**FORM 10-QSB**

 

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**Quarterly ReportUnder Section 13 or 15 (d)**

**of the SecuritiesExchange Act of 1934**

** **

**For the Quarter Ended September 30, 2001     Commission File No. 0-9996**

 

**DOTRONIX, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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.

 

YESý     NO o

 

Indicate the number of shares outstandingof each of the issuer’s classes of common stock as of the latest practicabledate.

 

| **Class**                               |   | **Outstanding at November 12, 2001** |
|-----------------------------------------|--------|--------------------------------------|
| Common  stock, par value $.05 per share |   | 4,171,341  shares                    |

 

 

 

**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 1.  Exhibits and Reports on Form 8-K                                                              |

 

 

**PARTI.  FINANCIAL INFORMATION**

**ITEM 1.FINANCIAL STATEMENTS**

** **

**BALANCE SHEETS**

**DOTRONIX,INC.**

**(UNAUDITED)**

 
|                                                                                                                  |   | **September 30  2001** |      | **June 30  2001** |    |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|-------------------|---------|
| ASSETS                                                                                                                |   |                   |      |              |    |
| Cash  and cash equivalents                                                                                            |   | $                      | 65,564    |              | $       | 68,956 |   |
| Accounts  receivable, less allowance for doubtful accounts of $32,610 and $46,610,  respectively                      |   | 266,009                |      | $                 | 785,507 |   |
|                                                                                                                  |   |                   |      |              |    |
| Inventories:                                                                                                          |   |                   |      |              |    |
| Raw  materials                                                                                                        |   | 1,230,730              |      | 1,168,000         |    |
| Work-in-process                                                                                                       |   | 250,414                |      | 256,891           |    |
| Finished  goods                                                                                                       |   | 241,779                |      | 308,677           |    |
| Total  inventories                                                                                                    |   | 1,722,923              |      | 1,733,568         |    |
| Prepaid expenses                                                                                                      |   | 62,827                 |      | 7,109             |    |
| Total current assets                                                                                                  |   | 2,117,323              |      | 2,595,140         |    |
|                                                                                                                  |   |                   |      |              |    |
| PROPERTY,  PLANT & EQUIPMENT at cost net of accumulated depreciation of $6,075,439  and $6,008,541 respectively   |   | 871,515                |      | 924,972           |    |
|                                                                                                                  |   |                   |      |              |    |
| OTHER  ASSETS:                                                                                                        |   |                   |      |              |    |
| Excess  of cost over fair value of net assets acquired, less amortization of  $1,043,967 and $1,025,968, respectively |   | 395,987                |      | 413,986           |    |
| Other                                                                                                                 |   | 900                    |      | 400               |    |
| TOTAL  ASSETS                                                                                                         |   | $                      | 3,385,725 |              | $       | 3,934,498 |   |
|                                                                                                                  |   |                   |      |              |    |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                            |   |                   |      |              |    |
| CURRENT  LIABILITIES:                                                                                                 |   |                   |      |              |    |
| Revolving  loans                                                                                                      |   | $                      | 474,130   |              | $       | 561,326 |   |
| Accounts  payable                                                                                                     |   | 230,905                |      | 214,095           |    |
| Salaries,  wages and payroll taxes                                                                                    |   | 75,777                 |      | 122,693           |    |
| Current  portion-deferred gain on sale of building                                                                    |   | 47,613                 |      | 47,613            |    |
| Other  accrued liabilities                                                                                            |   | 80,276                 |      | 66,670            |    |
| Total  current liabilities                                                                                            |   | 908,701                |      | 1,012,397         |    |
|                                                                                                                  |   |                   |      |              |    |
| DEFERRED  GAIN ON SALE OF BUILDING                                                                                    |   | 313,452                |      | 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                                                                                                  |   | (8,962,596             | )         | (8,529,422        | )       |
| Total  stockholders' equity                                                                                           |   | 2,163,572              |      | 2,596,746         |    |
| TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                           |   | $                      | 3,385,725 |              | $       | 3,934,498 |   |

