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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 September 30, 2000 Commission File No. 0-9996
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DOTRONIX, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA
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(State or other jurisdiction of
incorporation or organization)
41-1387074
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(I.R.S. Employer
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
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Common stock, par value
$ .05 per share
OUTSTANDING AT NOVEMBER 8, 2000
---------------------------------
4,165,041 shares
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DOTRONIX, INC.
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION Page(s)
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<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-8
PART II - OTHER INFORMATION
Item 1. Exhibits and Reports on Form 8-K 8
EXHIBIT 27 - Financial Data Schedule 9
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
DOTRONIX, INC.
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
2000 2000
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ASSETS
<S> <C> <C>
Cash and cash equivalents $ 174,316 $ 75,466
Accounts receivable, less allowance
for doubtful accounts of $28,893 at both dates 1,369,290 1,261,012
Inventories:
Raw materials 1,380,476 1,255,966
Work-in-process 579,358 515,948
Finished goods 217,087 277,049
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Total inventories 2,176,921 2,048,963
Prepaid expenses 65,512 47,359
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Total current assets 3,786,039 3,432,800
PROPERTY, PLANT & EQUIPMENT
at cost net of accumulated depreciation
of $5,800,757 and $5,733,941 respectively 1,099,701 1,158,422
OTHER ASSETS:
Excess of cost over fair value of net assets acquired,
less amortization of $971,969 and $953,970, respectively 467,985 485,984
License agreement, less amortization 11,250 15,000
Other 400 400
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TOTAL ASSETS $ 5,365,375 $ 5,092,606
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving loans $ 376,253 $ 453,328
Current maturities-capital lease obligations 19,160 33,256
Accounts payable 1,070,236 725,404
Salaries, wages and payroll taxes 173,290 214,264
Current portion-deferred gain on sale of building 47,613 47,613
Other accrued liabilities 119,168 172,106
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Total current liabilities 1,805,720 1,645,971
DEFERRED GAIN ON SALE OF BUILDING 361,065 372,968
STOCKHOLDERS' EQUITY:
Common stock, $.05 par value 203,737 203,737
Additional paid-in capital 10,883,778 10,883,778
Unearned compensation (4,750) (9,125)
Accumulated deficit (7,884,175) (8,004,723)
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Total stockholders' equity 3,198,590 3,073,667
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,365,375 $ 5,092,606
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</TABLE>
See notes to financial statements
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STATEMENTS OF OPERATIONS
DOTRONIX, INC.
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
SEPTEMBER 30
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2000 1999
<S> <C> <C>
REVENUES $2,049,997 $2,569,143
OPERATING EXPENSES:
Cost of sales 1,250,008 1,701,845
Selling, general and
administrative 648,866 821,918
Interest 30,575 28,459
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Net income $ 120,548 $ 16,921
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Basic and diluted income
per common share
(Note B) $ 0.03 $ 0.00
Average number of common
shares outstanding - basic and
diluted 4,074,732 4,057,601
</TABLE>
See notes to financial statements
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STATEMENTS OF CASH FLOWS
DOTRONIX, INC
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 120,548 $ 16,921
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 88,565 58,883
Amortization of deferred gain on sale of building (11,903) (11,903)
Change in assets and liabilities:
Accounts receivable (108,278) (558,899)
Inventories (127,958) 35,892
Prepaid expenses (18,153) (90,222)
Other assets - 1,495
Accounts payable and accrued liabilities 349,207 11,630
Salaries, wages and payroll taxes payable (93,912) (56,348)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 198,116 (592,551)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (8,095) (47,226)
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NET CASH USED IN INVESTING ACTIVITIES (8,095) (47,226)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving loan 1,950,000 2,395,890
Repayments on revolving loan (2,027,075) (2,009,562)
Payments of capital lease obligations (14,096) (57,223)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (91,171) 329,105
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 98,850 (310,672)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 75,466 621,414
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CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 174,316 $ 310,742
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</TABLE>
See notes to financial statements
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DOTRONIX, INC.
NOTES TO FINANCIAL STATEMENTS
A. Basis of Presentation
The balance sheet as of September 30, 2000, the statements of operations for the
three month periods ended September 30, 2000 and 1999 and the statements of cash
flows for the three month periods ended September 30, 2000 and 1999 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 September
30, 2000 and for the three months periods ended September 30, 2000 and 1999
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, 2000.
B. Earnings per share
The following table reflects the calculation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
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September 30 (1) September 30 (1)
2000 1999
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EARNINGS PER SHARE - BASIC AND DILUTED
<S> <C> <C>
Net income $ 120,548 $ 16,921
Weighted average shares outstanding 4,074,732 4,057,601
Net income per share - basic and diluted $ 0.03 $ 0.00
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(1) The effect of all stock options have been excluded from the calculation of
earnings per share for the three months ended September 30, 2000 and 1999, as
the average trading price of the Company's common stock during the period was
less than the exercise price of the stock options.
