<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 March 31, 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>
Index Page No.
- ----- --------
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..... 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Changes in Securities and Use of Proceeds...................... 12
Item 3. Defaults upon Senior Securities................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 5. Other Information.............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURES ................................................................ 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MELTRONIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 81,000 $ 335,000
Accounts receivable, net 2,381,000 1,708,000
Inventories 858,000 2,318,000
Other current assets 57,000 95,000
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,377,000 4,456,000
Property, plant and equipment, net 1,738,000 1,830,000
Other non-current assets 36,000 63,000
- ------------------------------------------------------------------------------------------------------
$ 5,151,000 $ 6,349,000
======================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 101,000 $ 279,000
Accounts payable 2,852,000 2,935,000
Accrued liabilities 946,000 869,000
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,899,000 4,083,000
Long-term payables 1,970,000 2,133,000
Long-term debt, less current portion 292,000 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 40,393,000 40,269,000
Accumulated deficit (50,698,000) (49,478,000)
- ------------------------------------------------------------------------------------------------------
Total shareholders' deficit (1,010,000) 86,000
- ------------------------------------------------------------------------------------------------------
$ 5,151,000 $ 6,349,000
======================================================================================================
</TABLE>
3
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 3,351,000 $ 1,743,000
Cost of goods sold 3,315,000 1,529,000
- -----------------------------------------------------------------------------------------------------
Gross profit (loss) 36,000 214,000
Selling, general and administrative 802,000 613,000
Engineering and product development 359,000 179,000
- -----------------------------------------------------------------------------------------------------
Loss from operations (1,125,000) (578,000)
Other expense:
Interest expense (11,000) (506,000)
- ------------------------------------------------------------------------------------------------------
Loss from operations before provision for income taxes (1,136,000) (1,084,000)
Provision for income taxes -- --
- -----------------------------------------------------------------------------------------------------
Net loss (1,136,000) (1,084,000)
Dividends attributable to Series A convertible Preferred Stock 84,000 --
- -----------------------------------------------------------------------------------------------------
Net Loss available to common shareholders $(1,220,000) $(1,084,000)
=====================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.11) $ (0.10)
=====================================================================================================
</TABLE>
4
<PAGE>
MELTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES: $(370,000) $(331,000)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (75,000) (4,000)
- --------------------------------------------------------------------------------------------------
Net cash used by investing activities (75,000) (4,000)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 250,000 --
Principal payments on long-term debt and promissory notes (183,000) (5,000)
Issuance of common stock, net 124,000 --
- --------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 191,000 (5,000)
- --------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (254,000) (340,000)
CASH AT BEGINNING OF PERIOD 335,000 469,000
- --------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 81,000 $ 129,000
==================================================================================================
</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 -- -- 351,121 124,000 -- 124,000
Series A Convertible Preferred Stock
Dividends -- -- -- -- (84,000) (84,000)
Net (loss) -- -- -- -- (1,136,000) (1,136,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 9,362,777 $ 9,295,000 11,211,344 $ 40,393,000 $(50,698,000) $ (1,010,000)
=================================================================================================================================
</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, medical 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 March 31, 2000 and for the three month period ended March 31, 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 month period
ended March 31, 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:
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
Raw materials ..................... $ 377,000 $ 1,728,000
Work-in-progress .................. 680,000 1,057,000
Finished goods .................... -- --
Obsolescence reserve .............. (199,000) (467,000)
----------- -----------
$ 858,000 $ 2,318,000
=========== ===========
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
months ended March 31, 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 months ended March
31, 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 1998 whereby the
Company obtained the use of a piece of test equipment and technical support for
such equipment from the service supplier. The agreement provides currently for
annual payments of approximately $90,000. 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.
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 fiscal quarter ended March 31, 2000 and 1999, and should be read in
conjunction with the condensed consolidated financial statements and the
accompanying notes included within this report.
