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 March 31, 2001
OR
( X ) 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
As of March 31, 2001, the registrant had 6,981,114 shares outstanding of
its Common Stock, $.10 par value.
METALCLAD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 2001
(unaudited) and December 31, 2000......................... 1-2
Consolidated Statements of Operations for the three
months ended March 31, 2001 (unaudited) and 2000.......... 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 (unaudited).......... 4-5
Notes to Consolidated Financial Statements (unaudited).... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 6
PART II. OTHER INFORMATION...................................... 11
SIGNATURES...................................................... 13
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 706,213 $ 354,345
Accounts receivable, less allowance for
doubtful accounts of $50,000 at March 2001
and December 2000, respectively 3,329,044 3,965,975
Costs and estimated earnings in excess of
billings on uncompleted contracts 145,770 82,920
Inventories 144,803 114,129
Prepaid expenses and other current assets 106,199 137,486
Receivables from related parties, net 193,579 195,814
---------- ----------
Total current assets 4,625,608 4,850,669
Property, plant and equipment, net 410,100 336,497
Net assets of discontinued operations 4,915,907 4,905,754
Note receivable sale of Mexican assets 779,402 779,402
Other assets 25,989 25,765
---------- ----------
$10,757,006 $10,898,087
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,615,164 $ 2,166,727
Current liabilities, net discontinued
operations 201,371 90,139
Accrued expenses 749,752 722,369
Billings in excess of costs and estimated
earnings on uncompleted contracts 156,364 26,724
Current portion of long-term debt 79,930 62,451
Convertible zero coupon notes 1,059,463 1,029,194
---------- ----------
Total current liabilities 3,862,044 4,097,604
Long-term debt, less current portion 196,516 123,489
Convertible subordinated debentures 310,000 310,000
---------- ----------
Total liabilities 4,368,560 4,531,093
---------- ----------
Commitments and Contingencies (Note M)
Shareholders' equity :
Preferred stock, par value $10; 1,500,000
shares authorized; none issued - -
Common stock, par value $.10; 80,000,000
shares authorized; 6,981,114, and
6,581,114 issued and outstanding at March
2001 and December 2000, respectively 698,111 658,111
Additional paid-in capital 68,019,747 67,659,747
Accumulated deficit (60,243,535) (59,871,257)
Officer's receivable (530,454) (524,184)
Accumulated other comprehensive income (1,555,423) (1,555,423)
---------- ----------
6,388,446 6,366,994
---------- ----------
$10,757,006 $10,898,087
========== ==========
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
--------------------------
2001 2000
---- ----
(Unaudited)
Revenues
Contract revenues $5,590,802 $4,209,807
Material sales 18,394 35,873
Other 8,208 7,133
--------- ---------
5,617,404 4,252,813
--------- ---------
Operating costs and expenses
Contract costs and expenses 4,997,509 3,800,653
Cost of material sales 11,726 19,593
Selling, general and administrative 405,732 351,821
--------- ---------
5,414,967 4,172,067
--------- ---------
Gross operating profit 202,437 80,746
Corporate expense (308,408) (374,051)
Operating loss (105,971) (293,305)
Interest expense (41,997) (69,680)
Other income, net 6,916 9,734
--------- ---------
Loss from continuing operations (141,052) (353,251)
Loss from discontinued operations (231,226) -
--------- ---------
Net loss $ (372,278) $ (353,251)
========= =========
Weighted average number of common shares 6,598,336 5,088,652
========= =========
Loss per share of common stock, continuing
operations - basic and diluted $(.02) $(.07)
==== ====
Loss per share of common stock, discontinued
operations - basic and diluted $(.04) -
====
Loss per share of common stock - basic and
diluted $(.06) $(.07)
==== ====
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
--------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (372,278) $ (353,251)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations 231,226 -
Depreciation and amortization 29,080 20,583
Loss on disposal of fixed assets 1,592 -
Changes in operating assets and
liabilities:
Decrease (increase) in accounts receivable 636,931 (1,275,439)
Decrease (increase) in unbilled receivables (62,850) (157,991)
Decrease (increase) in inventories (30,674) (47,680)
Decrease (increase) in prepaid expenses
and other assets 31,287 32,488
Decrease (increase) in receivables from
related parties 2,235 (13,099)
Increase (decrease) in accounts payable
and accrued expenses (524,180) 691,680
Increase (decrease) in billings over cost 129,640 47,353
Increase in other assets (224) (2,000)
--------- ---------
Net cash provided (used) in
continuing operations 71,785 (1,057,356)
Net cash used in discontinued
operations (130,147) (242,517)
--------- ---------
Net cash used in operating
activities (58,362) (1,299,873)
--------- ---------
Cash flows from investing activities:
Capital expenditures continuing operations (105,775) (27,267)
Proceeds from sale of assets continuing
operations 1,500 -
--------- ---------
Net cash used in investing
activities (104,275) (27,267)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings 136,109 100,377
Payments on long-term borrowings
continuing operations (15,334) (9,403)
Borrowing by an officer (6,270) (6,759)
Proceeds from sale of stock 400,000 -
Proceeds from exercise of warrants - 933,500
--------- ---------
Net cash provided by continuing operations 514,505 1,017,715
--------- ---------
Net cash provided (used) in
discontinued operations - -
--------- ---------
Net cash provided by financing
activities 514,505 1,017,715
--------- ---------
Increase (decrease) in cash and cash
equivalents 351,868 (309,425)
Cash and cash equivalents at beginning of
period 354,345 769,176
--------- ---------
Cash and cash equivalents at end of period $ 706,213 $ 459,751
========= =========
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 19,478 $ 13,032
========= =========
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended March 31, 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 three months ended March 31, 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 March 31, 2001
and December 31, 2000 is approximately $4,715,000 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 financing offering consists
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, which as of this filing has been
fully committed. As of March 31, 2001, $400,000 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. Management
intends to pursue redemption of the remaining outstanding principal as
soon as practical.
