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, 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 May 1, 2000
(excluding 164,544 treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
DIONICS, INC.
Index to Financial Information
Period Ended March 31, 2000
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 13
<PAGE>
DIONICS, INC.
March 31, 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 three months ended March 31, 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
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED) (UNAUDITED)
A S S E T S
CURRENT ASSETS:
Cash $ 568,600 $ 526,500
Accounts Receivable Trade
(Less Estimated Doubtful
Accounts of $10,000 in 2000
and $10,000 in 1999)- (Note 2) 288,100 357,000
Inventory - (Notes 2 and 3) 724,300 648,100
Prepaid Expenses and Other
Current Assets 32,100 30,700
Total Current Assets 1,613,100 1,562,300
PROPERTY, PLANT AND EQUIPMENT
- - (Notes 2 and 4)
At Cost - Less Accumulated
Depreciation of $1,655,600 in 2000
and $1,648,500 in 1999 82,300 82,000
DEPOSITS AND OTHER ASSETS
- - (Notes 2 and 4) 48,500 49,300
Total $1,743,900 $1,693,600
<PAGE>
DIONICS, INC.
BALANCE SHEETS
MARCH 31, 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) $ 94,600 $ 93,600
Accounts Payable 67,900 101,000
Accrued Expenses 98,700 65,600
Deferred Compensation Payable -
Current - (Note 4) 251,800 226,200
Total Current
Liabilities 513,000 486,400
Deferred Compensation Payable -
(Note 4) Non Current 386,000 393,900
Long-Term Debt Less Current
Maturities - (Note 5) 690,800 703,900
Total Liabilities 1,589,800 1,584,200
SHAREHOLDERS' EQUITY
Common Shares - $.01 Par Value
Authorized 5,000,000 Shares
Issued 3,848,222 Shares in 2000
and 3,848,222 Shares
in 1999 (Note 6) 38,400 38,400
Additional Paid-in Capital 1,522,800 1,522,800
(Deficit) (1,186,500) (1,231,200)
374,700 330,000
Less: Treasury Stock at Cost
164,544 Shares in 2000 and
164,544 Shares in 1999 (220,600) (220,600)
Total Shareholders'
Equity 154,100 109,400
Total $1,743,900 $1,693,600
<PAGE>
DIONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2000 1999
(UNAUDITED) (UNAUDITED)
SALES $ 508,700 $ 352,800
COSTS AND EXPENSES:
Cost of Sales (Including
Research and Development
Costs) 336,200 247,200
Selling, General and
Administrative Expenses 106,500 93,800
Total Costs and Expenses 442,700 341,000
NET INCOME FROM OPERATIONS 66,000 11,800
OTHER INCOME 6,200 5,800
72,200 17,600
OTHER DEDUCTIONS:
Interest Expense 27,500 17,300
NET INCOME FOR THE PERIOD $ 44,700 $ 300
NET INCOME PER SHARE
Primary $ .0121 $ .0001
Diluted $ .0119 $ .0001
Average Number of Shares
Outstanding Used in Computation
of Per Share Net Income
Primary 3,683,678 3,683,678
Diluted 3,760,651 3,760,651
<PAGE>
DIONICS, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
MARCH 31, MARCH 31,
2000 1999
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 44,700 $ 300
Adjustment to Reconcile
Net Income to Net
Cash Used for
Operating Activities:
Depreciation and
Amortization 1,900 700
Deferred Compensation
and Related Interest 17,700 16,900
Changes in Operating
Assets and Liabilities:
(Increase) Decrease in
Accounts Receivable 68,900 76,200
(Increase) Decrease
in Inventory (76,200) (110,000)
(Increase) Decrease
in Prepaid Expenses
and Other
Current Assets (1,400) 4,900
(Increase) Decrease
in Deposits and
Other Assets 800 500
Increase (Decrease)
in Accounts Payable (33,100) 65,800
Increase (Decrease)
in Accrued Expenses 33,100 (28,800)
Net Cash provided
from Operating
Activities 56,400 26,500
CASH FLOWS USED FOR
FINANCING ACTIVITIES:
Repayment of Debt (12,100) (1,400)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Equipment (2,200) (2,300)
NET INCREASE IN CASH 42,100 22,800
CASH - Beginning of Period 526,500 606,100
CASH - End of Period $ 568,600 $ 628,900
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
MARCH 31, 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
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 First Union Small Business Capital (formerly
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, 2000
NOTE 3 - INVENTORIES:
March 31, December 31,
2000 1999
(Unaudited) (Unaudited)
Finished Goods $ 31,066 $ 27,800
Work-in-Process 379,866 339,900
Raw Materials 144,056 128,900
Manufacturing Supplies 169,312 151,500
Total $724,300 $648,100
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, 2000 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 $3,600, which is included in
other assets.
