<PAGE>
CONFORMED COPY
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 March 31, 1998 Commission 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 or organization) Identification No.)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at May 7, 1998
- ----------------------- --------------------------
Common stock, par value 4,039,601
$ .05 per share
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DOTRONIX, INC.
INDEX
Part I - Financial Information Page(s)
Item 1. Financial Statements (Unaudited)
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOTRONIX, INC.
BALANCE SHEETS
(March 31, 1998 unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,159,122 $ 2,582,679
Accounts receivable, less allowance
for doubtful accounts of $36,588 and
$136,597, respectively 1,536,987 1,886,093
Inventories:
Raw materials 2,689,809 2,591,608
Work-in-process 823,273 598,524
Finished goods 477,250 360,792
------------ ------------
Total inventories 3,990,332 3,550,924
Prepaid expenses 61,503 72,603
------------ ------------
Total Current Assets 6,747,944 8,092,299
PROPERTY, PLANT & EQUIPMENT, (Note B)
at cost net of accumulated depreciation
of $5,493,526 and $5,395,569, respectively 1,129,066 1,008,289
OTHER ASSETS:
Excess of cost over fair value of net assets 647,979 701,977
acquired, less amortization
Other 71,551 45,725
------------ ------------
TOTAL ASSETS $ 8,596,540 $ 9,848,290
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving loans $ 776,859 $ 1,472,864
Accounts payable 570,884 631,176
Salaries, wages and payroll taxes 214,964 235,978
Other accrued liabilities 128,645 129,558
------------ ------------
Total current liabilities 1,691,352 2,469,576
STOCKHOLDERS' EQUITY: (Note C)
Common stock, $.05 par value 201,957 202,017
Additional paid-in capital 10,795,741 10,797,043
Accumulated deficit (4,092,510) (3,620,346)
------------ ------------
Total stockholders' equity 6,905,188 7,378,714
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,596,540 $ 9,848,290
============ ============
</TABLE>
The balance sheet at June 30, 1997 has been derived from the audited financial
statements at that date.
See notes to financial statements.
3
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DOTRONIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE: $ 2,337,159 $ 2,129,928 $ 7,364,773 $ 7,599,920
OPERATING EXPENSES:
Cost of Sales 1,577,192 1,712,315 5,200,753 5,255,176
Selling, general
and administrative 1,079,663 895,319 2,771,900 2,725,883
Interest 23,058 66,773 99,431 194,638
----------- ----------- ----------- -----------
Net loss $ (342,754) $ (544,479) $ (472,164) $ (810,924)
=========== =========== =========== ===========
Loss per common share,
basic (Note D) $ (0.08) $ (0.13) $ (0.12) $ (0.19)
----------- ----------- ----------- -----------
Loss per common share assuming
dilution (Note D) $ (0.08) $ (0.13) $ (0.12) $ (0.19)
----------- ----------- ----------- -----------
Average number of common
shares outstanding 4,039,306 4,133,317 4,038,218 4,209,250
----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
4
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DOTRONIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (472,164) $ (810,924)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 151,955 176,538
Provision for loss on accounts receivable (100,009) 75,000
Changes in assets and liabilities:
Accounts receivable 339,115 1,030,206
Inventories (439,408) 144,612
Prepaid expenses 11,100 (20,861)
Other assets (25,826) (9,992)
Accounts payable and accrued liabilities (82,219) (525,278)
----------- -----------
Net cash (used in)/provided by
operating activities (617,456) 59,301
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (77,734) (48,867)
Purchases of software (31,000) --
----------- -----------
Net cash used in investing activities (108,734) (48,867)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock purchases (1,362) (261,146)
Proceeds from sale of stock
-- 66,262
Borrowings on revolving and demand loans 7,471,118 7,873,127
Repayments on revolving and demand loans (8,167,123) (8,442,582)
----------- -----------
Net cash used in financing activities (697,367) (764,339)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,423,557) (753,905)
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD 2,582,679 3,457,275
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 1,159,122 $ 2,703,370
=========== ===========
</TABLE>
See notes to financial statements
5
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DOTRONIX, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited
A. Basis of Presentation
The balance sheet as of March 31, 1998, the statements of operations for the
three and nine month periods ended March 31, 1998 and 1997 and the statements of
cash flows for the nine month periods then ended have been prepared by the
Company without audit. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1998 and for the
periods ended March 31, 1998 and 1997 presented herein have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the Company's financial statements and notes thereto
included in the Annual Report on Form 10-KSB of the Company for the fiscal year
ended June 30, 1997.
B. Purchase of Software
On December 29, 1997 the Company purchased the "Menulink" system from Cyber
Systems International for $141,000. This software system will be marketed as a
Point of Purchase video display system. Consideration for the system was $31,000
in cash and the satisfaction of $110,000 in notes receivables. The software
system will be amortized over a four year period.
C. Common Stock Repurchases
In November of 1996, the Company decided to repurchase up to 250,000 shares of
its common stock at current market prices. The repurchase program was completed
in July of 1997. 250,000 shares of stock were repurchased for an aggregate cost
of $271,253.
6
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D. Earnings per share
Effective December 15, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, "EARNINGS PER SHARE" (SFAS No. 128). Earnings per
share amounts presented for the three and nine month periods ended March 31,1998
and 1997 have been restated for the adoption of SFAS No. 128. The following
table reflects the calculation of basic and diluted earnings per share.