 

Seenotes to financial statements

 

 

**STATEMENTSOF OPERATIONS**

**DOTRONIX, INC.**

**(UNAUDITED)**

 
|                                              |   | **Three months ended,** |     |
|---------------------------------------------------|--------|-------------------------|----------|
|                                              |   | **September 30**        |     |
|                                              |   | **2001**                |     | **2000** | ** ** |
|                                              |   |                    |     |   |   |
| REVENUES                                          |   | $                       | 590,818  |   | $ | 2,049,997 |   |
|                                              |   |                    |     |   |   |
| OPERATING  EXPENSES:                              |   |                    |     |   |   |
| Cost  of sales                                    |   | 532,823                 |     | 1,250,008 |   |
|                                              |   |                    |     |   |   |
| Selling,  general and administrative              |   | 477,781                 |     | 648,866 |   |
|                                              |   |                    |     |   |   |
| Interest                                          |   | 13,388                  |     | 30,575 |   |
|                                              |   |                    |     |   |   |
| Net  (loss) income                                |   | $                       | (433,174 | ) | $ | 120,548 |   |
|                                              |   |                    |     |   |   |
|                                              |   |                    |     |   |   |
|                                              |   |                    |     |   |   |
| Basic  and diluted (loss) income per common share |   | $                       | (0.10    | )  | $ | 0.03 |   |
|                                              |   |                    |     |   |   |
| Average  number of common shares outstanding      |   | 4,171,341               |     | 4,074,732 |   |

 

Seenotes to financial statements

 

 

**STATEMENTSOF CASH FLOWS**

**DOTRONIX,INC**

**(UNAUDITED)**

 
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                            |   |       |     |       |   |
|-----------------------------------------------------------------------------------|--------|------------|----------|------------|--------|
|                                                                              |   |       |     |       |   |
| Net  (loss) earnings                                                              |   | $          | (433,174 | )          | $      | 120,548 |   |
| Adjustment  to reconcile net income to net cash provided by operating activities: |   |       |     |       |   |
|                                                                              |   |       |     |       |   |
| Depreciation  and amortization                                                    |   | 84,897     |     | 88,565     |   |
| Amortization  of deferred gain on sale of building                                |   | (11,903    | )        | (11,903    | )      |
| Change  in assets and liabilities:                                                |   |       |     |       |   |
| Accounts  receivable                                                              |   | 519,498    |     | (108,278   | )      |
| Inventories                                                                       |   | 10,645     |     | (127,958   | )      |
| Prepaid  expenses                                                                 |   | (55,718    | )        | (18,153    | )      |
| Other  assets                                                                     |   | (500       | )        | -          |   |
| Accounts  payable and accrued liabilities                                         |   | 30,416     |     | 349,207    |   |
| Salaries,  wages and payroll taxes payable                                        |   | (46,916    | )        | (93,912    | )      |
|                                                                              |   |       |     |       |   |
|                                                                              |   |       |     |       |   |
| NET  CASH PROVIDED BY OPERATING ACTIVITIES                                        |   | 97,245     |     | 198,116    |   |
|                                                                              |   |       |     |       |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                            |   |       |     |       |   |
| Purchase  of property, plant and equipment                                        |   | (13,441    | )        | (8,095     | )      |
|                                                                              |   |       |     |       |   |
| NET  CASH USED IN INVESTING ACTIVITIES                                            |   | (13,441    | )        | (8,095     | )      |
|                                                                              |   |       |     |       |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                            |   |       |     |       |   |
| Borrowings  on revolving loan                                                     |   | 1,065,000  |     | 1,950,000  |   |
| Repayments  on revolving loan                                                     |   | (1,152,196 | )        | (2,027,075 | )      |
| Payments  of capital lease obligations                                            |   | -          |     | (14,096    | )      |
|                                                                              |   |       |     |       |   |
|                                                                              |   |       |     |       |   |
| NET  CASH USED IN FINANCING ACTIVITIES                                            |   | (87,196    | )        | (91,171    | )      |
|                                                                              |   |       |     |       |   |
| NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                             |   | (3,392     | )        | 98,850     |   |
|                                                                              |   |       |     |       |   |
| CASH  AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                             |   | 68,956     |     | 75,466     |   |
| CASH  AND CASH EQUIVALENTS AT END OF THE PERIOD                                   |   | $          | 65,564   |       | $      | 174,316 |   |

 

Seenotes to financial statements

 

 

DOTRONIX,INC.