For the three months ended March 31, 2000, net sales were $3,351,000 as
compared to net sales of $1,743,000 for the first quarter of 1999, resulting in
increased sales of $1,608,000 or 92%. The increase in net sales is primarily the
result of sales to two new customers, Micro Networks and Microsource totalling
$768,000 as well as shipments of raw materials to the Company's largest
customer, Schlumberger ($940,000). Sales to customers other than Schlumberger
were $1,170,000 as compared to $247,000 in 1999, representing an increase of
374%. Sales to Schlumberger comprised 65% and 85% of total net sales for the
three months ended March 31, 1999, 2000 and 1999, respectively. Sales to this
customer, excluding raw material, declined from $1,496,000 for the first quarter
of 1999 to $1,152,000 for the first quarter of 2000, a decrease of $344,000 or
23%. Units shipped to this customer declined by 54%, reflecting lower demand
from the customer in the first quarter of 2000 compared to the first quarter of
1999. Revenue in terms of dollars declined by less than revenue in terms of
units because of a significant shift in product mix in the first quarter of
2000. Approximately one-half of sales to the Company's principal customer in
1999 were comprised of the repair and upgrade of multi-chip modules (MCMs). This
repair activity generates only one-fourth of the dollar revenue as compared to
the dollar revenue of newly-built MCMs. Such repair activities comprised only
18% of sales for the first quarter of 2000. The Company continues to focus its
sales efforts on customers other than Schlumberger.
For the three months ended March 31, 2000 backlog was $7,101,000 compared
to $3,307,000 for the three months ended March 31, 1999, an increase of 115%.
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 March 31, 2000, the cost of goods sold was
$3,315,000 as compared to $1,529,000 for the three months ended March 31, 1999,
an increase of 1,786,000 or 117%. 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 offset by a net
reduction in obsolescence reserve on inventory of approximately $120,000. In
addition the cost of goods sold includes the value of the $940,000 of raw
material sold to Schlumberger at cost.
9
<PAGE>
Gross profit was $36,000 (1% of net sales) for the first quarter of 2000 as
compared to $214,000 (12% of net sales) for the first quarter 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, excluding the raw material sale of $940,000 to Schlumberger at
cost under the terms of a manufacturing agreement.
Selling, general and administrative expenses were $802,000 for the first
quarter of 2000, representing an increase of $189,000 or 31% from the first
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.
Engineering and product development expenses were $359,000 for the first
quarter of 2000, representing an increase of $180,000 or 101% from the
corresponding 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 $11,000 for the first quarter of 2000, representing a
decrease of $495,000 from the corresponding quarter of 1999. The primary cause
of the decrease in interest expense was the conversion of debt into equity in
October of 1999.
The Company has not recorded provisions for any income taxes for the three
months ended March 31, 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
During the three months ended March 31, 2000, the Company financed its
activities from its operations and through a note payable from one of its
directors ($250,000) as well as the issuance of common stock under the employee
stock option program ($124,000). During the first three months of 2000,
operating activities used $370,000. Investing activities, consisting of the
acquisition of fixed assets, used $75,000. The Company's sources of liquidity at
March 31, 2000 consist of inventories of $858,000, trade accounts receivable of
$2,381,000 and its cash balance of $81,000. The Company has currently
established a $500,000 financing relationship using its accounts receivable as
collateral. The Company is negotiating equipment financing, a Bank line of
credit and equity financing. There can be no assurance that the Company will be
successful in any of its financing activities. The Company believes it can fund
its ongoing activities from current sales.
10
<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 65% of the Company's net sales in the first quarter of 2000 as
compared to 81% for 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 increased cost
---------------------------------
of goods sold during the quarter as it invested in production startup with new
customers. The Company anticipates that forecasted increases in production from
these customers will result in increased efficiencies and reduced cost of goods
sold in 2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1995, the United States Environmental Protection Agency ("EPA")
issued written notice to all known generators of hazardous waste shipped to a
Whittier, California treatment facility. The EPA 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 the 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 named generators have provided certain funding to test
the soil and groundwater 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, attorneys' 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 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 301. 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.
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.
Exhibit No. Description
---------- -----------
27.1 Financial Data Schedule
12
<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: May 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: May 15, 2000 By: /s/ Randal D. Siville
------------ ------------------------------------
Randal D. Siville
Vice President of Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 81,000
<SECURITIES> 0
<RECEIVABLES> 2,427,000
<ALLOWANCES> 46,000
<INVENTORY> 858,000
<CURRENT-ASSETS> 3,377,000
<PP&E> 3,928,000
<DEPRECIATION> 2,190,000
<TOTAL-ASSETS> 5,151,000
<CURRENT-LIABILITIES> 3,899,000
<BONDS> 0
0
9,295,000
<COMMON> 40,393,000
<OTHER-SE> (50,698,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,151,000
<SALES> 3,351,000
<TOTAL-REVENUES> 3,351,000
<CGS> 3,315,000
<TOTAL-COSTS> 1,161,000
<OTHER-EXPENSES> 84,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> (1,220,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,220,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,220,000)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
