UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

---
|X|      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
---      EXCHANGE ACT OF 1934

         For the fiscal year ended June 30, 2006

                                       or
---
| |      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---      SECURITIES EXCHANGE ACT OF 1934

                          Commission file number 0-2892

                        THE DEWEY ELECTRONICS CORPORATION
               (Exact name of registrant as specified in charter)

NEW YORK                                                              13-1803974
(State of Incorporation)                    (I.R.S. Employer Identification No.)

27 Muller Road, Oakland, New Jersey                                      07436
(Address of principal executive offices)                               Zip Code

                                  201-337-4700
                         (Registrant's telephone number)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
                                      ----

           Securities registered pursuant to Section 12(g) of the Act:
                          Common stock, $.01 par value
                          ----------------------------
                                (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes      No X
                                               ---    ---

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes     No  X
                                                        ---    ---

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    .
                                      ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form l0-K __.

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer       Accelerated filer       Non-accelerated filer X .
                        ---                     ---                        ---

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes    No  X .
                                    ---    ---

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, computed by reference to the price at which
the common stock was sold as of the close of business on December 30, 2005 was
$3,201,689.

The number of shares outstanding of the registrant's common stock, $.01 par
value was 1,362,031 at October 6, 2006.

                       Documents Incorporated by Reference

Portions of the Company's definitive Proxy Statement for the 2006 Annual Meeting
of Stockholders are incorporated herein by reference in Part III.

<PAGE>


                        THE DEWEY ELECTRONICS CORPORATION
                                TABLE OF CONTENTS


Item                                                                        Page
----                                                                        ----
                                     PART I

1.   Business                                                                  3

1A.  Risk Factors                                                              6

1B.  Unresolved Staff Comments                                                 7

2.   Properties                                                                7

3.   Legal Proceedings                                                         8

4.   Submission of Matters to a Vote of Security Holders                       8


                                     PART II

5.   Market for Registrant's Common Equity, Related
     Stockholder Matters and Issuer Purchases of Equity
     Securities                                                                9

6.   Selected Financial Data                                                  10

7.   Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                      11

8.   Financial Statements                                                     22

9.   Changes in and Disagreements with Accountants on
     Accounting and Financial Disclosure                                      42

9A.  Controls and Procedures                                                  42

9B.  Other Information                                                        42


                                    PART III

10.  Directors and Executive Officers of the Registrant                       43

11.  Executive Compensation                                                   43

12.  Security Ownership of Certain Beneficial Owners and
     Management and Related Stockholder Matters                               43

13.  Certain Relationships and Related Transactions                           43

14.  Principal Accounting Fees and Services                                   43


                                     PART IV

15.  Exhibits, Financial Statement Schedules                                  44

16.  Signatures                                                               45


                                       2
<PAGE>

                                     PART I

Item 1.  BUSINESS
-----------------

The Dewey Electronics Corporation (the "Company") was incorporated in the State
of New York in 1955. It is a systems oriented military electronics development,
design and manufacturing organization based in Oakland, New Jersey. The Company
is organized into two operating segments on the basis of the type of products
offered. Each segment is comprised of separate and distinct businesses: the
Electronics segment, primarily business with the Department of Defense, and the
Leisure and Recreation segment, primarily business with ski areas and resorts.

In the Electronics segment, the Company is a producer of electronic and
electromechanical systems for the Armed Forces of the United States. The Company
provides its products in this segment either as a prime contractor or as a
subcontractor for the Department of Defense.

The Electronics segment is comprised mostly of the 2kW generator product line,
two research and development contracts, and other various spare parts sales
orders, more limited in scope and duration. The 2kW generator product line is
provided to the various branches of the Armed Forces of the United States.
Production is under a long-term contract as well as short-term orders for
limited quantities. The Company also provides speed and measurement
instrumentation primarily for the U.S. Navy and other prime contractors such as
shipbuilders. Orders are also received for replacement parts and equipment for
previous Company contracts with the Department of Defense as well as other
projects performed as a subcontractor. In past years, the Company had various
long-term contracts to provide the U.S. Navy with various equipment.

The Company has been the sole source producer of the 2kW diesel operated
tactical generator set for the Department of Defense since 1997. Its initial
contract was awarded by the U.S. Army in 1996 and final deliveries were made
under that award in March 2002. Deliveries were made to the various branches of
the Armed Forces of the United States.

A new contract was awarded in September 2001 to provide the U.S. Army and other
Department of Defense Agencies with this same 2kW diesel operated generator set.
This contract is a ten-year indefinite delivery, indefinite quantity contract
which replaces the initial contract awarded in 1996. The total amount of orders
under the September 2001 contract placed through August 31, 2006 amount to
approximately $19 million. Deliveries of orders currently in-house are scheduled
to continue through fiscal year 2007. As with the initial contract mentioned
above, this contract allows for the U.S. Army to place annual production orders
and to place additional interim orders. However, no assurances can be made that
further orders will be placed or, if they are placed, the timing and amount of
such orders.

On September 9, 2003, the Company was awarded a "cost plus fixed fee" research
and development contract. This contract with the U.S. Army Communications -
Electronic Command, CECOM Acquisition Center, Washington was in the amount of
approximately $1.8 million. The contract was for the research and development of
improvements to the current 2kW diesel operated generator set specifically at
the request of the U.S. Army for lighter, quieter models. Work on this contract
was performed at the Company's location in Oakland, New Jersey and continued
through September 2005. On September 28, 2004, the Company was awarded a second
"cost plus fixed fee" research and development contract by the U.S. Army, in the
amount of approximately $1.5 million, for work to be performed towards similar
objectives. Work on this project continued through September 2006. No assurances
can be made that the Company will receive any future production orders as a
result of these contracts or that the United States Government (the
"Government") will award the Company any additional research and development
contracts. However, both of the research and development contracts described
above require the Company to present improvements to the Government.

In the Leisure and Recreation segment, the Company, through its HEDCO Division,
designs, manufactures and markets advanced, sophisticated snowmaking equipment.
It


                                       3
<PAGE>

also supplies replacement parts for items no longer covered under warranty.

The Company's primary sources of revenue include products with long
manufacturing lead times. These products, in particular, are its 2kW generator
sets, and its HEDCO snowmaking machines. Recognizing this, the Company has
committed some of its resources to making a quantity of these products readily
available by producing them for inventory and sales. The Government sector has
been ordering limited quantities of 2kW generator sets for specific uses
pursuant to short-term orders independent of the Company's 2kW contract.

There are no intersegment sales.

The sales and operating profit of each segment and the identifiable assets
attributed to each segment for the last three fiscal years ended June 30, 2006
are set forth in Note 12 - Operating Segments of the Notes to the Financial
Statements.

The Company expenses its research and development costs as incurred. These costs
consist primarily of salaries and material costs. For the fiscal years ended
June 30, 2006, 2005 and 2004, the Company expensed $66,791, $101,764 and
$127,704, respectively, of research and development costs. As discussed above,
the Company and the U.S. Army entered into a research and development contract
in fiscal year 2004 and a second research and development contract in fiscal
year 2005. The costs incurred under these contracts in fiscal years 2006, 2005
and 2004 were billed to the customer.

Compliance with Federal, state and local environmental provisions has had no
material effect upon capital expenditures, income or the competitive position of
the Company. In addition, there are no material capital expenditures anticipated
for environmental compliance.

As of August 31, 2006 , the Company had a work force of 36 employees, of whom 10
were technical or professional personnel. As of August 31, 2005 there were 34
employees, 11 of whom were professional or technical personnel. Fluctuations in
the work force during the year sometimes result from the uneven delivery
requirements of the Department of Defense as well as the seasonal nature of the
Leisure and Recreation segment of business.

ELECTRONICS SEGMENT
-------------------

The Company's Electronics segment accounted for 98%, 97% and 94% of total
revenues in fiscal years 2006, 2005 and 2004, respectively.

In the Electronics segment, revenues are recorded under defense contracts
(including research and development contracts) using the
percentage-of-completion method of accounting. Revenues are recorded as work is
performed based on the percentage that actual incurred costs bear in comparison
to estimated total costs utilizing the most recent estimates of costs and
funding. Since contracts typically extend over multiple reporting periods,
revisions in costs and estimates during the progress of work have the effect of
adjusting earnings applicable to performance in prior periods in the current
period. When the estimated costs to complete a project indicate a loss,
provision is made for the anticipated loss in the current period. For further
information see Note 1-A of the Notes to Financial Statements.

Virtually all of the Electronics segment revenues are attributable to business
with the Department of Defense or with other Government contractors. Aside from
replacement part sales and other short-term business, the Company's Electronics
segment revenues have in recent years been dependent upon single programs. Thus,
until 1997, the ADCAP torpedo program with the U.S. Navy was responsible for all
of the Company's Electronics segment revenues from long-term projects. In 1997
this program was replaced by the tactical generator set program with the U.S.
Army.

Since substantially all of the Company's electronics business is derived from
contracts with various Government agencies or subcontracts with prime Government
contractors, the loss of substantial Government business would have a material
adverse effect on the business.


                                       4
<PAGE>

For the most part, working capital requirements for the Electronics segment of
business are funded by progress payments provided by the Government and receipts
of billings made for delivery of product.

All of the Company's contracts with the Government are subject to the standard
provision for termination at the convenience of the Government.

Although raw materials are generally available from a number of suppliers, the
Company is at times dependent upon a specific supplier or a limited number of
suppliers of material for a particular contract and has occasionally experienced
some delays in deliveries. Such delays have not had a material adverse effect on
operations of this segment; however, the Company cannot provide any assurances
that future delays, if any, will not have a material adverse effect.

Reference is made to Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information regarding this
segment.

LEISURE AND RECREATION SEGMENT
------------------------------

The Company's Leisure and Recreation segment accounted for 2%, 3% and 6% of
total revenues in fiscal years 2006, 2005 and 2004, respectively.

Snowmaking equipment is sold to ski areas as original equipment or as
replacements for existing equipment. Most snowmaking equipment is paid for in
full at delivery to the customer. In other cases, such equipment is sold under a
sales contract that provides for a substantial down payment and retention of a
security interest in the equipment until full payment is received. The Company
has not experienced any losses due to resale of the equipment following default
by customers. The Company services the equipment at the purchaser's expense
after a warranty period that typically expires at the end of the snowmaking
season in which the sale occurs. The Company's warranty reserves are not
significant.

The Company has sold snowmaking equipment to over three hundred different
locations in the United States and abroad. Marketing has been performed by the
Company's employees in the domestic market and by distributors and
representatives in foreign markets. In the past several years, the foreign
market represented a small amount of revenues, all from the sales of parts.

For the most part, shipments are made and revenues recorded during the second
fiscal quarter. Production usually takes place in the first and second quarters,
and it is during this period that inventory has been generated and working
capital demands have been the greatest. The sale of snowmaking machines are
recorded when machinery has been delivered and title and risk of loss have been
transferred to the customer and collection is probable.

The market for snowmaking machines has changed in recent years. Rather than
order machinery months ahead of time, customers are expecting product to be
readily available for immediate use. In order to remain competitive in this
market, the Company has produced some Snowcub models for inventory purposes. It
has also enhanced the technical capabilities as optional items for these
machines.

After the end of fiscal year 2006, management completed a strategic review of
the spare parts business. As a result, for the fourth quarter of fiscal year
2006, the Company recorded an adjustment of $299,596 against inventory related
to spares for old models of snowmakers. Starting in January 2007, the Company
will focus on customers using the most recent model line, the Snowcub. The
Company will continue to actively market and support the Snowcub line of
machines and will cease to support past models. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Leisure and Recreation for additional information.

While there may be some temporary delays, problems regarding source and
availability of raw materials have had no material adverse effect on operations
of this segment.


                                       5
<PAGE>


Reference is made to Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information regarding this
segment.

Item 1A. RISK FACTORS
---------------------

You should carefully consider the risks described below, together with all of
the other information included in this Annual Report. The following risks and
uncertainties are not the only ones we face. However, these are the risks our
management believes are material. If any of the following risks actually
materialize, our business, financial condition or results of operations could be
harmed. This Annual Report contains statements that are forward-looking. These
statements are based on current expectations and assumptions that are subject to
risks and uncertainties such as those listed below and elsewhere in this Annual
Report, which, among others, should be considered in evaluating our future
performance.

The Company's Dependence on Government Defense Business and the 2kW Program
---------------------------------------------------------------------------

Most of our revenues are derived from Government defense business, which is
comprised of business with the U.S. Department of Defense or with other
Government contractors. Our Government defense business consists of long-term
contracts and short-term orders such as for replacement parts. The loss of
substantial Government business (including a material reduction of orders under
existing contracts) would have a material adverse effect on our business.

