**FORM 10-QSB**

 

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **
| **Quarterly Report Under Section 13 or 15 (d) of the  Securities Exchange Act of 1934**                      |
|--------------------------------------------------------------------------------------------------------------|
|                                                                                                         |
| **For  the Quarter Ended December  31,  2002      Commission File No. 0-9996** |

 

 
| **DOTRONIX, INC.**                                               |
|------------------------------------------------------------------|
| (Exact name 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 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,  2003** |
|-----------------------------------------|--------|--------------------------------------------|
| Common stock, par value  $.05 per share |   | 4,174,341 shares                           |

 

 

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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. FINANCIALSTATEMENTS

 

**BALANCE SHEETS**

**DOTRONIX,INC.**

**(UNAUDITED)**

 
|                                                                                                                 |   | **December 31  2002** |      | **June 30  2002** |    |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|-----------|-------------------|---------|
| ASSETS                                                                                                               |   |                  |      |              |    |
| CURRENT ASSETS:                                                                                                      |   |                  |      |              |    |
| Cash and cash equivalents                                                                                            |   | $                     | 104,797   |              | $       | 150,328 |   |
| Accounts receivable, less  allowance for doubtful accounts of $18,030                                                |   | 83,280                |      | 369,162           |    |
|                                                                                                                 |   |                  |      |              |    |
| Inventories:                                                                                                         |   |                  |      |              |    |
| Raw materials                                                                                                        |   | 578,447               |      | 728,913           |    |
| Work-in-process                                                                                                      |   | 99,791                |      | 159,172           |    |
| Finished goods                                                                                                       |   | 162,600               |      | 160,332           |    |
| Total inventories                                                                                                    |   | 840,838               |      | 1,048,417         |    |
| Prepaid expenses                                                                                                     |   | 81,637                |      | 6,631             |    |
| Total current assets                                                                                                 |   | 1,110,552             |      | 1,574,538         |    |
|                                                                                                                 |   |                  |      |              |    |
| PROPERTY, PLANT &  EQUIPMENT  at cost net of accumulated depreciation of $5,571,556 and $5,522,612  respectively |   | 685,309               |      | 757,793           |    |
| TOTAL ASSETS                                                                                                         |   | $                     | 1,795,861 |              | $       | 2,332,331 |   |
|                                                                                                                 |   |                  |      |              |    |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                           |   |                  |      |              |    |
| CURRENT LIABILITIES:                                                                                                 |   |                  |      |              |    |
| Revolving loans payable to  a related party                                                                          |   | $                     | 937,855   |              | 767,720 |   |
| Accounts payable                                                                                                     |   | 231,982               |      | 104,209           |    |
| Salaries, wages and payroll  taxes                                                                                   |   | 47,169                |      | 78,233            |    |
| Current portion-deferred  gain on sale of building                                                                   |   | 47,613                |      | 47,613            |    |
| Other accrued liabilities                                                                                            |   | 32,946                |      | 45,912            |    |
| Total current liabilities                                                                                            |   | 1,297,565             |      | 1,043,687         |    |
|                                                                                                                 |   |                  |      |              |    |
| DEFERRED GAIN ON SALE OF  BUILDING                                                                                   |   | 259,321               |      | 277,742           |    |
|                                                                                                                 |   |                  |      |              |    |
| STOCKHOLDERS’ EQUITY:                                                                                           |   |                  |      |              |    |
| Common stock, $.05 par  value                                                                                        |   | 208,642               |      | 208,642           |    |
| Additional paid-in capital                                                                                           |   | 10,922,201            |      | 10,922,201        |    |
| Accumulated deficit                                                                                                  |   | (10,891,868           | )         | (10,119,941       | )       |
| Total stockholders’ equity                                                                                      |   | 238,975               |      | 1,010,902         |    |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                     |   | $                     | 1,795,861 |              | $       | 2,332,331 |   |

 

See notes to financialstatements

 

3

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**STATEMENTS OF OPERATIONS**

