-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FxoXCV0LQEJz6DS+c0QRBL09255cpR2x+XXy25bVA/mTDz79ndek86qZdgDXfAYu y+ZVM32gL1MqLFU9c+eHhw== 0001019687-01-500777.txt : 20010907 0001019687-01-500777.hdr.sgml : 20010907 ACCESSION NUMBER: 0001019687-01-500777 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELTRONIX INC CENTRAL INDEX KEY: 0000916232 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 943142624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23562 FILM NUMBER: 1731693 BUSINESS ADDRESS: STREET 1: 9577 CHESAPEAKE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6192927000 MAIL ADDRESS: STREET 1: 9577 CHESAPEAKE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92123 FORMER COMPANY: FORMER CONFORMED NAME: MICROELECTRONIC PACKAGING INC /CA/ DATE OF NAME CHANGE: 19931215 10-Q/A 1 meltronix_10qa1-063001.txt AMENDMENT NO. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q/A-1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 --------------------------- 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 June 30, 2001, there were outstanding 20,969,279 shares of the Registrant's Common Stock, no par value per share. ================================================================================ 2 INDEX PAGE NO. ----- -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets ........................... 4 Condensed Consolidated Statements of Operations ................. 5 Condensed Consolidated Statements of Cash Flows ................. 6 Condensed Consolidated Statement of Changes in Shareholders' Deficit ............................ 7 Notes to Condensed Consolidated Financial Statements ............ 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 16 PART II OTHER INFORMATION Item 1. Legal Proceedings ................................................ 17 Item 2. Changes in Securities and Use of Proceeds ........................ 18 Item 3. Defaults upon Senior Securities .................................. 18 Item 4. Submission of Matters to a Vote of Security Holders .............. 18 Item 5. Other Information ................................................ 18 Item 6. Exhibits and Reports on Form 8-K ................................. 19 SIGNATURES .................................................................. 20 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MELTRONIX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, December 31, 2001 2000 - ---------------------------------------------------------------------------------------------------------- ASSETS (UNAUDITED) CURRENT ASSETS Accounts receivable, net $ 547,000 $ 406,000 Inventories 380,000 418,000 Other current assets -- 22,000 - ---------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 927,000 846,000 Property, plant and equipment, net 809,000 1,114,000 Other non-current assets 18,000 18,000 - ---------------------------------------------------------------------------------------------------------- $ 1,754,000 $ 1,978,000 ========================================================================================================== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Current portion of long-term debt $ 1,520,000 $ 573,000 Line of credit 300,000 626,000 Accounts payable 2,373,000 2,905,000 Accrued liabilities 1,395,000 1,372,000 - ---------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 5,588,000 5,476,000 Long-term debt, less current portion 1,000,000 524,000 - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 6,588,000 6,000,000 - ---------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT Series A Convertible Preferred stock, no par value 8,171,000 9,019,000 Common stock, no par value 46,362,000 43,721,000 Accumulated deficit (59,367,000) (56,762,000) - ---------------------------------------------------------------------------------------------------------- Total shareholders' deficit (4,834,000) (4,022,000) - ---------------------------------------------------------------------------------------------------------- $ 1,754,000 $ 1,978,000 ==========================================================================================================
4 MELTRONIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended June 30, Six months ended June 30, ------------------------------ ------------------------------ 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------- Net sales $ 740,000 $ 3,376,000 $ 1,625,000 $ 6,726,000 Cost of goods sold 634,000 2,811,000 1,389,000 6,125,000 - --------------------------------------------------------------------------------------------------------------- Gross profit 106,000 565,000 236,000 601,000 Selling, general and administrative 433,000 1,036,000 1,017,000 1,849,000 Engineering and product development 93,000 322,000 291,000 681,000 - --------------------------------------------------------------------------------------------------------------- Loss from operations (420,000) (793,000) (1,072,000) (1,929,000) Other expense: Interest expense (43,000) -- (83,000) -- Non-cash interest and finance expense (Note 6) (1,308,000) (125,000) (1,456,000) (136,000) Other income, net -- 4,000 -- 3,000 - --------------------------------------------------------------------------------------------------------------- Loss from operations before provision for income taxes (1,771,000) (914,000) (2,611,000) (2,062,000) Provision for income taxes (1,000) -- (1,000) -- - --------------------------------------------------------------------------------------------------------------- Net loss (1,772,000) (914,000) (2,612,000) (2,062,000) Dividends attributable to Series A Convertible Preferred Stock (51,000) (84,000) (105,000) (167,000) Reversal of dividends (Note 7) 2,000 -- 112,000 -- - --------------------------------------------------------------------------------------------------------------- Net loss available to common $(1,821,000) $ (998,000) $(2,605,000) $(2,229,000) shareholders =============================================================================================================== BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.10) $ (0.09) $ (0.15) $ (0.20) ===============================================================================================================
