SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 1999
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, 1999, the registrant had 36,017,022 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 (unaudited) at June 30, 1999
and December 31, 1998 . . . . . . . . . . . . . . . . . . . . 1-2
Consolidated Statements of Operations for the three months
and six months ended June 30, 1999 and 1998 (unaudited) . . . 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 (unaudited). . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 6
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE><S> <C> <C>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 164,298 $ 519,940
Accounts receivable, less allowance for doubtful
accounts of $20,000 in June 1999 and $28,907 in
December 1998 1,758,576 828,686
Costs and estimated earnings in excess of billings
on uncompleted contracts 185,847 143,672
Inventories 168,673 176,697
Prepaid expenses and other current assets 16,870 56,492
Receivables from related parties 106,000 151,765
--------- ---------
Total Current Assets 2,400,264 1,877,252
Property, plant and equipment, net 319,317 271,592
Net assets of discontinued operations 8,900,413 9,096,300
Other assets 22,886 43,162
--------- ---------
$11,642,880 $11,288,306
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 817,454 $ 636,096
Current liabilities, net--discontinued operations 3,143,453 2,886,067
Accrued expenses 740,179 913,772
Billings in excess of costs and estimated earnings
on uncompleted contracts 101,094 71,280
Current portion of long-term debt 29,019 18,585
Convertible zero coupon notes 1,710,006 1,640,000
--------- ---------
Total current liabilities 6,541,205 6,165,800
Long-term debt, less current portion 80,564 51,949
Convertible subordinated debentures 1,076,372 1,201,547
--------- ---------
Total liabilities 7,698,141 7,419,296
--------- ---------
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
June 30, December 31,
1999 1998
----------- ------------
(Unaudited) Shareholders' equity:
Preferred stock, par value $10; 1,500,000 shares
authorized; none issued - -
Common stock, par value $.10; 80,000,000 shares
authorized, 36,017,022 and 30,569,122 issued
and outstanding in June 1999 and December 1998,
respectively 3,601,703 3,056,912
Additional paid-in capital 58,136,115 57,404,880
Accumulated deficit (55,096,544) (53,907,766)
Officers' receivable collateralized by stock (556,425) (544,906)
Accumulated other comprehensive income (2,140,110) (2,140,110)
--------- ---------
3,944,739 3,869,010
--------- ---------
$11,642,880 $11,288,306
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><S> <C> <C> <C> <C>
For Six Months Ended For Three Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- -------
Revenues-Insulation
Contract revenues $7,479,848 $5,300,537 $3,985,351 $2,721,209
Material sales 184,328 21,648 73,500 16,466
Other - 3,500 - -
--------- --------- --------- ---------
7,664,176 5,325,685 4,058,851 2,737,675
Operating costs and expenses-Insulation
Contract costs and expenses 6,491,445 4,578,035 3,400,166 2,347,784
Cost of material sales 146,857 15,313 60,520 11,745
Selling, general and administrative
expenses 604,876 522,998 316,126 275,875
--------- --------- --------- ---------
7,243,178 5,116,346 3,776,812 2,635,404
--------- --------- --------- ---------
Corporate expense 843,323 1,076,661 403,987 641,156
--------- --------- --------- ---------
Operating loss (422,325) (867,322) (121,948) (538,885)
--------- --------- --------- ---------
Interest expense (148,672) (59,622) (64,368) (29,675)
--------- --------- --------- ---------
Loss from continuing operations (570,997) (926,944) (186,316) (568,560)
Loss from discontinued operations (617,780) (929,337) (617,780) (453,866)
--------- --------- --------- ---------
Net loss $(1,188,777) $(1,856,281) $(804,096)$(1,022,426)
========= ========= ======== =========
Weighted average number of common
shares 34,012,287 30,240,062 35,563,133 30,413,501
========== ========== ========== ==========
Loss per share of common stock,
continuing operations--basic
and diluted $(0.01) $(0.03) $(0.01) $(0.02)
==== ==== ==== ====
Loss per share of common stock,
discontinued operations--basic
and diluted $(0.02) $(0.03) $(0.01) $(0.01)
==== ==== ==== ====
Loss per share of common stock--
basic and diluted $(0.03) $(0.06) $(0.02) $(0.03)
==== ==== ==== ====
</TABLE>
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><S> <C> <C>
For Six Months Ended
June 30,
