<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
---------------------------------
COMMISSION FILE NUMBER 0-23562
----------------------
MELTRONIX, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3142624
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9577 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 292-7000
-------------------------
Indicate by check 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 / /
At September 30, 2000, there were outstanding 12,745,769 shares of the
Registrant's Common Stock, no par value per share.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
INDEX PAGE NO.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets .................................... 3
Condensed Consolidated Statements of Operations .......................... 4
Condensed Consolidated Statements of Cash Flows .......................... 5
Condensed Consolidated Statement of
Changes in Shareholders' Deficit ..................................... 6
Notes to Condensed Consolidated Financial Statements ..................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings ......................................................... 14
Item 2. Changes in Securities and Use of Proceeds ................................. 15
Item 3. Defaults upon Senior Securities ........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ....................... 15
Item 5. Other Information ......................................................... 16
Item 6. Exhibits and Reports on Form 8-K .......................................... 16
SIGNATURES ..................................................................................... 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MELTRONIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 326,000 $ 335,000
Accounts receivable, net 1,501,000 1,708,000
Inventories 1,890,000 2,318,000
Other current assets 17,000 95,000
-----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,734,000 4,456,000
Property, plant and equipment, net 1,418,000 1,830,000
Note receivable 10,000 --
Other non-current assets 26,000 63,000
-----------------------------------------------------------------------------------------------------------------
$ 5,188,000 $ 6,349,000
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Bank credit line $ 369,000 $ --
Current portion of long-term debt 594,000 279,000
Accounts payable 3,802,000 2,935,000
Accrued liabilities 1,160,000 869,000
-----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,925,000 4,083,000
Long-term payables 76,000 2,133,000
Long-term debt, less current portion 30,000 47,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Series A Convertible Preferred stock, no par value 9,295,000 9,295,000
Common stock, no par value 42,493,000 40,269,000
Accumulated deficit (52,631,000) (49,478,000)
-----------------------------------------------------------------------------------------------------------------
Total shareholders' deficit (843,000) 86,000
-----------------------------------------------------------------------------------------------------------------
$ 5,188,000 $ 6,349,000
=================================================================================================================
</TABLE>
3
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,009,000 $ 2,031,000 $ 10,735,000 $ 5,955,000
Cost of goods sold 3,487,000 1,742,000 9,612,000 5,253,000
--------------------------------------------------------------------------------------------------------------------------------
Gross profit 522,000 289,000 1,123,000 702,000
Selling, general and administrative 878,000 499,000 2,727,000 1,546,000
Engineering and product development 262,000 182,000 943,000 552,000
--------------------------------------------------------------------------------------------------------------------------------
Loss from operations (618,000) (392,000) (2,547,000) (1,396,000)
Other income (expense):
Interest (expense), net (222,000) (509,000) (358,000) (1,522,000)
Other income, net - - 3,000 91,000
--------------------------------------------------------------------------------------------------------------------------------
Loss from operations before
provision for income taxes (840,000) (901,000) (2,902,000) (2,827,000)
Provision for income taxes - - - -
--------------------------------------------------------------------------------------------------------------------------------
Net loss (840,000) (901,000) (2,902,000) (2,827,000)
Dividends attributable to Series A
Estimated gain on disposal convertible Preferred Stock 84,000 - 251,000 -
--------------------------------------------------------------------------------------------------------------------------------
Net loss available to
common shareholders $ (924,000) $ (901,000) $ (3,153,000) $ (2,827,000)
================================================================================================================================
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (0.07) $ (0.08) $ (0.27) $ (0.26)
================================================================================================================================
</TABLE>
4
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: $ (1,708,000) $ 14,000
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (98,000) (85,000)
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Net cash used by investing activities (98,000) (85,000)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 1,119,000 --
Principal payments on long-term debt
and promissory notes (258,000) (216,000)
Proceeds from issuance of common stock, net 936,000 --
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Net cash provided (used) by financing activities 1,797,000 (216,000)
