SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
[ ] 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, 1998
(excluding 164,544 treasury shares).
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EXPLANATORY NOTE
Dionics, Inc. (the "Company") is filing this Amendment No. 1 on Form
10-QSB/A to the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 solely for the purpose of amending
Management's Discussion and Analysis or Plan of Operation to address
the year 2000 issue.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
A. LIQUIDITY AND CAPITAL RESOURCES
After many years of steadily reducing its losses, the Company finally
crossed into increasing profitability for the full-years 1996 and 1997.
In the First Quarter of 1998, however, the Company briefly showed a
loss again, at which time it was found necessary to shift certain
mid-management assignments in order to gain more aggressive pursuit of
the Company's numerous growth opportunities. The temporary "growing
pains" were overcome by those reassignments and were soon followed by
a strong rebound to profitability in both the Second and Third Quarters
of 1998.
The Company had earlier achieved significant easing of its debt
obligations through a favorable restructuring of Bank debt in January
of 1994. That new Agreement, however, called for a large (almost
$350,000) "balloon" payment on its Mortgage Note plus the commencement
of payments on two other Notes, all early in 1999. The Company
fortunately has already accumulated the required funds for the balloon
payment, resulting from its recently profitable and cash-flow-positive
operations, but the fact that this payment is due within twelve-months
of this report means that such amount must be included under Current
Liabilities on the Balance Sheet. Also now included in Current
Liabilities are a number of payments under the Company's Deferred
Compensation Agreement with its Chief Executive Officer. The combined
effects of all the above debt obligations increases Current Liabilities
to $790,200 from the $188,300 which showed at December 31, 1997. Total
Liabilities, however, have only increased $20,700 in the same period of
time. While the Company's present cash position is enough to cover the
Bank debt payment that is due in early 1999, the Deferred Compensation
Agreement may not be adequately funded. In such case, the terms of the
present agreement may have to be renegotiated to better match the
then-current financial condition of the Company. Due to the above
obligations, the Company's ratio of Current Assets to Current
Liabilities has dropped to 1.51:1. If Deferred Compensation is
entirely removed from the calculation, the Current Ratio would drop to
only 2.32:1, although no assurance can be given that such will be the
result of any renegotiation.
Management has also continued its search for additional Working Capital
to provide further growth momentum for the Company. Contacts with
potential lenders or investors are always in some state of motion, but
no assurance can be given of any positive outcome. At the time of this
writing early in November of 1998, the Company has successfully
negotiated with and received a Letter of Commitment from a prospective
lender, regarding a refinancing of the above-referenced Mortgage Note
in an amount of $385,000. If successfully completed, this transaction
will provide the funds needed to make the balloon payment referred to
earlier, but would, for a limited time, require a reduction on the
Deferred Compensation payments. Since there are still several hurdles
to be overcome, it would be premature at this time to assume that
there will be a successful completion of this refinancing, although
Management is encouraged regarding those prospects. Meanwhile, the
Company is well able to support its ongoing operations. Working
Capital has, however, dropped to $406,500, down from $862,300 at
December 31, 1997 as a direct result of the previously described
large shift forward in Current Liabilities.
B. RESULTS OF OPERATIONS
Sales in the Third Quarter of 1998 rose 16.4 percent over the same
period last year, reaching $523,900 in the current period as compared
to $450,000 in the Third Quarter of 1997 and $419,800 in the Third
Quarter of 1996. Most of the increase occurred in the Company's
core-technology products based on micro-photovoltaics, and also
traced partly to a First Quarter shift toward a more aggressive
middle-management team.
Gross Profit in the Third Quarter of 1998 was 34.5 percent of sales,
as compared to 31.4 percent in the same period last year and 29
percent in the Third Quarter of 1996. These improvements represent
steady progress based on moderately increased sales volume as against
many items of relatively fixed costs.
Selling, General and Administrative costs for the Third Quarter of
1998 were 17.4 percent of sales, relatively unchanged from the same
period last year and down very slightly from the 18.1 percent
recorded in the Third Quarter of 1996.
Net Income for the Third Quarter of 1998 rose 66.5 percent to
$78,900, up from $47,400 in the same period last year and $28,700
in the Third Quarter of 1996.
