<PAGE>
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission
ended June 30, 1997 File No. 0-9996
DOTRONIX, INC.
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1387074
- --------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
160 First Street S.E.
New Brighton, Minnesota 55112-7894
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 633-1742
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK
$.05 PAR VALUE
Indicate by check mark whether the registrant (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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
------- ------
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X ]
State issuer's revenues for its most recent fiscal year: $9,940,868
The aggregate market value of voting stock held by nonaffiliates of the
registrant's common stock, as of September 9, 1997 was approximately $2,764,276
(based on the last sale price of such stock as reported by NASDAQ Stock Market).
The number of shares outstanding of the registrants common stock, as of
September 9, 1997 was 4,040,335.
A portion of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders is incorporated into Part III as set forth therein.
1
<PAGE>
PART I
This Form 10-KSB contains certain forward-looking statements. For this purpose
any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors.
During the year ended June 30, 1997, the Company's operations were impacted by a
significant decrease in revenues. The Company was unable to reduce costs to
offset the revenue decrease. In an effort to increase revenues, the Company is
attempting to expand its products to new market niches. Unless the Company is
successful in the effort to increase revenues in the future, the Company may be
required to adjust its cost structure to a level that could be supported by its
revenues. There can be no assurance that the Company will be able to develop
additional markets for its products or that revenue will remain at current
levels or increase in the future.
Item 1. Business
- ----------------
General
- -------
Dotronix, Inc. (the "Company") was founded in 1980 for the purpose of designing,
manufacturing and marketing cathode ray tube ("CRT") displays and closed circuit
television ("CCTV") monitors. Such displays and monitors are used to display
alphanumeric information, graphics and images in a broad range of applications.
These applications range from use in relatively simple information systems, such
as airline flight information displays, to much more sophisticated systems such
as computer-aided design, manufacturing and engineering ("CAD/CAM/CAE") systems
and medical diagnostic imaging systems.
The image on a CRT display or CCTV monitor is produced by magnetically guiding
an interruptible stream of electrons against the back of a phosphorescent
screen. This stream of electrons strikes against the back of a phosphorescent
screen. When the stream of electrons strikes the back of the screen a bright
area is produced, and when it is interrupted a dark area appears. In a medium-
resolution unit the stream of electrons scans the screen of 525 horizontal lines
30 times per second, so that the series of light and dark areas produced appears
as a steady coherent image to the viewer. High-resolution displays scan a
greater number of lines, in some instances at greater speed, thus producing a
clearer image on the screen.
Products
- --------
The Company primarily designs, manufactures and markets products for the medical
diagnostic, transportation, and the multimedia presentation and display markets.
The medical market products consist primarily of high resolution monochrome and
color displays marketed to the major OEMs within the market. This OEM base
serves x-ray, CT scan, MRI and other instrumentation uses. The medical
products are used in diagnostic and work station applications and for fixed
and portable instrumentation devices. CRT sizes range from 5" to 21".
The Company also markets a product line of large screen color displays in the
multimedia arena. Product uses include video walls, displays for flight
information systems, and other public information displays. Products range from
20" to 27".
The Company continues to selectively market to the federal government and its
agencies, offering high quality, medium resolution, color and monochrome
displays.
2
<PAGE>
Although the Company has developed standardized CRT displays in order to provide
cost-effective products, it also works closely with customers in order to adapt
existing designs and to develop new products to meet customers' specific
requirements.
Marketing
- ---------
The Company believes that the market for CRT displays and CCTV monitors is
extensive and diverse. As described above, CRT displays and CCTV monitors are
used in a wide variety of computer-based information systems and video-based
systems. The Company's principal marketing effort is directed toward the OEMs
of the various systems in which displays and monitors are used. Company
personnel work with these OEMs in order to determine the OEMs' technical needs
and cost objectives and to adapt the Company's designs accordingly. This
adaptation process typically entails specification of the components to be used
within the Company's standard design in order to meet these needs and
objectives. Greater degrees of customization are required, however, for certain
display applications.
The Company's present customer base consists of 200 OEMs and system integrators
located predominantly in the United States, with 5% of the Company's revenues
during the year ended June 30, 1997 consisting of sales to customers in Europe,
Canada, and the Far East. Sales to the Company's five largest customers
accounted for 44% of its revenues during the year ended June 30, 1997. Four
separate customers have accounted for 10% or more of revenues during one or more
of the last fiscal years. Their respective percentages of revenue by fiscal
year are as follows:
1997 1996 1995
---------- ---------- -----------
Customer A 14% 7% 5%
Customer B 9% 10% 14%
Customer C 8% 10% 11%
Customer D - 23% 19%
In order to meet the diverse requirements of OEMs, the Company markets its
products directly to such manufacturers through its own technically trained
sales employees. The Company employs salespersons in St. Paul, Minnesota, Eau
Claire, Wisconsin, Los Angeles, California and Eatontown, New Jersey. The
Company's CRT displays and CCTV monitors are priced in the range from $100 to
$10,000; depending on size and other specifications, degree of adaptation
required and quantity.
Competition
- -----------
The Company believes that competition in the market for CRT displays and CCTV
monitors is generally based on price, product performance, product availability
and customer service. A number of other domestic and foreign companies,
including Panasonic Company, Sony, Tatung Company, Conrac Corporation,
Tektronix, Inc., Philips Electronics, Ltd., and Mitsubishi Electronic
Corporation, presently manufacture CRT displays and CCTV monitors and market
them to OEMs. In addition, some OEMs produce their own CRT displays and CCTV
monitors. Many of the companies in CRT display and CCTV monitor market have
substantially greater resources than the Company.
