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 MARCH 31, 1999
[ ] 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 May 1, 1999
(excluding 164,544 treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
DIONICS, INC.
Index to Financial Information
Period Ended March 31, 1999
Item Page Herein
Item 1 - Financial Statements:
Introductory Comments 3
Condensed Balance Sheet 4
Condensed Statement of Operations 6
Statement of Cash Flows 7
Notes to Financial Statements 8
Item 2 - Management's Discussion and
Analysis or Plan of Operation 14
<PAGE>
DIONICS, INC.
March 31, 1999
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 three months ended March 31,
1999 are not necessarily indicative of the results of operations for the
full fiscal year ending December 31, 1999.
These condensed statements should be read in conjunction with the
Company's financial statements for the year ended December 31, 1998.
<PAGE>
DIONICS, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
A S S E T S
CURRENT ASSETS:
Cash $ 628,900 $ 606,100
Accounts Receivable
Trade (Less Estimated
Doubtful Accounts of
$10,000 in 1999
and $10,000 in 1998)
- - (Note 2) 185,900 262,100
Inventory
- - (Notes 2 and 3) 522,200 412,200
Prepaid Expenses
and Other
Current Assets 24,100 29,000
Total Current Assets 1,361,100 1,309,400
PROPERTY, PLANT
AND EQUIPMENT
- (Notes 2 and 4)
At Cost
- Less Accumulated
Depreciation of
$1,648,500 in 1999
and $1,647,800 in 1998 50,000 48,400
DEPOSITS AND
OTHER ASSETS
- - (Notes 2 and 4) 52,000 52,500
Total $1,463,100 $1,410,300
<PAGE>
DIONICS, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
L I A B I L I T I E S
CURRENT LIABILITIES:
Current Portion
of Long-Term
Debt - (Note 5) $ 93,100 $ 70,500
Accounts Payable 103,500 37,700
Accrued Expenses 49,500 78,300
Deferred Compensation
Payable -
Current - (Note 4) 150,000 120,000
Total Current Liabilities 396,100 306,500
Deferred Compensation
Payable -
(Note 4) Non Current 433,700 446,800
Long-Term Debt Less Current
Maturities - (Note 5) 741,500 765,500
Total Liabilities 1,571,300 1,518,800
CONTINGENCIES AND COMMENTS
SHAREHOLDERS' EQUITY
Common Shares
- $.01 Par Value
Authorized 5,000,000 Shares
Issued 3,848,222 Shares in 1999
and 3,848,222 Shares in 1998
(Note 6) 38,400 38,400
Additional Paid-in Capi 1,522,800 1,522,800
Accumulated (Deficit) (1,448,800) (1,449,100)
112,400 112,100
Less: Treasury Stock
at Cost 164,544 Shares
in 1999 and 164,544 Shares
in 1998 (220,600) (220,600)
Total Shareholders'
Equity (Deficit) (108,200) (108,500)
Total $1,463,100 $1,410,300
<PAGE>
DIONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
1999 1998
(UNAUDITED) (UNAUDITED)
SALES $ 352,800 $ 303,900
COSTS AND EXPENSES:
Cost of Sales (Including
Research and Development
Costs) 247,200 227,900
Selling, General and
Administrative Expenses 93,800 87,300
Total Costs and Expenses 341,000 315,200
NET INCOME (LOSS)
FROM OPERATIONS 11,800 (11,300)
OTHER INCOME 5,800 4,400
17,600 (6,900)
OTHER DEDUCTIONS:
Interest Expense 17,300 17,300
NET INCOME (LOSS)
FOR THE PERIOD $ 300 $ (24,200)
NET INCOME (LOSS)
PER SHARE $ .0001 $ (.0066)
Average Number of
Shares Outstanding
Used in Computation
of Per Share Net
Income (Loss) 3,683,678 3,683,678
<PAGE>
DIONICS, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
MARCH 31, MARCH 31,
1999 1998
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income (Loss) $ 300 $ (24,200)
Adjustment to Reconcile
Net Income (Loss) to
Net Cash Used for
Operating Activities:
Depreciation and
Amortization 700 1,800
Deferred Compensation
and Related Interest 16,900 16,000
Changes in Operating
Assets and Liabilities:
(Increase) Decrease in
Accounts Receivable 76,200 48,800
(Increase) Decrease in
Inventory (110,000) (73,800)
(Increase) Decrease in
Prepaid Expenses
and Other Current Assets 4,900 4,500
(Increase) Decrease in
Deposits and Other Assets 500 500
Increase (Decrease) in
Accounts Payable 65,800 12,400
Increase (Decrease) in
Accrued Expenses (28,800) 30,700
Net Cash provided
from Operating Activities 26,500 16,700
CASH FLOWS USED FOR
FINANCING ACTIVITIES:
Repayment of Debt (1,400) (7,100)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Equipment (2,300) -0-
NET INCREASE IN CASH 22,800 9,600
CASH -
Beginning of Period 606,100 473,400
CASH - End of Period $628,900 $483,000
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - BUSINESS:
The Company designs, manufactures and sells silicon semi-conductor
electronic products, as individual discrete components, as multi-component
integrated circuits and as multi-component hybrid circuits.