----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (9,000) (287,000)
CASH AT BEGINNING OF PERIOD 335,000 469,000
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CASH AT END OF PERIOD $ 326,000 $ 182,000
======================================================================================================================
</TABLE>
5
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' DEFICIT
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
Shares Amount Shares Amount Deficit Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 9,362,777 $9,295,000 10,860,223 $40,269,000 $(49,478,000) $86,000
Common Stock Issued on
Exercise of Stock Options -- -- 1,001,104 422,000 -- 422,000
Non-employee stock-based
Compensation -- -- -- 535,000 -- 535,000
Debt Converted to Equity -- -- 542,109 753,000 -- 753,000
Private Placement -- -- 342,333 514,000 -- 514,000
Dividends on preferred stock (251,000) (251,000)
Net (loss) -- -- -- -- (2,902,000) (2,902,000)
------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 9,362,777 $9,295,000 12,745,769 $42,493,000 $(52,631,000) $(843,000)
==============================================================================================================================
</TABLE>
6
<PAGE>
MELTRONIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - COMPANY OVERVIEW AND BASIS OF PRESENTATION
COMPANY OVERVIEW
MeltroniX, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") provide high density semiconductor interconnect solutions to the OEM
electronics marketplace by offering design, volume manufacturing, and testing
capabilities. The Company targets high growth industries including Internet
equipment, wireless/telecommunication, broadband communication and other
electronic systems and integrated circuits (ICs) manufacturers. Headquartered in
San Diego, with on-site manufacturing facilities, the Company develops,
manufactures, tests and sells OEM microelectronic semiconductor assemblies.
Capitalizing on what it believes are overall industry trends to outsource design
and manufacturing of electronic systems and integrated circuits, the Company
offers both turnkey manufacturing and kitted subassembly services featuring
value added semiconductor interconnect design and test capabilities in addition
to contract assembly. MeltroniX, Inc. was incorporated in California in 1984.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements and related
notes as of September 30, 2000 and for the three and nine month periods ended
September 30, 2000 and 1999 are unaudited but include all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of financial position and results of
operations of the Company for the interim period. The results of operations for
the three and nine month periods ended September 30, 2000 are not necessarily
indicative of the operating results to be expected for the full fiscal year. The
information included in this report should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto and the
other information, including risk factors, set forth for the year ended December
31, 1999 in the Company's Annual Report on Form 10-K. Readers of this Quarterly
Report on Form 10-Q are strongly encouraged to review the Company's Annual
Report on Form 10-K.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 December 31, 1999
------------------ -------------------
<S> <C> <C>
Raw materials ................................. $ 1,187,000 $ 1,728,000
Work-in-progress .............................. 939,000 1,057,000
Obsolescence reserve .......................... (236,000) (467,000)
------------------ -------------------
$ 1,890,000 $ 2,318,000
================== ===================
</TABLE>
7
<PAGE>
MELTRONIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - EFFECTS OF INCOME TAXES
The Company has not recorded provisions for any income taxes for the three
and nine months ended September 30, 2000, since the Company's operations have
generated operating losses for both financial reporting and income tax purposes.
A 100% valuation allowance has been provided on the total deferred income tax
assets as they are not more likely than not to be realized.
The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code and, as a result, the Company believes
that its ability to utilize its current net operating loss and credit
carry-forwards in current and subsequent periods will be subject to annual
limitations.
NOTE 4 - NET INCOME (LOSS) PER SHARE
The computation of diluted loss per share for both three and nine months
ended September 30, 2000 and 1999, excludes the effect of incremental common
shares attributable to the exercise of outstanding common stock options and
warrants and convertible preferred shares because their effect was antidilutive
due to losses incurred by the Company.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company entered into a lease for new manufacturing facilities and corporate
offices commencing September 1, 1997, and extending to October 31, 2002. Minimum
monthly rental payments of $16,000 began on November 1, 1997, with scheduled
annual increases of 6% to 7% per year beginning November 1, 1998. The Company
also entered into a professional service agreement in September 2000 that allows
the Company the use of a piece of test equipment from the service supplier. The
agreement provides currently for monthly payments of $15,000 for October,
November and December 2000. The agreement can be amended by the Company
contingent upon the Company's need for service and provision of a change order
to the service provider At September 30, 2000 the Company was not making timely
payments to the service supplier.