The Company also faces potential competition from other, non-CRT based
information display technologies, such as liquid crystal displays and other
flat-panel displays. The Company believes, however that such alternative
technologies have not yet proven economical and effective in most applications
in which the Company's products are used. The development of an economical and
effective flat-panel display could have an adverse effect on the Company's
business; therefore, the Company is following developments closely and
evaluating the potential use of this technology in its product lines.
3
<PAGE>
Manufacturing and Suppliers
- ---------------------------
The Company purchases the components of its CRT displays and CCTV monitors from
outside suppliers and manufactures, assembles, and tests these components at its
New Brighton, Minnesota and Eau Claire, Wisconsin facilities. The components of
CRT displays and CCTV monitors include standardized CRTs, magnetic deflection
yokes and transformers, power sources and other standardized electronic
components as well as printed circuit boards and chassis manufactured to the
Company's specifications. The Company believes that such standardized
components generally are available from more than one source of supply and
numerous manufacturers of components to specification are available. In the
manufacturing process transistors, capacitors and other electronic components
are inserted into holes drilled in a printed circuit board. The components are
then flow-soldered to the circuit board and then the CRT, deflection yoke and
the power source are mounted on the chassis and hand wired. The completed units
are then put through a series of quality control tests plus a burn-in period
before shipped to the customer.
Government Regulations
- ----------------------
The Company's products, or products into which they are incorporated, must be
certified by officials of the Department of Health and Human Services as
complying with regulations limiting the amount of radiation that may be emitted
by CRT displays and CCTV monitors. The Company has been able to obtain such
approvals without material delay. The Company has received exemption from
certain of the certification procedures under an exception contained in the
regulations which reduces the administrative burden of such certification
procedures. In addition, the Company's products are subject to Federal
Communications Commission regulations limiting the amount of radio noise
emissions form computing devices. The Company has been able to obtain the
necessary certifications in a timely manner.
Personnel
- ---------
As of June 30, 1997 the Company had 116 full-time employees. The Company
believes that its relationship with its employees is satisfactory. None of the
Company's employees are covered by collective bargaining agreements.
Sales Backlog: Research and Development
- ---------------------------------------
The Company's sales backlog expected to be shipped by the end of the next fiscal
year was approximately $4.5 million at June 30, 1997 and $8 million at June 30,
1996. The Company believes that the dollar amount of backlog at a given date is
not necessarily indicative of sales for any succeeding period. For example,
certain regular customers of the Company place frequent orders on a short term
basis only.
Research and development costs totaled approximately $302,000 for fiscal 1997,
$297,000 for fiscal 1996 and $284,000 for fiscal 1995.
Item 2. PROPERTIES
- ------------------
The Company's corporate offices and certain manufacturing operations are located
in a building that is approximately 17,000 square feet in New Brighton,
Minnesota. The Company also leases in New Brighton under a five year lease
expiring March 1998, approximately 22,000 square feet of warehouse space from a
company wholly owned by William S. Sadler, president of the Company, at a rental
rate of $5,457 per month. The lease has a renewal option for five additional
years at the same rate. The Company utilizes, on a month to month rental basis,
approximately 4,500 square feet in New Brighton, Minnesota at $1,750 per month,
from another wholly owned by William S. Sadler. Dotronix' office and
manufacturing facility in Eau Claire, Wisconsin is located in an approximately
33,600 square foot building owned by the Company. Dotronix, Inc. is also
4
<PAGE>
leasing 6,000 square feet of storage space on a month to month basis, from an
unaffiliated party, for $780 per month.
Item 3. LEGAL PROCEEDINGS
- -------------------------
None
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------
None
5
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY
- ---------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The Company's Common Stock has been quoted on the NASDAQ Stock Market since
October 21, 1986 under the symbol "DOTX". The following table sets forth the
range of high and low closing sales prices of the Common Stock in the NASDAQ
Stock Market as reported by NASDAQ.
FISCAL YEAR ENDED JUNE 30, 1997 HIGH LOW
First Quarter......................... $ 2 $1-1/4
Second Quarter........................ 1-13/16 1
Third Quarter......................... 1-3/8 1
Fourth Quarter........................ 1-5/16 1
FISCAL YEAR ENDED JUNE 30, 1996 HIGH LOW
First Quarter......................... $2-13/16 $2-1/8
Second Quarter........................ 2-11/16 1-5/8
Third Quarter......................... 2-1/16 1-1/2
Fourth Quarter........................ 1-7/8 1-1/4
As of June 30, 1997, there were 377 record holders of the Company's Common
Stock. The Company has not paid dividends on its Common Stock and does not
expect to pay cash dividends for the foreseeable future. The Company's
borrowing arrangement prohibits the payment of cash dividends. The Company's
current policy is to retain any earnings to finance operations.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations:
- ---------------------
The Company's revenues decreased $4,635,391 (32%) during the fiscal year ended
June 30, 1997 and decreased $1,463,637 (9%) during the fiscal year ended June
30, 1996 from the respective preceding fiscal years. The decrease for fiscal
1997 was mainly due to the completion of the FAA upgrade program and decreased
video wall shipments caused by reduced needs by two major customers of this
product. The decrease for fiscal 1996 was mainly due to decreased multimedia
units shipped caused by financial difficulties at a major end user.
Three customers comprised 31% of the total 1997 sales of the Company. In
addition a fourth customer comprised 23% of 1996 sales and 19% of 1995 sales.
The respective percentages of revenue by fiscal year are as follows:
1997 1996 1995
--------- --------- ---------
Customer A 14% 7% 5%
Customer B 9% 10% 14%
Customer C 8% 10% 11%
Customer D - 23% 19%
The Company's gross margin was 25% in fiscal 1997, 35% in fiscal 1996 and 32%
in fiscal 1995. The decrease in fiscal 1997 was due primarily to the completion
of the FAA upgrade program and reduced manufacturing utilization as a result of
reduced product shipments. The increase in 1996 was due primarily to favorable
product mix and the recording of a $350,000 price adjustment on the FAA upgrade
program.
