SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-2000
METALCLAD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2368719
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Corporate Plaza, Suite 125, Newport Beach, CA 92660
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (949) 719-1234
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ( X )
No ( )
As of June 30, 2001, the registrant had 7,448,015 shares outstanding
of its Common Stock, $.10 par value.
METALCLAD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 2001
(unaudited) and December 31, 2000. . . . . . . . . . 1-2
Consolidated Statements of Operations for the
three months and six months ended June 30, 2001
(unaudited) and June 30, 2000 (unaudited). . . . . . 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 (unaudited) and
June 30, 2000 (unaudited). . . . . . . . . . . . . . 4-5
Notes to Consolidated Financial Statements . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . 8
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,040,411 $ 354,345
Accounts receivable, less allowance for
doubtful accounts of $50,000 at June 30,
2001 and December 31, 2000 2,759,198 3,965,975
Costs and estimated earnings in excess of
billings on uncompleted contracts 202,063 82,920
Inventories 164,065 114,129
Prepaid expenses and other current assets 71,395 137,486
Receivables from related parties, net 218,779 95,814
---------- ----------
Total current assets 4,455,911 4,850,669
Property, plant and equipment, net 408,741 336,497
Assets of discontinued operations 4,933,299 4,905,754
Note receivable sale of Mexican assets 779,402 779,402
Other assets 23,989 25,765
---------- ----------
$10,601,342 $10,898,087
========== ==========
See Notes to Consolidated Financial Statements
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,401,854 $2,166,727
Current liabilities--discontinued operations 83,143 90,139
Accrued expenses 783,957 722,369
Billings in excess of costs and estimated
earnings on uncompleted contracts 18,131 26,724
Current portion of long-term debt 87,105 62,451
Convertible zero coupon notes 1,092,332 1,029,194
---------- ----------
Total current liabilities 3,466,522 4,097,604
Long-term debt, less current portion 197,284 123,489
Convertible subordinated debentures - 310,000
---------- ----------
Total liabilities 3,663,806 4,531,093
---------- ----------
Shareholders' equity:
Preferred stock, par value $10; 1,500,000 shares
authorized; none issued - -
Common stock, par value $.10; 80,000,000 shares
authorized; 7,448,015 and 6,581,114 issued and
outstanding at June 30, 2001 and December 31,
2000, respectively 744,801 658,111
Additional paid-in capital 68,496,871 67,659,747
Accumulated deficit (60,224,529) (59,871,257)
Officers' receivable (524,184) (524,184)
Accumulated other comprehensive income (1,555,423) (1,555,423)
---------- ----------
6,937,536 6,366,994
---------- ----------
$10,601,342 $10,898,087
========== ==========
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenues--Insulation
Contract revenues $11,103,510 $8,084,152 $5,512,708 $3,874,345
Material sales 91,269 51,111 72,875 15,238
Other 11,449 9,269 3,241 2,136
---------- --------- --------- ---------
11,206,228 8,144,532 5,588,824 3,891,719
---------- --------- --------- ---------
Operating costs and
expenses--Insulation
Contract costs and
expenses 9,718,046 7,099,180 4,720,537 3,298,527
Cost of material sales 74,947 30,587 63,221 10,994
Selling, general and
administrative expenses 745,098 720,999 339,366 369,178
---------- --------- --------- ---------
10,538,091 7,850,766 5,123,124 3,678,699
---------- --------- --------- ---------
Gross operating profit 668,137 293,766 465,700 213,020
Corporate expense (667,651) (872,673) (359,243) (498,622)
---------- --------- --------- ---------
Operating profit (loss) 486 (578,907) 106,457 (285,602)
Interest expense (84,030) (139,868) (42,033) (70,188)
Other income (expense), net 2,080 18,589 (4,836) 8,855
---------- --------- --------- ---------
Income (loss) from
continuing operations (81,464) (700,186) 59,588 (346,935)
Loss from discontinued
operations (271,808) (63,187) (40,582) (63,187)
--------- --------- --------- ---------
Net income (loss) ($ 353,272) ($ 763,373) $ 19,006 ($ 410,122)