**DOTRONIX,INC.**

**(UNAUDITED)**

 
|                                         |   | **Three  months ended,  December 31** |     | **Six months  ended,  December 31** |   |
|----------------------------------------------|--------|---------------------------------------|----------|-------------------------------------|--------|
|                                         |   | **2002**                              |     | **2001**                            |   | **2002** |   | **2001** |   |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| REVENUES                                     |   | $                                     | 286,798  |                                | $      | 1,058,764 |   | $ | 928,797 |   | $ | 1,649,582 |   |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| OPERATING EXPENSES:                          |   |                                  |     |                                |   |   |   |   |   |
| Cost of Sales                                |   | 355,732                               |     | 682,765                             |   | $ | 848,495 |   | 1,215,588 |   |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| Selling, general and  administrative         |   | 415,795                               |     | 470,997                             |   | $ | 819,304 |   | 948,778 |   |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| Interest                                     |   | 16,973                                |     | 10,765                              |   | $ | 32,925 |   | 24,153 |   |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| Net loss                                     |   | $                                     | (501,702 | )                                   | $      | (105,763 | ) | $ | (771,927 | ) | $ | (538,937 | ) |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| Basic and diluted net loss  per common share |   | $                                     | (0.12    | )                                   | $      | (0.03 | ) | $ | (0.18 | ) | $ | (0.13 | ) |
|                                         |   |                                  |     |                                |   |   |   |   |   |
| Average number of common  shares outstanding |   | 4,172,841                             |     | 4,171,341                           |   | 4,172,841 |   | 4,171,341 |   |

 

See notes to financialstatements

 

4

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**STATEMENTSOF CASH FLOWS**

**DOTRONIX, INC .**

**(UNAUDITED)**

 
|                                                                                      |   | **Six months  ended  December 31** |     |
|-------------------------------------------------------------------------------------------|--------|------------------------------------|----------|
|                                                                                      |   | **2002**                           |     | **2001** |   |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                    |   |                               |     |   |   |
| Net loss                                                                                  |   | $                                  | (771,927 | ) | $ | (538,937 | ) |
| Adjustment to reconcile net  loss to net cash provided by (used in) operating activities: |   |                               |     |   |   |
|                                                                                      |   |                               |     |   |   |
| Depreciation and  amortization                                                            |   | 66,823                             |     | 124,732 |   |
| Inventory write-down                                                                      |   | 110,000                            |     | 120,000 |   |
| Change in assets and  liabilities:                                                        |   |                               |     |   |   |
| Accounts receivable                                                                       |   | 285,882                            |     | 303,503 |   |
| Inventories                                                                               |   | 97,579                             |     | (122,525 | ) |
| Prepaid expenses                                                                          |   | (75,006                            | )        | (43,989 | ) |
| Accounts payable                                                                          |   | 127,773                            |     | 469,546 |   |
| Salaries, wages and payroll  taxes payable                                                |   | (31,064                            | )        | (14,158 | ) |
| Accrued liabilities                                                                       |   | (12,966                            | )        | 2,346 |   |
|                                                                                      |   |                               |     |   |   |
| NET CASH (USED IN) PROVIDED  BY OPERATING ACTIVITIES                                      |   | (202,906                           | )        | 300,518 |   |
|                                                                                      |   |                               |     |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                    |   |                               |     |   |   |
| Purchase of property, plant  and equipment                                                |   | (12,760                            | )        | (21,070 | ) |
|                                                                                      |   |                               |     |   |   |
| NET CASH USED IN INVESTING  ACTIVITIES                                                    |   | (12,760                            | )        | (21,070 | ) |
|                                                                                      |   |                               |     |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                    |   |                               |     |   |   |
| Borrowings on revolving  loan                                                             |   | 1,486,000                          |     | 2,015,000 |   |
| Repayments on revolving  loan                                                             |   | (1,315,865                         | )        | (2,250,104 | ) |
|                                                                                      |   |                               |     |   |   |
| NET CASH PROVIDED BY (USED  IN) FINANCING ACTIVITIES                                      |   | 170,135                            |     | (235,104 | ) |
|                                                                                      |   |                               |     |   |   |
| NET (DECREASE) INCREASE IN  CASH AND CASH EQUIVALENTS                                     |   | (45,531                            | )        | 44,344 |   |
|                                                                                      |   |                               |     |   |   |
| CASH AND CASH EQUIVALENTS  AT THE BEGINNING OF THE PERIOD                                 |   | 150,328                            |     | 68,956 |   |
|                                                                                      |   |                               |     |   |   |
| CASH AND CASH EQUIVALENTS  AT THE END OF THE PERIOD                                       |   | $                                  | 104,797  |   | $ | 113,300 |   |

 

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, 2002, the statements of operationsfor the three and six month periods ended December 31, 2002 and 2001 and thestatements of cash flows for the six month periods ended December 31, 2002 and2001 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, 2002 and for the three andsix months periods ended December 31, 2002 and 2001 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 30,2002.