6
<PAGE>
Selling, general, and administrative expenses decreased 11% and increased 4% in
fiscal 1997 and 1996, from their respective preceding years. The decrease in
fiscal 1997 was due to reduced personnel and other costs in all areas as well as
an elimination of bonus expense due to the financial results for the year. The
increase in fiscal 1996 was due to the addition of two sales people and
increased advertising expenditures.
Interest expense increased 5% during the year ended June 30, 1997 and increased
4% during the year ended June 30, 1996 from the respective preceding years.
Both increases were caused by higher borrowing levels on the Revolving Working
Capital Loan as compared to the previous fiscal years.
As of June 30, 1997 the Company had available income tax operating loss
carryforwards of approximately $1,431,000 that can be used to offset future
taxable income.
Effects of Inflation
- --------------------
The Company believes that its revenues and results of operations have not been
significantly affected by inflation during the three years ended June 30, 1997.
Financial Condition, Liquidity and Capital Resources:
- -----------------------------------------------------
On October 3, 1994, the Company entered into Amendment Number Three to the
Revolving Working Capital Loan commitment which had been in effect since October
10, 1991. This amendment provided for the payoff of all of the Company's other
existing debt and consolidated it into two demand loans totaling $657,000 and a
revolving loan with a maximum availability of $4,000,000. The loans continue to
bear interest at 3% over the base rate (11.5% at June 30, 1997) and are secured
by all the assets of the Company. The amendment also provides for a total
minimum monthly interest payment based on the higher of the average daily
outstanding principal balance or $2,000,000. This agreement has an expiration
date of October 11, 1997. The Company expects to negotiate and close on a new
financing arrangement prior to the expiration of the current agreement. While
the Company is negotiating a new financing agreement, there can be no assurance
that a new financing agreement will be consummated. If the Company is unable to
obtain new financing the Company's cash flow position could be negatively
impacted.
The loan agreement contains covenants which, among other things, prohibit the
payment of dividends. The Company was either in compliance with these covenants
on June 30, 1997 or such noncompliance was subsequently waived.
During fiscal year 1997 65,000 shares of common stock were issued upon exercise
of warrants and 1,200 shares were issued upon exercise of stock options. Total
proceeds from these transactions were $68,762.
During fiscal year 1996 25,000 shares of common stock were issued upon exercise
of warrants and 20,721 shares were issued upon exercise of stock options. Total
proceeds from these transactions were $48,661.
In addition, during fiscal year 1997 the Company announced its intention to
repurchase up to 250,000 shares of its common stock. As of June 30, 1997 a
total of 246,800 shares had been repurchased for a total of $267,952.
7
<PAGE>
Cash Flow
- ---------
During the fiscal year 1997 cash flows used in operating activities were
$112,000. Through the repayment of debt $464,000 of cash was consumed. Equity
transactions consumed $199,000 of cash during fiscal 1997 as well. Purchases
of equipment used $49,000 of cash. Overall cash decreased $875,000.
During fiscal year 1996 cash flows from operations provided approximately
$1,264,000 due mainly to net income and depreciation and amortization. Financing
activities provided $233,000 from net borrowings on the revolving loan and
proceeds from stock option and warrant exercises. Purchases of equipment used
$69,000. Overall cash increased approximately $1,429,000.
During fiscal year 1995 cash flows from operations provided approximately
$983,000 due mainly to its net income for the year. Financing activities,
primarily proceeds from the exercise of warrants and options for common shares,
provided approximately $512,000. Property, plant and equipment purchases used
approximately $45,000. Overall, cash increase $1,450,000.
At June 30, 1997, working capital was $5,622,723.
The Company has no material commitments for capital expenditures.
Item 7. FINANCIAL STATEMENTS
- ----------------------------
The financial statements of the Company are included (with an index listing all
such statements) in a separate financial section at the end of this Annual
Report on Form 10-KSB.
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
- ------------------------------------------------------------------------------
DISCLOSURE
----------
None.
8
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
- ------------------------------------------------------------
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
----------------------------------------------------------
See Part I of this report. Pursuant to General Instruction E(2), reference is
made to information contained under the heading "Election of Directors" in the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before October 3,
1997, which information is incorporated herein.
Executive Officers of the Company
- ---------------------------------
The executive officers of the Company who are not also directors of the Company
are as follows:
Name Age Position
---- --- --------
Robert J. Andrews 54 Vice President, Operations
Erling J. Anderson 46 Chief Financial Officer
Robert J. Andrews has been Vice President, Operations of the Company since 1986.
He has been employed by the Company since 1982 as Operations Manager. Prior to
joining the company Mr. Andrews was the Director of Operations of Audiotronics
Corporation.
Erling J. Anderson has been Chief Financial Officer of the Company since June of
1997. Prior to joining the company Mr. Anderson was Director of Financial Plans
and Controls for U.S. Operations, Computing Devices International; a division of
Ceridian, Inc.
Item 10. EXECUTIVE COMPENSATION
- -------------------------------
Pursuant to General Instruction of E(2), reference is made to information
contained under the heading "Executive Compensation" in the Company's definitive
proxy statement for its 1997 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission on or before October 3, 1997, which
information is incorporated herein.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- --------------------------------------------------------
AND MANAGEMENT
--------------
Pursuant to General Instruction E(2), reference is made to information contained
under the heading "Voting Securities and Principal Holders" in the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission on or before October 3, 1997,
which information is incorporated herein.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Pursuant to General Instruction E(2), reference is made to information contained
under the heading "Certain Transactions" in the Company's definitive proxy
statement for its 1997 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission on or before October 3, 1997, which
information is incorporated herein.