NOTES TO FINANCIALSTATEMENTS

 

 

A.            Basisof Presentation

 

The balance sheet as of September 30,2001, the statements of operations for the three month periods ended September30, 2001 and 2000 and the statements of cash flows for the three month periodsended September 30, 2001 and 2000 have been prepared by the Company withoutaudit.  In the opinion of management,all adjustments (consisting only of normal recurring accruals) necessary topresent fairly the financial position, results of operations and cash flows atSeptember 30, 2001 and for the three months periods ended September 30, 2001and 2000 presented herein have been made.

 

Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles have been condensed oromitted.  It is suggested that thesefinancial statements be read in conjunction with the Company’s financial statementsand notes thereto included in the Annual Report on Form 10-KSB of the Companyfor the fiscal year ended June 30, 2001.

 

 

B.                RevolvingLine of  Credit

 

On February 23, 2000, the Company enteredinto a revolving credit facility with its president and major stockholder, andin September 2000 the Company’s president and major stockholder extended theloan agreement to February 28, 2002, and increased the loan limit to $1,250,000in secured financing. In September 2001, the Company’s president and majorstockholder extended the loan agreement to February 28, 2003 and increased theloan limit to $1,500,000 in secured financing.

 

The revolving credit facility containsvarious restrictive covenants including a minimum tangible net worth balance,which the president and major stockholder agreed to reduce to $1.0 million inthe first quarter of fiscal 2002. As of November 12, 2001 the Company had$904,985 available under the  revolvingcredit facility.

 

Interest on outstanding borrowings underthe revolving credit facility is accrued at the Wells Fargo Bank prime interestrate plus 3%. Additionally, the Company is required to issue warrants on theCompany’s stock to the president and major shareholder for incrementalincreases in the outstanding borrowings balance.  One warrant is issued for every $4 in incremental borrowings madeby the Company.  All warrants issuedexpire in 4 years and have an exercise price equal to the fair market value ofthe Company’s stock at the date of grant. Once repayments on the facility havebeen made, additional warrants are issued for incremental borrowings on thefacility only to the extent that the new outstanding borrowings balance exceedsthe previous high outstanding borrowings balance.

 

Company management believes that the cashand cash equivalents on hand at November 12, 2001 and future amounts availableunder the aforementioned credit agreement should be adequate to meet cashrequirements for the balance of the fiscal year.

 

 

ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS

OFFINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

 

RESULTS OF OPERATIONS

 

Revenue decreased by $1,459,000 or 71%for the three months ended September 30, 2001 compared to the prior year. Inthe three months ended September 30, 2000, the Company realized approximately$1.1 million in sales resulting from the implementation of a strategy toincrease the order size and gross margins on certain mature monochrome productsby informing customers of its intent to reduce capacity for mature low volumeproducts. In addition, several sales to airports were shipped in thatquarter.  Monochrome product sales havedeclined since December 31, 2000, as orders generated by the monochrome productstrategy were completed and capacity was reduced. Large screen color ordershave also declined, as offshore competition has increased, and airportinstallations and other electronic display projects have been cancelled orrescheduled.

 

Gross margin percentage for the quarterended September 30, 2001 was 8% compared to 39% for the same quarter endedSeptember 30, 2000.  The decrease wasdue in part to the strong margins created by larger and higher pricedmonochrome orders in the prior year and to low capacity  utilization due to the decrease in orders inthe quarter ended September 30, 2001.