========= ========= ========= =========
Weighted average number
of common shares 6,899,995 5,119,575 7,195,592 5,150,498
========= ========= ========= =========
Earnings (loss) per share of
common stock, continuing
operations--basic and diluted ($.01) ($.14) $.01 ($.07)
==== ==== === ====
Loss per share of common stock,
discontinued operations--basic
and diluted ($.04) ($.01) ($.01) ($.01)
==== ==== === ====
Loss per share of common
stock--basic and diluted ($.05) ($.15) $ - ($.08)
==== ==== === ====
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Six Months Ended
June 30, June 30,
2001 2000
------------ -----------
Cash flows from operating activities:
Net loss $ (353,272) $ (763,373)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations 271,808 63,187
Depreciation and amortization 62,322 44,932
Loss on disposal of fixed assets 1,592 -
Issuance of stock for interest 13,813 -
Changes in operating assets & liabilities:
Decrease (increase) in accounts receivable 1,206,777 (885,702)
Decrease (increase) in unbilled receivables (119,144) (297,480)
Decrease (increase) in inventories (49,936) (18,491)
Decrease in prepaid expenses and other assets 66,091 91,864
Decrease (increase) in receivables from
related parties (22,965) 18,827
Increase (decrease) in accounts payable and
accrued expenses (703,285) 549,169
Increase (decrease) in billings over costs (8,592) 22,418
Increase (decrease) in other assets 1,776 (2,000)
--------- ---------
Net cash provided by (used in) continuing
operations 366,985 (1,176,649)
Net cash used in discontinued operations (306,349) (305,827)
--------- ---------
Net cash provided by (used in) operating activities 60,636 (1,482,476)
--------- ---------
Cash flows from investing activities:
Capital expenditures--continuing operations (137,657) (59,675)
Proceeds from sale of assets continuing operations 1,500 -
--------- ---------
Net cash used in investing activities (136,157) (59,675)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings 196,658 183,828
Payments on long-term borrowings--continuing
operations (35,071) (22,336)
Borrowings by officers, secured by stock (net) - (14,135)
Proceeds from sale of stock and warrants 600,000 -
Proceeds from exercise of warrants - 933,500
--------- ---------
Net cash provided by financing activities 761,587 1,080,857
--------- ---------
Increase (decrease) in cash and cash equivalents 686,066 (461,294)
Cash and cash equivalents at beginning of period 354,345 769,176
--------- ---------
Cash and cash equivalents at end of period $1,040,411 $ 307,882
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 24,689 $ 15,246
========= =========
Disclosure of noncash investing and financing activities:
During the six months ended June 30, 2001, the Company converted
approximately $324,000 of convertible subordinated debentures,
principal and interest into 266,900 shares of common stock.
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended June 30, 2001
(Unaudited)
1. The accompanying unaudited financial statements of Metalclad Corporation
and its subsidiaries (the "Company") have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments (which
consist only of normal recurring adjustments) necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 2001 are not necessarily indicative of what results will be for the
year ending December 31, 2001. These statements should be read in
conjunction with the consolidated financial statements and notes thereto,
and the report of independent auditors which was qualified due to
substantial doubt about the Company's ability to continue as a going
concern, included in the Company's Form 10-K for the year ended December 31,
2000.
2. Included in net assets of discontinued operations at June 30, 2001 and
December 31, 2000 is approximately $4,850,000 and $4,816,000, respectively.
These assets represent the Company's net investment in its completed
hazardous waste treatment facility in the State of San Luis Potosi, Mexico,
known as "El Confin". Upon payment of the NAFTA award by Mexico, the
landfill will become the property of the Mexican government and its net
asset value will be written off by the Company. (See 8-K dated September 1,
2000.)