<PAGE>
DIONICS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 5 - LOANS PAYABLE -
First Mortgage Loan:
A new loan agreement was entered into between Dionics, Inc. and
First Union Business Capital (formerly 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
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
MARCH 31, 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 March 31, 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 March 31, 2000,
130,000 options were available for future grant.
NOTE 7 - INCOME TAXES:
As of March 31, 2000 the Company had available a federal
operating loss carry forward of $316,600. 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 $ 17,800 2005
1991 65,600 2006
1992 233,200 2007
$316,600
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
A. LIQUIDITY AND CAPITAL RESOURCES
The First Quarter 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 March 31, 2000 is approximately $904,100
instead of $154,100 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 combined 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
<PAGE>
to be higher by $750,000, for a year-end 1999 value of a positive
$859,400. Again, as shown earlier, by March 31, 2000 the balance sheet Net
Worth had advanced to a positive $154,100, and the "true" Net Worth to
approximately a positive $904,100.
Working Capital at March 31, 2000 increased to $1,100,100, as compared
to $965,000 at March 31, 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 First Quarter of 2000 rose 44.2 percent from the same
period last year, reaching $508,700 in the current period versus $352,800 in
the First Quarter of 1999. The prior year results had been unavoidably
hampered by the Company's effort to establish an outsourcing program to
overcome local direct labor shortages.
Gross Profit in the First Quarter of 2000 was 33.9 percent, as compared
to 30 percent in the First Quarter of 1999. Selling, General & Administrative
Expenses in the First Quarter of 2000 were 20.9 percent of Sales, as compared
to 26.6 percent in the same period last year. Both categories benefitted from
the increased Sales volume.
In the First Quarter of 2000, the Company showed a Net Profit from
Operations of $66,000 as compared to $11,800 in the First Quarter of 1999.
After accounting for Interest and Other Income the Company showed a NET PROFIT
of $44,700 in the First Quarter of 2000 as compared to a minimal NET PROFIT of
only $300 in the First Quarter of 1999. The improvement came primarily from
the higher Sales volume in the current period.
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.
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.
C. YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been
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
<PAGE>
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.
Prior to the year 2000, the Company determined that its critical
software (primarily widely-used software packages) and all of its critical
business systems, including manufacturing instrumentation, were already year
2000 compliant, and as of the date of this report, no significant problems had
been encountered. However, there can be no assurance that this will continue
to be the case, and there are also continuing risks to the Company's
operations from year 2000 failures by third parties, such as suppliers. In
this regard, the Company continues to monitor the situation.
The Company previously initiated communications with third parties with
whom the Company has material direct and indirect business relationships 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. Based
upon the information gathered from such other third parties, the Company is
not aware of any material third party year 2000 risks which have not been
resolved. As of the date of this report, the Company has not experienced any
significant year 2000 issues arising from third parties. The Company
continues to maintain close contact with critical suppliers with respect to
such third parties' year 2000 compliance and any year 2000 issues that might
arise at a later date.
The Company currently does not have a contingency plan in the event
year 2000 issues arise at a later date. Such a plan will be developed if it
becomes necessary. Although no assurance can be given that there will be no
interruption of operations due to year 2000 issues, the Company has not to
date suffered any significant problems and believes that it has reasonably
assessed all of its systems in order to ensure that the Company will not
suffer any material adverse effect in the future.
The Company has used and will continue to use, if necessary, internal
resources to resolve year 2000 issues. Costs incurred to date by the Company
have not been material and the Company estimates that the total cost of these
programs to date was less than $20,000. No further substantial expenditures
are currently planned.
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, 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: May 19, 2000 By: /s/Bernard Kravitz
Bernard Kravitz,
President
Dated: May 19, 2000 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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 568,600
<SECURITIES> 0
<RECEIVABLES> 288,100
<ALLOWANCES> 0
<INVENTORY> 724,300
<CURRENT-ASSETS> 1,613,100
<PP&E> 1,737,900
<DEPRECIATION> 1,655,600
<TOTAL-ASSETS> 1,743,900
<CURRENT-LIABILITIES> 513,000
<BONDS> 1,076,800
<COMMON> 38,400
0
0
<OTHER-SE> 1,522,800
<TOTAL-LIABILITY-AND-EQUITY> 1,743,900
<SALES> 508,700
<TOTAL-REVENUES> 508,700
<CGS> 336,200
<TOTAL-COSTS> 442,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,500
<INCOME-PRETAX> 44,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,700
<EPS-BASIC> .012
<EPS-DILUTED> .012
</TABLE>