On July 25, 2000, the Company entered into a formal payment plan with
Schlumberger for the settlement of its old outstanding payables. The
agreement calls for 17 equal installments of $29,225 to be paid on the last
day of each month commencing August 31, 2000. At September 30, 2000, the
Company was not in compliance with the agreement.
On October 18, 2000 MeltroniX, Inc. was notified by the United States
Bankruptcy Court that Lucien A. Morin, II, as Chapter 7 Trustee of H. J. Meyers
& Co., Inc. was seeking 1,000,000 common stock purchase warrants with a term of
five years from November 19, 1997, an exercise price of $1.00 per share, and has
certain registration rights. The Company has responded that H. J. Meyers & Co.
failed to fulfill the contract which was cancelled and no warrants are due.
The Company is in violation of the covenant for quarterly profitability on
the $1.5M Bank Credit Line. The Bank is in the process of redrafting the
agreement. The Company has requested a waiver for the violated covenants and
believes that it will be forthcoming.
In June of 1999, the Company entered into a capital lease agreement with
Asymtec for the acquisition of manufacturing equipment. This agreement
expired in June of 2000. The Company did not make all of the monthly payments
as required and owed approx. $137,000 on the equipment at September 30, 2000.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING THE
COMPANY'S ANTICIPATED FUTURE REVENUES AND EARNINGS, ADEQUACY OF FUTURE CASH FLOW
AND RELATED MATTERS. THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, STATEMENTS CONTAINING THE WORDS "EXPECT", "BELIEVE", "WILL", "MAY",
"SHOULD", "PROJECT", "ESTIMATE", AND LIKE EXPRESSIONS, AND THE NEGATIVE THEREOF.
THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE STATEMENTS, INCLUDING COMPETITION, AS WELL
AS THOSE RISKS DESCRIBED IN THE COMPANY'S SEC REPORTS, INCLUDING THE COMPANY'S
FORM 10-K FILED PURSUANT TO THE SECURITIES AND EXCHANGE ACT OF 1934 ON APRIL 14,
2000.
The following discussion and analysis compares the results of operations for
the three and nine month periods ended September 30, 2000 and 1999, and should
be read in conjunction with the condensed consolidated financial statements and
the accompanying notes included within this report.
THREE MONTHS ENDED SEPTEMBER 30, 2000
For the three months ended September 30, 2000, net sales were $4.0
million as compared to net sales of $2.0 million for the third quarter of
1999, resulting in increased sales of $2.0 million or 100%. The increase in
net sales is primarily the result of sales to two new customers, Micro
Networks and Microsource. Sales to Micro Networks and Microsource were ___%
and ___%, respectively, of net sales for the three months ended September 30,
2000. Sales to the Company's previously largest customer, Schlumberger, were
less than 30% of total sales for the quarter.
The backlog at September 30, 2000 was $11.8 million compared to $2.5
million at September 30, 1999, an increase of 372%. The increase in backlog
is due to an overall expansion of customers and increased business with
customers other than Schlumberger added as a result of the Company's focus on
wireless, telecommunications, internet equipment, digital imaging, and other
high technology electronic market segments. The Company will need to secure
additional financing to ensure that it has the inventory, equipment and
personnel necessary to fill the existing backlog orders at September 30, 2000.
For the three months ended September 30, 2000, the cost of goods sold was
$3.5 million as compared to $1.7 million for the three months ended September
30, 1999, an increase of $1.8 million or 106%. The increase in cost of goods
sold is due to the increase in sales volume from new customers and includes
higher product costs associated with process and product development learning
curve experience associated with production ramp up on multiple new products.
Gross profit was $522,000 for the third quarter of 2000 as compared to
$289,000 for the third quarter of 1999, an increase of 81%. Gross profit as a
percent of sales was 13.0% for the third quarter of 2000 compared to 14.2% for
the third quarter of 1999. The decrease in gross profit as a percentage of sales
is attributable to costs associated with a change in product mix and expanding
production for new customers.