--------------------
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(1,188,777) $(1,856,281)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss from discontinued operations 617,780 929,337
Depreciation and amortization 139,753 108,590
Issuance of stock for services 108,000 8,440
Changes in operating assets & liabilities:
Decrease (increase) in accounts receivable (929,890) 72,167
Decrease (increase) in unbilled receivables (42,175) 159,711
Decrease (increase) in inventories 8,024 (16,194)
Decrease in prepaid expenses and other assets 39,622 86,100
Decrease in receivables from related parties 45,765 16,239
Increase in accounts payable and accrued expenses (100,235) 437,095
Increase in billings over costs 29,814 93,328
Other 20,276 (45,744)
--------- ---------
Net cash used in continuing operations (1,252,043) (7,212)
Net cash used in discontinued operations (284,188) (789,722)
--------- ---------
Net cash used in operating activities (1,536,231) (796,934)
--------- ---------
Cash flows from investing activities:
Capital expenditures--continuing operations (67,798) (33,634)
Capital expenditures--discontinued operations - (437,692)
--------- ---------
Net cash used in investing activities (67,798) (471,326)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings 133,880 -
Payments on long-term borrowings--continued operations (150,000) -
Borrowings by officers, secured by stock (net) (11,519) (11,529)
Proceeds from issuance of common stock - 67,500
Proceeds from exercise of warrants 1,276,026 372,750
--------- ---------
Net cash provided by financing activities 1,248,387 428,721
--------- ---------
Decrease in cash and cash equivalents (355,642) (839,539)
Cash and cash equivalents at beginning of period 519,940 1,510,667
--------- ---------
Cash and cash equivalents at end of period $ 164,298 $ 671,128
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period June 30, 1999
(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, 1999 are not necessarily indicative of
what results will be for the year ending December 31, 1999. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto and the report of independent public
accountants which was modified 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, 1998.
This Form 10-Q Amendment No. 1 to Form 10-Q which amends the 1999
Quarterly Report includes the following primary changes: the Company has
included all Mexican operations, including the unopened landfill in San
Luis Potosi, in discontinued operations. Previously, the Company included
the landfill and the costs of its ongoing NAFTA arbitration, in continued
operations, pending resolution of the claim. Consequently, this amendment
includes the landfill and all associated costs of its NAFTA claim, in
discontinued operations, since the Company believes it will not open the
landfill and the NAFTA claim will determine the landfill's disposition.
2. During the fourth quarter of 1998, the Company committed to a plan to
discontinue its Mexican operations and to seek to identify potential buyers
for its Mexican business, consequently, the Company's Mexican operations
are now classified as discontinued operations. The financial statements
for the periods ending June 30, 1998 have been reclassified to reflect this
accounting so as to be consistent with the current presentation.
The Company continues to pursue the sale of these operations, and is
presently in discussions with potential buyers for these operations. We
continue to believe that a transaction will be completed during 1999;
however, no assurances can be given that these discussions will be
successful.
3. For almost three years, the Company has been involved in an arbitration
proceeding with the United Mexican States over the Company's completed, but
unopened, landfill facility in San Luis Potosi, Mexico. At the pre-hearing
conference on July 6, 1999, the Tribunal reaffirmed the schedule for the
final hearing on the arbitration. The final hearing will commence on
August 30, 1999 and is anticipated to be completed on September 10, 1999.
A decision will follow completion of this hearing, but no definitive time
frame can be provided (see Part II, Item 1--Legal Proceedings).
4. On August 2, 1999 the Company was advised by The NASDAQ-AMEX Market
Group that the Company has evidenced compliance with the requirements
necessary for continued listing and, therefore, the Company will continued
to be listed on The NASDAQ SmallCap Market and the hearing file is now
closed.
