<PAGE>
===============================================================================
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 JUNE 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 April 30, 2000, there were outstanding 11,211,344 shares of the
Registrant's Common Stock, no par value per share.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- --------
<S> <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 .................. 10
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 ................................................... 15
Item 6. Exhibits and Reports on Form 8-K .................................... 15
SIGNATURES ............................................................................ 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MELTRONIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 266,000 $ 335,000
Accounts receivable, net 1,172,000 1,708,000
Inventories 1,192,000 2,318,000
Other current assets 22,000 95,000
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,652,000 4,456,000
Property, plant and equipment, net 1,582,000 1,830,000
Note receivable 10,000 --
Other non-current assets 18,000 63,000
----------------------------------------------------------------------------------------------------------------
$ 4,262,000 $ 6,349,000
================================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 612,000 $ 279,000
Accounts payable 3,257,000 2,935,000
Accrued liabilities 1,045,000 869,000
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,914,000 4,083,000
Long-term payables 175,000 2,133,000
Long-term debt, less current portion 36,000 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 41,549,000 40,269,000
Accumulated deficit (51,707,000) (49,478,000)
----------------------------------------------------------------------------------------------------------------
Total shareholders' deficit (863,000) 86,000
----------------------------------------------------------------------------------------------------------------
$ 4,262,000 $ 6,349,000
================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------------------ --------------------------------------
2000 1999 2000 1999
====================================================================================================================================
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales $ 3,376,000 $ 2,182,000 $ 6,726,000 $ 3,924,000
Cost of goods sold 2,811,000 1,876,000 6,125,000 3,405,000
------------------------------------------------------------------------------------------------------------------------------------
Gross profit 565,000 306,000 601,000 519,000
Selling, general and administrative 1,036,000 565,000 1,849,000 1,178,000
Engineering and product development 322,000 166,000 681,000 345,000
------------------------------------------------------------------------------------------------------------------------------------
Loss from operations (793,000) (425,000) (1,929,000) (1,004,000)
Other income (expense):
Interest expense, net (125,000) (507,000) (136,000) (1,013,000)
Other income, net 4,000 90,000 3,000 91,000
------------------------------------------------------------------------------------------------------------------------------------
Loss from operations before
provision for income taxes (914,000) (842,000) (2,062,000) (1,926,000)
Provision for income taxes - - - -
------------------------------------------------------------------------------------------------------------------------------------
Net loss (914,000) (842,000) (2,062,000) (1,926,000)
Dividends attributable to Series A
convertible Preferred Srock 84,000 - 167,000 -
------------------------------------------------------------------------------------------------------------------------------------
Net loss available to
common shareholders $ (998,000) $ (842,000) $(2,229,000) $ (1,926,000)
====================================================================================================================================
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (0.09) $ (0.08) $ (0.20) $ (0.18)
====================================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------------
2000 1999
==========================================================================================================
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES: $ (867,000) $ (212,000)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (92,000) (11,000)
----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (92,000) (11,000)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 750,000 --
Principal payments on long-term debt
and promissory notes (234,000) (106,000)
Issuance of common stock, net 374,000 --
----------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 890,000 (106,000)
----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (69,000) (329,000)
CASH AT BEGINNING OF PERIOD 335,000 469,000
----------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 266,000 $ 140,000
==========================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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 -- -- 1,441,380 1,089,000 -- 1,089,000
Non-employee stock-based
Compensation -- -- -- 191,000 -- 191,000
Net (loss) -- -- -- -- (2,229,000) (2,229,000)
----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 9,362,777 $9,295,000 12,301,603 $41,549,000 $(51,707,000) $(863,000)
==================================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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 was incorporated in California in 1984.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements and related
notes as of June 30, 2000 and for the three and six month periods ended June 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 six month
periods ended June 30, 2000 is 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>
JUNE 30, 2000 December 31, 1999
---------------------------- ----------------------------
(UNAUDITED)
<C> <C> <C>
Raw materials ...................... $ 760,000 $ 1,728,000
Work-in-progress ................... 578,000 1,057,000
Finished goods ..................... - -
Obsolescence reserve ............... (146,000) (467,000)
---------------------------- ----------------------------
$ 1,192,000 $ 2,318,000
============================ ============================
</TABLE>
7
<PAGE>
NOTE 3 - EFFECTS OF INCOME TAXES
The Company has not recorded provisions for any income taxes for the three
and six months ended June 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
carryforwards 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 six months
ended June 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.