3. In March 2001, the company initiated an effort to raise additional
capital in support of its defense of its NAFTA award and for working capital
for its headquarter's operations. The privately-placed financing offering
consisted of an investment unit, priced at $1.00, comprised of one share of
common stock and one common stock purchase warrant exercisable at $1.50. The
Company's goal was to raise $600,000. As of June 30, 2001, $600,000 of
proceeds from this financing was received.
4. During the quarter ended March 31, 2001, the Company and the holder of
its Five-Year Zero Coupon Notes reached agreement under the terms of the
notes, to apply the maximum interest rate of 15% (default rate) to the
outstanding notes, effective February 1, 2001. This was in lieu of any
formal review or redemption options available to the holder.
In June 2001, a notice of redemption was received by the Company from
the holders of the zero coupon convertible notes and the Company
subsequently secured bank financing to redeem the notes. On July 16th, the
Noteholders were paid in full all principal and interest due, totaling
$1,098,000, and the notes were cancelled. These notes bore interest at the
rate of 15%.
On July 16, 2001, the Company secured new bank financing in the form of
a $1,000,000 60-day bridge loan, bearing a floating rate of interest based
upon the bank's reference rate plus 1%. As of the closing on July 16th, the
interest rate was 7.75%. The bridge loan is secured by the assets of the
Company's insulation subsidiary and guaranteed by the Company.
A follow-on financing is in process to provide a revolving working
capital credit line of $1,000,000 to repay the bridge loan. The interest
rate will be based on the bank's reference rate plus .25%. As of July 16,
this interest rate would have been 7%.
5. In June 2001, the Board of Directors approved the granting of options to
purchase 425,000 shares of common stock exercisable at $2.00 per share, vesting
over a three-year period as follows: Mrs. Kesler, 200,000 shares; Mr. Dabbene,
150,000 shares; Mr. Pacini, 25,000 shares; Mr. Talbot, 25,000 shares; and Mr.
Haglund, 25,000 shares. Additionally, under the Company's Formula Award Rider
to the 2000 Omnibus Stock Option and Incentive Plan, the members of the
Compensation Committee each received option awards, as of June 1, 2000, for
20,000 shares of common stock, exercisable at $2.00 per share and vesting over a
three-year period. On June 1 and June 6, the price of the Company's common
stock was $1.60 and $1.50, respectively.
6. The gain or loss per share amounts for the six months ended June 30,
2001 and June 30, 2000 were computed by dividing the net gain or loss by the
weighted average shares outstanding during the applicable period. A
calculation of dilutive potential common shares was performed in accordance
with the treasury stock method, which assumes that proceeds from the
exercise of all warrants and options are used to repurchase common stock at
market value. Upon calculation of the weighted average stock price for the
quarter ended June 30, 2001, it was determined that no options or warrants
were in the money for the periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
All statements, other than statements of historical fact, included in
this Form 10-Q, including without limitation the statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are, or may be deemed to be, "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve assumptions, known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or
achievements of Metalclad Corporation (the "Company") to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements contained in this Form 10-Q.
Such potential risks and uncertainties include, without limitation, the
ability to collect the NAFTA award, competitive pricing and other pressures
from other businesses in the Company's markets, economic conditions
generally and in the Company's primary markets, availability of capital,
cost of labor, and other risk factors detailed herein and in other of the
Company's filings with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this Form 10-Q
and the Company assumes no obligation to update the forward-looking
statements or to update the reasons actual results could differ from those
projected in such forward-looking statements. Therefore, readers are
cautioned not to place undue reliance on these forward-looking statements.
Results of Operations: Six Months ended June 30, 2001 and 2000
General. The Company's revenues are generated in the United States from
insulation and asbestos abatement services and, prior to 1998, the
collection of waste oils and solvents for recycling, placement and servicing
of parts washing machines, brokering the disposal of waste and remediation
services in Mexico.