5. The loss per share amounts for the three months ended March 31, 2001
and March 31, 2000 were computed by dividing the net loss by the weighted
average shares outstanding during the applicable period.
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: Three Months ended March 31, 2001 and 2000
General. The Company's revenues are generated in the United States
from insulation and asbestos abatement services and, prior to 1998, from
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 three months ended March 31, 2001 were $5,617,000 as compared to
$4,253,000 for the comparable period ended March 31, 2000, an increase of
32%. This increase is primarily due to increased work with a major
customer and the addition of several new clients in the commercial market
sector. Total expenses for the three months ended March 31, 2001 were
$5,415,000 as compared to $4,172,000 for the comparable period ended March
31, 2000, an increase of 30%. This increase is in line with the increase
in revenues.
Contract Revenues. Contract revenues for the three months ended
March 31, 2001 were $5,591,000 as compared to $4,210,000 for the three
months ended March 31, 2000, an increase of 33%. 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 $18,000 for the three months
ended March 31, 2001 as compared to $36,000 for the three months ended
March 31, 2000.
Contract and Material Costs. Contract and material costs and
expenses were $5,009,000 for the three months ended March 31, 2001 as
compared to $3,820,000 for the three months ended March 31, 2000, an
increase of 31%. This increase is consistent with the Company's increase
in revenues.
Selling, General and Administrative Costs. Selling, general and
administrative costs for the three months ended March 31, 2001 were
$406,000 as compared to $352,000 for the comparable period ended March 31,
2000, an increase of 15%, 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 three
months ended March 31, 2001, the Company has not charged against the
December 31, 2000 accrual. Additionally, $231,000 in fees for the
continuing costs of the NAFTA proceedings has been expensed to
discontinued operations for the three months ended March 31, 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 $308,000 for the three
months ended March 31, 2001 as compared to $374,000 for the three months
ended March 31, 2000. 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 three months ended March
31, 2001 was $42,000 as compared to interest expense of $70,000 for the
three months ended March 31, 2000. This decrease is due to the reduction
in outstanding loan balances from March 2000 to March 2001, primarily as a
result of debt conversions to equity.
Consolidated Results
The Company experienced a net loss of $372,000 for the three months
ended March 31, 2001 as compared to a net loss of $353,000 for the
comparable period ended March 31, 2000, an increase of 5%. The net loss
from continuing operations was $141,000 for the three months ended March
31, 2001 as compared to a net loss of $353,000 for the comparable period
ended March 31, 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.
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 has 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.
Management intends to pursue redemption of the remaining outstanding
principal as soon as practical.
During the three months ended March 31, 2000, the Company received
approximately $934,000 from the exercise of warrants, issuing 291,000 new
shares of common stock.
During the three months ended March 31, 2001, the Company received
approximately $400,000 for the issuance of 400,000 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 March 31, 2001 of
$764,000 compared to positive working capital of $753,000 at December 31,
2000. The Company had cash and cash equivalents at March 31, 2001 of
$706,000 and $354,000 at December 31, 2000. Cash provided by continuing
operations for the three months ended March 31, 2001 was $72,000 compared
to cash used of $1,057,000 for the three months ended March 31, 2000.
Cash used by discontinued operations for the three months ended March 31,
2001 was $130,000 compared to $243,000 for the three months ended March
31, 2000. Cash used in operating activities for the three months ended
March 31, 2001 was funded primarily by proceeds from the sale of stock
during the period and the collection of accounts receivable.
For the three months ended March 31, 2001 the Company generated cash
flow from continuing operations of $72,000, including $445,000 in positive
cash flow related to the insulation business due primarily to a higher
volume of work in the first three months of 2001 versus 2000. The
offsettingnegative 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. 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 issued its ruling, which upheld a finding of
expropriation and upheld an award of damages to the Company, although
modifying the interest calculation. Management is currently studying the
ruling to determine any future course of action. (See Item 6 below.)
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 are in the process
of responding to the complaint. Subsequent to this response, discovery
will commence. No hearing date has been set as yet. The Company believes
strongly in the merits of its case, but cannot assume 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 quarter ended March 31, 2001 the Company sold 400,000
investor units consisting of one share of common stock and one common
stock purchase warrant, for a potential total of 800,000 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.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company filed its annual proxy form 14A on April 30, 2001 and
announced its annual meeting will be held July 9, 2001, with proxies being
mailed out approximately June 1, 2001.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 1 British Columbia Supreme Court decision in the case
of The United Mexican States v. Metalclad Corporation, dated May 2, 2001.
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: May 15, 2001
By: /s/Anthony C. Dabbene
------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)