8
<PAGE>
NOTE 6 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2000, the Company financed its
operations through a note payable from one of its directors ($250,000) which was
converted to shares of common stock as well as the issuance of common stock
under the employee stock option program ($124,000).
In June 2000 Transpac Capital Pte Ltd and FI Financial (James T. Waring,
Director) loaned the Company $250,000 each in exchange for a six month note
with a 9% interest rate. No payments are due on the notes until the end of
six months. In consideration of each loan 250,000 warrants were issued with
an aggregate fair value of $353,990 and an exercise price of $1.375. The
compensation cost associated with these warrants will be amortized over the
term of the loans.
NOTE 7 - SUBSEQUENT EVENTS
In July 2000 the Company issued a private placement receiving approximately
$0.5 million in exchange for 342,333 shares and 171,165 warrants with an
exercise price of $1.50.
The Company entered into a $1.5 million Accounts Receivable Financing
Agreement with Silicon Valley Bank on July 18, 2000. The Company is in
violation of a financial covenant which requires profitability of one dollar
for each quarter. The Company has requested a waiver from the bank and is
expecting that it will be approved.
In consideration of the loan, 60,000 warrants were issued with an
exercise price of $1.50 per share.
9
<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 six month periods ended June 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 JUNE 30, 2000
For the three months ended June 30, 2000, net sales were $3,376,000 as
compared to net sales of $2,182,000 for the second quarter of 1999, resulting
in increased sales of $1,194,000 or 55%. The increase in net sales is
primarily the result of sales to two new customers, Micro Networks and
Microsource, as well as invoices for prior year's rework of $1,069,000, an
unusual and nonrecurring billing to the Company's largest customer,
Schlumberger. The Company continues to focus its sales efforts on customers
other than Schlumberger.
The backlog at June 30, 2000 was $13.7 million compared to $3.3 million at
June 30, 1999, an increase of 315%. The increase in backlog is due to increased
business with customers added as a result of the Company focus on wireless,
telecommunications, internet equipment, digital imaging, and other high
technology electronic market segments.
For the three months ended June 30, 2000, the cost of goods sold was
$2,811,000 as compared to $1,876,000 for the three months ended June 30, 1999,
an increase of $935,000 or 50%. 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 $565,000 (17% of net sales) for the second quarter of
2000 as compared to $306,000 (14% of net sales) for the second quarter of
1999. The increase in gross profit is attributable to new customers and a
lower than normal cost of goods sold for an unusual and nonrecurring
billing to Schlumberger for prior year's rework.
Selling, general and administrative expenses were $1,036,000 for the
second quarter of 2000, representing an increase of $471,000 or 83% from the
second quarter 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. Approximately $120,000 of the
increase is noncash compensation expense attributable to the issue of
warrants.
10
<PAGE>
Engineering and product development expenses were $322,000 for the second
quarter of 2000, representing an increase of $156,000 or 94% from the second
quarter of 1999. The increase is primarily comprised of process and products
development costs in 2000 as compared to 1999 that were necessary to bring new
technology expertise for BGA, flip chip, fine pitch wire bonding, and other
semiconductor interconnect technologies.
Interest expense was $125,000 for the second quarter of 2000,
representing a decrease of $382,000 or 75% from the second 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 in connection with new notes payable and a beneficial
conversion feature.
SIX MONTHS ENDED JUNE 30, 2000
For the six months ended June 30, 2000, net sales were $6,726,000 as
compared to net sales of $3,924,000 for the first half of 1999, resulting in
increased sales of $2,802,000 or 71%. The increase in net sales is primarily
the result of sales to two new customers, Micro Networks and Microsource, as
well as invoices for prior year's rework of $1,069,000, an unusual and
nonrecurring billing to the Company's largest customer, Schlumberger and a
billing to the same customer for raw material at cost in the amount of
$940,000. The Company continues to focus its sales efforts on customers other
than Schlumberger.