9
<PAGE>
Selling, general and administrative expenses were $0.9 million for the third
quarter of 2000, as compared to $0.5 million for the third quarter of 1999, an
increase of 76.0%. The increase is due to the Company's investment in marketing
and development of new customers as well as restructuring the executive
management team for future growth. A compensation charge for warrants issued
accounts for approximately $171,000 of the increase. Such warrant expense is a
non-cash charge.
Engineering and product development expenses were $262,000 for the third
quarter of 2000, representing an increase of $80,000 or 44% from the third
quarter of 1999. The increase is primarily comprised of an increase in process
and products development costs in 2000 as compared to 1999 which were necessary
to bring new technology expertise for BGA, flip chip, fine pitch wire bonding,
and other semiconductor interconnect technologies, to the Company.
Interest expense was $222,000 for the third quarter of 2000, representing a
decrease of $287,000 or 56% from the third quarter of 1999. The primary cause of
the decrease in interest expense was the conversion of debt into equity in
October of 1999 partially offset by a charge for the issuance of warrants of
approximately $217,000. Such warrant expense is a non-cash charge.
Dividends attributable to Series A convertible Preferred Stock were $84,000
for the third quarter of 2000. The Series A convertible Preferred Stock was
issued in the 4th quarter of 1999 in the conversion of debt to equity.
NINE MONTHS ENDED SEPTEMBER 30, 2000
For the nine months ended September 30, 2000, net sales were $10.7
million as compared to net sales of $6.0 million for the first nine months of
1999, resulting in increased sales of $4.7 million or 78%. The increase in
net sales is primarily the result of sales to two new customers, Micro
Networks and Microsource, as well as invoices for rework of $1,069,000 for an
unusual and non recurring billing to the Company's largest customer,
Schlumberger and a billing to the same customer for raw materials at cost in
the amount of $940,000. Sales to Micro Networks and Microsource were ___% and
___%, respectively of net sales for the nine months ended September 30, 2000.
For the nine months ended September 30, 2000, the cost of goods sold was
$9.6 million as compared to $5.3 million for the nine months ended September 30,
1999, an increase of $4.3 million or 81%. The increase in cost of goods sold is
due to the increase in sales volume from new customers and includes higher
product costs associated with process and product development learning curve
experience associated with production ramp up on multiple new products. In
addition the cost of goods sold includes the value of the $940,000 of raw
material sold to Schlumberger at cost.
Gross profit increased 57% to $1.1 million (10.5% of net sales) for the
first nine months of 2000 from $0.7 million (11.8% of net sales) for the first
nine months of 1999. This increase is due to an increase in overall sales. Gross
profit as percentage of net sales decreased. This decrease is attributable to
initial start up costs associated with multiple new customer
10
<PAGE>
development programs, a decrease in sales to Schlumberger, and the raw material
sale of $940,000 to Schlumberger at cost under the terms of a manufacturing
agreement.
Selling, general and administrative expenses were $2.7 million for the first
nine months of 2000, representing an increase of $1.2 million or 76.4% from the
first nine months of 1999. The increase is due to the Company's investment in
marketing and development of new customers as well as restructuring the
executive management team for future growth. A compensation charge for warrants
issued accounts for approximately $288,000 of the increase. Such warrant expense
is a non-cash charge.
Engineering and product development expenses were $0.9 million for the first
nine months of 2000, representing an increase of $0.4 million or 70.8% from the
corresponding period of 1999. The increase is primarily comprised of an increase
in process and products development costs in 2000 as compared to 1999 which were
necessary to bring new technology expertise for BGA, flip chip, fine pitch wire
bonding, and other semiconductor interconnect technologies, to the Company.
Interest expense was $0.4 million for the first nine months of 2000,
representing a decrease of $1.2 or 76.5%million from the corresponding period of
1999. The primary cause of the decrease in interest expense was the conversion
of debt into equity in October of 1999 partially offset by a charge for the
issuance of warrants of approximately $246,000. Such warrant expense is a
non-cash charge.
The Company has not recorded provisions for any income taxes for the nine
months ended September 30, 2000, since the Company's operations have generated
operating losses for both financial reporting and income tax purposes. A 100%
valuation allowance has been provided on the total deferred income tax assets,
as they are not more likely than not to be realized.