9
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Listing of Exhibits
-------------------
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation, as amended to date of this report
(incorporated by reference to the Company's Annual Report on Form 10-
K for the year ended June 30, 1988.
3.2 Bylaws of the Company (incorporated by reference to exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1991.
4.1 Specimen certificate representing the Company's Common Stock
(incorporated by reference to exhibit 3(a) to Amendment No. 2 to the
Company's Registration Statement on Form S-18, File No. 2-71333C).
10.1 Amended and Restated Employment Agreement of William S. Sadler dated
January 1, 1995 (incorporated by reference to exhibit 10.1 to the
Company's Annual Report on Form 10-KSB for the year ended June 30,
1995).
10.2 Lease for land and building located at 60 Cleveland Avenue S.E., New
Brighton, Minnesota (incorporated by reference to exhibit 10.10 to
the Company's Annual Report on Form 10-KSB for the year ended June
30, 1993).
10.3 Amendment of Lease for land and building located at 50 Cleveland
Avenue S.E., New Brighton, Minnesota (incorporated by reference to
exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1993).
10.4 Dotronix, Inc. 1989 Stock Option and Restricted Stock Plan
(incorporated by reference to exhibit 10.9 to the Company's Annual
report on Form 10-K for the year ended June 30, 1990.
10.5 Form of Revolving Working Capital Loan Agreements (incorporated by
reference to exhibit 10.11 to the Company's Annual Report on Form 10-
K for the year ended June 30, 1991). Amendment No. 1 of the
Revolving Working Capital Loan Agreements (incorporated by reference
to exhibit 10.7 to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1993).
10.6 Amendment No. 2 and Amendment No. 3 to Revolving Working Capital Loan
Agreements (incorporated by reference to exhibit 10.6 to the
Company's Annual Report on Form 10-KSB for the year ended June 30,
1995).
10.7 Dotronix, Inc. Non-employee Director Stock Option Plan (incorporated
by reference to exhibit 10.9 to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1992).
23 Independent Auditors' Consent (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
-------------------
No reports are filed on Form 8-K during the quarter ended June 30,1997.
10
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DOTRONIX, INC.
Date: September 11, 1997 By /s/ William S. Sadler
-------------------------------------
William S. Sadler, President
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date Signature
- ---- ---------
September 11, 1997 By /s/ William S. Sadler
----------------------------------------
William S. Sadler, President, Treasurer and
Director
September 11, 1997 By /s/ Erling J. Anderson
----------------------------------------
Erling J. Anderson, Chief Financial Officer
September 11, 1997 By /s/ Ray L. Bergeson
----------------------------------------
Ray L. Bergeson, Director
September 11, 1997 By /s/ Robert J. Snow
----------------------------------------
Robert J. Snow, Director
September 11, 1997 By
----------------------------------------
Edward L. Zeman, Director
September 11, 1997 By /s/ L. Daniel Kuechenmeister
----------------------------------------
L. Daniel Kuechenmeister, Director
11
<PAGE>
DOTRONIX, INC.
Index to Financial Statements
Independent auditors' report.......................... F-2
Balance sheets........................................ F-3
Statement of operations............................... F-5
Statements of stockholder's equity.................... F-6
Statements of cash flows.............................. F-7
Notes to financial statements......................... F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Dotronix, Inc.
New Brighton, Minnesota
We have audited the accompanying balance sheets of Dotronix, Inc. (the Company)
as of June 30, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dotronix, Inc. as of June 30, 1997 and 1996,
and the results of its operations and cash flows for each of the three years in
the period ended June 30, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
September 4, 1997
Minneapolis, Minnesota
F-2
<PAGE>
BALANCE SHEETS
DOTRONIX, INC.
ASSETS (NOTE C)
<TABLE>
<CAPTION>
June 30
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,582,679 $ 3,457,274
Accounts receivable, less allowance for doubtful
accounts of $136,597 and $55,441 respectively 1,886,093 2,642,132
Inventories (Note A) 3,550,924 4,239,436
Prepaid expenses 72,603 79,785
------------ -------------
TOTAL CURRENT ASSETS 8,092,299 10,418,627
PROPERTY, PLANT AND EQUIPMENT (Notes A and B) 1,008,289 1,123,958
OTHER ASSETS:
Excess of cost over fair value of net assets acquired,
less amortization (Note A) 701,977 773,975
License agreement, less amortization (Note A) 45,000 --
Other 725 39,095
------------ -------------
$9,848,290 $12,355,655
============ =============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
BALANCE SHEETS CONTINUED
DOTRONIX, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving loan (Note C) $ 1,472,864 $1,937,280
Accounts payable 631,176 783,597
Salaries, wages and payroll taxes 235,978 532,971
Other accrued liabilities 129,558 102,805
------------ -------------
TOTAL CURRENT 2,469,576 3,356,653
LIABILITIES
COMMITMENTS AND CONTINGENCIES (Notes D and H)
STOCKHOLDERS' EQUITY (Notes C and E )
Common stock, $.05 par value, 12,000,000 shares authorized,
4,040,335 and 4,218,935 shares issued and outstanding
respectively 202,017 210,947
Additional paid-in capital 10,797,043 10,987,304
Accumulated deficit (3,620,346) (2,199,249)
------------ -------------
TOTAL STOCKHOLDERS' 7,378,714 8,999,002
EQUITY
------------ -------------
$ 9,848,290 $12,355,655
=========== =============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
STATEMENT OF OPERATIONS
DOTRONIX, INC.