The individual discrete components are predominantly transistors, diodes
and capacitors, intended for use in miniature circuit assemblies called
"hybrid micro-circuits".
Due to the rapidly changing needs of the marketplace, there are continual
shifts in popularity among the various chip components offered by the
Company. Taken as a whole, the category of discrete chip components for
the hybrid circuit industry is one of the three main classes of products
offered by the Company.
A second main class of products offered by the Company is encapsulated,
assembled, integrated circuits for use in electronic digital display
functions.
The third main class of products offered by the Company is a range of
hybrid circuits that function as opto-isolated MOSFET drivers and custom
Solid State Relays.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual
basis of accounting.
Cash and Cash Equivalents
The Company considers money market funds to be cash equivalents.
Merchandise 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.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Property, Plant and Equipment
Property, Plant and Equipment is stated at cost less accumulated
depreciation and amortization. Expenditures for renewals and improvements
that significantly extend the useful life of assets are capitalized for all
assets. Depreciation is provided over the estimated useful lives of the
individual assets using the straight- line method.
Machine and Equipment 8 Years
Testing Equipment 8 Years
Furniture and Fixtures 10 Years
Building Improvements 10 Years
Building 25 Years
Deferred Compensation Plan
Future payments required under a plan of deferred compensation adopted in
1987 and revised in 1998, as well as interest accrued thereon are being
charged to operations over the period of expected service.
Bad Debts
The Company maintains a constant allowance for doubtful accounts of
$10,000.
Deferred Mortgage Costs
Costs related to the new Money Store Commercial Mortgage and prior costs
related to the paid off mortgage with D.A.N. Joint Venture are being
amortized as follows:
a) New Costs $35,800 360 Months Starting 1/1/1999
b) Unamortized Prior Cost 16,200 94 Months
$52,000
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 3 - INVENTORIES:
March 31, December 31,
1999 1998
(Unaudited)(Unaudited)
Finished Goods $ 45,400 $ 35,800
Work-in-Process 327,600 258,600
Raw Materials 111,600 88,100
Manufacturing Supplies 37,600 29,700
Total $522,200 $412,200
NOTE 4 - DEFERRED COMPENSATION PAYABLE:
In 1987 the Company entered into an agreement, amended in 1997 and 1998,
which provides for a 72 month schedule of payments to its chief executive
officer.
In connection with the refinancing of the Money Store Loan (see Note 5) a
modified deferred compensation payment schedule commencing January 1, 1999
was agreed to by the Company and it's chief executive officer.
The Company executed a mortgage subordinate to the existing first mortgage
(see note 5) secured by land and building at 65 Rushmore Street, Westbury,
New York in favor of the chief executive officer to insure amounts due him
on the deferred compensation agreement.
A new 72 month schedule consists of a 24 month period of reduced
consecutive monthly payments, to be followed by an 18-month period of no
payments except for monthly interest. At the end of the 42{nd} month, the
total of the delayed payments becomes due followed by 30 months of
principal and interest payments.