From November 1991 to 1998, the Company was actively involved in doing
business in Mexico. The Company's initial focus was the development of
facilities for the treatment, storage and disposal of industrial hazardous
waste.
During the fourth quarter of 1998, the Company determined that its
efforts at building its business in Mexico would not be allowed to succeed.
The Company's investment in El Confin resulted in an arbitration under the
NAFTA treaty, its investment in Aguascalientes had been blocked just prior
to the project's completion, and its other businesses were impacted due to
the loss of these projects and the synergy they would have provided.
Consequently, the Company committed to a plan to discontinue its Mexican
operations to minimize future losses and halted any further investment in
Mexico.
In October 1999, the Company completed a sale of its ongoing Mexican
operations and development assets, specifically excluding the landfill
assets associated with its NAFTA claim.
Insulation Business. Total revenues from the insulation business for
the six months ended June 30, 2001 were $11,206,000 as compared to
$8,145,000 for the comparable period ended June 30, 2000, an increase of
38%. This increase is primarily due to increased work with a major customer
and the addition of several new clients. Total expenses for the six months
ended June 30, 2001 were $10,538,000 as compared to $7,851,000 for the
comparable period ended June 30, 2000, an increase of 34%. This increase is
in line with the increase in revenues.
Contract Revenues. Contract revenues for the six months ended June 30,
2001 were $11,104,000 as compared to $8,084,000 for the six months ended
June 30, 2000, an increase of 37%. This increase is attributed to the
Company's efforts to diversify its client base, including its entry into the
commercial insulation market.
Material Sales. Material sales were $91,000 for the six months ended
June 30, 2001 as compared to $51,000 for the six months ended June 30, 2000.
Contract and Material Costs. Contract and material costs and expenses
were $9,793,000 for the six months ended June 30, 2001 as compared to
$7,130,000 for the six months ended June 30, 2000, an increase of 37%. This
increase is consistent with the Company's increase in revenues.
Selling, General and Administrative Costs. Selling, general and
administrative costs for the six months ended June 30, 2001 were $745,000 as
compared to $721,000 for the comparable period ended June 30, 2000, an
increase of 3%, due to the increased volume of work in the period and
increased marketing efforts.
Discontinued Operations. Effective October 8, 1999, the Company sold
its interests in Administracion Residuos Industriales, S.A. de C.V.,
Ecosistemas Nacionales, S.A. de C.V. and Ecosistemas El Llano, S.A. de C.V.
The Company also intends to dispose of its interests in Ecosistemas del
Potosi, S.A. de C.V. and Confinamiento Tecnico de Residuos Industriales,
S.A. de C.V., pending resolution of the NAFTA claim. As of December 31,
2000, the Company's remaining provision for anticipated costs to complete
the ongoing NAFTA claim process was $16,000. For the six months ended June
30, 2001, the Company has expensed, net of this accrual, $272,000 in fees
for the continuing costs of the NAFTA proceedings. This net amount has been
expensed to discontinued operations for the six months ended June 30, 2001.
It is believed that future costs, if any, will not be material and will be
charged to operations as incurred.
Corporate Expense. Corporate expenses were $668,000 for the six months
ended June 30, 2001 as compared to $873,000 for the six months ended June
30, 2000, a decrease of 23%. This decrease is due primarily to a reduction
in legal fees associated with litigation which was settled in the year ended
2000.
Interest Expense. Interest expense for the six months ended June 30,
2001 was $84,000 as compared to interest expense of $140,000 for the six
months ended June 30, 2000. This decrease is due to the reduction in
outstanding loan balances from June 2000 to June 2001, primarily as a result
of conversions of debt to equity.
Consolidated Results
The Company experienced a net loss of $353,000 for the six months ended
June 30, 2001 as compared to a net loss of $763,000 for the comparable
period ended June 30, 2000, a decrease of 54%. The net loss from continuing
operations was $81,000 for the six months ended June 30, 2001 as compared to
a net loss of $700,000 for the comparable period ended June 30, 2000,
primarily due to lower legal costs associated with completed litigation and
higher gross operating profits as a result of an increased volume of work in
the insulation business.