For the Nine-Months of 1998, total sales volume reached $1,388,400,
essentially matching the $1,379,600 level of the same period last
year, but well up from $1,104,600 for the Nine-Months of 1996. By
matching the 1997 Nine-Month sales total, the Company fully
recovered from its First Quarter 1998 slip, caused by the temporary
"growing pains" cited earlier.
In terms of Net Income for the Nine-Months of 1998, the Company
essentially matched the level achieved in the same period last year,
with $127,100 in the current period and $131,200 in the Nine-Months
of 1997. These compare favorably to the $26,700 in the same period
of 1996.
Addressing its bigger, long-term picture, the Company has made great
strides in dealing with its debt situation as well as its need for
currently profitable operations. The debt picture has now entered a
new phase in which, in the next several months, significant repayment
obligations come to the surface. The Company has already put into
reserves enough cash to make the required "balloon" payment on its
real-estate Mortgage Note when that becomes due, but Management has
continued to search for refinancing opportunities on more favorable
terms. As described earlier, the Company has already received a
Letter of Commitment from a prospective lender and is hopeful of
successfully closing on this refinancing before the end of the year.
Although certain issues still remain to be addressed, and thus no
assurance can yet be given concerning a successful outcome,
Management is encouraged to believe that such will be the case.
Even if a refinancing does not materialize, the Company expects
to be able to continue supporting its ongoing operations from
internally generated cash flow.
Beyond its debt situation, the Company currently has a significant
order-backlog for core-technology products which should support
continuing growth in sales. There is particularly encouraging
evidence for growth within the Company's patented micro-
photovoltaic product lines and their markets. These include
Solid State Relays used in computer-controlled flight-control
systems aboard the AIRBUS aircraft, as well as rapidly growing
use of MOSFET-drivers for certain segments of the medical-
electronics field. Looking back at the recovery the Company has
made in recent years, and the build-up in momentum, there is much
reason for optimism that Management's goal of continued increases
in sales and profits will be met. As always, risks of failure or
at least disappointment persist, but the Company is stronger now
and is well back from the brink it once fought so desperately and
successfully to avoid.
A. YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being
written using two digits, rather than four, to define the
applicable year. Software programs and hardware that have date-
sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could
result in a major system failure or miscalculations causing
disruptions of operations, including a temporary inability to
engage in normal business activities.
Based on recent assessments, the Company determined that its
critical software (primarily widely used software packages) and
all of its critical business systems, including manufacturing
instrumentation, already are year 2000 compliant. Nevertheless,
throughout 1999, assessment, testing and remediation, if
necessary, will continue.
The Company is also actively working with critical suppliers of
products and services to determine that the suppliers' operations
and the products and services they provide are year 2000
compliant or to monitor their progress toward year 2000
compliance. In this regard, the Company believes its greatest
year 2000 risk for disruption to its business is the potential
noncompliance of third parties. As a result, the Company has
initiated communications with third parties with whom the Company
has material direct and indirect business relationships. The
Company is currently in the process of contacting third parties
in order to determine the extent to which the Company's business
is vulnerable to the third parties failure to make their systems
year 2000 compliant. To date, the Company is still continuing
to gather information from such other important third parties.
The Company currently does not have a contingency plan in the
event of a particular system, including the systems of material
third parties, are not year 2000 compliant. Such a plan will
be developed if it becomes clear that the Company is not going
to achieve its scheduled compliance objectives. Although no
assurances can be given that there will be no interruption of
operations in the year 2000 the Company believes (and assuming
that third parties with whom the Company has material business
relationships successfully remediate their own year 2000 issues)
that it has reasonably assessed all of its systems in order to
ensure that the Company will not suffer any material adverse
effect from the year 2000 issue.
The Company has used and will continue to use internal resources
to resolve its year 2000 issue. Costs incurred to date by the
Company have not been material. The Company currently expects
that the total cost of these programs will not exceed $20,000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Amendment No. 1 to its Form 10-QSB on
Form 10-QSB/A to be signed on its behalf by the undersigned
thereunto duly authorized.
DIONICS, INC.
(Registrant)
Dated: January 26, 1999 By:/s/Bernard Kravitz
Bernard Kravitz,
President