C. Revolving Line of Credit
On February 23, 2000, the Company entered into a revolving credit facility with
its president and major stockholder, and in September 2000 the Company's
president and major stockholder agreed to extend the loan agreement to February
28, 2002, and to increase the loan limit to $1,250,000 in secured financing.
Loan availability is subject to a borrowing limit equal to 80% of eligible
receivables. The revolving credit facility contains various restrictive
covenants including a minimum tangible net worth balance of $2.0 million. As of
November 8, 2000 the Company had $485,000 available under the agreement to
extend the revolving credit facility. Interest on outstanding borrowings under
the revolving credit facility is 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 the president and major shareholder for incremental increases
in the outstanding borrowings balance. One warrant is issued for every $4 in
incremental borrowings made by the Company. All warrants issued expire in 4
years and
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have an exercise price equal to the fair market value of the Company's stock at
the date of grant. Once repayments on the facility have been made, additional
warrants are issued for incremental borrowings on the facility only to the
extent that the new outstanding borrowings balance exceeds the previous high
outstanding borrowings balance. The Company recorded interest expense of $15,000
for the three months ended September 30, 2000 related to the warrants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue decreased by $519,000 or 20% for the three months ended September 30,
2000 compared to the prior year. The decrease was attributable to a one time
order of approximately $700,000 shipped in August and September of 1999.
Gross margin percentage for the quarter ended September 30, 2000 was 39%
compared to 33% for the same quarter ended in fiscal 1999. A change in marketing
strategy, discussed below, created a substantial increase in the average size of
orders for mature products which resulted in improved margins.
Selling, general, and administrative expenses decreased $173,000 or 21% in the
quarter ended September 30, 2000, when compared to the prior year. The decrease
was due to reductions in personnel and a Company wide cost reduction program.
Interest expense increased $2,000, or 7% during the three month period ended
September 30, 2000 compared to the same period of the prior year. Increased
average borrowings and a higher average interest rate caused the increase in
interest expense.
Over the past several years the Company has seen a decline in sales and a
decline in unit order size for several of its mature products. In March 2000 the
Company informed several of its customers of its unwillingness to accept low
volume orders and its intention to discontinue maintenance of manufacturing
capacity for several products if order unit size did not increase. The result of
the customer notification has been an increase in sales for mature products in
the medium six figure range. The increase in sales resulting from the customer
notification will most likely diminish in the near future.
LIQUIDITY AND CAPITAL RESOURCES
On February 23, 2000, the Company entered into a revolving credit facility with
its president and major stockholder, and in September 2000 the Company's
president and major stockholder agreed to extend the loan agreement to February
28, 2002, and to increase the loan limit to $1,250,000 in secured financing.
Loan availability is subject to a borrowing limit equal to 80% of eligible
receivables. The revolving credit facility contains various restrictive
covenants including a minimum tangible net worth balance of $2.0 million. As of
November 8, 2000 the Company had $485,000 available under the agreement to
extend the revolving credit facility. Interest on outstanding borrowings under
the revolving credit facility is accrued at the Wells Fargo Bank prime interest
rate plus 3%.
Company management believes that the cash and cash equivalents on hand at
November 8, 2000 and future amounts available under the aforementioned credit
agreement should be adequate to meet cash requirements.
<PAGE>
During the three months ended September 30, 2000, cash flow from operations was
$198,000. Purchases of property, plant and equipment consumed $8,000 of cash.
Payment of capital lease obligations consumed $14,000 of cash. Decreased
borrowings on the working capital loan used $77,000 of Company cash. The overall
result was an increase in cash of $99,000.
COMMON STOCK LISTING
The Company's Common Stock previously was quoted on the NASDAQ Stock Market
under the symbol "DOTX". Effective August 4, 1999 the Company's Common Stock
transferred to the OTC Bulletin Board.
In June 1999, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains or
losses resulting from changes in the value of those derivatives would be
accounted for depending on the use of the derivatives and whether it qualifies
for hedge accounting. The Company adopted this accounting standard effective
July 1, 2000. There was no impact on the financial statements.
PART II - OTHER INFORMATION
Item 1. 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: November 8, 2000 Dotronix, Inc.
By /s/ WILLIAM S. SADLER
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William S. Sadler
President
(Principal Executive
Officer)
By /s/ ROBERT V. KLING
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Robert V. Kling
Chief Financial Officer
(Principal Financial
and accounting Officer)
