<PAGE>
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, 1997 Commission File No. 0-9996
DOTRONIX, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1387074
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(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
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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 January 30, 1998
- ---------------- -------------------------------
Common stock, par value 4,039,135
$ .05 per share
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DOTRONIX, INC.
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INDEX
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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
Operations 8
Part II - Other Information
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Item 6. Exhibits and Reports on Form 8-K 9
2
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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DOTRONIX, INC.
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BALANCE SHEETS
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<TABLE>
ASSETS December 31, June 30,
1997 1997
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,278,913 $ 2,582,679
Accounts receivable, less allowance for doubtful
accounts of $36,597 and $136,597, respectively
$ 1,565,551 $ 1,886,093
Inventories:
Raw materials $ 2,959,697 $ 2,591,608
Work-in-process $ 719,673 $ 598,524
Finished goods $ 387,188 $ 360,792
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Total Inventories $ 4,066,558 $ 3,550,924
Prepaid expenses $ 50,552 $ 72,603
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Total Current Assets $ 6,961,574 $ 8,092,299
PROPERTY, PLANT & EQUIPMENT, (Note B)
at cost net of accumulated depreciation
of $5,450,874 and $5,395,569 respectively $ 1,147,274 $ 1,008,289
OTHER ASSETS:
Excess of cost over fair value of net assets
acquired, less amortization $ 665,979 $ 701,977
Other $ 85,725 $ 45,725
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TOTAL ASSETS $ 8,860,552 $ 9,848,290
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving loans $ 581,194 $ 1,472,864
Accounts payable $ 724,291 $ 631,176
Salaries, wages and payroll taxes $ 168,551 $ 235,978
Other accrued liabilities $ 138,575 $ 129,558
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Total current liabilities $ 1,612,611 $ 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 $(3,749,757) $(3,620,346)
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Total stockholders' equity $ 7,272,941 $ 7,378,714
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,860,552 $ 9,848,290
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</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.
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STATEMENTS OF OPERATIONS
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(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES: $2,422,264 $2,249,549 $5,262,841 $5,234,845
OPERATING EXPENSES:
Cost of Sales $1,533,703 $1,492,200 $3,623,562 $3,542,861
Selling, general
and administrative $ 863,156 $ 903,046 $1,692,017 $1,830,563
Interest $ 15,989 $ 63,710 $ 76,673 $ 127,865
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Net earnings (loss) $ 9,416 $ (209,407) $ (129,411) $ (266,444)
========== ========== ========== ==========
Earnings (loss)
per common share,basic(Note D) $ 0.00 $ (0.05) $ (0.03) $ (0.06)
---------- ---------- ---------- ----------
Earning (loss) per common share
assuming dilution (Note D) $ 0.00 $ (0.05) $ (0.03) $ (0.06)
Average number of common
shares outstanding 4,038,178 4,259,670 4,037,674 4,247,217
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</TABLE>
See notes to financial statements.
4
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DOTRONIX, INC.
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STATEMENTS OF CASH FLOWS
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(Unaudited)
<TABLE>
<CAPTION>
Six months
ended December 31,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (129,411) $ (266,444)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization $ 91,303 $ 115,912
Provision for loss on accounts receivable $ (100,009) $ 45,000
Changes in assets and liabilities:
Accounts receivable $ 310,551 $ 1,047,142
Inventories $ (515,634) $ (127,812)
Prepaid expenses $ 22,051 $ (1,630)
Other assets $ (40,000) $ 25,786
Accounts payable and accrued liabilities $ 34,705 $ (636,115)
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Net cash (used in)/provided by
operating activities $ (326,444) $ 201,839
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment $ (53,290) $ (39,729)
Purchases of Software $ (31,000) $ -
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Net cash used in investing $ (84,290) $ (39,729)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock purchases $ (1,362) $ (142,857)
Proceeds from sale of stock $ - $ 66,262
Borrowings on revolving and demand loans $ 4,904,119 $ 5,786,456
Repayments on revolving and demand loans $(5,795,789) $(6,335,663)
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Net cash used in financing
activities $ (893,032) $ (625,802)
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NET DECREASE IN CASH AND CASH EQUIVALENTS $(1,303,766) $ (463,692)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD $ 2,582,679 $ 2,028,371
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,278,913 $ 1,564,679
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</TABLE>
See notes to financial statements
5
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DOTRONIX, INC.