5. 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.
6. The loss per share amounts for the six months ended June 30, 1999 and
June 30, 1998 were computed by dividing the net loss by the weighted
average shares outstanding during the applicable quarter.
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 commence operations at the Company's hazardous waste treatment
sites under development, 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, 1999 and 1998)
General. Historically, the Company's revenues were generated
primarily in the United States from insulation and asbestos abatement
services and in Mexico 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.
Since November 1991, the Company has been 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 has resulted in an arbitration under
the NAFTA treaty, its investment in Aguascalientes has been blocked just
prior to the project's completion, and its other business has been impacted
due to the loss of these projects and the synergy they would have provided.
Consequently, the Company has determined that its Mexican businesses must
be sold to minimize future losses and that any further investment in Mexico
should be halted.
Insulation Business. Total revenues from the insulation business for
the six months ended June 30, 1999 were $7,664,000 as compared to
$5,326,000 for the comparable period ended June 30, 1998, an increase of
44%.
Contract revenues for the six months ended June 30, 1999 were
$7,480,000 as compared to $5,301,000 for the six months ended June 30,
1998, an increase of 41%. This increase is attributed to the Company's
efforts to diversify its client base, including its entry into the
commercial insulation market.
Material sales were $184,000 for the six months as compared to $22,000
for the comparable period.
Total expenses for the six months ended June 30, 1999 were $7,243,000
as compared to $5,116,000 for the comparable period ended June 30, 1998,
an increase of 41%.
Contract costs and expenses were $6,491,000 for the six months as
compared to $4,578,000 for the six months ended June 30, 1998, an increase
of 42%. This increase is consistent with the Company's increase in
revenues.
Cost of material sales was $147,000 for the six months as compared to
$15,000, matching the increase in sales in this area.
Selling, general and administrative costs for the six months ended
June 30, 1999 were $605,000 as compared to $523,000 for the comparable
period ended June 30, 1998, an increase of 16% and due to the increased
volume of work in the period.
Discontinued Operations. Loss from discontinued operations was
$618,000 for the six months ended June 30, 1999 as compared to a loss of
$929,000 for the six months ended June 30, 1998. At December 31, 1998, the
measurement date, the Company estimated future losses from discontinued
operations of its Mexican businesses to be $450,000. At that time, the
Company anticipated that its NAFTA claim would be completed by September
1999 and that non-NAFTA operating assets would be sold by the quarter ended
June 30, 1999. Operating losses from the non-NAFTA assets, in excess of
our $450,000 accrual at December 31, 1998, amounted to $353,000 for the six
months ended June 30, 1999. These additional losses were a direct result
of delays in the closing of the sale of the non-NAFTA related assets due
to unforeseen additional legal document requirements in Mexico as well as
impacts on the businesses' operations as the sale was made known.
Furthermore, the $450,000 accrual did not contain any provisions for the
Company's direct costs of pursuing its NAFTA claim. As a result of
preparing for the NAFTA hearing, the Company incurred additional legal and
outside consulting costs of $265,000, which it could not have reasonably
foreseen at December 31, 1998.
As of June 30, 1999 the arbitration hearing, relating to the NAFTA
assets, is not scheduled to commence until late August 1999. In order to
preserve the Company's Mexican assets, pending completion of our claim, the
Company will continue to incur legal, consulting and other administrative
expenses beyond what was anticipated at December 31, 1998. For the six
months ended June 30, 1999 costs associated with this activity totaled
$265,000. In addition, management believes that operating losses from the
Mexican entities will continue until disposal of these assets is completed.
However, management cannot reasonably estimate these losses. Future losses
will be charged to operations as incurred.
Corporate Expense. Corporate expenses were $843,000 for the six months
ended June 30, 1999 as compared to $1,077,000 for the comparable period of
1998, a decline of 22%. This decline was achieved by continued cost
reductions and staffing reductions.
