** **

** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

 

**FORM 10-QSB**

 

 

**Quarterly Report Under Section 13 or 15 (d)**

**of the Securities Exchange Act of 1934**

 

**For theQuarter Ended December  31,  2001    Commission File No. 0-9996**

 

 

**DOTRONIX, INC.**

(Exact name of registrantas specified in its charter)

 
| **Minnesota**                    |   | **41-1387074**      |
|----------------------------------|--------|---------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer    |
| incorporation or  organization)  |   | Identification No.) |

 

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.

 

 

YES  ý                   NO  o

 

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock as of the latest practicable date.

 
| Class                   |   | Outstanding at February  12,  2002 |
|-------------------------|--------|-----------------------------------------|
| Common stock, par value |   | 4,171,341 shares                        |
| $.05 per share          |   |                                    |

 

 

DOTRONIX, INC.

INDEX

 

 
| Part I — Financial  Information |                                                                                                       |
|--------------------------------------|------------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                       |   |   |
|                                 | Item 1.  Financial Statements (Unaudited)                                                             |   |
|                                 |                                                                                                       |   |   |
|                                 |                                                                                                       | Balance Sheets |   |
|                                 |                                                                                                       |   |   |
|                                 |                                                                                                       | Statements of Operations |   |
|                                 |                                                                                                       |   |   |
|                                 |                                                                                                       | Statements of Cash Flows |   |
|                                 |                                                                                                       |   |   |
|                                 |                                                                                                       | Notes to Financial Statements |   |
|                                 |                                                                                                       |   |   |
|                                 | Item  2.  Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
|                                 |                                                                                                       |   |   |
|                                 |                                                                                                       |   |   |
| Part II — Other Information     |                                                                                                       |
|                                 |                                                                                                       |   |   |
|                                 | Item  4.  Submission of Matters to a vote of  Securities Holders                                      |   |
|                                 |                                                                                                       |   |   |
|                                 | Item 6.  Exhibits and Reports on Form 8-K                                                             |   |
|                                      |                                                                                                            |  |  |  |

 

 

2

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PART I. FINANCIAL INFORMATION

##### ITEM 1. FINANCIAL STATEMENTS

**BALANCE SHEETS**

**DOTRONIX, INC.**

**(UNAUDITED)**

 
|                                                                                                               |   | **December 31** |      | **June 30** |    |
|--------------------------------------------------------------------------------------------------------------------|--------|-----------------|-----------|-------------|---------|
|                                                                                                               |   | **2001**        |      | **2001**    |    |
| ASSETS                                                                                                             |   |            |      |        |    |
| CURRENT ASSETS:                                                                                                    |   |            |      |        |    |
| Cash and cash equivalents                                                                                          |   | $               | 113,300   |        | $       | 68,956 |   |
| Accounts receivable, less allowance for doubtful   accounts of $32,610 and $46,610 respectively                    |   | 482,004         |      | 785,507     |    |
| Inventories:                                                                                                       |   |            |      |        |    |
| Raw materials                                                                                                      |   | 1,060,117       |      | 1,168,000   |    |
| Work-in-process                                                                                                    |   | 440,368         |      | 256,891     |    |
| Finished goods                                                                                                     |   | 235,608         |      | 308,677     |    |
| Total inventories                                                                                                  |   | 1,736,093       |      | 1,733,568   |    |
| Prepaid expenses                                                                                                   |   | 51,098          |      | 7,109       |    |
| Total current assets                                                                                               |   | 2,382,495       |      | 2,595,140   |    |
|                                                                                                               |   |            |      |        |    |
| PROPERTY, PLANT & EQUIPMENT                                                                                    |   |            |      |        |    |
| at cost net of accumulated depreciationof $6,121,081 and  $6,008,541 respectively                                  |   | 833,502         |      | 924,972     |    |
|                                                                                                               |   |            |      |        |    |
| OTHER ASSETS:                                                                                                      |   |            |      |        |    |
| Excess of cost over fair value of net assets acquired,less amortization of  $1,061,966 and $1,025,968 respectively |   | 377,988         |      | 413,986     |    |
| Other                                                                                                              |   | 400             |      | 400         |    |
| TOTAL ASSETS                                                                                                       |   | $               | 3,594,385 |        | $       | 3,934,498 |   |
|                                                                                                               |   |            |      |        |    |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                          |   |            |      |        |    |
| CURRENT LIABILITIES:                                                                                               |   |            |      |        |    |
| Revolving loans                                                                                                    |   | $               | 326,222   |        | 561,326 |   |
| Accounts payable                                                                                                   |   | 373,276         |      | 212,908     |    |
| Customer advance payments                                                                                          |   | 310,365         |      | 1,187       |    |
| Salaries, wages and payroll taxes                                                                                  |   | 108,535         |      | 122,693     |    |
| Current portion-deferred gain on sale of building                                                                  |   | 47,613          |      | 47,613      |    |
| Other accrued liabilities                                                                                          |   | 69,016          |      | 66,670      |    |
| Total current liabilities                                                                                          |   | 1,235,027       |      | 1,012,397   |    |
|                                                                                                               |   |            |      |        |    |
| DEFERRED GAIN ON SALE OF BUILDING                                                                                  |   | 301,549         |      | 325,355     |    |
|                                                                                                               |   |            |      |        |    |
| STOCKHOLDERS’ EQUITY:                                                                                         |   |            |      |        |    |
| Common stock, $.05 par value                                                                                       |   | 208,567         |      | 208,567     |    |
| Additional paid-in capital                                                                                         |   | 10,919,976      |      | 10,919,976  |    |
| Unearned compensation                                                                                              |   | (2,375          | )         | (2,375      | )       |
| Accumulated deficit                                                                                                |   | (9,068,359      | )         | (8,529,422  | )       |
| Total stockholders’ equity                                                                                    |   | 2,057,809       |      | 2,596,746   |    |
| TOTAL LIABILITIES AND                                                                                              |   |            |      |        |    |
| STOCKHOLDERS’ EQUITY                                                                                          |   | $               | 3,594,385 |        | $       | 3,934,498 |   |
|                                                                                                                    |        |                 |           |             |         |  |  |  |

