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 JUNE 30, 2000
[ ] 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 August 1, 2000
(excluding 164,544 treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
DIONICS, INC.
Index to Financial Information
Period Ended June 30, 2000
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 14
<PAGE>
DIONICS, INC.
June 30, 2000
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 six months ended June 30, 2000
are not necessarily indicative of the results of operations for the full
fiscal year ending December 31, 2000.
These condensed statements should be read in conjunction with the
Company's financial statements for the year ended December 31, 1999.
<PAGE>
DIONICS, INC.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
(UNAUDITED) (UNAUDITED)
A S S E T S
CURRENT ASSETS:
Cash $ 565,800 $ 526,500
Accounts Receivable Trade
(Less Estimated Doubtful Accounts
of $10,000 in 1999 and $10,000 in
1999) - (Note 2) 374,100 357,000
Inventory - Notes 2 and 3 721,300 648,100
Prepaid Expenses and Other Current
Assets 26,600 30,700
Total Current Assets 1,687,800 1,562,300
PROPERTY, PLANT AND
EQUIPMENT - (Notes 2 and 4)
(At Cost Less Accumulated
Depreciation of $1,657,400
in 2000 and $1,651,200 in 1999) 80,500 82,000
DEPOSITS AND OTHER ASSETS -
(Notes 2 and 4) 47,700 49,300
Total $1,816,000 $1,693,600
<PAGE>
DIONICS, INC.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
(UNAUDITED) (UNAUDITED)
L I A B I L I T I E S
CURRENT LIABILITIES:
Current Portion of Long-Term
Debt - (Note 5) $ 93,700 $ 93,600
Accounts Payable 64,000 101,000
Accrued Expenses 72,000 65,600
Deferred Compensation Payable -
Current (Note 4) 238,100 226,200
Total Current Liabilities 467,800 486,400
Deferred Compensation Payable -
(Note 4) Non Current 403,700 393,900
Long-Term Debt Less Current
Maturities - (Note 5) 674,900 703,900
Total Liabilities 1,546,400 1,584,200
CONTINGENCIES AND COMMENTS
SHAREHOLDERS' EQUITY
Common Shares - $.01 Par Value
Authorized 5,000,000 Shares
Issued 3,848,222 Shares in
2000 and 3,848,222
in 1999 (Note 6) 38,400 38,400
Additional Paid-in Capital 1,522,800 1,522,800
Accumulated (Deficit) (1,071,000) (1,231,200)
490,200 330,000
Less: Treasury Stock at Cost
164,544 Shares in 2000 and
164,544 Shares in 1999 (220,600) (220,600)
Total Shareholders' Equity 269,600 109,400
Total $1,816,000 $1,693,600
<PAGE>
DIONICS, INC.
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
JUNE 30,
2000 1999
(UNAUDITED) (UNAUDITED)
SALES $ 617,700 $ 652,400
COST AND EXPENSES:
Cost of Sales (Including Research
and Development Costs) 375,800 426,300
Selling, General and Administrative
Expenses 109,500 92,500
Total Costs and Expenses 485,300 518,800
NET INCOME FROM OPERATIONS 132,400 133,600
DIVIDENDS AND OTHER INCOME 6,800 5,500
139,200 139,100
OTHER DEDUCTIONS:
Interest Expense 23,700 27,300
NET INCOME FOR THE PERIOD $ 115,500 $ 111,800
NET INCOME PER SHARE -
Basic $ .0314 $ .030
Diluted $ .0310 $ .030
Average Number of Shares
Outstanding Used in Computation
of Per Share Income -
Basic 3,683,678 3,683,678
Diluted 3,724,703 3,710,844
<PAGE>
DIONICS, INC.
CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30,
2000 1999
(UNAUDITED) (UNAUDITED)
SALES $1,126,400 $1,005,200
COST AND EXPENSES:
Cost of Sales (Including
Research and Development Costs) 712,000 673,500
Selling, General and Administrative
Expenses 216,000 186,300
Total Costs and Expenses 928,000 859,800
NET INCOME FROM OPERATIONS 198,400 145,400
DIVIDENDS AND OTHER INCOME 13,000 11,300
211,400 156,700
OTHER DEDUCTIONS
Interest Expense 51,200 44,600
NET INCOME FOR THE PERIOD $ 160,200 $ 112,100
NET INCOME PER SHARE -
Basic $ .0435 $ .030
Diluted $ .0421 $ .030
Average Number of Shares
Outstanding Used in Computation
of Per Share Income -
Basic 3,683,678 3,683,678
Diluted 3,801,676 3,709,793
<PAGE>
DIONICS, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
2000 1999
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 160,200 $ 112,100
Adjustment to Reconcile Net Income to
Net Cash Used for
Operating Activities:
Depreciation and Amortization 3,700 3,400
Changes in Operating Assets and Liabilities:
(Increase) in Accounts Receivable (17,100) (102,000)
(Increase) in Inventory (73,200) (76,200)
(Increase) Decrease in
Prepaid Expenses and
Other Current Assets 4,100 (4,000)
Decrease in Deposits and Other Assets 1,600 1,300
(Decrease) Increase in
Deferred Compensation
Payable 21,700 (26,200)
Increase (Decrease)
in Accounts Payable (37,000) 51,200
Increase (Decrease)
in Accrued Expenses 6,400 (9,400)
Net Cash (Used In) Provided
from Operating Activities 70,400 (49,800)
CASH FLOWS (USED FOR) FINANCING ACTIVITIES:
Repayment of Debt (28,900) (24,300)
CASH FLOWS (USED FOR) INVESTING ACTIVITIES:
Purchase of Fixed Assets (2,200) (8,000)
NET INCREASE (DECREASE) IN CASH 39,300 (82,100)
CASH - Beginning of Period 526,500 606,100
CASH - End of Period $ 565,800 $ 524,000
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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
JUNE 30, 2000
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 asset, using the straight- line method. The following asset
lives are in effect:
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 1999, 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/l/1999
b) Unamortized Prior Cost 16,200 94 Months
$52,000
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 3 - INVENTORY:
Inventories are 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:
June 30, December 31,
2000 1999
(Unaudited) (Unaudited)
Finished Goods $ 30,900 $ 27,800
Work-in-Process 378,300 339,900
Raw Materials 143,500 128,900
Manufacturing Supplies 168,600 151,500
Total $721,300 $648,100
NOTE 4 - DEFERRED COMPENSATION PAYABLE:
In 1987 the Company entered into an agreement, amended in 1997 and 1999,
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 42nd 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, 1999 of approximately $4,000, which is
included in other assets.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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 ended 3/31/99, the Company paid 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
JUNE 30, 2000
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
June 30, 2000, 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 June 30,
2000, 130,000 options were available for future grant.
NOTE 7 - INCOME TAXES:
As of December 31, 1999 the Company had available a federal operating loss
carry forward of $318,000. 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 $ 19,200 2005
1991 65,600 2006
1992 233,200 2007
$318,000
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
A. LIQUIDITY AND CAPITAL RESOURCES
The First-Half of Year 2000 saw the Company continue to show
improved financial performance, entering what is now anticipated will be
its fifth consecutive year of increasing Sales and Profits. The Company
has been undergoing a slow "turnaround," tracing as far back as 1991, when
financial problems almost forced it out of business. The intervening years
have seen the Company "pull itself up by the bootstraps" in numerous ways,
including: payroll cutbacks; the sale of one of its two buildings;
consolidation of operations into its one remaining building; favorable
restructuring of its bank debts; and more recently, the refinancing of its
building mortgage loan and the clearing of a large "balloon" payment on its
previous mortgage.
Further, as a requirement of the mortgage refinancing process, the
Company's property underwent an independent appraisal that showed it to
have a then-current market value that was $750,000 higher than the heavily-
depreciated value on the Company's balance sheet. This suggests that the
"true" Net Worth of the Company as of June 30, 2000 is approximately
$1,019,600 instead of $269,600 arrived at by more conventional accounting
methods.
During the Year 2000, the Company will continue to face certain new
payment obligations that will require it to make substantial use of its
Cash resources. (See Notes 4 and 5 in the financial statement.)
Commencing in April 1999 the Company entered the five-year pay-down phase
of its $451,350 Bank loan. These payments are in addition to the recently
reduced monthly obligations of the Deferred Compensation Agreement,
effective January 1, 1999. At present, although the effects of the above
obligations represent substantial cash requirements, it is Management's
opinion that current cash reserves plus anticipated cash-flow from
operations should permit them to be met.
Notwithstanding the Company's excellent financial condition at
year-end 1999, it was concluded by Management that in view of the Company's
near-term cash-needs for debt and other obligations, the expenditure of a
significant portion of its cash resources for an independently-audited
year-end financial statement would still not be prudent. Instead, as in
1998, the Company used its non-independent accounting firm for that filing.