Notwithstanding the above schedule for payments, other than a life
insurance policy to cover death benefits, the Company has not specifically
designated funds with which to meet these payment requirements. In view of
its continuing total indebtedness as well as its need for operating
capital, there can be no assurance that the Company will be able to satisfy
the terms of this new agreement in full or in part. Should such
unfavorable circumstances occur, the terms of the agreement may have to
again be renegotiated to better match the Company's then-current financial
circumstances. The previously mentioned Life Insurance policy had a cash
surrender value at December 31, 1998 of approximately $4,000, which is
included in other assets.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 5 - LOANS PAYABLE -
First Mortgage Loan:
A new loan agreement was entered into between Dionics, Inc. and the Money
Store Commercial Mortgage Inc. effective 12/31/1998.
The loan in the principal amount of $384,685 requires 360 monthly self
liquidating payments. Interest is calculated on the unpaid principal
balance at an initial rate of 8.23% per annum. The interest rate on the
loan is variable depending on an independent index related to the yield of
United States Treasury Notes. This rate change will occur once every 60
months.
$358,232 of the above proceeds were used to satisfy the balance of the
Mortgage due D.A.N. Joint Venture in full.
Term Loans:
Term Loan A - Due D.A. N. Joint Venture.
Certain 1990 loans were 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, which ends 3/31/99, the Company pays interest
only. During the second five-year period commencing 4/1/99 the balance
due will be repaid over 60 equal monthly installments, plus interest at
prime plus two percent on the unpaid balance.
Term Loan C - Due D.A. N. Joint Venture.
Another 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 the Paragraph above.
In conjunction with the refinancing of the old mortgage D.A.N. Joint
Venture confirmed and acknowledged that the old mortgage note was paid in
full, that all accrued interest above the 2% stated rate and the principal
and any accrued interest on Term Loan C was forgiven, discharged and
cancelled.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 6 - 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
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
December 31, 1998, 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
December 31, 1998, 130,000 options were available for future grant.
NOTE 7 - INCOME TAXES:
As of March 31, 1999 the Company had available a federal operating loss
carry forward of $584,500. This net operating loss originated in 1990
through 1992 and may be carried forward and expires as follows:
Year of Origin Amount Carry Forward
Expires In
1990 $285,700 2005
1991 65,600 2006
1992 233,200 2007
$584,500
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
A. LIQUIDITY AND CAPITAL RESOURCES
After several years of gradually reducing its annual losses, the Company
finally crossed back into profitability in 1996. It followed with steady
increases in profitability in 1997 and 1998. During the First Quarter of
1999, however, the growing demand for the Company's products, coupled with
a very tight local labor supply, forced it to adopt a program of stronger
production outsourcing. This modified approach was not without its own
negative consequences, causing a much longer pipeline filled with costly
raw and partly processed materials, thus resulting in a substantial
increase in the Company's Work-In-Process inventory. A further negative
consequence was that the use of limited direct labor to prepare large
amounts of material for outsourcing, rather than to complete smaller
amounts as finished shippable product, also resulted in a lower First
Quarter shipping level.
These negative effects were foreseen and expected, yet were viewed by
Management as an investment in larger volume capacity for future periods.
At the time of this writing, the return flows of finished product from
outsourcing are already boosting the Second Quarter shipping levels,
proving valid the Management decision to accept a programmed dip in Sales
volume for the First Quarter. Full-year totals are expected to surpass
those of 1998.
Also worth noting, the Company successfully refinanced its real estate
mortgage loan in December 1998 and thus avoided the need to make a March
1999 $350,000 "balloon" payment on its previous mortgage loan. Also, as a
requirement of the refinancing process, the Company's property underwent an
independent appraisal that showed it to have a current market-value that is
$750,000 higher than the heavily-depreciated value shown on the Company's
balance sheet. This suggests that the "true" Net Worth of the Company at
March 31, 1999 is a positive $641,800 instead of the negative ($108,200)
arrived at by more conventional accounting methods.
During 1999 the Company will be facing certain new payment obligations that
will require substantial use of its Cash assets. (See Notes 4 and 5 in the
financial statement.) Commencing in April 1999 the Company enters the
second five-year period of its Bank Loan Agreement, and will then begin the
60-month pay-down of a total of $451,350 in debts, plus interest. These
payments will be in addition to the recently reduced monthly obligations of
the Deferred Compensation Agreement, which began January 1, 1999. At
present, although the combined effects of the above obligations represent
substantial cash requirements, it is Management's opinion that current cash
reserves plus anticipated positive cash flow from operations should permit
them to be met. In fact, in spite of the above, the ratio of the Company's
Total Current Assets to Total Current Liabilities remains a healthy 3.44 to
1.