Historically, our revenues from our Government defense business have been
dependent upon single programs. Currently, our primary program is with the U.S.
Army to provide diesel operated generator sets. On September 7, 2001, we were
awarded a ten year indefinite delivery, indefinite quantity contract to provide
the U.S. Army and other Department of Defense agencies with 2kW diesel operated
generator sets. The amount of orders received under this contract is
approximately $19 million through June 30, 2006. Our generator set contract with
the U.S. Army allows the U.S. Army to place additional orders; however, we
cannot give any assurances that the U.S. Army will do so, or if there are
additional orders, the amount and timing of the orders. In addition, we
experienced inflationary pressures in fiscal year 2006 and cannot give any
assurances that the Government will agree to a price increase under the contract
that would be equitable to the Company.

We continue to explore additional sources of revenue to reduce our dependence on
the 2kW program, but cannot give any assurances that these efforts will be
successful or, if successful, when they will be achieved. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Company Strategy for additional information regarding Company
strategy.

Supplier Concentration Risks
----------------------------

The Company is primarily dependent on three vendors to supply qualified
components for its 2kW generator products. During fiscal year 2006, two of these
suppliers accounted for 32.4% and 23.4% of material purchases, respectively. See
Note 1-B of the Notes to Financial Statements. We purchase these components
pursuant to purchase orders and do not have long-term contracts with any of
these vendors. While there may be some temporary delays, problems regarding
source and availability of raw materials have had no material adverse effect on
operations of the Electronics segment. However, we cannot give any assurances
that these three sources of supply will continue to be available to us or, if
any or all of these sources are not available to us when we need them to be
available, that the Company will be able to implement alternative sources of
supply without undue delay or expense.

Risks Associated with Government Defense Contracting; Competition
-----------------------------------------------------------------

The Government defense business is subject to changes in military procurement
policies and objectives and to Government budgetary constraints. Periods of
heightened national security and war have often introduced new priorities and


                                       6
<PAGE>

demands, external delays, and increased uncertainty into the defense contracting
marketplace. In addition, the Department of Defense budgeting process has an
extended timeframe. The process of including expenditures in this budget could
take a minimum of 12 to 24 months.

Approval of the Department of Defense budget does not guarantee that budgeted
expenditures will actually be made and, in particular, that we will receive an
award or order for a product. Among other things, we bid for this business in
competition with many defense contractors, including firms that are larger in
size and have greater financial resources than we have. Moreover, we now believe
that there has been competition in part of the market for generator sets, from a
larger 3kW generator that operates more quietly than our 2kW model. However,
this 3kW generator does not compete in the `man-portable' segment of the market
since it is twice as heavy.

All of our contracts with the Government are subject to the standard provision
for termination at the convenience of the Government.

Changes in the Market for Snowmaking Machines
---------------------------------------------

The market for snowmaking machines has changed in recent years. Rather than
order machinery many months in advance of delivery, customers are expecting
product to be readily available for immediate use. In order to remain
competitive in this market, we have produced some Snowcub snowmaking machines
for inventory purposes. We have also enhanced the technical capabilities as
optional items for these machines.

After the end of fiscal year 2006, management completed a strategic review of
the spare parts business. As a result, for the fourth quarter of fiscal year
2006, the Company recorded an adjustment against inventory related to spare
parts for old models of snow makers. Starting in January 2007, the Company will
focus on customers using the most recent model line, the Snowcub. The Company
will continue to actively market and support the Snowcub model line and will
cease to support past models. Reference is made to Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Leisure and Recreation for additional information.

Despite the inherent risks and uncertainties of investing in inventory,
management believes that the existing investments in Snowcub related inventory
and the elimination of spare parts inventory for older models described above
are important to the Company's business and future growth.

Item 1B. UNRESOLVED STAFF COMMENTS
----------------------------------

None.
-----

Item 2.  PROPERTIES
-------------------

The Company's 49,200 square foot facility at 27 Muller Road, Oakland, New
Jersey, located on 90 acres of land owned by the Company, was constructed in
1981. This facility houses executive offices and manufacturing operations and is
used primarily for the Electronics segment of business. Approximately 90% of
this facility is being utilized for production (one shift), staging and storage.

On February 24, 2005, the Company and Sovereign Bank entered into a Term Loan
Agreement that replaced, and restructured the remaining balance due on, the
Company's previous Mortgage Note agreement with Sovereign Bank. This Term Loan
Agreement matures on February 23, 2007. Neither the land nor the building is
subject to a lien under this Term Loan Agreement, or under the Company's line of
credit with Sovereign Bank.

Reference is made to Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information regarding
financing activities.


                                       7
<PAGE>

Item 3.  LEGAL PROCEEDINGS
--------------------------

There are no material pending legal or environmental proceedings against or in
favor of the Company.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2006.




                                       8
<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
-------------------------------------------------------
         STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
         --------------------------------------------------

The Company's common stock is traded over-the-counter under the symbol
"DEWY.OB".

The table below sets forth the high and low market prices of the Company's
common stock for each quarter during the last two fiscal years.

                       Quarterly Common Stock Price Range
                       ----------------------------------

                                  Fiscal Year 2006    Fiscal Year 2005
                                  ----------------    ----------------

                                    High     Low        High     Low
                                    ----     ---        ----     ---
       1st Quarter                  6.00     3.60       4.50    3.00
       -----------
       2nd Quarter                  4.75     3.19       7.50    3.20
       -----------
       3rd Quarter                  4.35     3.80       7.19    5.60
       -----------
       4th Quarter                  4.50     3.75       6.65    5.65
       -----------


Price information is based on over-the-counter market quotations, which reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may
not necessarily represent actual transactions.

There were no dividends declared or paid during fiscal years 2006, 2005 and
2004. The Company has no plans to pay dividends in the foreseeable future.

The number of holders of record of the Company's common stock as of September
11, 2006 was 449.



                                       9
<PAGE>


Item 6.  Selected Financial Data
--------------------------------

<TABLE>
<CAPTION>

                                        (In thousands of dollars, except per share amounts)

                                                          Year ended June 30,

                                           2006       2005       2004      2003      2002
                                           ----       ----       ----      ----      ----
<S>                                     <C>        <C>        <C>       <C>       <C>
Revenues                                $ 7,335    $ 6,199    $ 6,015   $ 6,362   $ 8,916
(Loss)/income before income taxes          (527)       (58)       242       477     1,459
Net (loss)/income                          (563)       (31)       773       286       876
Net (loss)/income per share - basic       (0.41)     (0.02)      0.57      0.21      0.65
Net (loss)/income per share - diluted     (0.41)     (0.02)      0.55      0.20      0.63
Cash dividends per common share              --         --         --        --        --

Total assets                              5,761      6,472      6,482     6,352     6,818
Long-term obligations                       243        528        248     1,371     1,674
Working capital                           2,946      3,627      3,472     4,028     4,768
Stockholders' equity                      4,567      5,011      5,159     4,367     4,253

</TABLE>



                                       10
<PAGE>


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
--------------------------------------------------------------------
         AND RESULTS OF OPERATIONS
         -------------------------

The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's Financial Statements, including the related
notes thereto, appearing elsewhere in this Annual Report. Certain statements in
this report 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
report 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 and specifically, the factors discussed below under "Company
Strategy" and in Item 1A above (Risk Factors). 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.

The sales and operating profit of each segment and the identifiable assets
attributed to each segment for the last three fiscal years ended June 30, 2006,
are set forth in Note 12 - Operating Segments of the Notes to the Financial
Statements.

Results of Operations
---------------------

The Company's fiscal year ends on June 30. Accordingly, all references to years
in this Management's Discussion refer to the fiscal year ended June 30 of the
indicated year. Also, when referred to herein, operating profit means net sales
less operating expenses. Some operating expenses, including general corporate
expenses, have been allocated by specific identification or based on labor for
items which are not specifically identifiable.

Revenues
--------

Revenues in fiscal year 2006 were 18% higher than fiscal year 2005. Revenues in
fiscal year 2005 were 3% higher than fiscal year 2004. Revenues in 2006 were
higher in the Electronics segment and lower in the Leisure and Recreation
segment than in fiscal year 2005. Revenues in 2005 were higher in the
Electronics segment and lower in the Leisure and Recreation segment than in
fiscal year 2004. Information about the Company's operations in the two segments
is set forth in Note 12 - Operating Segments of the Notes to the Financial
Statements and is discussed in further detail below.

Electronics Segment
-------------------

In the Electronics segment, revenues are recorded under defense contracts using
the percentage-of-completion method of accounting. Revenues are recorded as work
is performed based on the percentage that actual incurred costs bear in
comparison to estimated total costs utilizing the most recent estimates of costs
and funding. Since contracts typically extend over multiple reporting periods,
revisions in cost and estimates during the progress of work have the effect of
adjusting earnings applicable to performance in prior periods in the current
period. When the estimated costs to complete a project indicate a loss,
provision is made for the anticipated loss in the current period. For further
information see Note 1-A of the Notes to Financial Statements.

                                       11
<PAGE>

Electronic product revenues accounted for 98% of total revenues in 2006, 97% of
total revenues in 2005 and 94% of total revenues in 2004.

Revenues in the Electronics segment in fiscal year 2006 were $1,175,936 higher
when compared to fiscal year 2005 and in 2005 revenues were $348,052 higher when
compared to fiscal year 2004.

In fiscal year 2006, the Company experienced increased revenues in this segment
compared to fiscal year 2005 due to increased efforts under the Company's
generator set production contract and from various orders for replacement parts
and other short-term orders. Revenues resulting from the Company's research and
development contracts described below were lower this year compared to last year
due to completion of work on the first of the Company's two contracts during the
first quarter of fiscal year 2006. Work on the second research and development
contract continued throughout fiscal year 2006. In fiscal year 2006, the Company
added approximately $160,000 of material to its inventory of components for the
2kW generator sets due to increased production demands.

In fiscal year 2006, production efforts under the Company's contract to provide
the Armed Forces with 2kW diesel operated generator sets provided approximately
59% of the Electronic segment revenues compared to approximately 35% in fiscal
year 2005 and approximately 57% in fiscal year 2004. The Company's research and
development contracts provided approximately 13% of Electronics segment revenues
in 2006, approximately 30% of such revenues in fiscal year 2005, and
approximately 7% of such revenues in fiscal year 2004. Replacement parts and
other short-term business provided approximately 28% of such revenues in fiscal
year 2006, approximately 35% of such revenues in fiscal year 2005 and
approximately 36% of such revenues in fiscal year 2004.

In fiscal year 2005 the Company experienced increased revenues in this segment
compared to fiscal year 2004 due to increased research and development efforts
and an increase in orders for spare parts and other short-term orders. Revenues
resulting from the Company's generator set production contract were lower when
compared to the previous year due to reduced orders and the resulting reduction
in production levels. In fiscal year 2005, the Company added approximately
$570,000 of material to component inventory for 2kw generator sets. This was
intended to supply orders of small quantities for immediate delivery and to
facilitate production for long-term orders.

During September 2003, the Company was awarded a "cost plus fixed fee" research
and development contract in the amount of approximately $1.8 million. Work on
this contract ended in September 2005. This contract was for the research and
development of improvements to the current 2kW diesel operated generator set
specifically at the request of the U.S. Army for lighter, quieter models. It
included efforts similar to those that the Company had previously invested in
specifically at the request of the U.S. Army. The Company earned from this
contract approximately $0.2 million during fiscal year 2006, approximately $1.2
million during 2005 and approximately $0.3 million during 2004. It incurred
direct costs of approximately $0.1 million during fiscal year 2006,
approximately $1.0 million during 2005 and approximately $0.3 million during
2004, which were billed to the customer.

During September 2004, the Company was awarded a second "cost plus fixed fee"
research and development contract by the U.S. Army, in the amount of
approximately $1.5 million, for work to be performed towards similar objectives.
Work on this contract continued through September 2006. As a result of efforts
towards this project, the Company earned approximately $0.9 million during
fiscal year 2006 and approximately $0.6 million during fiscal year 2005. It
incurred direct costs of approximately $0.7 million during fiscal year 2006 and
approximately $0.5 million during fiscal 2005, which were billed to the
customer. There was no activity on this project prior to 2005.For additional
information, see Item 1 - Business above.

The Company experiences variable amounts of material receipts from time to time
during the normal course of business. Material receipts are dependent upon the
receipt of orders, project requirements and vendor delivery schedules. As the
Company uses the percentage-of-completion method of accounting to record
revenues,


                                       12
<PAGE>

material costs have an impact upon recorded revenues (see Note 1-A, Revenue
Recognition of the Notes to Financial Statements).