<TABLE>
<CAPTION>
Year ended June 30
--------------------------------------------------------------
1997 1996 1995
--------------- -------------- ----------------
<S> <C> <C> <C>
REVENUES (Note G) $ 9,940,868 $14,576,259 $16,039,896
COSTS AND EXPENSES:
Cost of sales 7,468,947 9,401,912 10,984,090
Selling, general, and administrative 3,628,459 4,080,387 3,917,238
Interest 264,559 252,660 244,037
--------------- -------------- ----------------
11,361,965 13,734,959 15,145,365
--------------- -------------- ----------------
NET (LOSS) / EARNINGS $(1,421,097) $ 841,300 $ 894,531
================ ============== ================
NET (LOSS) /EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE $(0.34) $0.20 $0.22
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,157,233 4,289,618 4,117,410
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
DOTRONIX, INC.
<TABLE>
<CAPTION>
Common stock Additional
--------------------------------------- paid-in Accumulated
Shares Amount capital deficit Total
-------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCES AT
JUNE 30, 1994 3,771,696 $188,585 $10,557,765 $(3,935,080) $ 6,811,270
Common stock
issued 401,518 20,076 383,164 403,240
Net income 894,531 894,531
-------------- ------------- -------------- --------------- ---------------
BALANCES AT
JUNE 30, 1995 4,173,214 208,661 10,940,929 (3,040,549) 8,109,041
Common stock
issued 45,721 2,286 46,375 48,661
Net income 841,300 841,300
-------------- ------------- -------------- --------------- ---------------
BALANCES AT
JUNE 30, 1996 4,218,935 210,947 10,987,304 (2,199,249) 8,999,002
Common stock
issued 68,200 3,410 65,352 68,762
Common stock
repurchased (246,800) (12,340) (255,613) (267,953)
Net loss (1,421,097) (1,421,097)
-------------- ------------- -------------- --------------- ---------------
BALANCES AT
JUNE 30, 1997 4,040,335 $202,017 $10,797,043 $(3,620,346) $ 7,378,714
============== ============= ============== =============== ==============
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
STATEMENTS OF CASH FLOWS
DOTRONIX, INC.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/earning $(1,421,097) $ 841,300 $ 894,531
Adjustments to reconcile net (loss)/income to net
cash provided by (used in) operating activities:
Depreciation and amortization 241,325 305,277 375,683
Provision for loss and accounts receivable 160,846 33,846
Change in assets and liabilities:
Accounts receivable 674,882 (298,179) (89,416)
Inventories 608,823 442,718 (10,421)
Prepaid expenses 7,182 7,990 (15,836)
Other assets 38,370 28,131 (64,071)
Accounts payable and accrued liabilities (125,668) (59,727) (415,146)
Salaries, wages and payroll taxes payable (296,993) (36,931) 307,325
------------- ------------- --------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (112,330) 1,264,425 982,649
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (48,658) (68,666) (45,435)
Purchase of License Agreement (50,000)
Proceeds from disposal of equipment 500
------------- ------------- --------------
NET CASH USED IN
INVESTING ACTIVITIES (98,658) (68,666) (44,935)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 68,762 48,661 403,240
Repurchase of common stock (267,953) --
Borrowings on revolving loan 10,170,384 14,490,077 17,216,445
Repayments on revolving loan (10,634,800) (14,305,594) (16,254,678)
Payments on other long-term obligations (132,942)
Payments on bank loans (720,000)
------------- ------------- --------------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (663,607) 233,144 512,065
------------- ------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (874,595) 1,428,903 1,449,779
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,457,274 2,028,371 578,592
------------- ------------- --------------
CASH AND CASH EQUIVALENTS
AT END YEAR $2,582,679 $3,457,274 $2,028,371
============= ============= ==============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DOTRONIX, INC.
YEARS ENDED JUNE 30, 1997, 1996 AND 1995.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS:
The Company designs, manufactures and markets monochrome and color cathode ray
tube (CRT) displays and closed circuit television (CCTV) monitors for a broad
range of applications. CRT displays are used to display alphanumeric
information and graphics in market quotation systems, word processing systems,
computer-aided design, manufacturing and engineering (CAD/CAM/CAE) systems,
desktop publishing systems and other computer based information systems. CCTV
monitors are used to display video images generated by medical imaging
systems, closed-circuit surveillance systems, studio monitor systems and other
video-based systems.
During the year ended June 30, 1997, the Company's operations were impacted by a
significant decrease in revenues. The Company was unable to reduce costs to
offset the revenue decrease. In an effort to increase revenues, the Company is
attempting to expand its products to new market niches. Unless the Company is
successful in the effort to increase revenues in the future, the Company may be
required to adjust its cost structure to a level that could be supported by its
revenues. There can be no assurance that the Company will be able to develop
additional markets for its products or that revenue will remain at current
levels or increase in the future.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments with a maturity of
three months or less at the time of purchase to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, receivables, accounts payable, revolving debt, accrued expenses and other
liabilities are carried at amounts which reasonably approximate their fair value
due to the short-term nature of these amounts or due to variable rates of
interest which are consistent with current market rates.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out method) or
market. Inventories include material, direct labor and overhead and consist of
the following:
June 30
1997 1996
---------- ----------
Raw Materials........ $2,591,608 $3,111,361
Work-in-process...... 598,524 682,854
Finished goods....... 360,792 445,221
---------- ----------
$3,550,924 $4,239,436
========== ==========
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided using the straight-line method over estimated useful
lives of 25 years for buildings, five years for laboratory equipment, office
furniture and fixtures and data processing equipment and three years for
transportation equipment. Building improvements are depreciated over the
remaining useful life of the building at the time of the improvement.
F-8
<PAGE>
AMORTIZATION OF INTANGIBLE ASSETS:
Goodwill, related to the acquisition of a subsidiary which was merged into
Dotronix, Inc., is amortized using the straight-line method over a 20 year
period. In accordance with SFAS No. 121, the Company evaluates impairment of
long lived assets by considering the future cash flows and profitability
resulting from the asset. Accumulated amortization against this asset was
$738,000 and $666,000 at June 30, 1997 and 1996 respectively.