Liquidity and Capital Resources
In the fourth quarter of 1998, the Company committed to a plan to
discontinue its Mexican operations and in October 1999 completed a sale of
its non-NAFTA related businesses. (See Note 2.) Although no further
investments are being made in Mexico, the Company continues to require
additional capital to maintain its remaining operations and complete the
collection of its NAFTA award.
On July 30, 1999 the Company entered into an amendment of the terms of
its Five-Year Zero Coupon Notes with the holder. The amendment included the
conversion of accrued interest through July 30, 1999 into principal notes,
the interest rate was adjusted from 9.3% to 12% effective July 31, 1999, the
convertibility of the notes and the holder's redemption option on the notes
was extended until the earlier of March 31, 2000 or completion of the NAFTA
proceedings and the conversion rate per share will be at the lesser of 70%
of the average market price per share or $2.50 per share. In no event,
however, can the holder convert its principal into common shares such that
it would result in the holder obtaining shares that would exceed 19.99% of
the outstanding common stock of the Company. Should the holder exercise its
right to convert the notes, all accrued interest would be forfeited. As
part of this amendment, the note holder agreed to exercise certain of its
warrants and to purchase $250,000 in additional notes. As of April 1, 2000,
the holder had the right to convert the principal amount of the notes. The
holder also has the right to require the Company to redeem these notes.
During the quarter ended March 31, 2001, the holder and the Company reached
agreement under the terms of the notes to apply the maximum interest rate of
15% (default rate) to the outstanding notes, effective February 1, 2001.
This was in lieu of any formal review or redemption options available to the
holder. (See Note 4.)
During the six months ended June 30, 2000, the Company received
approximately $934,000 from the exercise of warrants in exchange for issuing
291,000 new shares of common stock.
During the six months ended June 30, 2001, the Company received
approximately $600,000 for the issuance of 600,000 investment units,
consisting of one share of common stock and one common stock purchase
warrant exercisable at $1.50. (See Note 3.)
The Company had positive working capital at June 30, 2001 of $989,000
compared to positive working capital of $753,000 at December 31, 2000. The
Company had cash and cash equivalents at June 30, 2001 of $1,040,000 and
$354,000 at December 31, 2000. Cash provided by continuing operations for
the six months ended June 30, 2001 was $367,000 compared to cash used of
$1,177,000 for the six months ended June 30, 2000. Cash used by
discontinued operations for the six months ended June 30, 2001 was $306,000
compared to $306,000 for the six months ended June 30, 2000. Cash used in
operating activities for the six months ended June, 2001 was funded
primarily by proceeds from the sale of stock during the period and the
collection of accounts receivable.
For the six months ended June 30, 2001 the Company generated cash flow
from continuing operations of $367,000, including $1,098,000 in positive
cash flow related to the insulation business due primarily to a higher
volume of work in the first six months of 2001 versus 2000 and the
collection of accounts receivable. The offsetting negative cash flow is
related to corporate activities, the Company's NAFTA claim, along with
general and administrative expenses without revenues to offset such
expenses. The Company is aware of its on going cash needs and continues to
work with its investment bankers and other sources to meet its on going
needs through December 31, 2001. The Company believes it will obtain the
necessary funds to continue its planned operations throughout 2001; however,
no assurances can be given that such funds will be available to the Company
as required, while it awaits collection of the NAFTA award. (See Part II,
Item 1. Legal Proceedings.)
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Litigation
In the ordinary course of its insulation business, certain parties have
filed a substantial number of claims against the Company for actual and
punitive damages. Presently, the number of these claims exceed 300. The
potential aggregate value of the claims is in the range of $1,000,000 to
$5,500,000. The Company continues to have adequate insurance coverage with
financially sound carriers responding to these claims and does not foresee
any significant financial exposure resulting from these claims. Throughout
its history, the Company has maintained insurance policies that typically
respond to these claims. Based on the advice of counsel, it is management's
opinion that these actions, individually and in the aggregate, will not have
a significant adverse impact on the Company's financial position or results
of operations.