The aggregate value of the Company's backlog of electronic products not
previously recorded as revenues was $3.3 million on June 30, 2006, $2.9 million
on June 30, 2005 and $3.2 million on June 30, 2004. It is estimated that most of
the present backlog will be billed during the next 12 months and recognized as
fiscal year 2007 revenues.

Leisure and Recreation Segment
------------------------------

In the Leisure and Recreation segment, revenues in fiscal year 2006 decreased by
approximately $39,823 when compared to fiscal year 2005. This is the result of a
decrease in the sale of repair and replacement parts for machinery previously
sold and no longer under warranty. When compared to fiscal year 2004, revenues
in this segment in fiscal year 2005 decreased by approximately $164,580. This
decrease is attributable to a decrease in sales of snowmaking machines as well
as the sales of replacement parts for machinery previously sold and no longer
under warranty. There were no export sales of snowmaking machines during the
last three fiscal years.

In fiscal years 2005 and 2004, the Company developed enhancements to its
snowmaking machines that simplify the operation of the HEDCO snowmaker and
provide remote control operations and monitoring capabilities. The costs of
developing these enhancements were expensed as incurred. In addition, the market
for snowmaking machines has changed in recent years. Rather than ordering
machinery many months in advance of delivery, customers are expecting product to
be readily available for immediate use. The last year in which the Company had a
backlog of orders for snowmaking machines was in 2001. In order to remain
competitive, the Company has produced some Snowcub snowmaking machines for
inventory purposes.

After the end of fiscal year 2006, management completed a review of the spare
parts business. Since introducing the H-2d snowmaker in 1971 the Company has
maintained the capacity to support all past models of snowmaking machines that
are still in use. However, starting in January 2007, the Company will focus on
customers using the most recent model line, the Snowcub. The Company will
continue to actively market and support the Snowcub model line and will cease to
support past models. As a result, for the fourth quarter of fiscal year 2006,
the Company recorded an adjustment of $299,596 against inventory related to
spares for old models of snow makers. The remaining segment inventory at the end
of fiscal 2006 was either new Snowcub machines or spare parts for Snowcub
models.

Gross Profit
------------

The Company's gross profit was $838,302 in fiscal year 2006, $1,265,808 in 2005
and $1,494,033 in 2004.

Gross margin is the measure of gross profit as a percentage of revenues. Gross
margin was 11%, 20%, and 25% in fiscal years 2006, 2005 and 2004, respectively.
The Company's gross margin is affected by a variety of factors including, among
other items, product mix, product pricing and other costs, such as inventory
adjustments and internal research and development costs expensed in costs of
goods sold. Fiscal year 2006 results are due primarily to an inventory
adjustment with respect to the Company's Leisure and Recreation segment (see
"Leisure and Recreation Segment" above) and a change in product mix as the
Company has engaged in less research and development for the U.S. Army (see
"Electronics Segment" above). This reduction in the research and development
effort had the effect of shifting a greater proportion of overhead costs to
other products thereby reducing the gross margin generated by these other
product revenues when compared to fiscal year 2005.

The revenues and operating profit of each segment and the identifiable assets
attributed to each segment for the last three fiscal years ended June 30, 2006
are set forth in Note 12 - Operating Segments of the Notes to the Financial
Statements.

Selling, General and Administrative Expenses
--------------------------------------------

In fiscal year 2006, selling, general and administrative expenses of $1,345,757
were 18% of revenues. In 2005, selling, general and administrative expenses of
$1,299,863

                                       13
<PAGE>

were 21% of revenues and in 2004 they were $1,213,192 or 20% of revenues. For
the three year period, selling, general and administrative expenses as a
percentage of revenues have remained relatively level.

Interest Expense
----------------

Interest expense for the past three years amounted to $30,527 in fiscal year
2006, $35,459 in 2005 and $45,165 in 2004. This reduction in interest expense is
attributed to principal reduction payments made towards the Company's mortgage
note as well as a restructured loan agreement in fiscal year 2005 replacing the
Company's mortgage note with a term loan at a lower interest rate.

Other Income - Net
------------------

Amounts reported as other income represent the net effect of interest and
miscellaneous items such as the sale of scrap, bank transaction fees and other
like items.

Other income of $10,977 for fiscal year 2006 was comprised of interest income of
$18,047, and the net expense of miscellaneous items and fees of $3,856 and the
loss on the sale of assets of $3,214.

In fiscal year 2005, other income of $11,956 was comprised of interest income of
$11,252, and the net income of miscellaneous items and scrap sales of $704.

Other income of $6,410 for fiscal year 2004 was comprised of interest income of
$6,372, and the net expense of miscellaneous fees and discounts of $1,062 and
the gain on the sale of assets of $1,100.

Net (Loss)/Income before income taxes
-------------------------------------

Net loss before income taxes for fiscal year 2006 was $527,005. For the year
ended June 30, 2005 operating loss before income taxes was $57,558. For the year
ended June 30, 2004, operating income before income taxes was $242,086.

Fiscal year 2006 results decreased primarily due to an inventory adjustment with
respect to the Company's Leisure and Recreation segment (see "Leisure and
Recreation Segment" above) of approximately $300,000 and a change in product mix
as the Company has engaged in less research and development for the U.S. Army
(see "Electronics Segment" above) which had the effect of shifting a higher
proportion of overhead costs to other product lines thereby reducing their
profitability.

Income Taxes
------------

Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts and for tax loss and
credit carryforwards.

A valuation allowance is provided against deferred tax assets when it is
determined to be more likely than not that these amounts will not be realized.

In fiscal year 2004, the Company determined that a portion of its deferred tax
liability associated with plant, property and equipment was no longer necessary.

The income tax liability for fiscal year 2006 was at an effective net tax rate
of approximately 6.92%. The income tax benefit was at an effective net tax rate
of approximately (45.84%) for fiscal year 2005. For 2004 the income tax benefit
was at an effective net tax rate of approximately (219.4%), primarily as a
result of a benefit from the expiration of a deferred tax liability.

Inflation
---------

Historically, inflation and price changes have not had a material effect on net
sales and revenues and on income from continuing operations. Management does not
believe that inflation and price changes in fiscal year 2006 had a material
effect on net


                                       14
<PAGE>

sales and revenues. However, in fiscal year 2006, the 2kW generator set business
experienced increased costs related to metals, transportation and foreign
sourced components. The 10-year prime contract for the generator sets with the
Government, awarded in 2001, allows for a small annual increase in selling
price. Profits have been reduced as a result of costs increasing faster than the
selling price.

In the last quarter of fiscal year 2006 the Company instituted price increases
for future delivery of generators sold separately from the prime contract. No
generator sales were made at the new price in fiscal year 2006. The Company is
investigating an appropriate pricing modification under the prime contract,
however no assurances can be made that the Government will agree to a
modification, or that such a modification would be equitable to the Company.

Liquidity and Capital Resources
-------------------------------

The Company's principal capital requirements are to fund working capital needs
and any debt servicing requirements and capital expenditures. The Company's
borrowing capacity has remained above its use of outside financing. Management
believes that the Company's future cash flow from operations, combined with its
existing line of credit of $500,000, will be sufficient to support working
capital requirements and capital expenditures at their current or expected
levels.

Management also believes that it can continue to meet the Company's 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.

At June 30, 2006, the Company's working capital was $2,946,071 compared to
$3,627,322 at June 30, 2005.

The ratio of current assets to current liabilities was 4.38 to 1 at June 30,
2006 and 4.89 to 1 at June 30, 2005.

The following table is a summary of the Statements of Cash Flows in the
Company's Financial Statements:

                                            Years ended June 30,
                                      2006         2005         2004
Net Cash Provided by (used in)
  Operating activities           $ 232,547    $ 171,305    $ 112,335
  Investing activities            (192,767)    (299,816)    (436,625)
  Financing activities            (354,606)     (85,638)     (60,938)

Operating Activities:
---------------------

Adjustments to reconcile net (loss)/income to net cash provided by operations
are presented in the Statements of Cash Flows in the Company's Financial
Statements.

Net cash provided by operating activities in fiscal year 2006 was comprised
primarily of net loss before depreciation and amortization. Decreases in
accounts receivable, inventories, prepaid expenses and deferred tax benefits
were partly offset by an increase in contract costs and estimated related
profits in excess of applicable billings. Increases in accrued expenses and
accrued pension costs were partly offset by a decrease in accounts payable.

Net cash provided by operating activities in fiscal year 2005 was comprised
primarily of a net loss before depreciation and amortization. An increase in
inventories was offset by a decrease in contract costs and related estimated
profits in excess of applicable billings, a decrease in accounts receivable and
an increase in accounts payable. Further information regarding inventory
increases are discussed in the section entitled "Company Strategy".

Net cash provided by operating activities in fiscal year 2004 consisted
primarily of net income before depreciation and amortization. This was partially
offset by an increase in inventories and the net effect of deferred income
taxes.


                                       15
<PAGE>

Company sponsored research and development costs are expensed as incurred. These
costs consist primarily of material and labor costs. The Company expensed
$66,791 of these costs during fiscal year 2006, $101,764 of these costs during
fiscal year 2005 and $127,704 of these costs during fiscal year 2004.

Investing Activities:
---------------------

During fiscal year 2006, net cash of $192,767 was used in investing activities.
This amount consisted of $164,466 used for capital expenditures, principally for
the acquisition and implementation of a computerized business system, and
$28,651 that was expended for costs related to land held for future sale. The
Company realized $350 from the sale of an asset.

During fiscal year 2005, net cash of $299,816 was used in investing activities.
This amount consisted of $146,904 for capital expenditures for building
improvements, tooling and equipment, and $53,586 for the Company's investment in
the expansion of existing technologies as well as engineering related to the
generator product line to satisfy specific customer needs. See "Company
Strategy" below. The Company also expended $99,326 for costs related to land
held for sale. Of land costs held for sale, $63,946 related to the agreement of
sale was expensed. See "Financing Activities" below.

During fiscal year 2004, net cash of $436,625 was used in investing activities.
Of this amount, $285,559 was used for plant property and equipment including a
new machining center and $152,166 was used by the Company to continue to invest
in efforts to improve its products and existing technologies in its generator
product line. These expenditures primarily include the acquisition of existing
technology as well as engineering related to the generator to satisfy customer
needs. The Company realized $1,100 upon the sale of an asset.

Financing Activities:
---------------------

During fiscal year 2006, net cash used in financing activities amounted to
$354,606. Of this amount, $86,046 was applied as repayment of the Company's
long-term debt, consisting of the long-term portion of the Company's term loan
described below, and $68,560 was used toward payment of the current portion of
the Company's term loan. As of June 30, 2006 the Company had no long-term debt.
The Company also used $200,000 of net cash to repay a demand note payable to
Frances Dewey as discussed further in this section.

Net cash used in financing activities in 2005 amounted to $85,638. Principal
payments made toward the Company's long-term debt amounted to $87,083 and
proceeds from the sale of treasury stock sold through the Company's employee
stock option plan amounted to $1,445.

Net cash of $60,938 used in financing activities during fiscal year 2004
represents principal reduction payments made towards the Company's mortgage
note.

On February 24, 2005, the Company and Sovereign Bank (the "Bank") entered into a
Term Loan Agreement (the "Loan Agreement") that replaced, and restructured the
remaining balance due on, the Company's Mortgage Note agreement with the Bank,
which matured in January 2005. Pursuant to the Loan Agreement, the Company
borrowed $292,187 from the Bank for a term ending February 23, 2007, at a fixed
annual interest rate of 5.56 percent. This loan, of which $86,047 was
outstanding as of June 30, 2006, is secured by a first lien on all of the
Company's accounts receivable, machinery, equipment and other personal property
(the "Collateral") and is subject to customary representations, covenants and
default provisions in favor of the Bank.

The Company also has a line of credit agreement with the Bank in the amount of
$500,000 at an annual interest rate equal to the Bank's prime rate (8.0 as of
June 30, 2006) plus 0.25 percent. Effective November 9, 2005, this line of
credit agreement was renewed through December 31, 2006. As of June 30, 2006,
there were no outstanding borrowings against this line of credit facility. In
the event that the Company borrows funds under this line of credit facility, the
loan would be co-collateralized by the Collateral under the Loan Agreement.

                                       16
<PAGE>


During 1988, Gordon C. Dewey, the Company's co-founder, lent the Company a total
of $200,000, pursuant to an unsecured demand note bearing interest at the rate
of 9 percent per annum. On June 30, 2006, the Company repaid the demand note
payable to Frances D. Dewey, Mr. Dewey's widow.

The Company owns approximately 90 acres of land and the building, which it
occupies in Bergen County, New Jersey, adjacent to an interchange of Interstate
Route 287.