 

 

See notes to financialstatements

 

3

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**STATEMENTS OF OPERATIONS**

**DOTRONIX,INC.**

**(UNAUDITED)**

 

 
|                                                |   | **Three Months Ended,** |      | **Six Months Ended,** |   |
|-----------------------------------------------------|--------|-------------------------|-----------|-----------------------|--------|
|                                                |   | **December 31**         |      | **December 31**       |   |
|                                                |   | **2001**                |      | **2000**              |   | **2001** |   | **2000** |   |
| REVENUES                                            |   | $                       | 1,058,764 |                  | $      | 1,947,437 |   | $ | 1,649,582 |   | $ | 3,997,434 |   |
|                                                |   |                    |      |                  |   |   |   |   |   |
| OPERATING EXPENSES:                                 |   |                    |      |                  |   |   |   |   |   |
| Cost of Sales                                       |   | 682,765                 |      | 1,364,714             |   | 1,215,588 |   | 2,614,722 |   |
|                                                |   |                    |      |                  |   |   |   |   |   |
| Selling, general                                    |   |                    |      |                  |   |   |   |   |   |
| and administrative                                  |   | 470,997                 |      | 507,589               |   | 948,778 |   | 1,156,455 |   |
|                                                |   |                    |      |                  |   |   |   |   |   |
| Interest                                            |   | 10,765                  |      | 35,035                |   | 24,153 |   | 65,610 |   |
|                                                |   |                    |      |                  |   |   |   |   |   |
| Net (loss) income                                   |   | $                       | (105,763  | )                     | $      | 40,099 |   | $ | (538,937 | ) | $ | 160,647 |   |
|                                                |   |                    |      |                  |   |   |   |   |   |
|                                                |   |                    |      |                  |   |   |   |   |   |
| Basic and diluted net (loss)income per common share |   | $                       | (0.03     | )                     | $      | 0.01 |   | $ | (0.13 | ) | $ | 0.04 |   |
|                                                |
|                                                |   |                    |      |                  |   |   |   |   |   |
| Average number of commonshares outstanding          |   | 4,171,341               |      | 4,149,335             |   | 4,171,341 |   | 4,112,034 |   |
|                                                |

 

 

See notes to financialstatements

 

4

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**STATEMENTS OF CASH FLOWS**