Dividends attributable to Series A convertible Preferred Stock were $251,000
for the first nine months of 2000. The Series A convertible Preferred Stock was
issued in the 4th quarter of 1999 in the conversion of debt to equity.
The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code, and, as a result, the Company believes
that its ability to utilize its current net operating loss and credit
carry-forwards in subsequent periods will be subject to annual limitations.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in the Company's operating activities increased by $1.7M during the
period ended September 30, 2000 compared to the same period in 1999,
primarily as a result of the increase in the operating loss of $1.2M over the
prior period and the net cash paid for inventories in the amount of
approximately $.2M.
Cash used in the Company's investing activities increased from $85,000 during
the period ended September 30, 1999 to $98,000 in the same period of 2000 due to
acquisition of new software in 2000.
11
<PAGE>
Cash flows from financing activities during nine months ended September 30,
2000, totaled $1,797,000 which funds were largely used to finance operating
activities. Cash used in financing activities for the same period in 1999
comprised debt repayments in the amount of $216,000. Cash provided by financing
activities in 2000 comprised the following, which are further explained below:
(1) three notes payable from related parties in the amount of $250,000 per note
(2) an accounts receivable financing agreement (3) a private placement which
generated $.5M and (4) proceeds on exercise of employee stock options.
A note payable for $250,000 issued to James T. Waring, Director, in April 2000,
bore a conversion feature and was converted to common stock in June 2000.
In June 2000, Transpac Capital Pte. Ltd., an existing shareholder and FI
Financial, a shareholder and an entity controlled by James T. Waring,
Director loaned the Company $250,000 each in exchange for a six month note
bearing interest at 9%. No payments are due on either of the notes until the
due date on December 14, 2000. The Company does not currently have the cash
to pay the principal and interest due on these notes on December 14, 2000.
While the Company has discussed payment arrangements with these lenders, no
agreements to extend, waive or defer all or any part of the principal or
interest due on December 14, 2000 have been made. In consideration of each of
these loans the lenders were each issued warrants to purchase 250,000 shares
of common stock with an exercise price of $1.344.
Also in June 2000, two vendors exchanged approximately $459,000 of accounts
payable for 329,806 shares of common stock, priced at market value on the
date of exchange, together with warrants to purchase 164,903 shares of common
stock with an exercise price of $1.391.
On July 20, 2000, the Company entered into an Accounts Receivable Financing
Agreement with Silicon Valley Bank ("A/R Agreement"). The term of the
Agreement is until July 19, 2001, is secured by all of the assets of the
Company, and the Company can borrow up to $1,500,000 in total over the term.
The Agreement permits the Company to borrow 70% of the amount of qualified
accounts receivable which are accepted by the bank. The Agreement originally
required the Company to maintain a net profit after taxes of at least $1.00
on a quarterly basis beginning with the quarter ended June 30, 2000. The
Company was in violation of this covenant until it signed an Accounts
Receivable Financing Modification Agreement on November 14, 2000
("Modification Agreement"). Under the Modification Agreement the bank waived
this default on the profitability covenant and substituted a covenant
requiring the Company to maintain a certain EBITA with no greater than a 15%
negative variance. The Company paid a $7,500 fee upon signing the Agreement
and pays a collateral handling fee based on the balance of the outstanding
accounts receivable every month. Approximately $600,000 has been borrowed to
date under the Agreement.
In July 2000, the Company issued 342,333 shares under a private placement to
accredited investors at a price per share of $1.50, aggregating total
proceeds of $.5M. In addition the new shareholders were granted warrants to
purchase 171,175 shares of common stock with an exercise price of $1.50 per
share.
As a result of its $3,802,000 in accounts payable and other obligations which
require significant cash resources, and its net losses for the nine months
ended September 30, 2000, the Company has substantial cash requirements for
which its existing cash resources including its accounts receivable financing
agreement are inadequate.
As of November 15, 2000 the Company does not have sufficient cash to meet its
expected payroll obligations of approximately $200,000 due on November 17,
2000, or its other existing obligations. The Company's current cash position
is expected to enable it to meet its obligations for several weeks at most.