Previously, on December 29, 2004, the Company had agreed to sell approximately
68 undeveloped and unused acres of this land to K. Hovnanian North Jersey
Acquisitions, L.L.C. ("K. Hovnanian"), a wholly-owned subsidiary of Hovnanian
Enterprises, Inc., a residential real estate developer and homebuilder. The
Company's stockholders approved the sale of this land at the Annual Stockholders
meeting which was held on March 8, 2005. Completion of the proposed land sale
depended on, among other things, a number of conditions being satisfied,
including extensive regulatory and rezoning approvals from New Jersey State and
local entities. On June 2, 2005, the Company agreed to extend, from June 7, 2005
until September 7, 2005, the period (the "Investigation Period") during which K.
Hovnanian was permitted to conduct its investigation relating to the proposed
purchase. The Agreement of Sale provided that, during the Investigation Period,
if K. Hovnanian was not satisfied with the results of its investigation, it
could terminate the Agreement of Sale without explanation.

On July 25, 2005, the Company announced that it had received from K. Hovnanian a
notice terminating the Agreement of Sale. As a result of such termination, the
$200,000 deposit previously paid into escrow by K. Hovnanian was returned to K.
Hovnanian and the Company expensed $63,946 of related costs, which had been
capitalized as "Land and related costs held for sale", during the fourth quarter
of fiscal year 2005.

The Company is continuing to actively pursue possible methods of monetizing the
undeveloped and unused portion of its property, by its sale and/or development.
This endeavor has become more complex with the implications of New Jersey's
"Highlands Water Protection and Planning Act". Although the Act was passed in
June of 2004, the specifics are still emerging. The Act identifies approximately
400,000 acres of New Jersey as The Highlands Preservation Area. Pursuant to the
statute, this area has the most onerous restrictions on future development. The
Company's property is in this area, and further development would not be
permitted without a waiver or other relief from the State. The Company believes
that there are strong reasons why its property should not be in the preservation
area, and is attempting to affect a solution. However, the new Governor of the
State of New Jersey and administration took office in January 2006, the Act was
new then, and the Company does not believe that the associated regulations will
be promulgated any sooner than December 2006. Accordingly, no assurances can be
given that these efforts will be successful or, if successful, the timing
thereof.

Contractual Cash Obligations
----------------------------

The following table summarizes the Company's contractual cash obligations as of
June 30, 2006 and the estimated timing of future cash payments.


                                       17
<PAGE>

                             Payments Due by Period

<TABLE>
<CAPTION>
                                                          Less than                        More than
                                                 Total     1 Year    1-3 Years  3-5 Years   5 Years
<S>                                             <C>          <C>       <C>        <C>       <C>
Long Term Debt                                 $     --   $     --   $     --   $     --   $     --
Capital Lease Obligations                            --         --         --         --         --
Operating Leases                                     --         --         --         --         --
Purchase Obligations (1)                             --         --         --         --         --
Term Note Payable (2)                            86,047     86,047         --         --         --

Other Long-Term Liabilities Reflected on the
Balance Sheet under GAAP

Long Term Pension Liability (3)                 243,097      4,000     42,000     88,000    109,097
                                               --------   --------   --------   --------   --------

Total                                           329,144     90,047     42,000     88,000    109,097
                                               ========   ========   ========   ========   ========
</TABLE>

(1) Purchase Obligations - As of June 30, 2006, the Company had no material
purchase obligations other than those obligations included as liabilities in its
Balance Sheet. Purchase orders for raw materials or other goods and services are
not included in the table above as they typically represent authorizations to
purchase rather than binding agreements.

(2) Term Note Payable - As of June 30, 2006, the Company had an outstanding term
note with its primary bank. The current terms provide for an annual interest
rate of 5.56% and maturity in February 2007.

(3) Long-Term Pension Liability - See Note 8 to the Notes to Financial
Statements.

Recent Pronouncements
---------------------

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the impact of this Statement on its financial statements.

In July 2006, the FASB issued Financial Interpretation No. 48 (FIN 48)
(Accounting for Uncertainty in Income Taxes, as Interpretation of FASB Statement
No. 109). This Interpretation clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a
recognition and measurement threshold attributable for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact of this Interpretation on
its financial statements.


                                       18
<PAGE>

Company Strategy
----------------

The Company has many years of experience in contracting with the Department of
Defense and has received many contracts to provide various types of products and
services. Utilizing some of this experience, the Company is continuing to
explore other areas of business, which are capable of providing continued
stability and growth.

The Company's primary sources of revenue include products with long
manufacturing lead times. These products, in particular, are its 2kW generator
sets, and its HEDCO snowmaking machines. Recognizing this, the Company has
committed some of its resources to making a quantity of these products readily
available by producing them for inventory and sales. The Government sector has
been ordering small quantities of 2kW generator sets for specific uses pursuant
to short term orders independent of the Company's 2kW contract.

The market for snowmaking machines has changed in recent years. Rather than
order new machinery months ahead of time, customers are expecting product to be
readily available for immediate use. In order to remain competitive in this
market, the Company has produced some Snowcub models for inventory purposes.
Also in fiscal years 2004 and 2005, it enhanced the technical capabilities as
optional items for these machines.

After the end of fiscal year 2006, management completed a review of the
Company's spare parts business for its snowmaking machines. Since introducing
the H-2d snowmaker in 1971, the Company has maintained the capacity to support
all past snowmaking machines that are still in use. However, starting in January
2007, the Company will focus on customers using the most recent model line, the
Snowcub. The Company will continue to actively market and support the Snowcub
line of machines and will cease to support past models.

Despite the inherent risks and uncertainties of investing in inventory,
management believes that the investments in 2kW generator and Snowcub related
inventory and the ceasing of support for older Snowcub models described above
are important to the Company's business and future growth.

The Company is focusing its efforts on select product categories where
management believes that the Company can grow its business. Although no
assurances can be made that such strategy will be successful, management
believes that long term growth can be achieved from three perspectives, 1)
growing the Company's market share in areas where it already has a strong
presence, 2) expanding into related markets, and 3) expanding its strengths into
related product categories.

As part of this strategy, the Company has been investing in existing
technologies to meet the U.S. Army's future requirements. The U.S. Army is
interested in a product that is smaller, lighter and quieter and the Company is
working towards developing the 2kW generators to address its customer's request.
The Company's production contract for 2kW generators prohibits changes to the
unit's design and performance characteristics. This allows the military
procurement and logistics infrastructure to standardize on a single set of
requirements, and avoid incremental change. Traditionally this has been
advantageous to both customer and supplier. However, with evolving requirements
and competition, this can be less advantageous to the Company.

The Company has continued to invest in efforts to improve its products and
existing technologies. See "Investing Activities" above. This effort is focused
on the enhancement of the existing generator set product line and involves,
primarily, the adaptation of existing technology, as well as engineering and
design to meet specific customer requests. The scope of these efforts includes
the development of an improved product, which is in accordance with current
customer requests and future requirements. The Company is engaging in efforts to
address these requests in the areas of sound reduction, reduced weight, improved
fuel consumption and environmental considerations.


                                       19
<PAGE>

Other companies have announced intentions of developing similar products. Some
of these companies have greater financial and/or technical resources than the
Company. However, the Company's management believes that despite inherent risks
and uncertainties in all of these types of projects, these efforts are important
to the Company's business. Management believes that our current development
projects will result in enhanced salable products. As with all projects of this
nature, the Company cannot give any assurances that its product development work
will be successful or that it will achieve the desired results.

Management is also continuing to engage in efforts to re-enforce the customer
recognition of the Company's product quality and customer relationships. The
Company faces competition in many areas and from companies of various sizes.
Competitive factors include product quality, technology, product availability,
price, and customer service. Management believes that the reputation of the
Company in these areas provides a significant positive competitive factor.

Critical Accounting Policies and Estimates
------------------------------------------

The Company's financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America. Preparing financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. These estimates and assumptions affect the application of our
accounting policies. Actual results could differ from these estimates. Our
significant accounting policies are described in the Notes to the Financial
Statements contained herein. Critical accounting policies are those that require
application of management's most difficult, subjective or complex judgments,
often as a result of matters that are inherently uncertain and may change in
subsequent periods. The Company's critical accounting policies include revenue
recognition on contracts and contract estimates, pensions, impairment of
long-lived assets, capitalized development costs, and valuation of deferred tax
assets and liabilities.

Revenues and estimated earnings under defense contracts (including research and
development contracts) are recorded using the percentage-of-completion method of
accounting. Revenues are recorded as work is performed based on the percentage
that actual incurred costs bear in comparison to estimated total costs utilizing
the most recent estimates of costs and funding. 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.

In the Leisure and Recreation segment, revenues and earnings are recorded when
deliveries are made and title and risk of loss have been transferred to the
customer and collection is probable.

The Company has a defined benefit pension plan covering substantially all of its
employees. The Company accounts for its defined benefit pension plan in
accordance with SFAS No. 87 - "Employers' Accounting for Pensions," which
requires that amounts recognized in financial statements be determined on an
actuarial basis, rather than as contributions are made to the plan. A
significant element in determining the Company's pension income or expense in
accordance with SFAS No. 87 is the expected return on plan assets. The Company's
disclosures about its pension plan are made in accordance with SFAS 132R
(revised 2003), "Employers' Disclosures about Pensions and Other Postretirement
Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a revision of
FASB Statement No. 132." SFAS No. 132R revises employers' disclosures about
pension plans and other postretirement benefit plans. It does not change the
measurement or recognition of those plans required by SFAS No. 87, SFAS No. 88,
"Employers Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The new rules
require additional disclosures about the assets, obligations, cash flows, and
net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans.

                                       20
<PAGE>

Accordingly, the required information for the Company's pension plan is included
in the Notes to the Financial Statements.

The Company has assumed, based upon the types of securities the plan assets are
invested in and the long-term historical returns of these investments, that its
assumed discount rate will be 6.25% in 2006, compared with 5.16% in 2005. The
Company's management conducts an analysis which includes a review of plan asset
investments and projected future performance of those investments to determine
the plan's assumed long-term rate of return. The assumed long-term rate of
return of 7.5% on assets is applied to the market-related value of plan assets
at the end of the previous year. This produces the expected return on plan
assets that is included in annual pension income or expense for the current
year. The cumulative difference between this expected return and the actual
return on plan assets is deferred and amortized into pension income or expense
over future periods. Since the value of the Company's pension assets at fiscal
year-end 2006 was less than the accumulated pension benefit obligation, the
Company recorded $198,691 as a non-cash adjustment to other comprehensive loss
in stockholders equity and decreased its long-term pension liability by
$198,691. In fiscal year 2005, the Company recorded $118,012 as a non-cash
adjustment to other comprehensive loss in stockholders' equity and increased its
long-term pension liability by $192,730. In 2004 the Company recorded $18,629 as
a non-cash adjustment to other comprehensive loss in stockholder's equity and
reduced its long-term pension liability by $31,550. These changes to equity did
not affect net income and are recorded net of deferred taxes. See Note 8 of the
Notes to Financial Statements for additional pension disclosures.

The Company has capitalized certain development costs for efforts to improve and
enhance the 2kW generator set product line. These efforts involve, primarily,
the adaptation of existing technology, as well as, engineering and design to
meet specific customer requests. The scope of these efforts includes the
development of a product, which is in accordance with current customer requests
and future requirements. Company efforts are to address areas of sound
reduction, reduced weight, improved fuel consumption and environmental
considerations. The Company reviews these capitalized costs on a regular basis,
to assess future recoverability through the existing contracts to which such
costs relate, and expenses such costs, if any, to the extent they are not deemed
recoverable. The Company had $703,799 of capitalized development costs as of
both June 30, 2006 and 2005. See "Company Strategy" above.

The Company reviews the recoverability of all long-term assets, including the
related useful lives, whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset might not be recoverable. If required,
the Company compares the estimated undiscounted future net cash flows to the
related asset's carrying value to determine whether there has been an
impairment. If an asset is considered impaired, the asset is written down to
fair value, which is based either on discounted cash flows or appraised values
in the period the impairment becomes known.

The Company applies Statement of Financial Accounting Standard ("SFAS") No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change in tax laws
is recognized in the results of operations in the period the new laws are
enacted. A valuation allowance is recorded to reduce the carrying amounts of
deferred tax assets unless it is more likely than not that such assets will be
realized.


                                       21
<PAGE>



Item 8.  FINANCIAL STATEMENTS
-----------------------------
         Index to Financial Statements
         -----------------------------


                                                                           Page
                                                                           ----

Reports of Independent Registered Public Accounting Firms                  23-24

Financial Statements:

         Balance Sheets, June 30, 2006 and 2005                             25

         Statements of Operations, Years Ended June 30, 2006,
         2005 and 2004                                                      26

         Statements of Stockholders' Equity and Comprehensive
         Income/Loss, Years Ended June 30, 2006, 2005 and 2004              27

         Statements of Cash Flows, Years Ended June 30, 2006,
         2005 and 2004                                                      28

         Notes to the Financial Statements                                  29


All other schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or the Notes thereto.


