SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-8161
DIONICS, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 11-2166744
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
65 Rushmore Street
Westbury, New York 11590
(Address of Principal Executive Offices)
(516) 997-7474
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
Common, $.01 par value per share: 3,683,678
outstanding as of November 1, 1997
(excluding 164,544 treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
DIONICS, INC.
Index to Financial Information
Period Ended September 30, 1997
Item Page Herein
Item 1 - Financial Statements:
Introductory Comments 3
Condensed Balance Sheet 4
Condensed Statement of Operations 6
Statement of Cash Flows 8
Notes to Financial Statements 9
Item 2 - Management's Discussion and
Analysis or Plan of Operation 13
<PAGE>
DIONICS, INC.
SEPTEMBER 30, 1997
The financial information herein is unaudited.
However, in the opinion of management, such information reflects
all adjustments (consisting only of normal recurring accruals)
necessary to a fair presentation of the results of operations for
the periods being reported. Additionally, it should be noted
that the accompanying condensed financial statements do not
purport to be complete disclosures in conformity with generally
accepted accounting principles.
The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results
of operations for the full fiscal year ending December 31, 1997.
These condensed statements should be read in
conjunction with the Company's financial statements for the year
ended December 31, 1996.
<PAGE>
DIONICS, INC.
COMBINED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED) (UNAUDITED)
A S S E T S
CURRENT ASSETS:
Cash $ 418,100 $ 210,900
Accounts Receivable - Trade
(Less Estimated Doubtful Accounts
of $10,000 in 1997 and $10,000 in
1996) - Note 3 239,000 230,400
Inventory - Notes 1 and 3 345,700 402,400
Prepaid Expenses and Other Current
Assets 18,100 30,800
Total Current Assets 1,020,900 874,500
PROPERTY, PLANT AND
EQUIPMENT - Note 3
(At Cost Less Accumulated
Depreciation of $1,632,900
in 1997 and $1,623,600 in 1996) 53,400 62,700
DEPOSITS AND OTHER ASSETS -
Note 2 21,500 23,100
Total $1,095,800 $ 960,300
<PAGE>
DIONICS, INC.
COMBINED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED) (UNAUDITED)
L I A B I L I T I E S
CURRENT LIABILITIES:
Current Portion of Long-Term
Debt - (Note 3) $ 28,400 $ 28,200
Accounts Payable 59,700 66,200
Accrued Expenses 49,400 62,400
Total Current Liabilities 137,500 156,800
Deferred Compensation Payable -
(Note 2) 488,000 442,900
Long-Term Debt Less Current
Maturities - (Note 3) 808,400 829,900
Total Liabilities 1,433,900 1,429,600
CONTINGENCIES AND COMMENTS
SHAREHOLDERS' EQUITY
Common Shares - $.01 Par Value
Authorized 5,000,000 Shares
Issued 3,848,222 Shares in
1997 and 3,848,222 in 1996 38,400 38,400
Additional Paid-in Capital 1,522,800 1,522,800
(Deficit) (1,678,700) (1,809,900)
(117,500) (248,700)
Less: Treasury Stock at Cost
164,544 Shares in 1997 and
164,544 Shares in 1996 (220,600) (220,600)
Total Shareholders' Equity (Deficit) (338,100) (469,300)
Total $1,095,800 $ 960,300
<PAGE>
DIONICS, INC.
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED) (UNAUDITED)
SALES $ 450,000 $ 419,800
COST AND EXPENSES:
Cost of Sales (Including
Research and Development Costs) 308,700 298,000
Selling, General and Administrative
Expenses 78,700 76,200
Total Costs and Expenses 387,400 374,200
NET INCOME FROM OPERATIONS 62,600 45,600
INTEREST AND OTHER INCOME 3,000 1,200
65,600 46,800
OTHER DEDUCTIONS
Interest Expense 18,200 18,100
NET INCOME FOR THE PERIOD $ 47,400 $ 28,700
NET INCOME PER SHARE - Note 4 -
Primary $ .0129 $ .008
Fully Diluted $ .0126 $ .008
Average Number of Shares Outstanding
Used in Computation of Per Share
Income - Primary 3,683,678 3,483,678
Fully Diluted 3,751,860 3,483,678
<PAGE>
DIONICS, INC.
CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED) (UNAUDITED)
SALES $1,379,600 $1,104,600
COST AND EXPENSES:
Cost of Sales (Including Research
and Development Costs) 946,500 784,200
Selling, General and Administrative
Expenses 254,400 242,900
Total Costs and Expenses 1,200,900 1,027,100
NET INCOME FROM OPERATIONS 178,700 77,500
INTEREST AND OTHER INCOME 7,200 3,600
185,900 81,100
OTHER DEDUCTIONS:
Interest Expense 54,700 54,400
NET INCOME FOR THE PERIOD $ 131,200 $ 26,700
NET INCOME PER SHARE - Note 4
Primary $ .0356 $ .008
Fully Diluted $ .0350 $ .008
Average Number of Shares Outstanding
Used in Computation of Per Share Income
Primary 3,683,678 3,483,678
Fully Diluted 3,751,860 3,483,678
<PAGE>
DIONICS, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 131,200 $ 26,700
Adjustment to Reconcile Net Income to
Net Cash Provided from Operating
Activities:
Depreciation and Amortization 9,300 22,000
Deferred Compensation and Related
Interest 45,100 42,600
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (8,600) (27,200)
(Increase) Decrease in Inventory 56,700 (26,300)
(Increase) Decrease in Prepaid Expenses
and Other Current Assets 12,700 10,500
(Increase) Decrease in Deposits
and Other Assets 1,600 1,600
Increase (Decrease) in Accounts Payable (6,500) 28,400
Increase (Decrease) in Accrued Expenses (13,000) 200
Net Cash Provided from Operating
Activities 228,500 78,500
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt (21,300) (15,100)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment -0- (2,400)
NET INCREASE IN CASH 207,200 61,000
CASH - Beginning of Period 210,900 147,000
CASH - End of Period $ 418,100 $ 208,000
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - INVENTORY:
Inventory is stated at the lower of cost (which represents cost
of materials and manufacturing costs on a first-in, first-out basis)
or market, and are comprised of the following:
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
Finished Goods $ 44,900 $ 62,500
Work-in-Process 179,800 233,700
Raw Materials 100,300 69,300
Manufacturing Supplies 20,700 36,900
Total $345,700 $402,400
NOTE 2 - DEFERRED COMPENSATION PAYABLE:
In 1987 the company entered into an agreement with its chief
executive officer which provided for payments to him commencing
with the year in which he reaches the age 65, provided that the
officer does not voluntarily terminate his employment prior to attaining
age 65. Such agreement further provides that in the event of death
or if the company terminates the employment of the officer prior to age
65 such payments are to commence during the month subsequent to such
event.
The company has an insurance policy on the life of the aforementioned
officer in an amount sufficient to fund the death benefits described
above. At December 31, 1996 the cash surrender value on the existing
policy approximated $2,500 and is included in other assets.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 3 - LOANS PAYABLE - APPLE BANK:
Effective as of January 31, 1994, the Company and Apple Bank for
Savings (the "Bank") entered into a restructuring Agreement whereby
the Bank agreed to forgive a portion of existing indebtedness of
the Company and to restructure the balance. In October 1988, the
Company had obtained from the Bank a Commercial Equity Line in the
original principal amount of $1 million (the "Original Mortgage") and in
1990 the Company had obtained certain other asset-based loans from the
bank in the principal amount of $283,850 (the "1990 Loans"). Pursuant
to the Restructuring Agreement:
A. The bank has forgiven $376,146.59 of accrued and unpaid interest
stemming from the Original Mortgage and the 1990 Loans.
B. The 1990 Loans have been replaced by a new term loan in the principal
amount of $283,850, ("Term Loan A") structured over two five-year periods.
During the first five-year period, the Company will pay interest only,
computed at an annual rate of 6.0 percent. Of that amount, only one-third
(2.0 percent) will be payable monthly, with the remainder accruing and
becoming part of unpaid principal at the end of that period. During the
second five-year period, the balance due will be repaid over 60 equal
monthly installments, plus interest at Prime plus two percent on the
unpaid balance.