5 MELTRONIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six months ended June 30, ------------------------------ 2001 2000 - -------------------------------------------------------------------------------- NET CASH USED BY OPERATING ACTIVITIES: $(1,274,000) $ (867,000) - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of fixed assets -- (92,000) - -------------------------------------------------------------------------------- Net cash used by investing activities -- (92,000) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under debt agreements 1,405,000 750,000 Principal payments on long-term debt, line of credit and promissory notes (326,000) (234,000) Issuance of common stock, net 195,000 374,000 - -------------------------------------------------------------------------------- Net cash provided by financing activities 1,274,000 890,000 - -------------------------------------------------------------------------------- NET DECREASE IN CASH -- (69,000) CASH AT BEGINNING OF PERIOD -- 335,000 - -------------------------------------------------------------------------------- CASH AT END OF PERIOD $ -- $ 266,000 ================================================================================ 6 MELTRONIX, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT FOR SIX MONTHS ENDED JUNE 30, 2001 (unaudited)
Preferred Stock Common Stock Accumulated Shares Amount Shares Amount Deficit Total -------------------------------------------------------------------------------------------------- Balance at January 1, 2001 9,085,023 $9,019,000 13,845,184 $43,721,000 $(56,762,000) $(4,022,000) Common stock issued -- -- 5,335,077 1,614,000 -- 1,614,000 Non-employee stock compensation -- -- -- 54,000 -- 54,000 Beneficial conversion expense -- -- -- 78,000 -- 78,000 Conversion of debt -- -- 6,000 2,000 -- 2,000 Series A Convertible Preferred Stock dividends -- -- -- -- (105,000) (105,000) Reversal of dividends -- -- -- -- 112,000 112,000 Conversion of Series A preferred stock and accrued dividends to common stock (854,243) (848,000) 1,783,018 893,000 -- 45,000 Net (loss) -- -- -- -- (2,612,000) (2,612,000) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 2001 8,230,780 $8,171,000 20,969,279 $46,362,000 $(59,367,000) $(4,834,000) ==================================================================================================================================
7 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 June 30, 2001 and for the three and six month periods ended June 30, 2001 and 2000 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 six month period ended June 30, 2001 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, 2000 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. 8 MELTRONIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2 - LIQUIDITY During the six months ended June 30, 2001, the Company experienced a net loss totaling $2,612,000 and had negative cash flows from operations for the six months ended June 30, 2001 totaling $1,274,000. In addition, the Company had a working capital deficit totaling $4,661,000, a tangible net worth deficit totaling $4,834,000 at June 30, 2001 and has not made timely payments and was not in compliance with certain debt, lease and service agreements. The Company must improve its profitability and obtain additional sources of liquidity through debt or equity financing to fund its operations, repay debt now due and debt about to become due and working capital requirements. There can be no assurance that any additional financing will be available to the Company on a timely basis or on acceptable terms or at all. The Company's inability to accomplish these goals will have a materially adverse effect on the Company's business, consolidated financial condition and operations. NOTE 3 - INVENTORIES Inventories consist of the following: JUNE 30, 2001 December 31, 2000 ------------------ -------------------- (UNAUDITED) Raw materials ................$ 480,000 $ 488,000 Work-in-progress ............. 2,000 375,000 Obsolescence reserve ......... (102,000) (445,000) ------------------ -------------------- $ 380,000 $ 418,000 ================== ==================== NOTE 4 - EFFECTS OF INCOME TAXES The Company has recorded a provision only for California minimum corporate taxes for the six months ended June 30, 2001, 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. 