                                       22
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
The Dewey Electronics Corporation
Oakland, New Jersey

We have audited the accompanying balance sheet of The Dewey Electronics
Corporation (the "Company") as of June 30, 2006, and the related statements of
operations, stockholders' equity and comprehensive income/loss and cash flows
for the year ended June 30, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Dewey Electronics Corporation at June
30, 2006 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.



/s/ Amper, Politziner & Mattia, P.C.
October 9, 2006
New York, New York


                                       23
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
The Dewey Electronics Corporation
Oakland, New Jersey

We have audited the accompanying balance sheet of The Dewey Electronics
Corporation (the "Company") as of June 30, 2005, and the related statements of
operations, stockholders' equity and comprehensive income/loss and cash flows
for each of the two years in the period ended June 30, 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Dewey Electronics Corporation at June
30, 2005 and the results of its operations and its cash flows for each of the
two years in the period ended June 30, 2005, in conformity with accounting
principles generally accepted in the United States of America.


/s/ Deloitte & Touche LLP
October 11, 2005
Parsippany, New Jersey

                                       24
<PAGE>
<TABLE>
<CAPTION>

The Dewey Electronics Corporation
Balance Sheets
                                                                                  June 30,        June 30,
ASSETS:                                                                             2006            2005
                                                                                    ----            ----
<S>                                                                                  <C>            <C>
CURRENT ASSETS:
Cash and cash equivalents                                                        $ 1,075,500    $ 1,390,326
Accounts receivable, net of allowance for doubtful accounts of  $ 6,181 and $0       526,730        756,215
Inventories                                                                        1,106,689      1,398,105
Contract costs and related estimated profits in excess of billings                   932,411        772,507
Deferred taxes                                                                            --          9,471
Prepaid expenses and other current assets                                            176,057        233,977
                                                                                 -----------    -----------

TOTAL CURRENT ASSETS                                                               3,817,387      4,560,601
                                                                                 -----------    -----------

PROPERTY, PLANT AND EQUIPMENT:
Land and improvements                                                                651,015        144,670
Building and improvements                                                          1,885,653      1,885,653
Machinery and equipment                                                            3,073,925      2,920,713
Furniture and fixtures                                                               205,539        205,539
                                                                                 -----------    -----------
                                                                                   5,816,132      5,156,575
Less accumulated depreciation                                                      4,650,562      4,542,040
                                                                                 -----------    -----------
                                                                                   1,165,570        614,535

LAND AND RELATED COSTS HELD FOR SALE                                                      --        541,725
CAPITALIZED DEVELOPMENT COSTS                                                        703,799        703,799
DEFERRED TAXES                                                                            --         41,603
DEFERRED COSTS                                                                        74,031         10,000
                                                                                 -----------    -----------
TOTAL OTHER ASSETS                                                                   777,830      1,297,127

TOTAL ASSETS                                                                     $ 5,760,787    $ 6,472,263
                                                                                 ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Note payable                                                                     $    86,047    $   154,606
Trade accounts payable                                                               358,427        398,513
Accrued expenses and other liabilities                                               212,349         30,498
Accrued compensation and benefits payable                                            156,550        144,801
Accrued pension costs                                                                 57,943          4,861
Due to related party                                                                      --        200,000
                                                                                 -----------    -----------

TOTAL CURRENT LIABILITIES                                                            871,316        933,279

LONG-TERM PENSION LIABILITY                                                          243,097        441,788
                                                                                 -----------    -----------

LONG-TERM PORTION OF NOTE PAYABLE                                                         --         86,046
                                                                                 -----------    -----------

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 at June 30, 2006 and 2005                                      16,934         16,934
Additional paid-in capital                                                         2,815,245      2,815,245
Retained earnings                                                                  2,385,557      2,949,024
Accumulated other comprehensive loss                                                 (84,334)      (283,025)
                                                                                 -----------    -----------
                                                                                   5,133,402      5,498,178
Less:  Treasury stock, 331,366 shares at June 30, 2006 and 2005 at cost             (487,028)      (487,028)
                                                                                 -----------    -----------
TOTAL STOCKHOLDERS' EQUITY                                                         4,646,374      5,011,150
                                                                                 -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $ 5,760,787    $ 6,472,263
                                                                                 ===========    ===========
</TABLE>

See notes to the financial statements.

                                                 25
<PAGE>
<TABLE>
<CAPTION>

The Dewey Electronics Corporation
Statements of Operations

                                                            Years Ended June 30,
                                                            --------------------

                                                      2006           2005           2004
<S>                                              <C>            <C>            <C>

Revenues                                       $ 7,334,888    $ 6,198,776    $ 6,015,303

Cost of Revenues                                 6,496,586      4,932,968      4,521,270
                                               -----------    -----------    -----------

Gross profit                                       838,302      1,265,808      1,494,033

Selling, general and administrative expenses     1,345,757      1,299,863      1,213,192
                                               -----------    -----------    -----------

Operating (loss)/income                           (507,455)       (34,055)       280,841

Interest expense                                   (30,527)       (35,459)       (45,165)

Other income - net                                  10,977         11,956          6,410
                                               -----------    -----------    -----------

(Loss)/income before income tax benefit           (527,005)       (57,558)       242,086

Provision for Income Tax                           (36,462)        26,386        530,764
                                               -----------    -----------    -----------

NET (LOSS)/INCOME                              $  (563,467)   $   (31,172)   $   772,850

NET (LOSS)/INCOME PER COMMON SHARE - BASIC     $     (0.41)   $     (0.02)   $      0.57
NET (LOSS)/INCOME PER COMMON SHARE - DILUTED   $     (0.41)   $     (0.02)   $      0.55

Weighted Average Shares Outstanding
  Basic                                          1,362,031      1,362,031      1,359,531
  Diluted                                        1,362,031      1,362,031      1,402,031

</TABLE>

See notes to the financial statements.

                                            26
<PAGE>
<TABLE>
<CAPTION>

The Dewey Electronics Corporation


Statements of Stockholder's Equity and Comprehensive Income/Loss, years ended
June 30, 2006, 2005 and 2004.


                                                                                Accumulated
                                                     Additional                    Other          Treasury stock           Total
                               Common      Stock       Paid-in       Retained   Comprehensive         at cost           Stockholders
                               Shares      Amount      Capital       Earnings       loss        Shares       Amount        Equity
                               ------      ------      -------       --------       ----        ------       ------        ------
<S>                         <C>         <C>         <C>           <C>           <C>             <C>       <C>          <C>
Balance, June 30, 2003       1,693,397   $   16,934  $ 2,817,474   $ 2,207,346   $ (183,642)     333,866   $ (490,702)  $ 4,367,410
Net income                          --           --           --       772,850           --           --           --       772,850

Other comprehensive income
net of tax:
Minimum pension liability
adjustment                          --           --           --            --       18,629           --           --        18,629
                                                                                                                        -----------
Comprehensive Income                                                                                                        791,479
                                                                                                                        -----------
Balance, June 30, 2004       1,693,397       16,934    2,817,474     2,980,196     (165,013)     333,866     (490,702)    5,158,889
Net loss                            --           --           --       (31,172)          --           --           --       (31,172)

Other comprehensive loss
net of tax:
Minimum pension liability
adjustment                          --           --           --            --     (118,012)          --           --      (118,012)
                                                                                                                        -----------
Comprehensive Loss                                                                                                         (149,184)
                                                                                                                        -----------
Exercise of stock options           --           --       (2,229)           --           --       (2,500)       3,674         1,445
                                         ----------  -----------   -----------   ----------   ----------   ----------   -----------

Balance, June 30, 2005       1,693,397       16,934    2,815,245     2,949,024     (283,025)     331,366     (487,028)    5,011,150
Net loss                            --           --           --      (563,467)          --           --           --      (563,467)

Other comprehensive loss
net of tax:
Minimum pension liability
adjustment                          --           --           --            --      198,691           --           --       198,691
                                                                                                                        -----------
Comprehensive Loss                                                                                                         (364,776)
                                                                                                                        -----------

Balance, June 30, 2006       1,693,397   $   16,934  $ 2,815,245   $ 2,385,557   $  (84,334)     331,366   $ (487,028)  $ 4,646,374

</TABLE>

See notes to financial statements


                                                                      27
<PAGE>
<TABLE>
<CAPTION>

The Dewey Electronics Corporation
Statements of Cash Flows
                                                                                Years ended June 30,
                                                                            2006           2005           2004
<S>                                                                       <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income                                                    $  (563,467)   $   (31,172)   $   772,850
                                                                     -----------    -----------    -----------
Adjustments to reconcile net (loss)/income to net
cash provided by operating activities:
  Depreciation                                                           116,212        107,824        107,190
  Amortization of loan fees                                                   --        163,215         10,804
  Impairment of capitalized development costs                                 --         34,353             --
  Impairment of land costs held for sale                                      --         63,946             --
  Loss on sale of assets                                                   3,214             --         (1,100)
  Deferred income tax provision                                           51,074        (26,331)      (483,275)
  Increase in inventory reserve                                          299,596             --             --
  (Increase)/Decrease in allowance for doubtful accounts                   6,181             --        (10,138)
  Decrease/(Increase) in accounts receivable                             223,304         53,836        (43,647)
  Decrease/(Increase) in inventories                                      (8,179)      (472,604)      (373,321)
  (Decrease)/Increase in contract costs and related estimated
    profits in excess of applicable billings                            (159,904)       193,099        114,096
  Increase/(Decrease) in prepaid expenses and other current assets        57,920        (21,795)        36,723
  Increase/(Decrease) in accounts payable                                (40,086)       143,484        (81,416)
  Increase/(Decrease) in accrued expenses and other liabilities          193,600        (76,622)        56,567
  Increase/(Decrease) in pension costs accrued                            53,082         72,456        (10,159)
  (Decrease)/Increase in accrued corporate income taxes                        0        (32,384)        17,161
                                                                     -----------    -----------    -----------
Total adjustments                                                        796,014        202,477       (660,515)
                                                                     -----------    -----------    -----------

Net cash provided by operating activities                                232,547        171,305        112,335
                                                                     -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant, property and equipment                          (164,466)      (146,904)      (285,559)
Expenditures for capitalized development costs                                --        (53,586)      (152,166)
Deferred cost/capitalized land held for sale costs                       (28,651)       (99,326)            --
Proceeds from sale of assets                                                 350             --          1,100
                                                                     -----------    -----------    -----------
Net cash used in investing activities                                   (192,767)      (299,816)      (436,625)
                                                                     -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Payment - note payable  related party                                   (200,000)            --             --
Payment - note payable current portion LTD                               (68,560)            --             --
Principal payments of long-term debt                                     (86,046)       (87,083)       (60,938)
Treasury stock sold                                                           --          1,445             --
                                                                     -----------    -----------    -----------

Net cash used in financing activities                                   (354,606)       (85,638)       (60,938)
                                                                     -----------    -----------    -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                               (314,826)      (214,149)      (385,228)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                         1,390,326      1,604,475      1,989,703
                                                                     -----------    -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                             $ 1,075,500    $ 1,390,326    $ 1,604,475
                                                                     -----------    ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid                                                        $    30,527    $    36,883    $    45,464
Interest received                                                         18,046         11,252          6,372
Corporate income taxes (refunded)/paid                                   (33,509)         2,825         20,950

</TABLE>

See notes to the financial statements.


                                                  28
<PAGE>

The Dewey Electronics Corporation
Notes to the Financial Statements
Years ended June 30, 2006, 2005 and 2004
--------------------------------------------------------------------------------

1, Business and Summary of Significant Accounting Policies
----------------------------------------------------------

The Dewey Electronics Corporation is a systems oriented military electronics
development, design and manufacturing organization based in Oakland, New Jersey.
The Company is organized into two operating segments on the basis of the type of
products offered. Each segment is comprised of separate and distinct businesses:
the Electronics segment, primarily business with the Department of Defense, and
the Leisure and Recreation segment, primarily business with ski areas and
resorts.

A.  Revenue Recognition

Revenues and estimated earnings under defense contracts (including research and
development 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.

In the Leisure and Recreation segment, revenues and earnings are recorded when
deliveries are made and title and risk of loss have been transferred to the
customer and collection is probable.