C. The remaining balance of $750,000 outstanding on the Original
Mortgage Loan has been replaced by a new $415,000 Mortgage Loan
plus two additional Term Loans of $167,500 each. These are treated as
follows:
The new $415,00 Mortgage Loan ("Mortgage Loan B") has a five-year
term and carries an annual interest rate of 7.5 percent. For the
first two years of Mortgage Loan B, the Company is obligated to make
payments of interest only, on a monthly basis. Thereafter, monthly
payments will include interest plus the amount of $1,921.30 towards
reduction of debt. At the end of the five-year period, the then-remaining
principal ($347,754.50) will be due.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 3 - LOANS PAYABLE - APPLE BANK - (Continued)
The first new Term Loan ("Term Loan C") stemming from the
Original Mortgage has a face amount of $167,500 and carries the same
interest rate and payment terms over two five-year periods as the new
$283,850 Term Loan A described in Paragraph B above.
The second new Term Loan ("Term Loan D") stemming from the
Original Mortgage also has a face amount of $167,500, but carries an
annual interest rate of 4.0 percent, none of which is payable during the
initial five-year period. This interest will accrue and will be
added to the principal at the end of the first five-year period.
The new total balance due will be repaid over the second five-year
period with 60 equal monthly installments plus interest of Prime plus
two percent on the unpaid balance.
D. Term Loans A and C also carry convertibility rights under
which the Bank may, at its sole discretion, exchange debt for Common
Stock in the Company at prices ranging from $.75 per share up to $1.25
per share, depending on the date of such conversion, provided,
however, that the aggregate number of shares that the Bank may acquire
will not exceed 15 percent of the number of then outstanding shares of
the Company's Common Stock, subject to certain anti-dilution rights.
E. Having met, in 1994 and 1995, certain particular financial
performance standards as called out in the January 3, 1994 Debt
Restructuring Agreement, the Company has qualified in full for
the forgiveness of specific elements of its debt. While according to
the terms of the Agreement, the actual forgiveness is due to be
formally granted on "the interim Maturity Date" (Jan. 31, 1999), the
Company has, in the interests of more accurately describing its over-all
debt situation, decided to adopt those changes in its current and
future reports. The forgiveness will cover all of the principal and
accrued interest on Term Loan D and all of the accrued interest on both
Term Loans A and C, as more fully described in the above-referenced
Debt Restructuring Agreement.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 3 - LOANS PAYABLE - APPLE BANK (CONTINUED)
All the Company's Assets are pledged to the foregoing loans.
In September 1994, the Company was advised that the foregoing
loans were purchased form the Bank by D.A.N. Joint Venture, a Limited
Partnership, an affiliate of the Cadle Company.
NOTE 4 - STOCK OPTION PLAN
In September 1997, the Board of Directors of the Company adopted
the 1997 Incentive Stock Option Plan (the "1997 Plan") for employees
of the Company to purchase up to 250,000 shares of common Stock of
the Company. Options granted under the 1997 Plan are "incentive
stock options" as defined in Section 422 of the Internal Revenue Code.
Any stock options granted under 1997 Plan shall be granted at no less
than 100% of the fair market value of the Common Stock of the Company
at the time of the grant. As of September 30, 1997, options to
acquire 120,000 shares of Common Stock have been granted under
the 1997 Plan. All of such options were granted on September 11,
1997 and have an exercise price of $.38 per share. As of September
30, 1997, 130,000 options were available for future grant. The 1997
Plan is subject to obtaining stockholder approval within twelve months
of the adoption of the 1997 Plan. If is not so approved by the
stockholders of the Company, any options granted under the 1997 Plan
will be rescinded and will be void.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
A. LIQUIDITY AND CAPITAL RESOURCES
The Company has been steadily improving its financial
performance for the last several years. Although at first still
recording losses, the Company nevertheless recorded a smaller
loss each year than in the previous one. In the most recent full year,
1996, the Company finally achieved a Profit before the benefit of
any Extraordinary Items, the first such Profit in many years. Now
during 1997, the Company has been able to continue that improving trend
with further rising profits, and for the Third Quarter of 1997 has
produced the third profitable quarter of the year, again without
benefit of any Extraordinary Items.