9 MELTRONIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - NET INCOME (LOSS) PER SHARE The computation of diluted loss per share for both three and six month periods ended June 30, 2001 and 2000, 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 6 - CONVERTIBLE DEBT AND RELATED FINANCE CHARGES Non-cash interest and finance expense represents non-cash charges for beneficial conversion into Company equity of newly issued notes payable of $78,000, and non-cash charges for 450,000 shares of common stock issued to officers/directors valued at $147,000 in exchange for personal guarantees on notes payable. The expense of $78,000 is a non-cash charge posted to the capital account of the Company due to the amortization of beneficial conversion features of $500,000 of notes payable issued. In addition, the Company has granted stock options that are conditional upon conversion of the notes by the holders. At such time the notes become convertible, the stock options will be valued at the then existing fair market value under the Black-Scholes model of valuing stock options. Also included in non-cash interest and finance expense is a charge of $1,231,000 related to the issuance of 3,600,000 shares and $450,000 of notes payable in exchange for $450,000 in cash. NOTE 7 - EQUITY TRANSACTIONS During the six months ended June 30, 2001, several Preferred Stock shareholders have retroactively declined to accept dividends on their Preferred Shares resulting in a benefit to the Company of approximately $112,000 for the six months ended June 30, 2001. NOTE 8 - SUBSEQUENT EVENTS United States Semiconductor Corporation ("USSC") has funded an additional $225,000 since June 30, 2001 for a total of $555,000. Solona Venture Group, L.P. ("Solana") and MeltroniX, Inc. ("MeltroniX") entered into a letter of agreement July 2001 and Solana provided MeltroniX with a check for $150,000. The $150,000 is convertible into MeltroniX stock at $0.20 per share and if the stock is not publicly tradable within six months of conversion, Solana may tender the stock back to MeltroniX for an immediate payment of $150,000. The other terms of the letter of agreement were not fulfilled and are not active terms. 10 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. THREE MONTHS ENDED JUNE 30, 2001 AND 2000 - ----------------------------------------- The following discussion and analysis compares the results of operations for the fiscal quarter ended June 30, 2001 and 2000, 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 June 30, 2001, net sales were $740,000 as compared to net sales of $3,376,000 for the second quarter of 2000, resulting in decreased sales of $2,636,000 or 78%. The decrease in net sales is primarily the result of decreased sales to Schlumberger, totaling approximately $451,000 in 2001 and $2.0 million in 2000, a decrease of approximately $1.5 million. Although the Company has profitable sales orders it is hampered in production due to a lack of financing to buy the materials needed to produce product. Those products that are produced have an acceptable gross profit margin and current customers will accept increased production. The Company's focus therefore is on increasing production of the orders already received. For the three months ended June 30, 2001, the cost of goods sold was $634,000 as compared to $2,811,000 for the three months ended June 30, 2000, a decrease of $2,177,000 or 77%. The decrease in cost of goods sold is due to the decrease in sales volume from customers offset by higher gross profit margins on the product sold. Gross profit was $106,000 (14% of net sales) for the second quarter of 2001 as compared to gross profit of $565,000 (17% of net sales) for the second quarter of 2000. The decrease in gross profit is attributable to fixed manufacturing costs unable to be absorbed at the decreased production level partially offset by the sale of products with higher gross profit margins, a decreased reliance on the development of new products and the related extra costs, and a change in allocation of overhead costs due to the reduction in manufacturing personnel. Selling, general and administrative expenses were $433,000 for the second quarter of 2001, representing a decrease of $603,000 or 58% from the second quarter of 2000. The decrease is due to the Company's downsizing of staff, review and elimination of expenses, and a conscious effort to minimize purchases. 11 Engineering and product development expenses were $93,000 for the second quarter of 2001, representing a decrease of $229,000 or 71% from the corresponding quarter of 2000. The decrease is primarily comprised of staff downsizing and completion of process and products development costs that were necessary to bring new technology expertise for BGA, flip chip, fine pitch wire bonding, and other semiconductor interconnect technologies begun in 2000. Interest expense was $43,000 for the second quarter of 2001, representing an increase of $43,000 from the corresponding quarter of 2000. The primary cause of the increase was interest on additional notes payable. Non-cash interest and finance expense represents non-cash charges for beneficial conversion into Company equity of newly issued notes payable of $39,000, and non-cash charges for 450,000 shares of common stock issued to officers/directors valued at $38,000 in exchange for personal guarantees on notes payable. The expense of $39,000 is a non-cash charge posted to the capital account of the Company due to the amortization of beneficial conversion features of $500,000 of notes payable issued. In addition, the Company has granted stock options that are conditional upon conversion of the notes by the holders. At such time the notes become convertible, the stock options will be valued at the then existing fair market value under the Black-Scholes model of valuing stock options. Also included in non-cash interest and finance expense is a charge of $1,231,000 related to