B.  Concentration Risks

Concentration of Credit Risks
-----------------------------

The Company is subject to concentrations of credit risk primarily from cash and
accounts receivable. The Company maintains accounts with financial institutions
which exceed the federally insured maximum of $100,000. The Company minimizes
risks associated with cash by periodically reviewing the credit quality of its
primary financial institutions. The Company's accounts receivable are
principally with agencies of the United States Department of Defense. These
agencies accounted for 92.2% of the Company's accounts receivable as of June 30,
2006.

Product Concentration Risk
--------------------------

The Company derives a significant portion of its revenue from the sale of 2kw
portable electrical generators to various branches of the United States military
under a long term contract and to other Department of Defense contractors. The
contract to supply generators to the Department of Defense is for an indefinite
delivery, indefinite quantity and is subject to the Government's standard
provision for termination at the convenience of the Government.

Supplier Concentration Risks
----------------------------

The Company is primarily dependant on three vendors to supply qualified
components for its 2kw generator products. During fiscal year 2006 two of these
suppliers accounted for 32.4% and 23.4% of material purchases, respectively.
These same suppliers accounted for 30.9% and 16.5% of material purchases in
fiscal year 2005, and 19.6% and 29.2% of material purchases in 2004. No other
supplier accounted for more than 10% of material purchases in fiscal years 2006,
2005 or 2004.

Customer Concentration Risks
----------------------------

The Company derives most of its revenues through contracts with various agencies
of the Department of Defense including a long-term contract to supply portable
electric generators, research and development contracts, and various short-term
contracts and awards to supply spare parts and perform repairs on products
previously manufactured and sold by the Company. In fiscal year 2006, the
various agencies of the Department of Defense accounted for approximately 80.7%
of Company revenue. In fiscal years 2005


                                       29
<PAGE>

and 2004, the percentages were 83.5% and 78.7 %, respectively. No other customer
accounted for more than 10% of the Company's revenues in fiscal years 2006, 2005
or 2004.

C.  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.

D.  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
approximates fair value.

E.  Accounts Receivable

The Company regularly reviews its trade receivables for probability of
collection. An assessment of the probability of collection of delinquent
accounts is made and an allowance is recorded when collection becomes uncertain.

F.  Inventories

Cost is determined by the first-in, first-out (FIFO) method. Inventories are
valued at the lower of cost or market. Components of cost include materials,
direct labor and factory overhead.

G.  Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires 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. These estimates include, among others, lower of cost or
market estimates for inventories, realization of deferred tax assets, revenue
recognition and certain accrued expenses. Actual results could differ from those
estimates.

H.  Property, Plant, and Equipment

Property, plant, 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, five years for computer software, ten years
for furniture and fixtures, and twenty years for building and improvements.

I.  Capitalized Development Costs

The Company had $703,799 of capitalized development costs as of June 30, 2006
and 2005. These capitalized costs represent costs for efforts to improve and
enhance the 2kW generator set product line and involve, primarily, the
adaptation of existing technology, as well as, engineering and design to meet
specific customer requests. The scope of these efforts includes the development
of a product which is in accordance with current customer requests and future
requirements. Company efforts are to address areas of sound reduction, reduced
weight, improved fuel consumption and environmental considerations. The Company
reviews these capitalized costs on a regular basis to assess future
recoverability through the existing contracts to which such costs relate and
expense such costs, if any, to the extent that they are not deemed recoverable.
Management believes it is probable that all such amounts are fully realizable
through inclusion in product costs to be billed to customers.

In fiscal year 2005, the Company re-evaluated an arrangement with a vendor
providing


                                       30
<PAGE>

services, and subsequently reclassified approximately $220,000 of capitalized
development costs representing licensing fees to prepaid expenses and other
current assets. The Company continues to pay and expense these license fees over
time. As of June 30, 2006 and 2005, $120,000 of these fees are included in
prepaid expenses and other current assets.

The Company expenses its research and development costs as incurred. These costs
consist primarily of salaries and material costs. For the fiscal year ended June
30, 2006, the Company expensed $66,791 of these costs. During the prior fiscal
year, the Company expensed $101,764 of research and development costs and in
fiscal year 2004 the Company expensed $127,704 of research and development
costs.

J.  Loan Fees

Loan fees related to the Company's mortgage note (which was replaced by a term
loan agreement on February 24, 2005) were capitalized by the Company and
amortized utilizing the straight-line basis over the term of the loan. These
loan fees have been fully amortized at June 30, 2006.

K.  Impairment of Long-Lived Assets

The Company reviews the recoverability of all long-term assets, including the
related useful lives, whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset might not be recoverable. If required,
the Company compares the estimated undiscounted future net cash flows to the
related asset's carrying value to determine whether there has been an
impairment. If an asset is considered impaired, the asset is written down to
fair value, which is based either on discounted cash flows or appraised values
in the period the impairment becomes known. There were no impairments of
long-term assets in the year ended June 30, 2006. The Company wrote-down
approximately $34,353 of capitalized development costs in 2005 and $50,357 in
fiscal year 2004. These costs were expensed and included in general and
administrative expenses, during the respective years.

L.  Income Taxes

The Company applies Statement of Financial Accounting Standard ("SFAS") No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change in tax laws
is recognized in the results of operations in the period the new laws are
enacted. A valuation allowance is recorded to reduce the carrying amounts of
deferred tax assets unless it is more likely than not that such assets will be
realized.

M.  Land Held for Sale

During fiscal year 2006 the Company reclassified an asset previously presented
as "Land held for Sale". Previously, on December 29, 2004, the Company had
agreed to sell approximately 68 undeveloped and unused acres of this land to K.
Hovnanian North Jersey Acquisitions, L.L.C. ("K. Hovnanian"), a wholly-owned
subsidiary of Hovnanian Enterprises, Inc., a residential real estate developer
and homebuilder. The Company's stockholders approved the sale of this land at
the Annual Stockholders meeting which was held on March 8, 2005. Completion of
the proposed land sale depended on, among other things, a number of conditions
being satisfied, including extensive regulatory and rezoning approvals from New
Jersey State and local entities. On July 25, 2005, the Company announced that it
had received from K. Hovnanian a notice terminating the Agreement of Sale. The
Company is continuing to actively pursue possible methods of monetizing the
undeveloped and unused portion of its property, by its sale and/or development.
However, since no sale is imminent $506,345 of the land previously presented as
"Land held for sale" has been reclassified as "Land" and the portion
representing development costs, $64,031, has been reclassified as deferred
costs.


                                       31
<PAGE>

N.  Accounting for Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No.123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). This new
pronouncement requires that compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost is measured based
on the fair value of the equity or liability instruments issued. SFAS No. 123R
covers a wide range of share-based compensation arrangements including stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee stock purchase plans. SFAS No. 123R replaces SFAS No. 123,
"Accounting for Stock-Based Compensation," and supersedes Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." The
Company has adopted the provisions of SFAS No. 123R in fiscal year 2006 using a
modified version of prospective application. The Company did not grant, modify,
repurchase, or cancel any share based payment awards after the date of adoption
of SFAS No. 123R. All awards granted prior to July 1, 2005 had fully vested
prior to July 1, 2005. Therefore, there was no effect of adopting SFAS 123R in
the Company's financial statements for fiscal year 2006.

Prior to the adoption of SFAS 123R, the Company provided the disclosures
required by SFAS No. 123, whereby the Company did not recognize compensation
expense on non-qualified stock options granted to employees when the exercise
price of the options is equal to the market price of the underlying stock on the
date of the grant. Options granted vest after a one year period and expire ten
years from the grant date.

There were no options granted in fiscal years 2006, 2005 or 2004. However, pro
forma information regarding net income and earnings per share is required for
fiscal years 2005 and 2004 by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock option grants under the fair value
method prescribed by that Statement. Information with regard to the number of
options granted, market price of the grants, vesting requirements, and the
maximum term of the options granted would appear by plan type in the sections
below. The fair value of these options would be estimated at the date of grant
using a Black-Scholes option pricing model.

The estimated fair value of the option grants are amortized to expense over the
options' vesting period beginning January 1 of the following year, due to the
timing of the grants. The Company's pro forma information for the years ended
June 30, 2005 and 2004 is as follows:


                                                          Year Ended June 30
                                                              2005         2004
Net (loss)/income, as reported                         $  (31,172)   $  772,850
deduct:  Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects                     (8,930)      (18,398)
                                                       ----------    ----------

Pro forma net (loss)/income                            $  (40,102)   $  754,452

Earnings per share:
Basic - as reported                                    $    (0.02)   $     0.57
Basic - pro forma                                      $    (0.02)   $     0.55

Diluted - as reported                                  $    (0.02)   $     0.55
Diluted - pro forma                                    $    (0.02)   $     0.54


                                       32
<PAGE>

2.  Recent Accounting Pronouncements
------------------------------------

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements, the Board having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new fair
value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the impact of this Statement on its financial statements.

In July 2006, the FASB issued Financial Interpretation No. 48 (FIN 48)
(Accounting for Uncertainty in Income Taxes, as Interpretation of FASB Statement
No. 109). This Interpretation clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a
recognition and measurement threshold attributable for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact of this Interpretation on
its financial statements.

3.  Inventories
---------------


Inventories consist of:
                           June 30,
                           --------

                         2006         2005
                         ----         ----
Finished goods     $  194,885   $  367,660
Work in progress       93,485      298,771
Raw materials         818,319      731,674
                   ----------   ----------


                   $1,106,689   $1,398,105
                   ==========   ==========


After the end of fiscal year 2006, management completed a strategic review of
the HEDCO spare parts business. As a result, for the fourth quarter of fiscal
year 2006, the Company recorded an adjustment against inventory of $299,596
based on specific identification and related to spare parts for old models of
snow makers.

4.  Costs and Estimated Earnings on Uncompleted Contracts
---------------------------------------------------------

                                                   June 30,
                                                   --------

                                                 2006          2005
Costs incurred on contracts in progress   $14,953,793   $13,222,175
Estimated contract profit                   3,399,120     3,679,009
                                          -----------   -----------
                                           18,352,913    16,901,184
Less:  billings to date                    17,420,502    16,128,677
                                          -----------   -----------
Contract costs and related estimated
profits in excess of billings             $   932,411   $   772,507
                                          ===========   ===========


                                       33
<PAGE>

5.  Stock Option Plan
---------------------

On December 2, 1998, the Employee Stock Option Committee adopted a Stock Option
Plan of 1998 which granted incentive stock options to various executives and key
employees to purchase shares of common stock. Options were granted at fair
market value of the stock on the date of grant and are exercisable over a
ten-year period beginning December 2, 1999 to September 12, 2010. At the Annual
Meeting of Stockholders on December 5, 2001, this stock option plan was amended
and restated among other things to increase the number of shares which may be
issued under the plan by 25,000 shares, from 60,000 to 85,000.

The changes in the number of shares under option are as follows:


                               Number of Shares    Weighted Average
                                                    Exercise Price
                               ----------------    ----------------

Balance July 01, 2003                    42,500    $           2.03

Granted during 2004                          --                  --

Exercised                                    --                  --
                               ----------------    ----------------

Balance at June 30, 2004                 42,500    $           2.03

Granted during 2005                          --                  --

Exercised                                (2,500)   $          (0.58)
                               ----------------    ----------------

Balance at June 30, 2005                 40,000    $           2.76

Granted during 2006                          --                  --

Exercised                                    --                  --
                               ----------------    ----------------

Balance at June 30, 2006                 40,000    $           2.76
                               ================    ================

Exercisable at June 30, 2006             40,000    $           2.76
                               ================    ================

Also, at the Annual Meeting of Stockholders on December 5, 2001, the Company
adopted a Stock Option Plan for Non-Employee Directors. The number of shares
issuable upon exercise of options, which may be granted under this Plan, shall
not exceed 50,000 shares of common stock. No options have been granted under
this plan.

Listed below is a summary of the stock options outstanding and exercisable at
June 30, 2006.

Outstanding and Exercisable

                                       Weighted Average      Weighted Average
       Exercise Price        Options    Exercise Price     Remaining Life-Years
       --------------        -------    --------------     --------------------

                 0.58          5,000          0.58                3.4
                 1.63         13,000          1.63                4.2
                 3.93         22,000          3.93                6.5
                              ------
                              40,000

For purposes of the disclosure required under SFAS No. 148, "Accounting for
Stock-


                                       34
<PAGE>

Based Compensation - Transition and Disclosure - an amendment of FASB
Statement 123", the fair value of each option was estimated on the grant date
using the Black-Scholes option-pricing model. There were no stock options
granted in 2006, 2005 and 2004.

For the past three fiscal years, the number of options exercisable at fiscal
year end was as follows: 40,000 at June 30, 2006, 40,000 at June 30, 2005 and
42,500 at June 30, 2004.