In fiscal year 1997 the Company acquired license rights to a new product at a
cost of $50,000 for a period of five years. This license is being amortized on
a straight-line basis over the 5 year license period. Accumulated amortization
against this asset was $5,000 at June 30, 1997.
RECOGNITION OF REVENUE:
The Company recognizes revenue upon shipment of products to the customer.
EARNINGS (LOSS) PER SHARE:
Net income (loss) per share has been computed by dividing the net income (loss)
by the weighted average number of common and common equivalent shares
outstanding during each period. Outstanding stock options and warrants have not
been considered in the calculation for 1997 as they have an antidilutive effect.
Net income (loss) per share assuming full dilution would be the same.
ACCOUNTING ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS:
Statement of Financial Accounting Standards(SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" was
issued in March 1995 and was adopted in fiscal 1997. The impact to the Company
of adopting this statement was immaterial. In accordance with SFAS 121, if the
estimated future discounted cash flows are less than the carrying amount, an
impairment loss would be recognized based on the discounted cash flows if the
asset.
NEW ACCOUNTING STANDARDS:
SFAS No. 128 "Earnings per Share" was issued in February 1997 and will be
adopted in the second quarter of fiscal 1998. The adoption of SFAS No. 128 is
not expected to have a significant impact on the calculation of earnings per
share as currently reported.
F-9
<PAGE>
B. PROPERTY, PLANT AND EQUIPMENT
JUNE 30
1997 1996
----------- ------------
Cost:
Land................................ $ 182,509 $ 182,509
Building & Building Improvements.... 1,344,006 1,344,005
Machinery and laboratory equipment.. 3,350,977 3,341,969
Office furniture and fixtures....... 711,591 686,156
Data processing equipment........... 776,715 762,501
Transportation equipment ........... 38,060 38,060
---------- ----------
$6,403,858 $6,355,200
Less: Accumulated depreciation
and amortization................... 5,395,569 5,231,242
---------- ----------
$1,008,289 $1,123,958
========== ----------
C. Financing arrangements
On October 3, 1994, the Company entered into Amendment Number Three to the
Revolving Working Capital Loan commitment which had been in effect since
October 10, 1991. This amendment provided for the payoff of all of the
Company's other existing debt and consolidated it into two demand loans
totaling $657,000 and a revolving loan with a maximum availability of
$4,000,000. The loans continue to bear interest at 3% over the base rate
(11.5% at June 30, 1997) and are secured by all the assets of the Company. The
monthly principal payment on the demand loans is $10,950. The amendment also
provides for a total minimum monthly interest payment based on the higher of
the average daily outstanding principal or $2,000,000. The agreement has an
expiration date of October 11, 1997. Based on the value of the pledged assets
at June 30, 1997, the Company had additional available borrowings of
approximately $435,000.
The loan agreement contains covenants which, among other things, prohibit the
payment of dividends. The Company was either compliance with the covenants on
June 30, 1997 or such noncompliance was subsequently waived.
The Company expects to negotiate and close on a new financing arrangement prior
to the expiration of the current agreement. While the Company is negotiating a
new financing agreement, there can be no assurance that a new financing
agreement will be consummated. If the Company is unable to obtain new financing
the Company's cash flow position could be negatively impacted.
F-10
<PAGE>
D. COMMITMENTS AND CONTINGENCIES
The Company has no capital lease liabilities at June 30, 1997. Warehouse
facilities, office equipment and vehicles are leased under operating leases.
Total operating lease rent expense for the Company for the years ended June 30,
1997, 1996, and 1995 was $180,000, $168,000 and $150,000, respectively. Minimum
future obligations on these operating leases at June 30, 1997 are as follows:
Year ending June 30:
1998....................... $ 89,000
1999....................... 28,000
2000....................... 11,000
---------
$ 128,000
=========
E. Stockholders' equity
The Company has an incentive stock option plan for employees for the granting of
options to purchase up to 500,000 shares of the Company's stock. The Company
also has a Nonemployee Director Stock Option Plan for the granting of options to
purchase up to 100,000 shares of the Company's common stock. Each nonemployee
director is automatically granted, on the first business day following the
Company's annual meeting, 500 shares of common stock and an option to purchase
an additional 2,500 shares of common stock. New directors receive an initial
grant, following the first board meeting at which such director is elected, of
an option to purchase 5,000 shares of common stock.
A summary of the status of the Company's stock options are presented below
<TABLE>
<CAPTION>
Year Ended 6/30/95 Year Ended 6/30/96 Year Ended 6/30/97
-------------------- ------------------- --------------------
Wgtd Avg Wgtd Avg Wgtd Avg
Shares Exer Price Shares Exer Price Shares Exer Price
------ ---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 195,887 $1.25 287,530 $1.53 258,832 $1.57
Granted 136,019 $1.81 11,000 $2.05 10,000 $1.64
Exercised (21,518) $1.08 (19,030) $1.07 (1,200) $1.05
Canceled (22,948) $2.03 (20,668) $1.82 95,622 $1.42
------- ----- ------- ----- ------- -----
Outstanding at end of year 287,530 $1.53 258,832 $1.57 172,010 $1.66
======= ===== ======= ===== ======= =====
Options exercisable at year end 130,289 $1.41 118,760 $1.39 144,900 $1.55
======= ===== ======= ===== ======= =====
Options available for future 157,241 140,072 27,110
grant ======= ======= =======
</TABLE>
F-11
<PAGE>
In 1997 the Company adopted SFAS No. 123 "Accounting for Stock Based
Compensation." The Company has elected to continue following the accounting
guidance of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" for measurment and recognition of stock-based
transactions with employees. No compensation cost has been recognized for
options issued under the plans when the exercise price of the options are at
least equal to the fair market value of the common stock at the date of grant.
