and Reports on Form 8-K ---------------------------------------- No reports on Form 8-K have been filed during the quarter ended September 30, 2000. 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 September 13, 2000 Thom A. Velto, Treasurer Principal Accounting Officer Date September 13, 2000 Edward L. Proskey Vice President, Operations 12