6.  Notes Payable
-----------------

Notes Payable at June 30, consists of:

<TABLE>
<CAPTION>
                                                                                  2006         2005
                                                                                  ----         ----
<S>                                                                            <C>         <C>
Note payable to Sovereign Bank due in monthly installments of $12,884 plus
interest at a fixed rate of 5.56% with a final
maturity in February 2007                                                    $  86,047    $ 240,652
                                                                             ---------    ---------

                        Less current portion                                   (86,047)    (154,606)
                                                                             ---------    ---------
Total Long Term Debt                                                         $      --    $  86,046
                                                                             =========    =========
</TABLE>

On February 24, 2005, the Company and Sovereign Bank (the "Bank") entered into a
Term Loan Agreement (the "Loan Agreement") that replaced, and restructured the
remaining balance due on, the Company's Mortgage Note agreement with the Bank,
which matured in January 2005. Pursuant to the Loan Agreement, the Company
borrowed $292,187 from the Bank for a term ending February 23, 2007, at a fixed
annual interest rate of 5.56 percent. This loan, of which $86,047 was
outstanding as of June 30, 2006, is collateralized by a first lien on all of the
Company's accounts receivable, machinery, equipment and other personal property
(the "Collateral") and is subject to customary representations, covenants, and
default provisions in favor of the Bank.

The Company also has a line of credit agreement with the Bank in the amount of
$500,000 at an annual interest rate equal to the Bank's prime rate (8.0% as of
June 30, 2006) plus 0.25 percent. Effective November 9, 2005, this line of
credit agreement was renewed through December 1, 2006. As of June 30, 2006,
there were no outstanding borrowings against this line of credit facility. In
the event that the Company borrows funds under this line of credit facility, the
loan would be co-collateralized by the Collateral.

7.  Taxes on Income
-------------------

Benefit/(Provision) for income taxes:


                      Years ended June 30,

                                 2006         2005         2004
Deferred
    Federal                 $ (32,106)   $   3,434    $ 374,538
    State                     (18,968)      22,897      108,737
                            ---------    ---------    ---------
                              (51,074)      26,331      483,275
                            ---------    ---------    ---------
Current
    Federal                    14,612        2,066       67,815
    State                          --       (2,011)     (20,326)
                            ---------    ---------    ---------
                               14,612           55       47,489
                            ---------    ---------    ---------
Total Benefit (Provision)   $ (36,462)   $  26,386    $ 530,764
                            =========    =========    =========

Deferred tax assets and liabilities as of June 30, 2006 and June 30, 2005
consisted of the following:

                                       35
<PAGE>


Deferred Tax assets:                          2006         2005
-------------------
 Current
  Vacation accrual                       $  41,748    $  23,344
  Inventory reserve                        119,838
  Allowance for doubtful accounts            2,480
  Prepaids                                 (16,906)     (13,873)
                                         ---------    ---------
                                           147,160        9,471
  Less Valuation Allowance                (147,160)          --
                                         ---------    ---------
 Total current deferred tax asset                0        9,471

 Non-current
  Pension                                   79,287      158,763
  Depreciation                               9,519       38,394
  Net Operating Loss                       112,648        3,929
  Other                                         --         (720)
                                         ---------    ---------
                                           201,454      200,366
  Less Valuation Allowance                (201,454)    (158,763)
                                         ---------    ---------
 Total non-current deferred tax assets           0       41,603
                                         ---------    ---------

Total deferred tax assets                $      --    $  51,074
                                         =========    =========

The Company has provided a valuation allowance against its net deferred taxes as
it believes that it is more like than not that it will not realize the tax
attributes. The Company has approximately $273,000 and $324,000 of federal and
state, respectively, net operating loss carry forward expiring beginning in
2012.

The reconciliation of the Federal statutory rate with the Company's effective
tax rate is summarized as follows: Years ended June 30,

                                              2006       2005       2004
                                              ----       ----       ----
Federal statutory rate                      (34.00)%   (34.00)%    34.00%
State income taxes net of federal benefit     3.60     (30.84)      6.00
Effect of graduated rate                        --      19.00         --
Reversal of prior year deferrals                --         --     (259.40)
                                            ------     ------     ------
Valuation allowance                          36.02
Other                                         1.30         --         --
                                            ------     ------     ------


Effective Rate                                6.92%    (45.84)%   (219.40)%
                                            ======     ======     ======

8.  Pension Plan
----------------

The Company has a non-contributory defined benefit retirement plan covering all
its employees which is qualified under the Internal Revenue Code. The method of
determining the accrued benefit of an employee is the amount equal to 0.8% of an
employee's average monthly salary times the number of years employed by the
Company, to a maximum of 35 years. The Company's policy is to contribute the
amounts allowable under Internal Revenue Service regulations.

The investment policy of the Company for its pension plan is to maximize value
within the context of providing benefit security for plan participants. The plan
assets are invested in a fixed income investment account.

The Company expects to continue to contribute within the range of legally
acceptable contributions as identified by the Plan's enrolled actuary.


                                       36
<PAGE>

The following tables provide information about changes in the benefit obligation
and plan assets and the funded status of the Company's pension plan.

In accordance with SFAS No. 132R, "Employers Disclosures about Pensions and
Other Postretirement Benefits" the Company has analyzed the change in Funded
Status between the prior fiscal year and the end of the current fiscal year.

                                                          2006           2005
Change in benefit obligation:
  Benefit obligation at beginning of year          $ 1,309,981    $ 1,028,386
  Service cost                                          39,589         28,266
  Interest cost                                         67,595         62,834
  Actuarial (gain)/loss                               (189,958)       194,242
  Benefits paid plus administrative expenses            (3,829)        (3,747)
                                                   -----------    -----------

Benefit obligation at end of year                  $ 1,223,378    $ 1,309,981
                                                   ===========    ===========

Change in plan assets:
----------------------
  Fair value of plan assets at beginning of year   $   781,649    $   696,191
  Actual return on plan assets                          36,236         29,205
  Employer contributions                                30,000         60,000
  Benefits paid plus administrative expenses            (3,829)        (3,747)
                                                   -----------    -----------

Fair value of plan assets at end of year           $   844,056    $   781,649
                                                   -----------    -----------

Funded status                                         (379,322)      (528,332)
Unrecognized Net (Gain) or Loss                        321,379        523,471
                                                   -----------    -----------

Accrued Pension Expense                            $   (57,943)   $    (4,861)
                                                   ===========    ===========

Measurement Date                                  July 1, 2006   July 1, 2005

Weighted Average Assumptions
  Discount Rate                                           6.25%          5.16%
  Expected Long-term Rate of Return on Assets             7.50%          7.50%
  Rate of increase in future compensation levels          3.00%          3.00%


Set forth below is a summary of the amounts reflected in the Company's statement
of financial position at the end of the last two fiscal years:

                                                June 30, 2006   June 30, 2005

Accrued pension liability                        $  (301,040)    $  (446,649)

Accumulated other comprehensive income pre-tax       243,097         441,788
                                                 -----------     -----------

Net amount recognized                            $   (57,943)    $    (4,861)
                                                 ===========     ===========

The accumulated benefit obligation for the plan was $1,145,096 and $1,228,298 at
June 30, 2006, and 2005, respectively.

Components of periodic pension costs as of June 30, 2006 and 2005 are as
follows:


                                       37
<PAGE>

                                                     2006        2005
                                                     ----        ----
Service cost-benefits earned during the period   $ 39,589    $ 28,266
Interest cost on projected benefit obligation      67,595      62,834
Expected return on plan assets                    (60,611)    (54,201)
Amortization of actuarial loss                     36,509      19,144
                                                 --------    --------

Net periodic pension cost                        $ 83,082    $ 56,043
                                                 ========    ========

Weighted Average Assumptions for Net Periodic Pension Expense
                                                     2006    2005    2004
                                                     ----    ----    ----
Discount Rate                                       5.16%   6.11%   5.83%
Expected Long-term Rate of Return on Assets         7.50%   7.50%   7.50%
Rate of Increase in Future Compensation Levels      3.00%   3.00%   3.00%

Retirement Plan for Employees of Dewey Electronics Corporation's weighted
average asset allocations at June 30, 2006, and 2005, by asset category are as
follows:

                                                 2006   2005
                                                 ----   ----

Asset Category
  Fixed Funds with Guaranteed Interest Rates     100%   100%

Total                                            100%   100%

The expected future payments for the years ended June 30, are as follows:

                  2007           $  4,000
                  2008           $ 15,000
                  2009           $ 27,000
                  2010           $ 38,000
                  2011           $ 50,000
 Five years thereafter           $377,000

9.  Earnings Per Share
----------------------

Net (loss)/income per share has been presented pursuant to SFAS No. 128,
"Earnings per Share". Basic net (loss)/income per share is computed by dividing
reported net (loss)/income available to common shareholders by weighted average
shares outstanding for the period. Diluted net (loss)/income per share is
computed by dividing reported net (loss)/income available to common shareholders
by weighted average shares outstanding for the period, adjusted for the dilutive
effect of common stock equivalents, which consist of stock options, using the
treasury stock method.

The tables below set forth the reconciliation of the numerators and denominators
of the basic and diluted net (loss)/income per common share computations.
Certain stock options were excluded from the computation of earnings per share
due to their anti-dilutive effect. The weighted average number of such shares is
7,917 and 11,049 for the year ended June 30, 2006 and June 30, 2005
respectively.

<TABLE>
<CAPTION>
                                            Twelve Months Ended June 30, 2006
                                         Loss            Shares     Per Share Amount
                                         ----            ------     ----------------
<S>                                 <C>                  <C>         <C>
Basic net loss/per common share     $    (563,467)       1,362,031   $       (0.41)
Effect of dilutive securities                  --               --              --
                                    -------------    -------------   -------------
Diluted net loss per common share   $    (563,467)       1,362,031   $       (0.41)
                                    =============    =============   =============


                                       38
<PAGE>
<CAPTION>
                                            Twelve Months Ended June 30, 2005
                                         Loss            Shares     Per Share Amount
                                         ----            ------     ----------------
<S>                                 <C>                  <C>         <C>
Basic net loss/per common share     $     (31,172)       1,362,031   $       (0.02)
Effect of dilutive securities                  --               --              --
                                    -------------    -------------   -------------
Diluted net loss per common share   $     (31,172)       1,362,031   $       (0.02)
                                    =============    =============   =============

<CAPTION>
                                            Twelve Months Ended June 30, 2004
                                         Loss            Shares     Per Share Amount
                                         ----            ------     ----------------
<S>                                 <C>                  <C>         <C>
Basic net income/per common share   $     772,850        1,359,531   $        0.57
Effect of dilutive securities                  --           42,500           (0.02)
                                    -------------    -------------   -------------
Diluted net loss per common share   $     772,850        1,402,031   $        0.55
                                    =============    =============   =============
</TABLE>

10.  Related Party Transaction
------------------------------

During 1988, Gordon C. Dewey, the Company's co-founder, lent the Company a total
of $200,000, pursuant to an unsecured demand note bearing interest at the rate
of 9 percent per annum. As of June 30, 2006 this loan obligation had been fully
repaid. Interest expense paid under this note was $18,250 and $18,250 for fiscal
years 2006 and 2005, respectively.

11.  Other Income
-----------------

Other income/(expense) consists of the following for the years ended June 30:

<TABLE>
<CAPTION>
                                                              2006        2005       2004
                                                              ----        ----       ----
<S>                                                       <C>         <C>        <C>
Sales of scrap and miscellaneous income/(expense) - net   $ (3,856)   $    704   $ (1,062)
Gain (Loss) on sale of assets                             $ (3,214)         --   $  1,100
Interest income                                           $ 18,047    $ 11,252   $  6,372
                                                          --------    --------   --------
                                                          $ 10,977    $ 11,956   $  6,410
                                                          ========    ========   ========
</TABLE>

12.  Operating Segments
-----------------------

The Company operates in two segments: Electronics, and Leisure and Recreation.
Operations in the Electronics segment are primarily related to supplying
electronics and electrical products and systems for the United States Government
as a prime contractor or subcontractor. Operations in the Leisure and Recreation
segment involve the production and sale of snowmaking machinery and servicing of
such machinery at the purchaser's expense beyond the warranty period. Total
revenue by segment represents sales to unaffiliated customers, as reported in
the Company's Statements of Operations. There are no inter-segment sales.

Some operating expenses, including general corporate expenses, have been
allocated by specific identification or based on direct 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. All of the Company's operations are performed at its
facility in Oakland, New Jersey. The facility and resources are shared by both
segments and the direct use of such resources and space cannot be entirely
specified. Accordingly, the Company allocates usage of its facility and
equipment. Depreciation and amortization for the Electronics segment and the
Leisure and Recreation segment, respectively, was approximately $108,000 and
$8,000 in fiscal year 2006, $260,000 and $11,000 in 2005, and $109,000 and
$9,000 in 2004. Capital expenditures were approximately $164,000 in fiscal year
2006, $147,000 in 2005, and $286,000 in 2004.