The Company is negotiating with certain customers to obtain payments on
outstanding accounts payable, however, it does not currently have any
agreements for payments of any of the amounts owed. To manage its cash
resources, the Company has negotiated informal oral extended payment
arrangements with a number of its vendors with whom it has past due monetary
obligations to enable it to defer certain payment obligations over a period
of time.
The Company continues to seek out additional sources of capital to finance
its activities. The Company does not currently have any contracts or
commitments for funding. Financing may not be available on terms and
conditions acceptable to the Company, or at all. If the Company can not raise
more money, it will have to reduce its capital expenditures, reduce its work
force and reduce product development. In addition, if substantial financing
is not available, the Company may be required to cease operations. As of
September 30, 2000, the Company had a working capital deficiency of
$2,191,000, an accumulated stockholders deficit of $843,000 and $326,000 in
cash.
There can be no assurance that the Company will be successful in any of its
future financing activities.
12
<PAGE>
FUTURE OPERATING RESULTS
CUSTOMER CONCENTRATION. The Company has diversified its customer base during
the quarter and dependence on sales to one customer, Schlumberger, was reduced
to 27% of net sales for the third quarter of 2000 as compared to 81% for the
comparative period in 1999. The Company anticipates that reliance on this
customer should continue to diminish in 2000 due to a combination of expected
increased sales to other customers and lower sales to Schlumberger.
NEW CUSTOMER DEVELOPMENT EXPENSES. The Company experienced a modest
improvement in cost of goods sold during the third quarter as it prepared for
increased production. The Company anticipates that forecasted increases in
production from these customers will result in increased efficiencies and
reduced cost of goods sold in the fourth quarter of 2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
None
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1995, the United States Environmental Protection Agency ("EPA")
issues written notice to all known generators of hazardous waste shipped to a
Whittier California treatment facility. The EPAS notice indicated that these
generators (including the Company) were potentially the responsible parties
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"). The notice requires all of the generators of this waste to take
immediate actions to contain and prevent any further release of hazardous
substances at this site. In response to the EPA notice, the Company and
approximately 100 of the other named generators provided the necessary funding
to effect the removal and destruction of the hazardous wastes stored at this
site. At present, the Company believes its percentage of responsibility for this
site is less than one half of one percent; and that percentage is expected to
decrease substantially as additional generators are determined. In addition, the
Company along with other generators have provided certain funding to test the
soil and ground-water at this site, which testing is currently ongoing. Although
the cost incurred by the Company to date of removing and destroying the
hazardous waste stored at this facility was not significant, this effort does
not address the cleanup of potential soil and/or ground-water contamination
present at this site. Management is unable to estimate the possible cost of this
suit at this time, as the cost of clean up has not been determined. There can be
no assurance, therefore, that the costs and expenses associated with this action
will not increase in the future to a level that would have a material adverse
effect upon the Company's business, financial condition, results of operations
or cash flows.
Two of the Company's former consultants and directors, Lewis Solomon and
Gary Stein ("Plaintiffs"), filed a lawsuit on December 18, 1998 in the state of
New York against the Company and its major customer, Schlumberger. The former
consultants' services were terminated in July 1998. Mr. Solomon resigned from
the Board of Directors in August 1998. Mr. Stein resigned in December of the
same year. Since the filing of this lawsuit, the Company was successful in
causing it to be transferred to San Diego, California, which the Company
believes will make the Company's defense of this case more convenient and less
expensive. In the complaint, Plaintiffs have charged that the Company failed to
pay them for alleged consulting services, expense reimbursements and other forms
of compensation aggregating $101,250. Further, Plaintiffs allege they were
wrongfully terminated as consultants and seek damages to be determined at trial.
The Company is currently unable to quantify an amount, if any, that may be
payable should the plaintiffs prevail. The Company believes that Plaintiffs'
claims are without merit and will actively and vigorously oppose these
allegations. In addition, the Company has made substantial counterclaims against
plaintiffs for damages of $829,020, attorney's fees and additional damages to be
proven at trial. In the counterclaim, the Company alleged that (a) Mr. Solomon
and Mr. Stein, as directors, voted to approve an agreement between themselves
and the Company which, in addition to director fees already being paid to Mr.