 

B.            Operating Losses,Management Plans, and Going Concern Considerations

 

The Company experienced substantial revenue declines and incurredsubstantial net losses during fiscal 2002, 2001, and 2000. This trend hascontinued in the first six months of fiscal 2003. Accordingly, during thoseyears it engaged in significant cost cutting measures, including staffreductions.

 

The Company has also undertaken a major change in strategy whichincludes two major goals. One goal is to purchase its products rather thanmanufacture them. The costs of maintaining manufacturing capacity in a highlyvolatile and uncertain market makes in house manufacturing impractical andunprofitable.  The other goal is to become more valuable to the end userof display devices by incorporating all elements of a display system, includinghardware, software, content, installation, and maintenance,  into the Company’s product offerings. Thereis no assurance that the Company will be successful in executing thesestrategies, or that they will increase the Company’s revenues or improve itsresults of operations.

 

In conjunction with this change in strategy, the Company discontinuedall if its manufacturing operations at its Eau Claire, Wisconsin facility inJanuary 2003. Certain final assembly operations were set up at its NewBrighton, Minnesota facility. The Eau Claire building has been listed forsale or lease with a real estate agent.

 

Currently, the Company does not generate enough revenue to support itscost structure, and the Company will continue to need external borrowings tosupport operations until the operations improve. The Company has been unable toobtain traditional financing arrangements, and instead has entered into thefinancing arrangements with its president, who is also a major stockholder,which are described in Note C below. The Company will continue to be dependent on these arrangements to remainin business unless and until its results of operations improve.  The Company’s president is not obligated tocontinue these arrangements beyond their current expiration date of September30, 2003.

 

Moreover, although Company management believes that the cash and cashequivalents on hand at February 12, 2003 and future amounts available under theaforementioned credit 

 

6

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facility will be adequate to meet the Company’s cash requirements forthe balance of the fiscal year ending June 30, 2003, based on current revenuelevels, given the substantial decline in revenue for the quarter ended December31, 2002 compared to the previous quarter ($286,798 versus $641,999), ifrevenues continue to decline operations may be substantially reduced. Inaddition, unless revenue increases significantly or operations aresubstantially reduced, these sources of cash will not be adequate to meet theCompany’s cash requirements during the fiscal year ending June 30, 2004, evenif the Company’s president continues the present financing arrangements beyondtheir current expiration date of September 30, 2003.

 

C.            Revolving Lineof  Credit

 

On February 23, 2000, the Company entered into a revolving creditfacility with its president, who is also a major stockholder, and in September2000 the Company’s president and major stockholder extended the loan agreementto February 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. In September 2002 the Company’s presidentextended the loan agreement to September 30, 2003. The revolving creditfacility contained a minimum tangible net worth covenant, which the presidentand major stockholder  reduced to $1.0million in the first quarter of fiscal 2002. In September of 2002 the presidenteliminated the tangible net worth covenant. As of February 12, 2003 the Companyhad $337,865 available under the extension of 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. Approximately 31,700 additional warrants wereearned in the quarter ended December 31, 2002. Those warrants will be issued inthe quarter ending March 31, 2003. Interest costs related to the issuance ofthe warrants was approximately $2,000.

 

Company management believes that the cash and cash equivalents on handat February 12, 2003 and future amounts available under the aforementionedcredit facility will be adequate to meet the Company’s cash requirements forthe balance of the fiscal year ending June 30, 2003, based on current revenuelevels.  However, given the substantialdecline in revenue for the quarter ended December 31, 2002 compared to theprevious quarter ($286,798 versus $641,999), if revenues continue to declineoperations may be substantially reduced. In addition, unless revenue increasessignificantly or operations are substantially reduced, these sources of cashwill not be adequate to meet the Company’s cash requirements during the fiscalyear ending June 30, 2004, even if the existing credit facility is extendedbeyond its current expiration date of September 30, 2003.  There is no certainty that the existingcredit facility will be extended beyond this expiration date, and, unlessresults of operations improve, little likelihood that the Company would be ableto replace it.

 

7

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ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

Management Plans

 

The Company experienced substantial revenue declines and incurredsubstantial net losses during fiscal 2002, 2001, and 2000. This trend hascontinued in the first six months of fiscal 2003. Accordingly, during thoseyears it engaged in significant cost cutting measures, including staffreductions.