<TABLE>
<CAPTION>
3 months 3 months 9 months 9 months
----------- ----------- ----------- -----------
March 31 March 31 March 31 March 31
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss per share
- --------------
Net loss $ (342,754) $ (544,479) $ (472,164) $ (810,914)
Weighted average shares outstanding 4,039,306 4,133,317 4,038,218 4,209,250
----------- ----------- ----------- -----------
Net loss per share - basic $ (0.08) $ (0.13) $ (0.12) $ (0.19)
=========== =========== =========== ===========
Loss per share - assuming dilution
- ----------------------------------
Net loss $ (342,754) $ (544,479) $ (472,164) $ (810,924)
----------- ----------- ----------- -----------
Weighted average shares outstanding 4,039,306 4,133,317 4,038,218 4,209,250
Dilutive impact of options outstanding 0 0 0 0
----------- ----------- ----------- -----------
Weighted average shares and potential dilutive
shares outstanding 4,039,306 4,133,317 4,038,218 4,209,250
----------- ----------- ----------- -----------
Loss per share - assuming dilution $ (0.08) $ (0.13) $ (0.12) $ (0.19)
=========== =========== =========== ===========
</TABLE>
Options to purchase 143,000 shares of common stock at a range of $.78 to $2.54
were outstanding during the three and nine months ended March 31, 1998, and
options to purchase 96,000 shares of common stock at a range of $.78 to $2.13
were outstanding during the three and nine months ended March 31, 1997, but were
not included in the computation of diluted earnings per share because of the
anti-dilutive impact on the loss per share.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
Revenue increased 10% and 3%, respectively, for the quarter and nine months
ended March 31, 1998 compared to the prior year. Revenue was up in the quarter
due to increased shipments of flight information displays. Revenue for the nine
months was up due to the increased flight information display volume.
Gross margin percentage for the quarter was 33% compared to 20% for the quarter
ended March 31, 1997. Gross margin for the nine month period was 32% compared to
29% in the prior year period. The Company's product mix in the 1998 quarter was
the primary contributing factor in the improved gross margin results in the
quarter as well as the improvement in the nine month period.
Selling, general and administrative expenses increased $184,344 or 21% for the
quarter. The increase in expense was caused by increased engineering effort on
new product designs as well as an increase in marketing and sales efforts.
For the nine month period ended March 31, 1998, selling, general and
administrative expenses increased $46,017 or 2%, from the comparable prior year
period. The primary reason for the increase in expense was the increase in
marketing and sales efforts.
Interest expense decreased $43,715 and $95,207 for the three and nine month
periods, respectively, compared to prior year periods. The establishment of a
new financing agreement which is discussed under "Liquidity and Capital
Resources" resulted in the lower borrowings and financing costs.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On November 13, 1997 , the Company entered into a working capital loan and
security agreement with Coast Business Credit. The agreement covers a period of
three years with the following provisions:
* Maximum availability of $3,000,000 not to exceed the total of 85% of
eligible receivables, as defined, plus outstanding equipment acquisition
loans. The capital equipment acquisition loans can not exceed $500,000.
* The loans bear interest at 2% over prime (10.5% at March 31, 1998) and are
secured by all the assets of the Company. The agreement also provides for
minimum interest payments on loans balances of $600,000 in year one,
$900,000 in year two and $1,200,000 in year three.
* Payment of $1,250 quarterly loan facility fee.
* Early termination fees of $90,000 the first year, $60,000 the second year
and $30,000 in the third year.
* The maintenance of a minimum tangible net worth as defined, of $5,000,000.
The Company believes that the cash and cash equivalents on hand at March 31,
1998 and the future amounts available to it under the aforementioned credit
agreement should be adequate to meet both short and long term capital needs.
During the nine months ended March 31, 1998 operations consumed $617,456 of
cash. The acquisition of inventory for future production needs consumed
$439,408. Purchases of property, plant and equipment used $77,734 of cash and
the purchase of the point of purchase video display system used $31,000. Net
repayments of debt amounted to $697,367. The overall result was a reduction in
cash of $1,423,557.
At March 31, 1998 working capital amounted to $5,056,592.
9
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PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27............Financial Data Schedule
(b) No reports on Form 8-K were issued during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 1, 1998 DOTRONIX, INC.
By /s/ William S. Sadler
------------------------------------
William S. Sadler
President
(Principal Executive Officer)
By /s/ Erling J. Anderson
------------------------------------
Erling J. Anderson
Chief Financial Officer
(Principal Financial
and accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> JAN-01-1998 JUL-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 1,159,122 0
<SECURITIES> 0 0
<RECEIVABLES> 1,573,575 0
<ALLOWANCES> (36,588) 0
<INVENTORY> 3,990,332 0
<CURRENT-ASSETS> 6,747,944 0
<PP&E> 6,622,592 0
<DEPRECIATION> (5,493,526) 0
<TOTAL-ASSETS> 8,596,540 0
<CURRENT-LIABILITIES> 1,691,352 0
<BONDS> 0 0
0 0
0 0
<COMMON> 201,957 0
<OTHER-SE> 6,703,231 0
<TOTAL-LIABILITY-AND-EQUITY> 8,596,540 0
<SALES> 2,316,341 7,527,216
<TOTAL-REVENUES> 2,337,159 7,599,920
<CGS> 1,577,192 5,200,753
<TOTAL-COSTS> 2,656,855 7,972,653
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,058 99,431
<INCOME-PRETAX> (342,754) (472,164)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (342,754) (472,164)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (342,754) (472,164)
<EPS-PRIMARY> (0.08) (0.012)
<EPS-DILUTED> (0.08) (0.012)
</TABLE>