**DOTRONIX, INC .**

**(UNAUDITED)**

 
|                                                                                                 |   | **Six Months Ended** |     |
|------------------------------------------------------------------------------------------------------|--------|----------------------|----------|
|                                                                                                 |   | **December 31**      |     |
|                                                                                                 |   | **2001**             |     | **2000** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |   |                 |     |   |   |
| Net (loss) earnings                                                                                  |   | $                    | (538,937 | ) | $ | 160,647 |   |
| Adjustment to reconcile net (loss) earnings to net cash provided by  (used in) operating activities: |   |                 |     |   |   |
| Depreciation and amortization                                                                        |   | 148,538              |     | 177,574 |   |
| Stock compensation                                                                                   |   | —               |     | 38,538 |   |
| Amortization of deferred gain on sale of building                                                    |   | (23,806              | )        | (23,806 | ) |
| Change in assets and liabilities:                                                                    |   |                 |     |   |   |
| Accounts receivable                                                                                  |   | 303,503              |     | (5,440 | ) |
| Inventories                                                                                          |   | (2,525               | )        | (16,907 | ) |
| Prepaid expenses                                                                                     |   | (43,989              | )        | (25,955 | ) |
| Accounts payable                                                                                     |   | 160,368              |     | (4,964 | ) |
| Customer advance payments                                                                            |   | 309,178              |     | 23,217 |   |
| Salaries, wages and payroll taxes payable                                                            |   | (14,158              | )        | (59,037 | ) |
| Accrued liabilities                                                                                  |   | 2,346                |     | (99,400 | ) |
|                                                                                                 |   |                 |     |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                            |   | 300,518              |     | 164,467 |   |
|                                                                                                 |   |                 |     |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |   |                 |     |   |   |
| Purchase of property, plant and equipment                                                            |   | (21,070              | )        | (14,021 | ) |
|                                                                                                 |   |                 |     |   |   |
| NET CASH USED IN INVESTING ACTIVITIES                                                                |   | (21,070              | )        | (14,021 | ) |
|                                                                                                 |   |                 |     |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |   |                 |     |   |   |
| Borrowings on revolving loan                                                                         |   | 2,015,000            |     | 3,959,000 |   |
| Repayments on revolving loan                                                                         |   | (2,250,104           | )        | (3,843,848 | ) |
| Payments of capital lease obligations                                                                |   | —               |     | (28,449 | ) |
|                                                                                                 |   |                 |     |   |   |
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                                  |   | (235,104             | )        | 86,703 |   |
|                                                                                                 |   |                 |     |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                                            |   | 44,344               |     | 237,149 |   |
|                                                                                                 |   |                 |     |   |   |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING                                                           |   |                 |     |   |   |
| OF THE PERIOD                                                                                        |   | 68,956               |     | 75,466 |   |
|                                                                                                 |   |                 |     |   |   |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                                                   |   | $                    | 113,300  |   | $ | 312,615 |   |

 

 

See notes to financialstatements

 

5

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DOTRONIX, INC.

NOTES TO FINANCIAL STATEMENTS

 

A.            Basis ofPresentation

 

The balance sheet as of December 31, 2001, the statements of operationsfor the three and six month periods ended December 31, 2001 and 2000 and thestatements of cash flows for the six month periods ended December 31, 2001 and2000 have been prepared by the Company without audit.  In the opinion of management, all adjustments (consisting only ofnormal recurring accruals) necessary to present fairly the financial position,results of operations and cash flows at December 31, 2001 and for the three andsix months periods ended December 31, 2001 and 2000 presented herein have beenmade.

 

Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted. It is suggested that these financial statements be read in conjunctionwith the Company’s financial statements and notes thereto included in theAnnual Report on Form 10-KSB of the Company for the fiscal year ended June 30,2001.

 

B.            Revolving Lineof  Credit

 

On February 23, 2000, the Company entered into a revolving creditfacility with its president and major stockholder, and in September 2000 theCompany’s president and major stockholder extended the loan agreement toFebruary 28, 2002, and increased the loan limit to $1,250,000 in securedfinancing. In September 2001, the Company’s president and major stockholderextended the loan agreement to February 28, 2003 and increased the loan limitto $1,500,000 in secured financing.

 

The revolving credit facility contains various restrictive covenantsincluding a minimum tangible net worth balance, which the president and majorstockholder agreed to reduce to $1.0 million in the first quarter of fiscal2002. As of February 12, 2002 the Company had $949,606 available under the  revolving credit facility.