 

The Company has also undertaken a major change in strategy whichincludes two major goals. One goal is to purchase its products rather thanmanufacture them. The costs of maintaining manufacturing capacity in a highlyvolatile and uncertain market makes in house manufacturing impractical andunprofitable.  The other goal is to become more valuable to the end userof display devices by incorporating all elements of a display system, includinghardware, software, content, installation, and maintenance,  into the Company’s product offerings. Thereis no assurance that the Company will be successful in executing thesestrategies, or that they will increase the Company’s revenues or improve itsresults of operations.

 

In conjunction with this change in strategy, the Company discontinuedall if its manufacturing operations at its Eau Claire, Wisconsin facility inJanuary 2003. Certain final assembly operations were set up at its NewBrighton, Minnesota facility. The Eau Claire building has been listed forsale or lease with a real estate agent.

 

Currently, the Company does not generate enough revenue to support itscost structure, and the Company will continue to need external borrowings tosupport operations until the operations improve. The Company has been unable toobtain traditional financing arrangements, and instead has entered into thefinancing arrangements with its president, who is also a major stockholder,which are described under “Liquidity and Capital Resources” below.  The Company will continue to be dependent onthese arrangements to remain in business unless and until its results ofoperations improve.  The Company’spresident is not obligated to continue these arrangements beyond their currentexpiration date of September 30, 2003.

 

Moreover, although Company management believes that the cash and cashequivalents on hand at February 12, 2003 and future amounts available under theaforementioned credit facility will be adequate to meet the Company’s cashrequirements for the balance of the fiscal year ending June 30, 2003, based oncurrent revenue levels, given the substantial decline in revenue for thequarter ended December 31, 2002 compared to the previous quarter ($286,798versus $641,999), if revenues continue to decline operations may besubstantially reduced. In addition, unless revenue increases significantly oroperations are substantially reduced, these sources of cash will not beadequate to meet the Company’s cash requirements during the fiscal year endingJune 30, 2004, even if the Company’s president continues the present financingarrangements beyond their current expiration date of September 30, 2003.

 

8

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RESULTS OF OPERATIONS

 

Revenue decreased by $771,966 or 73%, for the three months endedDecember 31, 2002, and decreased $720,785 or 44%, for the six months endingDecember 31, 2002, compared to like periods in the prior year. Orders fromtravel related industries, particularly airlines and airports, are extremelylimited. Fast food restaurant chains continue to evaluate the Company’sproducts by placing small orders, but have not yet placed any significant largescale orders.

 

The gross margin percentage for the quarter ended December 31, 2002,was a negative (-) 24%,   compared to36%, for the same quarter ended December 31, 2001. The gross margin percentagefor the six months ended December 31, 2002, was 9%, compared to 26%, for the sixmonths ended December 31, 2001. Several high margin parts orders for maturemonochrome products shipped in the quarter ended December 31, 2001, resultingin a gross margin percentage for that quarter of 36%. Since then, there hasbeen a rapid decline in orders and a corresponding decline in the utilizationfactors of manufacturing capacity. In addition, inventory was written down$110,000 in the quarter and six months ended December 31, 2002, to reflectestimated decreases in value due to decreased demand for various product lines.Inventory was written down $60,000 for the three month period, and $120,000 inthe six month period ended December 31, 2001.

 

Selling, general, and administrative expenses decreased $55,202 or 12%,for the quarter ended December 31, 2002, and $129,474, or 14%, for the sixmonths ended December 31, 2001, when compared to the same periods in the prioryear. In addition to continuing cost cutting efforts,  amortization and depreciation costs also declined. Due to thewrite-down of goodwill to zero at June 30, 2002, amortization costs decreasedby $18,000 for the three month period and $36,000 for the six month periodended December 31, 2002, compared to the same periods in the prior year.Depreciation costs declined by approximately $14,000 and $28,000 respectively,for the three month and six month period ended December 31, 2002 when comparedto the same periods in 2001.