Along with upgrading its operating results, the Company has
also been making steady progress in improving its underlying financial
condition, particularly as it relates to Liquidity and Capital
Resources. Through an extremely beneficial restructuring of its
Bank debt, effective January 31, 1994, and the successful capture of
several additional debt-reduction opportunities, the Company has
significantly eased its over-all debt profile. The recent strengthening
of the Company's Liquidity and Capital Resources are at least partially
evident in its improved ratio of Current Assets to Current Liabilities,
7.4 to 1 at September 30, 1997, up from 5.7 to 1 as recently as June 30,
1997. To the extent that this ratio is indicative of near-term financial
strength, the above improvements may be considered a very positive sign
for the Company.
Management has continued its search for additional debt or
equity-based capital to provide further growth momentum for the
Company, and to refinance its remaining long-term debt. Contacts
with potential lenders or acquirors are always in some stage of
motion, but no assurance can be given of any successful outcomes. For the
immediate future, however, the Company is well able to support its
ongoing operations, particularly since they have now moved to a
moderately positive cash flow basis. Also very encouraging to
Management is the progress in the Balance Sheet item Working
Capital, which continued to rise, reaching $883,400 at September 30, 1997,
up from $717,700 at December 31, 1996, and $670,000 at September 30,
1996. Net Worth has also progressed to a negative $338,100 at
September 30, 1997, improved from a negative $469,300 at December
31, 1996 and a negative $500,600 at September 30, 1996. It should
further be noted that if Net Worth were calculated using estimated "true-
market" value for the Company's real estate property, instead of
the heavily depreciated value on its books, then the Company's true
Net Worth would now be slightly positive.
B. RESULTS OF OPERATIONS
Sales in the Third Quarter of 1997 rose 7.2% from the same
period last year, reaching $450,000 in the current period as
compared to $419,800 in the Third Quarter of 1996 and $341,300 in the
Third Quarter of 1995. The current rise in sales volume occurred
across numerous product lines, rather than any single one, reflecting a
general increase in customer interest. The Gross Profit Margin in
the Third Quarter of 1997 was 31.4%, as compared to 29% in the Third
Quarter of 1996 and 25% in the Third Quarter of 1995. The greater
efficiency that increasing sales volumes can provide against a
background of many largely fixed costs may soon lead to even
higher Gross Profit Margins.
Selling, General & Administrative costs fell as a percentage
of sales volume to 17.5% in the Third Quarter of 1997 as compared to
18.1% in the same period last year and 21% in the same period of
1995, largely through increased sales volume.
As a result of the above improvements, the Company showed a
37% increase in Third Quarter 1997 NET INCOME FROM OPERATIONS with
$62,600 as compared to $45,600 in the same period last year, and
$13,300 in the Third Quarter of 1995. Interest Expenses have not
changed materially in the last several consecutive quarterly
reporting periods: $18,200 in the current period, $18,100 in the
Third Quarter of 1996, and $23,700 in the Third Quarter of 1995.
For the Third Quarter of 1997, the Company recorded a 65%
increase in NET INCOME with $47,400 as compared to a NET INCOME
of $28,700 in the same period of 1996 and a NET LOSS of $9,500 in
the Third Quarter of 1995.
For the Nine-Months of 1997, the Company recorded a 24.9%
increase in Sales volume, showing $1,379,600 as compared to
$1,104,600 for the Nine-Months of 1996. The Gross Profit Margin
rose for the Nine-Months of 1997 to 31.4% as compared to 29.0% in the
same period last year, while Selling, General & Administrative
Expenses dropped to 18.4% of Sales as compared to 22% in the Nine-Months
of 1996. Interest Expenses remained essentially the same with
$54,700 in the current Nine-Months versus $54,400 in the same period last
year.
The Company showed a 390% increase in NET INCOME with
$131,200 in the NineMonths of 1997 as compared to $26,700 in the
Nine-Months of last year.