 

Interest on outstanding borrowings under the revolving credit facilityis accrued at the Wells Fargo Bank prime interest rate plus 3%. Additionally,the Company is required to issue warrants on the Company’s stock to thepresident and major shareholder for incremental increases in the outstandingborrowings balance.  One warrant isissued for every $4 in incremental borrowings made by the Company.  All warrants issued expire in 4 years andhave an exercise price equal to the fair market value of the Company’s stock atthe date of grant. Once repayments on the facility have been made, additionalwarrants are issued for incremental borrowings on the facility only to theextent that the new outstanding borrowings balance exceeds the previous highoutstanding borrowings balance. No additional warrants were issued in thecurrent  year.

 

Company management believes that the cash and cash equivalents on handat February 12, 2002 and future amounts available under the aforementionedcredit agreement should be adequate to meet cash requirements for the balanceof the fiscal year.

 

 

6

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# ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITIONS AND RESULTS OFOPERATIONS

 

RESULTS OF OPERATIONS

 

Revenue decreased by $889,000, or 46%, for the three months endedDecember 31, 2001, and decreased $2,348,000, or 59%, for the six months endingDecember 31, 2001, compared to like periods in the prior year.

 

In the three month  and sixmonths ended December 31, 2000, the Company realized approximately  $1.3 million in sales and $2.4 million insales, respectively, of certain mature monochrome products.  Comparable sales in the three months and sixmonths ended December 31, 2001 were approximately $540,000 and $730,000, respectively.The monochrome sales occurring in the year ended December 31, 2000  were the result of  the implementation ofa strategy to increase the order size and gross margins on these products byinforming customers of its intent to reduce capacity for the products.Monochrome product sales have declined since December 31, 2000, as ordersgenerated by the monochrome product strategy were completed and capacity wasreduced. Large screen color orders have also declined, as offshore competitionhas increased, and airport installations and other electronic display projectshave been cancelled or rescheduled.

 

Recent synergies developed between computer hardware and software,content delivery systems, and a multitude of new display technologies haspresented the Company with the opportunity to develop systems and provideturnkey solutions using various electronic display technologies.  Several large fast food restaurant chainshave expressed an interest in these types of products, including theinstallation of trial systems. The Company’s efforts to develop an integratedfull service system product line has not contributed significant sales as ofDecember 31, 2001.

 

Thegross margin percentage for the quarter ended December 31, 2001, was 36%,compared to 30%, for the same quarter ended December 31, 2000. The gross marginpercentage for the six months ended December 31, 2001, was 26%, compared to35%, for the six months ended December 31, 2000.  The increase in the gross margin percentage for the quarter endedDecember 31, 2001, from the prior year quarter was the result of several highmargin parts orders for mature products in the current quarter. The decline inthe gross margin percentage for the six months ended December, 31, 2001, fromthe prior year six month period was due to the completion of the monochromeproduct strategy referred to in the above paragraph in December of 2000, andthe significant decline in manufacturing capacity utilization due to thedecline in sales in the six months ended December 31, 2001.

 

Selling, general, and administrative expenses decreased $37,000, or 7%,for the quarter ended December 31, 2001, and $208,000, or 18%, for the sixmonths ended December 31, 2001, when compared to the same periods in the prioryear. The decrease was due to continuing reductions in personnel and othercontinuing cost cutting efforts.

 

Interest expensedecreased $24,000, or 69%, during the quarter ended December 31, 2001 and$41,000, or 63%, for the six months ended December 31, 2001, compared to thesame periods of the prior year.  Lowerinterest rates, and lower borrowing requirements due to decreased materialrequirements and the collections of accounts receivable contributed to thedecrease in interest expense. Also, no additional warrants related to the lineof credit were issued.

 

 

7

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LIQUIDITY AND CAPITAL RESOURCES

 

On February 23, 2000, the Company entered into a revolving creditfacility with its president and major stockholder. In September 2001, theCompany’s president and major stockholder extended the loan agreement toFebruary 28, 2003 and increased the loan limit to $1,500,000 in securedfinancing.

 

The revolving credit facility contains various restrictive covenantsincluding a minimum tangible net worth balance, which was reduced to $1.0million in the first quarter of fiscal 2002. As of February 12, 2002 theCompany had $949,606 available under the revolving credit facility.