On January 2, 1997 the Company filed a claim against the United Mexican
States under the provisions of the North American Free Trade Agreement. The
Company alleged that since it was not being allowed to operate its legally
authorized and completed landfill facility in San Luis Potosi, Mexico, it
had been effectively expropriated. On August 30, 2000, the tribunal issued
its decision. It ruled that Mexico had indirectly expropriated the
Company's investment in its completed landfill facility. The tribunal
awarded $16,685,000 with interest, accruing at 6% per annum compounded
monthly, beginning October 15, 2000. On October 27, 2000, the United
Mexican States filed a petition with the Supreme Court of British Columbia,
Canada, seeking to have the award set aside by the court under the
Commercial Arbitration Act of Canada. On November 14, 2000, the filing was
amended to also seek a setting aside of the award under the International
Commercial Arbitration Act. A hearing on the case was completed on March 2,
2001. On May 2, 2001 the Supreme Court of British Columbia issued its
ruling, which upheld a finding of expropriation and upheld an award of
damages to the Company, although modifying the interest calculation. On May
24, 2001, the Company was advised that Mexico would appeal again, this time
to the British Columbia Court of Appeal. The appeal was joined with a
cross-appeal by the Company and filed before the end of May 2001. On June
4, 2001, the United Mexican States made a written offer of settlement for
$15,626,260 plus interest of $2,599 per day after June 1, 2001. The Company
accepted the offer on June 11, 2001 provided that the payment be made
without reduction or offset. The parties are now attempting to close the
transaction, at which time the appeal and cross appeal will be dismissed.
As of the date of this report, the Company believes it has provided the
United Mexican States all of the documents it needs to determine that there
is no reason for any reduction or offset in the payment and has requested
that the payment be made forthwith.
In October 1999, the Company completed a sale of its operating
businesses and its development project located in Aguascalientes, Mexico.
The sale specifically excluded those Mexican assets involved in the NAFTA
claim. Under the terms of the sale the Company received an initial cash
payment of $125,000. Furthermore, the sale terms stipulate payment of up to
$5,000,000, in stages, as various benchmarks are achieved in the operation
of the business as well as the buyer's assumption of all liabilities. To
date, the Company believes that the buyer has not achieved any of the
milestones necessary to trigger additional payments. Moreover, the Company
believes that the buyer is in default of its agreement with the Company
under the indemnity provisions and may have committed fraud in attempting to
assign its interest in the companies purchased to a former employee of
Metalclad. The Company has engaged counsel and believes it has a cause of
action against the buyer and the former Company employee and the Orange
County, California based parent of the buyer as a result of representations
said parent made relative to giving the buyer financial support in its
acquisition of the companies purchased. On November 13, 2000, a complaint
was filed in Orange County with the Superior Court of California. The
defendants have attempted on three occasions to have the complaint dismissed
and have failed each time. Discovery has now commenced, but no date for
trial has yet been set. The Company believes strongly in the merits of its
case, but cannot assure its outcome. If the Company is not successful in
this litigation, it would result in writing off the $779,000 note
receivable, which was recorded at the date of sale.
Item 2. Changes in Securities
During the six months ended June 30, 2001 the Company sold 600,000
investor units consisting of one share of common stock and one common stock
purchase warrant, for a potential total of 1,200,000 common shares if all
the warrants are exercised. These shares are unregistered and were sold
pursuant to Rule 506 of Regulation D under the Securities Act of 1933. The
Company received $600,000 in connection with this transaction.
Item 3 Defaults Upon Senior Securities
Not Applicable
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
None.
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.
METALCLAD CORPORATION
Date: August 1, 2001
By: /s/Anthony C. Dabbene
---------------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)