 

Interest expense increased $6,208, or 58%, during the quarter endedDecember 31, 2002 and $8,772, or 36%, for the six months ended December 31,2001, compared to the same periods of the prior year. Although interest ratesdeclined from the prior year, additional borrowings required due to continuinglosses contributed to the increase in interest expense.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

On February 23, 2000, the Company entered into a revolving creditfacility with its president, who is also a major stockholder, and in September2000 the Company’s president and major stockholder extended the loan agreementto February 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. In September 2002 the Company’s presidentextended the loan agreement to September 30, 2003. The revolving creditfacility contained a minimum tangible net worth covenant, which the presidentand major stockholder  reduced to $1.0million in the first quarter of fiscal 2002. In September of 2002 the presidenteliminated the tangible net worth covenant. As of February 12, 2003 the Companyhad $337,865 available under the extension of 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 

 

9

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warrants on the Company’s stock to the president and major shareholderfor incremental increases in the outstanding borrowings balance.  One warrant is issued for every $4 inincremental borrowings made by the Company. All warrants issued expire in 4 years and have an exercise price equalto the fair market value of the Company’s stock at the date of grant. Oncerepayments on the facility have been made, additional warrants are issued forincremental borrowings on the facility only to the extent that the newoutstanding borrowings balance exceeds the previous high outstanding borrowingsbalance. Approximately 31,700 additional warrants were earned in the quarterended December 31, 2002. Those warrants will be issued in the quarter endingMarch 31, 2003. Interest costs related to the issuance of the warrants wasapproximately $2,000.

 

During the six months ended December 31, 2002, cash and cashequivalents decreased  by $46,000. Thenegative effect on cash flows of  thenet loss of $772,000 was partially offset by other operating activities.Collections of accounts receivable net of new billings amounted to $286,000 andreductions in inventory, including an inventory write-down of $110,000,contributed $208,000. Cash flow used in operations was $203,000. Proceeds fromthe revolving loan contributed $170,000. Property plant and equipment purchasestotaled $13,000.

 

Company management believes that the cash and cash equivalents on handat February 12, 2003 and future amounts available under the aforementionedcredit facility will be adequate to meet the Company’s cash requirements forthe balance of the fiscal year ending June 30, 2003, based on current revenuelevels.  However, given the substantialdecline in revenue for the quarter ended December 31, 2002 compared to theprevious quarter ($286,798 versus $641,999), if revenues continue to declineoperations may be substantially reduced. In addition, unless revenue increasessignificantly or operations are substantially reduced, these sources of cashwill not be adequate to meet the Company’s cash requirements during the fiscalyear ending June 30, 2004, even if the existing credit facility is extendedbeyond its current expiration date of September 30, 2003.  There is no certainty that the existingcredit facility will be extended beyond this expiration date, and, unless resultsof operations improve, little likelihood that the Company would be able toreplace it.

 

CRITICAL ACCOUNTING POLICIES

 

The Company has credit policies that establish specific criteriarelated to credit worthiness that its customers must meet prior to the shipmentof product to the customer. The Company periodically makes limited andselective exceptions to its policy of not shipping to customers with overduebalances when the particular customer has met specific criteria which areindicative of a wherewithal to pay their past due and future balances.

 

The Company does not accept returns from customers without its priorauthorization. Returns are typically accepted only for damaged or defectivegoods, or for pricing or shipping discrepancies. The Company reserves the rightto refuse authorization of any returns. If the Company accepts an unauthorizedreturn or if a return is the result of a customer error, the  customer may be subject to a 10% handlingcharge. The Company reserves the right to cancel open orders or backorders forthose customers who abuse or excessively use return privileges.

 

The Company believes that the selection and application of itsaccounting policies are appropriately reasoned. The following are theaccounting policies that management believes 

 

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require the most difficult, subjective or complex judgments aboutmatters that are inherently uncertain.

 

Inventory Valuation – An inventory write-down is established to reduceinventory to the lower of cost or market for estimated surplus and discontinuedinventory items. The amount of the inventory write-down is determined byanalyzing historical and projected sales information, plans for discontinuedproducts and other factors. Changes in sales volumes due to unexpected economicor competitive conditions are among the factors that would result in materiallydifferent amounts for this item. Although there is considerable uncertainty inthe continuation of current sales trends, additional substantial inventorywrite-downs may be required if revenues continue to decline in future periods.

 

Allowance for Doubtful Accounts - An allowance is established forestimated uncollectible accounts receivable. The required allowance isdetermined by reviewing customer accounts and making estimates of amounts thatmay be uncollectible. Factors considered in determining the amount of thereserve include the age of the receivable, the financial condition of thecustomer, general business, and economic conditions, and other relevant factsand circumstances. Unexpected changes in the aforementioned factors wouldresult in materially different amounts for this item.

 

Recognition of revenue****-****The Company recognizes revenue when titleof goods passes to the customer.