 

Interest on outstanding borrowings under the revolving credit facilityis accrued at the Wells Fargo Bank prime interest rate plus 3%. Additionally,the Company is required to issue warrants on the Company’s stock to thepresident and major shareholder for incremental increases in the outstandingborrowings balance.  One warrant isissued for every $4 in incremental borrowings made by the Company.  All warrants issued expire in 4 years andhave an exercise price equal to the fair market value of the Company’s stock atthe date of grant. Once repayments on the facility have been made, additionalwarrants are issued for incremental borrowings on the facility only to theextent that the new outstanding borrowings balance exceeds the previous highoutstanding borrowings balance. No additional warrants were issued in thecurrent  year.

 

During the six months ended December 31, 2001, cash and cashequivalents increased by $44,000. The negative effect on cash flows of  the net loss of $539,000 was more thanoffset by other operating activities. Collections of accounts receivable net ofnew billings amounted to $304,000 and advance payments of $310,000 were receivedfrom customers for orders due to ship in the next quarter.  Cash flow provided by operations was$301,000. Proceeds were used to pay down the revolving loan in the amountof  $235,000, and to purchase  property plant and equipment totaling$21,000.

 

Company management believes that the cash and cash equivalents on handat February 12, 2002 and future amounts available under the aforementionedcredit agreement should be adequate to meet cash requirements for the balanceof the fiscal year.

 

 

ACCOUNTING PRONOUNCEMENTS

 

In June 2001, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Account Standards (SFAS) No. 142, “Goodwill and OtherIntangible Assets”.  SFAS No. 142  requires that upon adoption, amortization ofgoodwill will cease and instead, the carrying value of goodwill will beevaluated for impairment on an annual basis. Identifiable intangible assetswill continue to be amortized over their useful lives and reviewed forimpairment in accordance with SFAS No. 121 “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed Of”. SFAS No. 142 iseffective for the Company’s fiscal year beginning July 1, 2002. The Company isevaluating the impact of the adoption of this standard and has not yet determinedthe effect of adoption on its financial position and results of operations.

 

 

8

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COMMON STOCK LISTING

 

The Company’s Common Stock previously was  quoted on the NASDAQ Stock Market under the symbol “DOTX”.  Effective August 4, 1999 the Company’sCommon Stock transferred to the OTC Bulletin Board.

 

#  

# PART II - OTHER INFORMATION

 

Item 4. Submission of Matters to a Vote of Securities Holders

 

At the annual meeting of the shareholders of the Company held onDecember 28, 2001 the following items were voted on:

 
| **Election of Directors** |   |           |   |         |   |   |
|---------------------------|--------|----------------|--------|--------------|--------|--------|
|                      |   | **Votes  For** |   | **Withheld** |   |   |
| William S. Sadler         |   | 2,591,033      |   | 98,430       |   |   |
| Ray L. Bergeson           |   | 2,591,033      |   | 98,430       |   |   |
| Edward L. Zeman           |   | 2,590,998      |   | 98,465       |   |   |
| L. Daniel Kuechenmeister  |   | 2,591,033      |   | 98,430       |   |   |

 

 
| **Confirmation of Outside Auditors** |   | **Votes  For** |   | **Against** |   | **Abstain** |   |
|--------------------------------------|--------|----------------|--------|-------------|--------|-------------|--------|
|                                 |   |           |   |        |   |        |   |
| Deloitte & Touche LLP            |   | 2,617,283      |   | 51,080      |   | 21,100      |   |

 

 

Item 6. Exhibits and reports on Form 8-K

 

                No reports on Form8-K were issued during the quarter.

 

 

# SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
| Date: February 12, 2002 |   |   |   | Dotronix, Inc. |
|-------------------------|--------|--------|--------|----------------|
|                    |   |   |   |           |   |   |   |   |   |
|                    |   |   |   | By             | /s/ William S. Sadler |
|                    |   |   |   |           |   | William S. Sadler |
|                    |   |   |   |           |   | President |
|                    |   |   |   |           |   | (Principal Executive |
|                    |   |   |   |           |   | Officer) |
|                    |   |   |   |           |   |   |   |   |   |
|                    |   |   |   | By             | /s/ Robert V. Kling |
|                    |   |   |   |           | Robert V. Kling |
|                    |   |   |   |           | Chief Financial Officer |
|                    |   |   |   |           | (Principal Financial |
|                    |   |   |   |           | and accounting Officer) |

 

 

 

9

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