In recent years, the Company has been striving to correct its
two basic problems: past debts, primarily to the Bank; plus the need
for currently profitable operations. With the 1993 sale of one of its
two buildings and the subsequent 1994 Debt Restructuring Agreement,
followed by continually improving financial performance, the first
problem area has been put onto a manageable basis. The Company is now
able, for the immediate future, to manage its debt obligations under
the new Agreement. It has even been able to further reduce the debt
under that Agreement, first through achieving substantial debt-forgiveness
by meeting certain financial performance requirements for
both 1994 and 1995, and then through the scheduled monthly debt-
reduction payments that began in early 1996.
Concerning its second basic problem, the need for currently
profitable operations, the Company succeeded in 1996 in registering
its first annual Net Profit in many years. Now, with the strong
Nine-Month results for 1997, the Company is further bolstering its
turn-around. These currently profitable results follow the Company's
remarkable job of not only surviving on little or no Working Capital,
but also consistently making slow-but-steady improvements in financial
performance.
While early cost reduction efforts were able to keep the
Company alive, only steadily rising sales volume will be able to generate
increasing profits. The Company is continuing its efforts to
stimulate growing use of its Photovoltaic MOSFET-driver and Solid
State Relay product lines, as well as several other mature and newer
products. Bolstered by several new product development programs, the
prospects are currently very strong for further improvements in both
Sales volume and Net Profits. These are goals that Management is determined
to successfully pursue, as it has done in the debt-resolution and
profitability challenges. Risks of failure persist, of course, as they
do in any commercial venture, but the Company's recent strong performance
clearly represents a major step back-from-the-brink in what now appears to
be an accelerating rate of progress.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In September 1997, the Board of Directors of the
Company adopted the 1997 Incentive Stock Option Plan
(the "1997 Plan") for employees of the Company to
purchase up to 250,000 shares of Common Stock of the
Company. Options granted under the 1997 Plan are
"incentive stock options" as defined in Section 422 of
the Internal Revenue Code. Any stock options granted
under the 1997 Plan shall be granted at no less than
100% of the fair market value of the Common Stock of
the Company at the time of the grant. As of September
30, 1997, options to acquire 120,000 shares of Common
Stock have been granted under the 1997 Plan. All of
such options were granted on September 11, 1997 and
have an exercise price of $.38 per share. As of
September 30, 1997, 130,000 options were available for
future grant. The 1997 Plan is subject to obtaining
stockholder approval within twelve months of the
adoption of the 1997 Plan. If it is not so approved
by the stockholders of the Company, any options
granted under the 1997 Plan will be rescinded and will
be void.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. There are no exhibits applicable to
this Form 10-QSB.
(b) Reports on Form 8-K. Listed below are Current
Reports on Form 8-K filed by the Registrant
during the fiscal quarter ended September 30,
1997:
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIONICS, INC.
(Registrant)
Dated: November 5, 1997 By: /s/Bernard Kravitz
Bernard Kravitz,
President
Dated: November 5, 1997 By: /s/Bernard Kravitz
Bernard Kravitz,
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM DIONICS, INC.'S QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 418,100
<SECURITIES> 0
<RECEIVABLES> 239,000
<ALLOWANCES> 0
<INVENTORY> 345,700
<CURRENT-ASSETS> 1,020,900
<PP&E> 1,686,300
<DEPRECIATION> 1,632,900
<TOTAL-ASSETS> 1,095,800
<CURRENT-LIABILITIES> 137,500
<BONDS> 1,296,400
<COMMON> 38,400
0
0
<OTHER-SE> 1,522,800
<TOTAL-LIABILITY-AND-EQUITY> 1,095,800
<SALES> 1,379,600
<TOTAL-REVENUES> 1,379,600
<CGS> 946,500
<TOTAL-COSTS> 1,200,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,700
<INCOME-PRETAX> 131,200
<INCOME-TAX> 0
<INCOME-CONTINUING> 131,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,200
<EPS-PRIMARY> .036
<EPS-DILUTED> .035
</TABLE>