Identifiable assets by industry segment are those assets that are used in the
Company's operations in each industry segment. Corporate assets are principally
cash, prepaid expenses, and other current assets.

The following tables present information about reported segment revenues,
operating profit or loss, and assets, and reconcile such segment information to
the Company's totals:


                                       39
<PAGE>

                                                 Year ended June 30, 2006
                                                 (Dollars in thousands)
                                                       Leisure and     Total
                                         Electronics   Recreation     Company
                                         -----------   ----------     -------
Revenue                                  $     7,164   $      171   $    7,335
                                         ===========   ==========   ==========

Operating profit/(loss)                         (110)        (397)        (507)
                                          ==========   ==========

Interest expense and  other income-net                                     (20)
                                                                    ----------

Loss before income taxes                                                  (527)
                                                                    ==========

Identifiable assets at June 30, 2006           3,981          454        4,435
                                          ==========   ==========

Corporate assets                                                         1,326
                                                                    ----------

Total assets at June 30, 2006                                            5,761
                                                                    ==========


                                                 Year ended June 30, 2005
                                                 (Dollars in thousands)
                                                       Leisure and     Total
                                         Electronics   Recreation     Company
                                         -----------   ----------     -------
Revenue                                  $     5,988   $      211   $    6,199
                                         ===========   ==========   ==========

Operating profit/(loss)                           83         (117)         (34)
                                          ==========   ==========

Interest expense and  other income-net                                     (24)
                                                                    ----------

Loss before income taxes                                                   (58)
                                                                    ==========

Identifiable assets at June 30, 2005           3,480          895        4,375
                                          ==========   ==========

Corporate assets                                                         2,097
                                                                    ----------

Total assets at June 30, 2005                                            6,472

                                                 Year ended June 30, 2004
                                                 (Dollars in thousands)
                                                       Leisure and     Total
                                         Electronics   Recreation     Company
                                         -----------   ----------     -------

Revenue                                  $     5,640   $      375   $    6,015
                                         ===========   ==========   ==========

Operating profit/(loss)                          379          (98)         281
                                          ==========   ==========

Interest expense and  other income-net                                     (39)
                                                                    ----------

Income before income taxes                                                 242
                                                                    ==========

Identifiable assets at June 30, 2004           2,952        1,152        4,104
                                          ==========   ==========

Corporate assets                                                         2,378

Total assets at June 30, 2004                                            6,482
                                                                    ==========


                                       40
<PAGE>

13. Unaudited Quarterly Financial Data

                                Gross     Net income/      Earnings per share
         2006    Revenue        Profit      (loss)        Basic        Diluted
         ----    -------        ------      ------        -----        -------

Sept. 30        $1,116,265   $  200,486   $  (52,741)  $    (0.04)   $    (0.04)
Dec. 31         $1,974,374   $  235,377   $ (233,489)       (0.17)        (0.17)
Mar. 31         $2,170,870   $  241,118   $ (118,244)       (0.09)        (0.09)
Jun. 30         $2,073,379   $  161,321   $ (158,993)       (0.11)        (0.11)
                ----------   ----------   ----------   ----------    ----------

         Year   $7,334,888   $  838,302   $ (563,467)  $    (0.41)   $    (0.41)
                ==========   ==========   ==========   ==========    ==========


                                Gross     Net income/      Earnings per share
         2005    Revenue        Profit      (loss)        Basic        Diluted
         ----    -------        ------      ------        -----        -------
Sept. 30        $1,285,075   $  395,990   $   54,608   $     0.04    $     0.04
Dec. 31         $1,853,382   $  292,229   $  (28,952)       (0.02)        (0.02)
Mar. 31         $1,267,727   $  280,054   $     (517)          --            --
Jun. 30         $1,792,592   $  297,535   $  (56,311)       (0.04)        (0.04)
                ----------   ----------   ----------   ----------    ----------

         Year   $6,198,776   $1,265,808   $  (31,172)  $    (0.02)   $    (0.02)
                ==========   ==========   ==========   ==========    ==========


                                Gross     Net income/      Earnings per share
         2004    Revenue        Profit      (loss)        Basic        Diluted
         ----    -------        ------      ------        -----        -------
Sept. 30        $1,186,774   $  274,208   $    7,530   $     0.01    $     0.01
Dec. 31         $1,387,072   $  285,636   $  (30,962)       (0.02)        (0.02)
Mar. 31         $1,605,040   $  382,176   $   47,763         0.04          0.03
Jun. 30         $1,836,417   $  552,013   $  748,519         0.54          0.53
                ----------   ----------   ----------   ----------    ----------

         Year   $6,015,303   $1,494,033   $  772,850   $     0.57    $     0.55
                ==========   ==========   ==========   ==========    ==========


                                       41
<PAGE>


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------------------------------------------------------
         ON ACCOUNTING AND FINANCIAL DISCLOSURE
         --------------------------------------


None.

Item 9A. CONTROLS AND PROCEDURES
--------------------------------

i
The Company carried out, under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Treasurer, an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the fiscal year covered by
this Annual Report. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act is accumulated and communicated to management, including
its Chief Executive Officer and Treasurer, as appropriate to allow timely
decisions regarding required disclosure. Based on this evaluation, the Chief
Executive Officer and Treasurer concluded that, as of June 30, 2006, the design
and operation of the Company's disclosure controls and procedures were not
effective because of the material weakness in the Company's internal control
over financial reporting described in the following paragraph.

In connection with its audit of the Company's financial statements for the
fiscal year ended June 30, 2006, the Company's independent registered public
accounting firm, Amper, Politziner & Mattia, P.C. ("AP&M"), informed management
and the Board of Directors that it had noted the following conditions which it
had concluded, in the aggregate, represent a material weakness in the Company's
internal control over financial reporting. Before the audited financial
statements for fiscal year 2006 contained in this Annual Report were finalized,
certain audit adjustments related to significant non-routine matters were made
to such financial statements after being identified by AP&M and certain
disclosures required by GAAP were incorporated in such financial statements and
the notes thereto after being identified by AP&M. In addition, AP&M advised
management and the Board of Directors that the limited size of the Company's
accounting department makes it impractical in AP&M's view to achieve an optimum
separation of duties, and such limited size may restrict the Company's ability
to gather, analyze and report information relative to the financial statements
in a timely manner.

The Company intends to hire an additional staff member with the requisite
knowledge to ensure that the weakness identified by AP&M is properly addressed
and remedied as promptly as practicable. Nonetheless, a control system, no
matter how well designed and operated, cannot provide absolute assurance that
the objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that all control issues have been detected.

During the fourth fiscal quarter covered by this Annual Report, there have been
no changes in the Company's internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.


Item 9B. OTHER INFORMATION
--------------------------

        None


                                       42
<PAGE>

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

Information concerning Directors and Executive Officers of the Registrant is
incorporated herein by reference from the Company's definitive proxy statement
for the 2006 Annual Meeting of Stockholders.


Item 11. EXECUTIVE COMPENSATION
-------------------------------

Executive compensation information is incorporated herein by reference from the
Company's definitive proxy statement for the 2006 Annual Meeting of
Stockholders.


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------------------------------------------------------------
         MANAGEMENT AND RELATED STOCKHOLDER MATTERS
         ------------------------------------------

Item 403 of Regulation S-K

Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
proxy statement for the 2006 Annual Meeting of Stockholders.

Item 201(d) of Regulation S-K

<TABLE>
<CAPTION>
                                                            (a) (b)
                                                    Number of securities       Weighted-average       Number of securities
                                                     to be issued upon        exercise price of      remaining available for
                                                  exercise of outstanding        outstanding          future issuance under
                                                     options, warrants        options, warrants        equity compensation
Plan Category                                            and rights               and rights            plans (excluding
                                                                                                      securities reflected
                                                                                                         in column (a))
<S>                                                        <C>                      <C>                      <C>
Equity compensation plans approved
by security holders                                        40,000                   2.7618                   72,500

Equity compensation plans not approved
by security holders                                          --                       --                       --

Total                                                      40,000                   2.7618                   72,500

</TABLE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

Information in response to this item is incorporated herein by reference from
the Company's definitive proxy statement for the 2006 Annual Meeting of
Stockholders.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
-----------------------------------------------

Information in response to this item is incorporated herein by reference from
the Company's definitive proxy statement for the 2006 Annual Meeting of
Stockholders.


                                       43
<PAGE>

                                     PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
------------------------------------------------

(a) (1)  The following financial statements are included in Part II Item 8:

                                                                           Page
                                                                           ----

         Report of Independent Registered Public Accounting Firm            23

         Report of Independent Registered Public Accounting Firm            24

         Balance Sheets, June 30, 2006 and 2005                             25

         Statements of Operations, Years Ended June 30,
         2006, 2005 and 2004                                                26

         Statements of Stockholders' Equity and comprehensive
         income/loss, Years EndedJune 30, 2006, 2005 and 2004               27

         Statements of Cash Flows, Years Ended June 30,
         2006, 2005 and 2004                                                28

         Notes to Financial Statements                                      29


    (2)  Exhibits                                                           46

         A list of the exhibits required to be filed as part of this
         report is set forth in the Index to Exhibits, which
         immediately follows the signature page, and is incorporated
         herein by this reference.


                                       44
<PAGE>



                                   SIGNATURES
Item 16.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, The Dewey Electronics Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized:

                        THE DEWEY ELECTRONICS CORPORATION



/s/ John H.D. Dewey                         /s/ Stephen P. Krill
-----------------------------------         ------------------------------------
BY: John H.D. Dewey                         BY:  Stephen P. Krill Jr., Treasurer
   President and Chief Executive Officer

DATE:  October 12, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:




/s/ Frances D. Dewey                Date:  October 12, 2006
Frances D. Dewey,                   Director


/s/ John H.D. Dewey                 Date:  October 12, 2006
John H.D. Dewey                     Director


/s/ James M. Link                   Date:  October 12, 2006
James M. Link                       Director


/s/ Nathaniel Roberts               Date:  October 12, 2006
Nathaniel Roberts                   Director


/s/ John B. Rhodes                  Date:  October 12, 2006
John B. Rhodes                      Director


                                       45
<PAGE>

                        THE DEWEY ELECTRONICS CORPORATION

                                INDEX TO EXHIBITS

The following exhibits are filed as part of this report. For convenience of
reference, exhibits are listed according to the numbers assigned in the Exhibit
table to Regulation S-K.

Number                                                                  Page No.
------                                                                  --------

3   (a)-   Certificate of Incorporation as amended. This item was filed
           as part of the Registrant's Form 10-K for the year ended
           June 30, 1988 and is herein incorporated by reference.           --

3   (b)-   By Laws as amended.  This item was filed as part of the
           Registrant's Form 10-K for the year ended June 30, 1988 and
           is herein incorporated by reference.                             --

10  (a)-   Note Modification Agreement, dated November 9, 2005 (to
           the Promissory Note dated November 1, 2999), with Sovereign
           Bank, providing for a line of credit of up to $500,000. This
           item was filed as part of the Registrant's Form 8-K dated
           November 9, 2005 and is herein incorporated by reference         --

10  (b)-   2001 Stock Option Plan. This item was filed with the
           Registrant's Definitive Proxy Statement for the 2001 annual
           meeting of stockholders on December 5, 2001 and is herein
           incorporated by reference.

10  (c)-   Amendment and Restatement of the 1998 Stock Option Plan.
           This item was filed with the Registrant's Definitive Proxy
           Statement for the 2001 annual meeting of stockholders on
           December 5, 2001 and is herein incorporated by reference.        --

10  (d)-   Term Loan Agreement, dated February 24, 2005 with
           Sovereign Bank, providing for the borrowing of $292,187 to
           replace the balance due on the Registrant's mortgage with a
           new term ending February 23, 2007 at a fixed annual interest
           rate of 5.56 percent. This item was filed as part of the
           Registrant's Form 10-Q for the quarter ended March 31, 2005
           and is herein incorporated by reference.                         --

31.1       Certification of Chief Executive Officer Pursuant to Section
           302 of the Sarbanes-Oxley Act of 2002 (filed herewith)           47

31.2       Certification of Treasurer Pursuant to Section 302 of the
           Sarbanes-Oxley Act of 2002 (filed herewith)                      48

32.1       Certification of Chief Executive Officer pursuant to 18
           U.S.C. Section 1350, as adopted pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002 (filed herewith).                 49

32.2       Certification of Treasurer pursuant to 18 U.S.C. Section
           1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002 (filed herewith)                      50


                                       46