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I have been waiting 18 months for this contract money to start coming in and boy o boy it looks nice...more to come as well. DEWY has only 1.3m out and is trading up a bit today at 1.25/1.56 but is worth a heckuva lot more....my opinion only. 4th qtr and next year already look very good. Do your own dd. gpg DEWEY ELECTRONICS CORP (DEWY) Quarterly Report (SEC form 10-Q) 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. Nine months ended March 31, 1999 vs. 1998 Revenues for the nine month period this year were $5,849,781 which is an increase of $4,112,325 compared to last year's revenues of $1,737,456. This increase is the result of increased electronic product revenues. Electronic product revenues increased by $4,162,023 (from $1,423,455 last year to $5,585,478 this year) as a result of greater production under the Company's contract with the U.S. Army for tactical generator sets. This contract accounted for 96% of the electronic segment revenues. The delivery of tactical generator sets had been scheduled to begin in March 1998. However, because of engineering changes initiated by the Company and approved by the U.S. Army, deliveries were rescheduled to begin in November 1998. As a result of this delay in delivery, production efforts were also delayed causing lower revenue recognition last year. Since fiscal year end, June 30, 1998, the Company has received approximately $8 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, the Army is not obligated to do so and no assurances can be given to the quantity or scheduling of additional generator set orders. Though the Company's contract with the Army contemplated annual orders in roughly equal amounts, actual order placements have varied in timing and size. The remaining 4% 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 35% of electronic segment revenues and the remaining 65% were derived from short term projects. As of March 31, 1999, the aggregate value of the Company's backlog of electronic products not previously recorded as revenues was approximately $7 million. It is estimated that approximately $2 million of this backlog will be recognized as revenues during the June 30, 1999 fiscal year. As of March 31, 1998, 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 $49,698 compared to last year's revenues (from $314,001 to $264,303). The major portion of revenues from this segment of business have been traditionally recorded during the second quarter. This year, the sale of a snowmaking machine during this third quarter resulted in machine sales being comparable to last year. The sale of replacement parts in this segment has been lower then recent years. The Company does not anticipate any significant revenues from this segment for the balance of the current fiscal year. Operations resulted in an operating profit of $.55 per share compared to an operating loss of $.18 per share last year. Net earnings per share were $.26 per share compared to a net loss of $.18 per share last year. Three Months Ended March 31, 1999 vs. 1998 Revenues for the third quarter this year were $2,025,158 compared to $407,040 last year resulting in an increase of $1,618,118 in revenues. This increase is 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. During last year's third 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 efforts being made during that third quarter, which did not begin until the first quarter of this fiscal year. In the leisure and recreation segment, revenues during the third quarter decreased by $23,962 (from $62,907 to $38,945). This decrease is the result of lower replacement parts sales discussed above, compared to last year. Operating profit for the third quarter this year was $.31 per share and net income resulted in a profit of $.16 per share. Last year the Company's operations resulted in a loss of $.13 per share and net income showed a loss of $.10 per share. Liquidity and Capital Resources at March 31, 1999 The Company's working capital ratio as of March 31, 1999 was 2.16 to 1 compared to 2.00 to 1 at June 30, 1998. 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 nine month period were $45,878 as compared with $15,370 in the comparable period last year. The Company does not anticipate any significant capital expenditures for the remainder of this fiscal year. Year 2000 Issue The Year 2000 ("Y2K") problem arises from the inability of uncorrected computer programs using only two digits to identify a year in the date field to distinguish between years beginning with 19 and 20. The Company has been preparing for the impact of the Y2K problem on its business by testing its own computer systems and by analyzing the possible impact of computer system failures of its significant 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, Y2K problems could be detrimental to the Company or any other company in this type of business. The Company has reviewed its internal computer systems for Y2K compliance by identifying and testing all of its internal systems. All critical programs and systems have been analyzed and tested. The operational tests were successful and included the actual processing applications under Y2K conditions. In November 1996, the Company hired an outside service to upgrade hardware and make modifications to its main software. The cost of these services was $5,085. Further expenditures of this sort are not anticipated. Based on information obtained to date in the course of surveys of key suppliers, the Company does not foresee any significant impact arising from third party computer system failures. However, the Company is not able to identify all Y2K issues that may exist at supplier levels and has not received sufficient information from all major third parties to confirm their Year 2000 preparedness. The Company's key vendor is a foreign manufacturer that provides engines for the U.S. Army tactical generator set project and is the Company's sole source of supply of this particular component. Such information as has been received to date through the supplier's U.S. distributor does not indicate that there will be a Y2K problem which could result in delay of the Company's performance. In this instance and in the case of other important suppliers, the Company has been investigating other sources as well as the use of other products and intends to continue contingency planning to eliminate any material financial impact on the Company. | ||||||||||||||
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