The Company learned on March 10, 2000, only 20 days before the SEC's
required filing date for its year-end report, that lack of a much more
costly "independently-audited" financial report would now prevent the
Company's stock from being compliant with recently-tightened OTC Bulletin
Board eligibility requirements, thus resulting in its being de-listed.
Since the late notification left no calendar-time to effect any "cure" of
the problem, the Company's stock was in fact de-listed on April 10th.
Quotations for the stock are now reported on the National Quotation
Bureau's "Pink Sheets." The Company will, in the future, consider its
options for possibly curing the Bulletin Board eligibility issue.
A further benefit of the Company's slow but steady improvement over
the last several years has been the upgrading of its Net Worth. As far
back as 1992 the Company's Net Worth was a negative $1,273,000; by year-end
1999 it had progressed to a positive $109,400. In addition, as was noted
earlier, the recent appraisal of the Company's real estate property showed
the "true" Net Worth to be higher by $750,000, for a year-end 1999 value of
a positive $859,400. Again, as shown earlier,
<PAGE>
by June 30, 2000 the balance sheet Net Worth had advanced to a positive
$269,600, and the "true" Net Worth to approximately a positive $1,019,600.
Working Capital at June 30, 2000 increased to $1,220,000, as
compared to $1,038,200 at June 30, 1999. 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 investors, although no assurance of success can be given. For the
immediate future, at least, the Company is well able to support its ongoing
operations.
B. RESULTS OF OPERATIONS
Sales in the Second Quarter of 2000 fell 5.3 percent from the same
period last year, reaching $617,700 in the current period versus $652,400
in the Second Quarter of 1999. The prior-year results, however, had been
favorably skewed by the delayed beneficial effects of the Company's First
Quarter 1999 outsourcing program to overcome local direct labor shortages.
Much of the shipping in the Second Quarter of 1999 was actually delayed
First Quarter shipping. Thus, while slightly lower, shipping in the
current year's Second Quarter is a more correct barometer of Company
performance, and Six-month comparisons are even more valid.
Gross Profit in the Second Quarter of 2000 was 39.2 percent, as
compared to 34.7 percent in the Second Quarter of 1999. Selling, General &
Administrative Expenses in the Second Quarter of 2000 were 17.7 percent of
Sales, as compared to 14.2 percent in the same period last year. Both
categories benefitted from the increased Sales volume.
In the Second Quarter of 2000, the Company showed a Net Profit from
Operations of $132,400 as compared to $133,600 in the Second Quarter of
1999. After accounting for Interest and Other Income the Company showed a
NET PROFIT of $115,500 in the Second Quarter of 2000 as compared to a NET
PROFIT of $111,800 in the Second Quarter of 1999.
For the First Six-Months of 2000, Sales volume rose 12 percent,
reaching $1,126,400 as compared to $1,005,200 in the First Six-Months of
1999. Gross Profit Margin was 36.8 percent in the current period as
compared to 33.0 percent in the same period last year. Selling, General &
Administrative Expenses were essentially unchanged, showing 19.2 percent in
the current period as compared to 18.5 percent in the same period last
year.
For the First Six-Months of 2000, the Company showed a Net Profit
of $160,200, up 42.9 percent from the $112,100 level of the same period in
1999. These totals correctly show the benefits of the year-earlier
establishment of the Company's outsourcing program.
Addressing the bigger, longer-term picture, the Company has
continued to deal successfully with its debt situation as well as the need
for currently profitable operations. The strategy of increased outsourcing
appears to be succeeding, although at the cost of an increased level of Raw
Material and Work-in-Process inventory. Fortunately, the Company is able
to support such increases.
<PAGE>
The Company is also devoting increased efforts towards re-
establishing a national Sales Representative staff. This should lead to
increased sales for both its photovoltaic Solid State Relays and MOSFET-
drivers, the latter product line showing particular promise in the growing
field of medical electronics. As always, risks of failure persist but the
Company, having struggled back from the brink of failure, appears ever
closer to the brink of success.
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 June 30, 2000:
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: August 11, 2000 By: /s/Bernard Kravitz
Bernard Kravitz,
President
Dated: August 11, 2000 By: /s/Bernard Kravitz
Bernard Kravitz,
Principal Financial Officer