Had compensation cost for the stock options issued been determinied based on the
fair value at the grant date, consistent with the provisions of SFAS No. 123,
the Company's 1997 and 1996 net income and earnings per share would have been
changed to the pro forma amounts indicated below:
1997 1996
-------------- --------------
Net (loss) earnings
As reported $(1,421,097) $841,300
Pro forma $(1,421,097) $841,300
Earnings per share
As reported $(.34) $.20
Pro forma $(.34) $.20
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions and results.
1997 1996
------------- -------------
Dividend yield None None
Risk free interest rate 7% 7%
Expected life 10 years 10 years
Expected volatility 53% 53%
Expected fair value of
options on grant date $8,438 $76,422
The following table summarizes information about stock options outstanding at
June 30,1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------- ----------------------------
Number Contractual Life Average Number Average
Outstanding (Years) Exercise Price Exercisable Exercise Price
- ------------ ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
8,013 2.5 $2.13 8,013 $2.13
11,710 4.0 $1.19 11,710 $1.19
15,000 3.5 $1.63 15,000 $1.63
7,500 5.4 $1.56 7,500 $1.56
23,808 5.9 $0.78 23,808 $0.78
10,759 5.9 $0.86 10,759 $0.86
7,500 6.4 $1.25 7,500 $1.25
12,500 7.4 $1.31 12,500 $1.31
32,702 8.0 $2.31 16,351 $2.31
21,518 8.0 $2.54 10,759 $2.54
1,000 8.3 $1.25 1,000 $1.25
10,000 8.4 $2.13 10,000 $2.13
10,000 9.4 $1.64 10,000 $1.64
- ------------ ----------------- -------------- ----------- --------------
172,010 6.5 $1.66 144,900 $1.55
============ ================= ============== =========== ==============
</TABLE>
F-12
<PAGE>
F. Income taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and income tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
A reconciliation of the Company's income tax provision that would be provided
based on a statutory federal income tax rate of 35% to the Company's effective
rate is as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------
1997 1996 1995
----------- ---------- ------------
<S> <C> <C> <C>
Computed tax(benefit) provision at
federal tax rate................... ($497,000) $ 294,500 $ 304,000
Change in valuation allowance...... 470,000 (292,000) (338,000)
State income tax expense...........
Permanent differences.............. 29,000 5,900 34,000
Graduated tax benefit.............. 14,000 (8,400)
Other.............................. (16,000)
----------- ---------- ------------
Provision (benefit) $ 0 $ 0 $ 0
----------- ---------- ------------
</TABLE>
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and
liabilities. Temporary differences, net operating loss carryforwards and
valuation allowances comprising the net deferred taxes on the balance sheets are
as follows:
<TABLE>
<CAPTION>
Year ended June 30,1997
---------------------------------------------------
Assets Liabilities Total
------------- ------------- ------------
<S> <C> <C> <C>
Tax depreciation greater than book $ $ (9,974) $ (9,974)
Net operating loss carryforward... 486,477 486,477
Accrual for obsolete inventory.... 371,031 371,031
Inventory costs capitalized....... 97,668 97,668
Tax credit carryforward........... 93,368 93,368
Allowance for doubtful accounts... 46,443 46,443
Accrual for warranty reserve...... 16,549 16,549
Prepaid insurance................. (22,798) (22,798)
Accrual for vacation.............. 21,781 21,781
Accrual for health insurance...... 18,726 18,726
Other............................. 6,355 (3,194) 3,161
Valuation allowance............... (1,122,432) (1,122,432)
------------- ------------- ------------
$ 35,966 $(35,966) $ 0
------------- ------------- ------------
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,1996
-----------------------------------
Assets Liabilities Total
----------- ----------- ---------
<S> <C> <C> <C>
Tax depreciation greater than book $ $(13,849) $ (13,849)
Net operating loss carryforward... 77,825 77,825
Accrual for obsolete inventory.... 343,937 343,937
Inventory costs capitalized....... 114,327 114,327
Tax credit carryforward........... 82,145 82,145
Allowance for doubtful accounts... 18,850 18,850
Accrual for warranty reserve...... 8,030 8,030
Prepaid insurance................. (25,107) (25,107)
Accrual for vacation.............. 24,781 24,781
Accrual for health insurance...... 17,922 17,922
Other............................. 7,172 (3,192) 3,980
Valuation allowance............... (652,841) (652,841)
---------- --------- ----------
$ 42,148 $(42,148) $ 0
---------- --------- ----------
</TABLE>
At June 30, 1997, the Company has federal income tax net operating loss
carryforwards of approximately $1,431,000 which will expire through 2012 and has
for Minnesota income tax purposes loss carryforwards of $585,000 which will
expire beginning in 2004. the Company also has general business tax credit
carryforwards of approximately $93,000 which will expire from fiscal 2002
through 2006.
G. SIGNIFICANT CUSTOMERS AND OTHER INFORMATION ON OPERATIONS
Three customers comprised 31% of the total 1997 sales of the Company. In
addition a fourth customer comprised 23% of 1996 sales and 19% of 1995 sales.
The respective percentages of revenue by fiscal year are as follows:
1997 1996 1995
---------- ---------- -----------
Customer A 14% 7% 5%
Customer B 9% 10% 14%
Customer C 8% 10% 11%
Customer D - 23% 19%
The Company is susceptible to various risks due to the nature of it's business,
including customer requested delays in shipments or cancellation of certain
orders.
Revenues include interest income from investments of approximately $159,000,
$122,000 and $37,000 for the years ended June 30, 1997, 1996, and 1995,
respectively.
Costs and expenses include research and development costs and advertising of
approximately of $302,000 and $137,000, $297,000 and $126,000, and $284,000 and
$106,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
F-14
<PAGE>
H. RELATED-PARTY TRANSACTIONS
The Company is leasing manufacturing and warehousing facilities owned by
companies which are owned by the president and major stockholder of Dotronix.