Solomon and Mr. Stein, compensated them as consultants; (b) the agreement in
question was not approved by a majority of disinterested directors in accordance
with California Corporations Code 310 (a) ("Section 310") ; and (c) the
agreement in question was not signed by a Company
14
<PAGE>
officer with requisite authority to approve such an agreement. In addition, the
Company's counterclaim alleges that in approving the agreement in question, Mr.
Solomon and Mr. Stein breached their fiduciary duties and did not provide any
services of material benefit to the Company. And finally, the Company alleges in
its counterclaim that Mr. Solomon and Mr. Stein, as directors, voted to grant
themselves various stock options in violation of Section 310. A court-supervised
settlement conference was held in this case in November 1999, but no settlement
was reached. The Company will continue in good faith to contest this lawsuit,
which appears likely to go to trial sometime in 2001. The Company is unable to
estimate the financial statement impact of the lawsuit.
On October 18, 2000 MeltroniX, Inc. was notified by the United States
Bankruptcy Court that Lucien A. Morin, II, as Chapter 7 Trustee of H. J. Meyers
& Co., Inc. was seeking 1,000,000 common stock purchase warrants with a term of
five years from November 19, 1997, an exercise price of $1.00 per share, and has
certain registration rights. The Company has responded that H. J. Meyers & Co.
failed to fulfill the contract which was cancelled and no warrants are due.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In July 2000, the Company issued 342,333 shares of restricted common
stock at a price of $1.50 per share to accredited investors for a
total of approximately $500,000. In addition, the investors were
granted warrants to purchase a total of 171,175 shares of common
stock with an exercise price $1.50 per share. The shares were issued
in reliance on the exemptions provided by Section 4(2) and Regulation D
of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on July 26, 2000
at the MeltroniX, Inc. corporate offices. Stockholders of record at the
close of business June 8, 2000 were entitled to notice of and to vote
in person or by proxy at the annual meeting. At the date of record
there were 11,535,668 shares of common stock outstanding each entitled
to one vote per share and 9,362,777 shares of preferred stock entitled
to two votes per share. The matters presented for vote received the
required votes for approval and had the following total, for, against
and abstained as noted below.
1. To elect directors for the ensuing year, to serve until the next Annual
Meeting of Stockholders and until the successors are elected and have
qualified:
<TABLE>
<CAPTION>
Total Shares For Withheld Authority
Voted % Votes % Votes %
<S> <C> <C> <C> <C> <C> <C>
Andrew K. Wrobel 15,804,129 52.2% 15,796,659 52.2% - 0.0%
Abigail A. Barrow 15,804,129 52.2% 15,796,659 52.2% - 0.0%
Anthony J. A. Bryan 15,804,129 52.2% 15,796,659 52.2% - 0.0%
Frank Howland 15,804,129 52.2% 15,796,659 52.2% - 0.0%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Lin Hong Wong 15,804,129 52.2% 15,796,659 52.2% - 0.0%
Waldemar Heeb 15,804,129 52.2% 15,796,659 52.2% - 0.0%
James T. Waring, Esq. 15,804,129 52.2% 15,796,659 52.2% - 0.0%
</TABLE>
15
<PAGE>
2. BDO Seidman, LLP ("BDO") was appointed as independent accountants of the
Company for the fiscal year ended December 31, 2000 with a vote of
15,798,808 for ratification of appointment.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K.
None.
The Exhibits filed as part of this report are listed below.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
16
<PAGE>
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.
<TABLE>
<S> <C>
MELTRONIX, INC.
(Registrant)
Date: November 10, 2000 By: /s/ Andrew K. Wrobel
---------------------- ---------------------------------------------------
Andrew K. Wrobel
Chairman of the Board of Directors of the Company
President and Chief Executive Officer, Director
Date: November 10, 2000 By: /s/ Randal D. Siville
---------------------- ---------------------------------------------------
Randal D. Siville
Vice President of Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
</TABLE>
17