Working Capital also remains strong at March 31, 1999 at a level of
$965,000, more than double the $422,300 level of March 31, 1998.
Management has also continued its search for additional Working Capital to
provide further growth momentum for the Company. Contacts are always
active with several potential lenders or acquirors, and it is believed that
continuing improvements in the Company's operating performance and Balance
Sheet should enhance those efforts, although no assurance of success can be
given. For the immediate future, at least, the Company is well able to
support its current operations.
B. RESULTS OF OPERATIONS
Sales in the First Quarter of 1999 rose 16 percent from the same period
last year, showing $352,800 in the current period versus $303,900 in the
First Quarter of 1998. With the programmed dip in Sales stemming from the
new effort to outsource certain elements of production, however, the
Company did incur a 36 percent reduction from the Fourth Quarter 1998 Sales
level.
Gross Profit rose to 30 percent in the First Quarter of 1999 as compared to
25 percent in the First Quarter of 1998. Selling, General and
Administrative Expenses dropped as a percentage of Sales, falling to 26.6
percent in the current period, as compared to 28.7 percent in the same
period last year.
In the First Quarter of 1999 the Company showed a Net Profit from
Operations of $11,800 as compared to a Net Loss of $11,300 in the same
period last year. After accounting for Interest Expenses and Other Income,
the Company showed a NET PROFIT of $300 in the First Quarter of 1999 as
compared to a NET LOSS of $24,200 in the First Quarter of 1998. The
improvement came primarily from the higher Sales volume in the current
period.
Addressing the bigger, longer-term picture, the Company has made great
strides in dealing with its debt situation as well as the need for
currently profitable operations. Although the Company's performance was
adversely affected in the First Quarter by the decision to outsource a
considerable amount of material for subcontract assembly, the higher volume
shipping benefits of that decision will become apparent largely in the
Second Quarter and succeeding periods.
Further improvements are anticipated if the current trend of increasing
orders continues for the Company's photovoltaic Solid State Relays and
MOSFET-drivers. The latter product line shows particular growth in the
medical-electronics field. Looking across the programmed temporary First
Quarter dip, there continues to be much reason for optimism that
Management's goals of continued increases in Sales and Profits will be
met. As always, risks of failure persist but the Company, having struggled
back from the brink of failure, now appears closer to the brink of success.
C. YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been written
using two digits, rather then 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, are already year
2000 compliant. Nevertheless, throughout 1999, assessment, testing and
remediation, if necessary, will continue.
The Company is also actively working with critical suppliers at 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 third parties.
The Company currently does not have a contingency plan in the event 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 assurance 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 and the Company currently expects that the total cost of these
programs will not exceed $20,000.
THE PRECEDING TEXT CONTAINS FORWARD-LOOKING STATEMENTS WHICH REFLECT
MANAGEMENT'S BEST JUDGMENT OF CURRENTLY AVAILABLE INFORMATION. SHOULD
CERTAIN ASSUMPTIONS FAIL TO MATERIALIZE, OR UNEXPECTED ADVERSE EVENTS
OCCUR, THE COMPANY MAY NOT REACH MANAGEMENT'S GOALS.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
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 March 31, 1999:
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: May 12, 1999 By: /s/Bernard Kravitz
Bernard Kravitz,
President
Dated: May 12, 1999 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 MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 628,900
<SECURITIES> 0
<RECEIVABLES> 185,900
<ALLOWANCES> 0
<INVENTORY> 522,200
<CURRENT-ASSETS> 1,361,100
<PP&E> 1,698,500
<DEPRECIATION> 1,648,500
<TOTAL-ASSETS> 1,463,100
<CURRENT-LIABILITIES> 396,100
<BONDS> 1,175,200
<COMMON> 38,400
0
0
<OTHER-SE> 1,522,800
<TOTAL-LIABILITY-AND-EQUITY> 1,463,100
<SALES> 352,800
<TOTAL-REVENUES> 352,800
<CGS> 247,200
<TOTAL-COSTS> 341,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,300
<INCOME-PRETAX> 300
<INCOME-TAX> 0
<INCOME-CONTINUING> 300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 300
<EPS-PRIMARY> .000
<EPS-DILUTED> .000
</TABLE>