 

Selling, general, and administrativeexpenses decreased $171,000 or 26% in the quarter ended September 30, 2001,when compared to the prior year. The decrease was due to continuing reductionsin personnel and a continuing Company wide cost reduction program.

 

Interest expense decreased $17,000, or56% during the three month period ended September 30, 2001 compared to the sameperiod of the prior year. Lower interest rates and lower borrowing requirementsdue to decreased material requirements and collections of accounts receivablecaused the decrease in interest expense.

 

 

LIQUIDITY AND CAPITALRESOURCES

 

On February 23, 2000, the Company enteredinto a revolving credit facility with its president and major stockholder, andin September 2000 the Company’s president and major stockholder extended theloan agreement to February 28, 2002, and increased the loan limit to $1,250,000in secured financing. In September 2001, the Company’s president and majorstockholder extended the loan agreement to February 28, 2003 and increased theloan limit to $1,500,000 in secured financing.

 

The revolving credit facility containsvarious restrictive covenants including a minimum tangible net worth balance,which the president and major stockholder agreed to reduce to $1.0 million inthe first quarter of fiscal 2002. As of November 12, 2001 the Company had$904,985 available under the  revolvingcredit facility.

 

Interest on outstanding borrowings underthe revolving credit facility is accrued at the Wells Fargo Bank prime interestrate plus 3%. Additionally, the Company is required to issue warrants on theCompany’s stock to the president and major shareholder for incrementalincreases in the outstanding borrowings balance.  One warrant is issued for every $4 in incremental borrowings madeby the Company.  All warrants issuedexpire in 4 years and have an exercise price equal to the fair market value ofthe Company’s stock at the date of grant. Once repayments on the facility havebeen made, additional warrants are issued for incremental borrowings on thefacility only to the extent that the new outstanding borrowings balance exceedsthe previous high outstanding borrowings balance.

 

Company management believes that the cashand cash equivalents on hand at November 12, 2001 and future amounts availableunder the aforementioned credit agreement should be adequate to meet cashrequirements for the balance of the fiscal year.

 

During the three months ended September30, 2001, cash flow from operations was $97,000. Purchases of property, plantand equipment consumed $13,000 of cash in investing activities. A decrease inbusiness activity and collections of accounts receivables resulted in netrepayments of borrowings on the working capital loan of  $87,000. The overall result was a decreasein cash of $3,000. This was primarily due to the net result of a loss ofapproximately $433,000 which was more than offset by a $519,000 reduction inaccounts receivable.

 

 

ACCOUNTINGPRONOUNCEMENTS

 

InJune 2001, the Financial Accounting Standards Board (FASB) issued SFAS  No. 141, "Business Combinations"and No. 142, "Goodwill and Other Intangible Assets".  SFAS No. 141 requires that the purchasemethod of accounting be used for all business combinations initiated after June30, 2001 and the use of the pooling-of-interest method is no longer allowed.SFAS No. 142  requires that uponadoption, amortization of goodwill will cease and instead, the carrying valueof goodwill will be evaluated for impairment on an annual basis. Identifiableintangible assets will continue to be amortized over their useful lives andreviewed for impairment in accordance with SFAS No. 121 "Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to be DisposedOf". SFAS No. 142 is effective for the Company’s fiscal year beginningJuly 1, 2002. The Company is evaluating the impact of the adoption of thesestandards and has not yet determined the effect of adoption on its financialposition and results of operations.

 

 

COMMON STOCK LISTING

 

The Company’s Common Stock previouslywas  quoted on the NASDAQ Stock Marketunder the symbol “DOTX”.  EffectiveAugust 4, 1999 the Company’s Common Stock transferred to the OTC BulletinBoard.

 

 

 

PART II - OTHERINFORMATION

 

Item 1.  Exhibits and reports on Form 8-K

 

 

                                No reports on Form 8-K wereissued during the quarter.

 

SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
| Date:  November 12, 2001 |     | 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) |