For the six months ended June 30, 2000, the cost of goods sold was
$6,125,000 as compared to $3,405,000 for the six months ended June 30, 1999,
an increase of $2,720,000 or 80%. 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 and a lower than normal cost of goods
sold for an unusual and nonrecurring billing to Schlumberger for prior year's
rework.
Gross profit was $601,000 (9% of net sales) for the first half of 2000 as
compared to $519,000 (13% of net sales) for the first half of 1999. The
decrease in gross profit is attributable to initial start up costs associated
with multiple new customer development programs and a decrease in sales to
Schlumberger.
Selling, general and administrative expenses were $1,849,000 for the
first half of 2000, representing an increase of $671,000 or 57% from the
first half 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. Legal fees for the ongoing suit
with prior consultants increased costs by $150,000. The compensation accrued
for severance to a former employee under an employment agreement totalled
approximately $100,000.
Engineering and product development expenses were $681,000 for the first
half of 2000, representing an increase of $336,000 or 97% from the corresponding
period of 1999. The increase is primarily comprised of process and products
development costs in 2000 as compared to 1999 that were necessary to bring new
technology expertise for BGA, flip chip, fine pitch wire bonding, and other
semiconductor interconnect technologies.
11
<PAGE>
Interest expense was $136,000 for the first half of 2000, representing a
decrease of $877,000 or 87% 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 in connection with new notes payable and a beneficial conversion
feature.
The Company has not recorded provisions for any income taxes for the six
months ended June 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
carryforwards in subsequent periods will be subject to annual limitations.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in the Company's operating activities increased from $212,000
during the period ended June 30, 1999 to $867,000 in the same period of 2000,
primarily as a result of the loss of $2,229,000 offset by a reduction in
inventory of $1,126,000, depreciation expense of $340,000 and an increase in
all other accounts of $104,000.
Cash used in the Comany's investing activities increased from $11,000 during
the period ended June 30, 1999 to $92,000 in the same period of 2000 due to
acquisition of new assets in 2000.
Cash flows from financing activities during six months ended June 30, 2000,
totaled $890,000 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 $106,000. Cash provided by
financing activities in 2000 comprised three notes payable from related
parties in the amount of $250,000 per note.
The note 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., and FI Financial, 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 end of the six month note term. In
consideration of each of these loans the lenders were each issued 250,000
warrants with an aggregate fair value of $353,990 and with an exercise price
of $1.375. The compensation cost associated with these warrants will be
amortized over the term of the loans.
Also in June 2000, two vendors exchanged approximately $495,000 of accounts
payable for 330,026 shares of common stock, priced at market value on the
date of exchange, together with 171,165 warrants with an exercise price of
$1.50 and an aggregate fair value of $117,835.
On July 18, 2000 the Company entered into a $1,500,000 Accounts Receivable
Financing Agreement with Silicon Valley Bank. The agreement contains
restrictive convenants related to the Company's profitability. The second
quarter loss is in violation of the bank's covenant requiring profitability
of one dollar for each quarter. The Company has requested a waiver from the
bank and is expecting that it will be approved. The Company continues to seek
out additional sources of capital to finance its activities. As of June 30,
2000, the Company had a working capital deficiency of $2,437,000, an
accumulated stockholders' deficit of $863,000 and $266,000 in cash.
There can be no assurance that the Company will be successful in any of its
future financing activities.
FUTURE OPERATING RESULTS
CUSTOMER CONCENTRATION. The Company has diversified its customer base.
Sales to Schlumberger, excluding nonrecurring billing totalling approximately
$2 million, was $3.5 million for the first half of 1999 and was $2.2 million
for the first half of 2000, a reduction of $1.3 million. 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.
12
<PAGE>
NEW CUSTOMER DEVELOPMENT EXPENSES. The Company experienced a modest
improvement in cost of goods sold during the second 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 second half 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 or its adverse effect upon the Company's business,
financial condition, results of operations and cash flow.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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>
15
<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.
MELTRONIX, INC.
(Registrant)
Date: August 15, 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: August 15, 2000 By: /s/ Randal D. Siville
----------------------- -----------------------------------------
Randal D. Siville
Vice President of Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
16