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NOTES TO FINANCIAL STATEMENTS
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Unaudited
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A. Basis of Presentation
The balance sheet as of December 31, 1997, the statements of operations for the
three and six month periods ended December 31, 1997 and 1996 and the statements
of cash flows for the six 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 December 31, 1997
and for the periods ended December 31, 1997 and 1996 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 six month periods ended December
31,1997 and 1996 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 6 months 6 months
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Dec 31 Dec 31 Dec 31 Dec 31
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1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earnings (loss) per share
- -------------------------
Net earnings (loss) $ 9,416 $ (209,407) $ (129,444) $ (266,444)
Weighted average shares outstanding 4,038,178 4,259,670 4,037,674 4,247,217
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Net earnings (loss) per share - basic $ 0.00 $ (0.05) $ (0.03) $ (0.06)
========== ========== ========== ==========
Earnings (loss) per share - assuming dilution
- ---------------------------------------------
Net earnings (loss) $ 9,416 $ (209,407) $ (129,444) $ (266,444)
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Weighted average shares outstanding 4,038,178 4,259,670 4,037,674 4,247,217
Dilutive impact of options outstanding 6,215 0 0 0
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Weighted average shares and potential
dilutive shares outstanding 4,044,393 4,259,670 4,037,674 4,247,217
---------- ---------- ---------- ----------
Earnings (loss) per share - assuming dilution $ 0.00 $ (0.05) $ (0.03) $ (0.06)
========== ========== ========== ==========
</TABLE>
Options to purchase 142,000 shares of common stock at a range of $.78 to $2.54
were outstanding during the six months ended December 31, 1997, and options to
purchase 97,000 shares of common stock at a range of $.78 to $2.13 were
outstanding during the three and six months ended December 31, 1996, 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.
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RESULTS OF OPERATIONS
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Revenue increased 8% and 1%, respectively, for the quarter and six months ended
December 31, 1997 compared to the prior year. Revenue was up in the quarter due
to increased shipments of flight information displays. Revenue for the six
months was flat when compared to the prior year. Increased flight information
display shipments in the quarter were offset by reduced shipments in the medical
display product line.
Gross margin percentage for the quarter was 37% compared to 34% for the quarter
ended December 31, 1996. Gross margin for the six month period was 31% compared
to 32% in the prior year period. The Company's product mix in the 1997 quarter
was the primary contributing factor in the improved gross margin results in the
quarter as well as the slight erosion in gross margins that were experienced in
the six month period.
Selling, general and administrative expenses decreased $64,890 or 7% for the
quarter. The decrease in expense was caused by a reversal of a previously
established allowance for doubtful accounts and other cost containment efforts.
For the six month period ending December 31, 1997 selling, general and
administrative expenses decreased $163,546 or 9%, from the comparable prior year
period. The primary reason for the decline in expense was the reduction in
allowance for doubtful accounts. The remainder of the decline was driven by
reductions in staff and facility expense.
Interest expense decreased $47,721 and $51,192 for the three and six 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
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LIQUIDITY AND CAPITAL RESOURCES
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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 December 31, 1997) 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 define, of $5,000,000.
The Company believes that the cash and cash equivalents on hand at December 31,
1997 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 six months ended December 31, 1997 operations consumed $326,444 of
cash. The acquisition of inventory for future production needs consumed
$515,634 partially offset by reductions in receivables of $310,551. Purchases
of property, plant and equipment used $53,290 of cash and the purchase of the
point of purchase video display system used $31,000. Net repayments of debt
amounted to $891,670. The overall result was a reduction in cash of $1,303,766.
At December 31, 1997 working capital amounted to $5,348,963.
PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Securities Holders
At the annual meeting of shareholders of the Company held on November 16,
1997 the following were elected directors:
Votes for Withheld
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William S Sadler 3,807,116 143,280
Ray L. Bergeson 3,809,201 141,195
Robert J. Snow 3,809,201 141,195
Edward L. Zeman 3,810,201 140,195
L. Daniel Kuechenmeister 3,810,201 140,195
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.
9
<PAGE>
SIGNATURES
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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: February 17, 1998 DOTRONIX, INC.
By /s/ William S. Sadler
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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 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> OCT-01-1997 JUL-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 1,278,913 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> (36,588) 0
<INVENTORY> 4,066,557 0
<CURRENT-ASSETS> 6,961,574 0
<PP&E> 6,598,148 0
<DEPRECIATION> (5,450,874) 0
<TOTAL-ASSETS> 8,860,552 0
<CURRENT-LIABILITIES> 1,612,610 0
<BONDS> 0 0
0 0
0 0
<COMMON> 201,957 0
<OTHER-SE> 7,045,985 0
<TOTAL-LIABILITY-AND-EQUITY> 8,860,552 0
<SALES> 2,404,057 5,210,876
<TOTAL-REVENUES> 2,419,790 5,260,257
<CGS> 1,533,703 3,623,562
<TOTAL-COSTS> 2,397,159 5,315,879
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,689 76,373
<INCOME-PRETAX> 9,416 (129,411)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 9,416 (129,411)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,416 (129,411)
<EPS-PRIMARY> 0.00 (0.03)
<EPS-DILUTED> 0.00 (0.03)
</TABLE>