the issuance of 3,600,000 shares and $450,000 of notes payable in exchange for $450,000 in cash. The Company has recorded a provision for the minimum California income taxes for the three months ended June 30, 2001, 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. A Preferred Stock shareholder and officer of the Company has retroactively declined to accept dividends on his Preferred Shares resulting in a benefit to the Company of approximately $2,000 in the three months ended June 30, 2001. SIX MONTHS ENDED JUNE 30, 2001 AND 2000 - --------------------------------------- The following discussion and analysis compares the results of operations for the first two fiscal quarters ended June 30, 2001 and 2000, and should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included within this report. For the six months ended June 30, 2001, net sales were $1,625,000 as compared to net sales of $6,726,000 for the second quarter of 2000, resulting in decreased sales of $5,101,000 or 76%. The decrease in net sales is primarily the result of decreased sales to Schlumberger, totaling approximately $451,000 in 2001 and $4.2 million in 2000, a decrease of approximately $3.7 million. Although the Company has profitable sales orders it is hampered in production due to a lack of financing to buy the materials needed to produce product. Those products that are produced have an acceptable gross profit margin and current customers will accept increased production. The Company's focus therefore is on increasing production of the orders already received and generating new orders from current and potential customers. 12 For the six months ended June 30, 2001, the cost of goods sold was $1,389,000 as compared to $6,125,000 for the six months ended March 31, 2000, a decrease of $4,736,000 or 77%. The decrease in cost of goods sold is due to the decrease in sales volume from customers offset by higher gross profit margins on the product sold. Gross profit was $236,000 (15% of net sales) for the first half of 2001 as compared to gross profit of $601,000 (9% of net sales) for the first half of 2000. The increase in gross profit is attributable to sale of products with higher gross profit margins, a decreased reliance on the development of new products and the related extra costs, and a change in allocation of overhead costs due to the reduction in manufacturing personnel. Selling, general and administrative expenses were $1,017,000 for the first half of 2001, representing a decrease of $832,000 or 45% from the first half of 2000. The decrease is due to the Company's downsizing of staff, review and elimination of expenses, and a conscious effort to minimize purchases. Engineering and product development expenses were $291,000 for the first half of 2001, representing a decrease of $390,000 or 57% from the corresponding first half of 2000. The decrease is primarily comprised of staff downsizing and completion of process and products development costs that were necessary to bring new technology expertise for BGA, flip chip, fine pitch wire bonding, and other semiconductor interconnect technologies begun in 2000. Interest expense was $83,000 for the first half of 2001, representing an increase of $83,000 from the corresponding quarter of 2000. The primary cause of the increase was interest on additional notes payable. Non-cash interest and finance expense represents non-cash charges for beneficial conversion into Company equity of newly issued notes payable of $78,000, and non-cash charges for 450,000 shares of common stock issued to officers/directors valued at $147,000 in exchange for personal guarantees on notes payable. The expense of $78,000 is a non-cash charge posted to the capital account of the Company due to the amortization of beneficial conversion features of $500,000 of notes payable issued. In addition, the Company has granted stock options that are conditional upon conversion of the notes by the holders. At such time the notes become convertible, the stock options will be valued at the then existing fair market value under the Black-Scholes model of valuing stock options. Also included in non-cash interest and finance expense is a charge of $1,231,000 related to the issuance of 3,600,000 shares and $450,000 of notes payable in exchange for $450,000 in cash. The Company has recorded a provision for the minimum California income taxes for the six months ended June 30, 2001, 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. 13 Several Preferred Stock shareholders have retroactively declined to accept dividends on their Preferred Shares resulting in a benefit to the Company of approximately $112,000 in the six months ended June 30, 2001. 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 six months ended June 30, 2001, the Company financed its operations through notes payable from two of its directors ($375,000) and from 3 outside investors ($1,030,000), the execution of warrants ($3,000) as well as the issuance of common stock under the employee stock option program ($195,000). During the first six months of 2001, operating activities used $1,274,000. The Company's sources of liquidity at June 30, 2001 consist of inventories of $380,000 and trade accounts receivable of $547,000. The Company successfully negotiated the replacement of the Silicon Valley Bank line of credit with a new line of credit with Primary Funding and is continuing to pursue equity financing. There can be no assurance that the Company will be successful in any of its financing activities. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. During the first half ended June 30, 2001, the Company had negative cash flows from operations totaling $1,274,000. In addition, the Company had a working capital deficit totaling $4,661,000 at June 30, 2001. Further, the Company has not made timely payments and was not in compliance with certain debt, lease, and service agreements. The Company must improve its profitability and obtain additional sources of liquidity through debt or equity financing to fund its operations, repay debt currently due and debt about to become due as well as its general working capital requirements. Management is currently monitoring its expenses in an effort to improve the effectiveness and efficiency of its available resources to assist in improving its profitability. Management is also currently exploring various debt and equity funding sources including and in addition to those with United States Semiconductor Corporation, as described below. There can be no assurance that any additional financing will be available to the Company on a timely basis or on acceptable terms or at all. The Company's inability to accomplish these goals will have a materially adverse effect on the Company's business, consolidated financial condition and operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. In July 2000, the Company entered into an Account Receivable Financing Agreement with Silicon Valley Bank ("Bank Credit Line") which was paid in full and replaced with a new line of credit with Primary Funding during the three months ended June 30, 2001. The line of credit agreement with Primary Funding is secured by all assets of the Company, and the Company can borrow up to $500,000 in total limited to 80% of account receivable acceptable to the bank. As of June 30, 2001, approximately $300,000 was outstanding under the line of credit agreement with Primary Funding. 14 In January 2001, La Jolla Cove Investors, Inc. ("LJCI") and The Norman Litz IRA, loaned the Company $250,000 each in exchange for a two-year convertible note bearing interest at 10%, payable monthly. The convertible note due to The Norman Litz IRA is secured by the assets of the Company, while the note due to LJCI is personally guaranteed by directors and officer of the Company. The conversion prices of the notes are equal to (a) $.20 per share, if the principal amounts are converted within one-year of the effective date, or (b) the lesser of $.20 per share or 80% of the lowest market price (as defined) during the 45 days prior to the conversion, if the principal amounts are converted after one-year and prior to maturity. In addition, each of the agreements contains an Additional Stock Purchase Right, whereby, the debt holders can purchase additional shares at the lesser of $.20 per share or 80% of the lowest market price (as defined) during the 45 days prior to note conversion. Under the Additional Stock Purchase Right, the debt holders are limited in the number of additional shares that can be purchased, such that, (a) the additional shares purchased can not exceed 50% of the number of shares initially converted from the loan balance, and (b) the debt holders can not own more than 10%, individually, of the then outstanding shares of Common Stock. In February 2001, the Company executed a letter of intent with United States Semiconductor Corporation ("USSC") for a proposed transaction, which, if consummated, would provide that USSC will (i) grant the Company an exclusive, non transferable license for the use of USSC's technology in exchange for a percentage to be determined of the Company's common stock, and (ii) purchase a percentage yet to be determined of the common stock of the Company. The expenses to further develop the technology to a commercially feasible and manufacturable level are to be born by USSC. Once established, the Company is to manufacture the developed products and, upon sale, will be obligated to pay USSC a royalty, the amount of which has yet to be agreed upon. As of May 22, 2001 the Company has received $330,000 from USSC. Management is continuing its discussion with USSC in anticipation of executing a definitive agreement. The consummation of the transactions contemplated by the letter of intent are subject to a number of conditions that are outside the control of the Company and, therefore, there is no assurance that such transactions will be successfully completed. On February 23, 2001, the Company borrowed an additional $50,000 from James T. Waring, a director of the Company, under a secured promissory note with interest at 10%, due and payable in full in one lump sum not later than the earliest to occur of either May 23, 2002 or the date of the closing of the stock purchase transaction between MeltroniX and USSC. On March 9, 2001, the Company borrowed an additional $75,000 from James T. Waring, a director of the Company, under a secured promissory note with interest at 10%, due and payable in full in one lump sum not later than the earliest to occur of either June 9, 2002 or the date as of which MeltroniX has received a cumulative amount of $1,075,000 in connection with the stock purchase transaction between MeltroniX and USSC. On April 6, 2001, the Company borrowed an additional $200,000 from LJCI under a secured promissory note with interest at 9%, due and payable on April 6, 2002 and guaranteed by certain officers/directors of the Company. In connection with the promissory note, the Company is to issue 1,000,000 shares