During each of the years ended June 30, 1997, 1996, and 1995, Dotronix incurred
approximately $88,000, $86,000, $86,000 respectively for rental of these
manufacturing and warehousing facilities. Operating commitments as of June 30,
1997 (Note D) include $49,000 of obligations to the president and major
stockholder of Dotronix.
The Company entered into patent license agreement with an employee of the
Company to manufacture and sell an automobile accessory product that had been
developed and patented by the employee. Under the terms of the license
agreement, a payment of $50,000 was made to the employee for exclusive rights to
the product. In addition, the Company is obligated to make additional royalty
payments of 4% of product sales over the term of the agreement. If certain
minimum levels of royalty payments are not made the agreement will automatically
terminate.
I. RETIREMENT PLANS
The Company has a 401(k) retirement plan for all Dotronix employees who elect
to participate once certain eligibility requirements are met. Each eligible
employee may elect to defer 1% to 15% of his or her compensation. The Company
may contribute an amount on behalf of each participant equal to a percentage
of each participant's compensation or an amount as determined each year by the
Board of Directors. Contributions to the plan by the Company were
approximately $46,000, $50,000 and $25,000 for the years ended June 30, 1997,
1996, and 1995, respectively.
The Amended and Restated Employment Agreement with the president and major
shareholder expires June 30, 1998 and provides for a base compensation of
$15,000 per month. In addition, subject to the Company's pretax earnings
levels, a minimum bonus of $150,000 each fiscal year is to be paid in cash or,
at the option of the president, up to 50% in the form of warrants to purchase
common stock. The Company incurred and expensed $150,000 for the years ended
June 30, 1996 and 1995.
J. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow activities are as follows:
Year ended June 30
------------------------------
1997 1996 1995
-------- -------- --------
Cash paid during the year for:
Interest..................... $265,000 $253,000 $250,000
Income taxes................. 8,000 -- --
F-15
<PAGE>
DOTRONIX, INC.
EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-KSB
FOR YEAR ENDED JUNE 30, 1997
Exhibit Page in
Number Description form
- ------- ----------- -------
3.1 Articles of Incorporation, as amended to date of this
report(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended June 30, 1988.
3.2 Bylaws of the Company (incorporated by reference to exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1991.
4.1 Specimen certificate representing the Company's Common Stock
(incorporated by reference to exhibit 3(a) to Amendment No. 2 to
the Company's Registration Statement on Form S-18, File No.
2-71333C).
10.1 Amended and Restated Employment Agreement of William S. Sadler
dated January 1, 1995 (incorporated by reference to exhibit 10.1
to the Company's Annual Report on Form 10-KSB for the year ended
June 30, 1995).
10.2 Lease for land and building located at 60 Cleveland Avenue S.E.,
New Brighton, Minnesota (incorporated by reference to exhibit
10.10 to the Company's Annual Report on Form 10-KSB for the year
ended June 30, 1993).
10.3 Amendment of Lease for land and building located at 50 Cleveland
Avenue S.E., New Brighton, Minnesota (incorporated by reference
to exhibit 10.5 to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1993).
10.4 Dotronix, Inc. 1989 Stock Option and Restricted Stock Plan
(incorporated by reference to exhibit 10.9 to the Company's
Annual report on Form 10-K for the year ended June 30, 1990.
10.5 Form of Revolving Working Capital Loan Agreements (incorporated
by reference to exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991). Amendment No. 1 of
the Revolving Working Capital Loan Agreements (incorporated by
reference to exhibit 10.7 to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1993).
10.6 Amendment No. 2 and Amendment No. 3 to Revolving Working Capital
Loan Agreements (incorporated by reference to exhibit 10.6 to the
Company's Annual Report on Form 10-KSB for the year ended June 30,
1995).
10.7 Dotronix, Inc. Non-employee Director Stock Option Plan
(incorporated by reference to exhibit 10.9 to the Company's
Annual Report on Form 10-KSB for the year ended June 30,
1992).
23 Independent Auditors' Consent (filed herewith). (Electronically
filed)
27 Financial Data Schedule (filed herewith). (Electronically
filed)
<PAGE>
EX-23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-33702 of Dotronix, Inc. on Form S-8 and in Registration Statement No. 33-
46456 of Dotronix, Inc. on Form S-3 of our report dated September 4, 1997
appearing in Annual Report on Form 10-KSB of Dotronix, Inc. for the year ended
June 30, 1997.
/s/ Deloitte & Touche LLP
September 24, 1997
Minneapolis, Minnesota
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> APR-01-1997 JUL-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 2,582,679 0
<SECURITIES> 0 0
<RECEIVABLES> 1,886,093 0
<ALLOWANCES> (136,597) 0
<INVENTORY> 3,550,924 0
<CURRENT-ASSETS> 8,092,299 0
<PP&E> 6,403,358 0
<DEPRECIATION> (5,395,569) 0
<TOTAL-ASSETS> 9,848,290 0
<CURRENT-LIABILITIES> 2,469,576 0
<BONDS> 0 0
0 0
0 0
<COMMON> 202,017 0
<OTHER-SE> 7,176,697 0
<TOTAL-LIABILITY-AND-EQUITY> 9,848,290 0
<SALES> 2,545,083 9,780,892
<TOTAL-REVENUES> 2,576,095 9,940,868
<CGS> 2,212,771 7,468,947
<TOTAL-COSTS> 3,037,968 11,097,406
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 69,921 264,589
<INCOME-PRETAX> (610,174) (1,421,097)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (610,174) (1,421,097)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (610,174) (1,421,097)
<EPS-PRIMARY> .15 .34
<EPS-DILUTED> .15 .34
</TABLE>