 

ACCOUNTING PRONOUNCEMENTS

 

In August 2001, the FASB issued SFAS No. 144*, Accounting for the Impairment ofDisposal of Long-Lived Assets*. SFAS No. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets and supercedes SFAS No. 121, andthe accounting and reporting provisions of Accounting Principles Board (APB)Opinion No. 30,*Reporting the Results of Operations-Reporting the Effects of Disposalof a Segment of a Business and Extraordinary, Unusual, and InfrequentlyOccurring Transactions.*  SFASNo. 144 requires that long-lived assets to be disposed of be measured at thelower of carrying amount or fair value less cost to sell.  The Company has adopted SFAS 144 in fiscal2003, which had no effect on its financial statements.

 

FASB issued SFAS No. 146*, Accounting for Costs Associated with Exit orDisposal Activities.*  TheStandard requires companies to recognize with exit or disposal activities whenthey are incurred rather than at the date of a commitment to an exit ordisposal plan.  SFAS No. 146 replacesprevious accounting guidance provided by the Emerging Issues Task Force (EITF)Issue No. 94-3, *Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring)* and is to be applied prospectively to exit ordisposal activities initiated after December 31, 2002. The Company has adoptedSFAS146 which had no effect on the Company’s financial statements.

 

COMMON STOCK LISTING

 

The Company’s Common Stock is quoted on the OTC Bulletin Board underthe symbol “DOTX

 

11

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# PART II - OTHERINFORMATION

 

Item 4.  Submission of Matters to a Vote ofSecurities Holders

 

At the annual meeting of the shareholders of the Company held onDecember 30, 2002 the following items were voted on:

 

Election of Directors

 
|                     |   | **Votes For** |   | **Withheld** |   |
|--------------------------|--------|---------------|--------|--------------|--------|
| William S. Sadler        |   | 3,915,630     |   | 64,650       |   |
| Ray L. Bergeson          |   | 3,915,430     |   | 64,850       |   |
| Edward L. Zeman          |   | 3,915,665     |   | 64,615       |   |
| L. Daniel Kuechenmeister |   | 3,915,465     |   | 64,815       |   |

 

Item 3. CONTROLS AND PROCEDURES

 

(a)                                  Evaluationof disclosure controls and procedures.

 

Our chief executive officer and our chief financialofficer, after evaluating the effectiveness of the Company’s disclosurecontrols and procedures as of February 12, 2003, (the “Evaluation Date”) haveconcluded that, as of the Evaluation Date, the Company’s disclosure controlsand procedures were adequate and designed to ensure that material informationrelating to the Company would be made known to them by others within theCompany.

 

(b)                                 Changesin internal controls*.*

 

There were no significant changes in the Company’scontrols or in other factors that could significantly affect the Company’sdisclosure controls and procedures subsequent to the date of their most recentevaluation.

 

# PART II - OTHER INFORMATION

 

Item 6. Exhibits andReports on Form 8-K

 
| (a)    |                                                                                                                                                                                                                                                                                                                                                                                                          | Listing of Exhibits                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                       |
|   | 99.1                                                                                                                                                                                                                                                                                                                                                                                                          | Certification of Chief Executive Officer required  pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                       |
|   | 99.2                                                                                                                                                                                                                                                                                                                                                                                                          | Certification of Chief Financial Officer required  pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                       |
| (b)    | A current report on Form 8-K was filed on October 1,  2002 with Item 7, Financial Statements and Exhibits, and Item 9, Regulation  FD Disclosure, being reported. The Company included as exhibits the  certifications provided by its chief executive officer and its chief  financial officer as required pursuant to 18 U.S.C. 1350 as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

12

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# 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, 2003 |   |   |   |   |                  | 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) |
|                         |        |        |        |        |                       |                                              |  |  |

 

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**SECTION 302 CERTIFICATIONS**

 

I, William S. Sadler, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-QSB of Dotronix, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofFebruary 12, 2003 (the “Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date   February 12, 2003 |   | .      |   |   | By                           | /s/ William S. Sadler |   |
|-------------------------------|--------|--------|--------|--------|------------------------------|-----------------------|--------|
|                          |   |   |   |   | William S. Sadler, President |

 

14

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I, Robert V. Kling, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-QSB of Dotronix, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofFebruary 12, 2003 (the “Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date  February  12, 2003 |   | .      |   |   | By                                       | /s/ Robert V. Kling |   |
|-------------------------------|--------|--------|--------|--------|------------------------------------------|---------------------|--------|
|                          |   |   |   |   | Robert V. Kling, Chief Financial Officer |

 

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