of its common 15 stock as additional consideration for the loan. The Company has further agreed to prepare and file a registration statement within 60 days and use its best efforts to effect such registration statement to register the 1,000,000 shares and those underlying the previously issued convertible note payable. On May 1, 2001, the Company borrowed an additional $250,000 from Paul H. Neuharth, Jr, a director of the Company, under a promissory note with interest at 14%, due and payable on the earlier of May 1, 2002 or from proceeds of equity investments cumulating over $1 million after May 1, 2001. In connection with the promissory note, the Company is to issue 2,500,000 shares of its common stock as additional consideration for the loan. On May 11, 2001, the Company entered into a Security Agreement with Primary Funding Corporation ("PFC"), whereby the Company may, from time to time, sell, transfer and assign accounts to PFC at a discount not to exceed 20%. At June 30, 2001 approximately $300,000 was owed to Primary Funding. On May 11, 2001, PFC entered into three separate intercreditor agreements with three of the Company's creditors, whereby the creditors have subordinated and assigned their priority interests in the inventory and accounts of the Company. FUTURE OPERATING RESULTS CUSTOMER CONCENTRATION. During the first half of 2001, net sales to the Company's top three customers were 70%, as compared to 74% during the three months ended March 31, 2001. This decrease is due to a more diversified customer base and a reduced dependence on sales to one customer, Schlumberger, which was reduced to 28% of the Company's net sales in the first half of 2001 as compared to 64% for 2000. The Company anticipates that reliance on these customers should continue to diminish in 2001 due to the expected increased sales to other customers. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None 16 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 has 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. In the complaint, Plaintiffs charged that the Company failed to pay them for alleged consulting services, expense reimbursements and other forms of compensation aggregating $101,250. Further, Plaintiffs alleged they were wrongfully terminated as consultants and seek damages to be determined at trial. The Company believed that Plaintiffs' claims were without merit and made substantial counterclaims against Plaintiffs. In March 2001, the matter was settled whereby the Company agreed to pay $50,000 in the form of 120,482 shares of common stock. The number of shares to be issued was based on the average of the high bid and low ask market price of $.414 per share as of January 10, 2001. On October 18, 2000, the Company was notified by the United States Bankruptcy Court that Lucien A. Morin, II, as Chapter 7 Trustee of H. J. Meyers & Co., Inc. is seeking from the Company 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 certain registration rights, under a contract between the Company and H.J. Meyers & Co. The Company has responded that H. J. Meyers & Co. failed to fulfill its obligations under the contract, which was cancelled in August 1998, and that as a result no warrants are due. 17 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 MeltroniX, Inc. added three new directors to the Board on July 27, 2001. Mr. Robert M. Czajkowski has led three previous companies through rapid growth in electronics technology. These include management responsibilities at SAIC, Loral and Space Electronics, Inc. Space Electronics, Inc. was Inc.'s Fastest Growth Award Winner prior to its merger with Maxwell Technologies, Inc. Mr. David J. Strobel brings 30 years of microelectronics experience, including technology, business development, strategic parternering and executive company growth. He holds four degrees from USAFA, Cornell, USC and Claremont. Mr. Strobel held positions of increasing responsibility at Northrop Electronics, SAIC, Space Electronics, Inc., and Maxwell Technologies. Mr. Strobel serves on the Board of Directors of three other technology firms. Mr. Charles L. Wood is currently the President of the Life and Health Insurance Group of Unitrin, Inc., Chicago, Illinois. Prior to joining Unitrin, Mr. Wood was a senior executive at several semiconductor companies, including Motorola Semiconductor, Fairchild Semiconductor and Teledyne Semiconductor. From 1976 to 1978, Mr. Wood was President and CEO of Electronics Arrays, Inc., a Mountain View, California publicly traded semiconductor company. While there, he implemented a financial turnaround strategy for the company and afterwards, negotiated the merger of the company with NEC, a large Japanese corporation, of which Mr. Wood became Executive Vice President and Chief Operating Officer. Mr. Wood brings to the Boards decades of major industry and public company experience. 18 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 ----------- ------------------------------------------------------- None 19 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: September 5, 2001 By: /s/ Andrew K. Wrobel ----------------------- ---------------------------------------- Andrew K. Wrobel Chairman of the Board of Directors President and Chief Executive Officer, Director Date: September 5, 2001 By: /s/ Randal D. Siville ----------------------- ---------------------------------------- Randal D. Siville Vice President of Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 20 -----END PRIVACY-ENHANCED MESSAGE-----