Interest Expense. Interest expense for the six months ended June 30,
1999 was $149,000 as compared to interest expense of $60,000 for the
comparable period. This is due to the addition of interest-bearing debt
during the second half of 1998.
Consolidated Results
The Company experienced a net loss of $1,189,000 for the six months
ended June 30, 1999 as compared to a net loss of $1,856,000 for the
comparable period ended June 30, 1998, an improvement of 36%.
Impact of Year 2000
Certain computer programs written with two digits rather than four to
define the applicable year may experience problems handling dates beyond the
year 1999. This may cause computer applications to fail or create erroneous
results unless corrective measures are taken. The Year 2000 ("Y2K") problem
can arise at any point in the Company's supply and customer chains. The
Company acknowledges that its failure to resolve a material Y2K issue could
result in the interruption in, or failure of, certain normal business
activities or operations. Such failures could materially and adversely
affect the Company's results of operations. In addition, the Company could
be materially impacted by the widespread economic or financial market
disruption by Y2K computer system failures at suppliers, customers and other
third parties. Possible risks of Y2K failure could include, among other
things, delays or errors with respect to payments and third party delivery
of materials.
During fiscal 1998, the Company initiated a plan to assess its Y2K
exposure. The Company's Y2K project is expected to significantly reduce the
Company's level of uncertainty and exposure to the Y2K issue. In connection
with this assessment, the Company initiated a plan to acquire and implement
new business systems that will address its Y2K issues. To date, the Company
has not identified any operating systems, either of its own or of a material
third party relationship, that present a material risk of not being Y2K
ready or for which a suitable alternative cannot be implemented. The
Company believes that it will have all of its own systems Y2K compliant by
December 1, 1999.
As part of the Company's assessment of the risk of the Y2K problem, the
Company's relationships with significant suppliers, customers, and other
third parties are being examined to determine the status of these third
parties' efforts to comply with the Y2K requirements. There is no assurance
that such third parties will not suffer a Y2K business disruption. While
it is conceivable that such failures could have a material adverse effect
on the Company's liquidity, financial condition and results of its
operations, management believes that the risk is low.
The following outlines the various phases of the Company's Y2K project,
as well as the expected completion date of the phase:
Expected
Description of Task Completion
Date
- ------------------------------------------------------- -------------
Address Compliance of IT Systems with Year 2000 issues:
--Address Business Information IT System Completed
--Address Operations IT System Completed
Assessment of third-Party Risk regarding Y2K issues 10/15/1999
Assessment of Non-IT Systems Completed
Update of IT Systems to meet Year 2000 requirements 10/15/1999
Development of contingency plan for non-compliance of
systems to Y2K requirements 10/31/1999
The Company's ability to complete the Y2K modifications in the timeline
outlined above is dependent upon numerous factors, including the ability of
third party software and hardware suppliers to make necessary modifications
to current versions of their products, the availability of resources to
install and test the modified systems and other factors. Accordingly, there
can be no assurance that these modifications will be successful. If the
Company is not successful in the above implementation, management will
consider the necessity of implementing a contingency plan to mitigate any
adverse effects associated with the Y2K issue. At this time, management
does not have such a plan.
To date, the Company's effort to modify its accounting and information
systems to comply to the Y2K requirements has been focused on its core
business applications (i.e. systems used for the Company's day-to-day
operations). As of June 30, 1999, the Company has spent approximately
$57,500 to modify its computer systems (including software) to process dates
beyond 12/31/99. The Company does not estimate that its future costs
related to its Y2K initiatives will be material. The Company currently
anticipates that all of its operating systems will be Y2K compliant well
before January 1, 2000, and that the Y2K issue will not have a material
adverse effect upon the Company's liquidity, financial position or results
of operations.
Liquidity and Capital Resources
In the fourth quarter of 1998, the Company committed to a plan to
discontinue its Mexican operations and to seek potential buyers for its
Mexican business. The Company is, however, retaining the El Confin landfill
facility currently in arbitration under the NAFTA. Although no further
investments are being made in Mexico, the Company continues to rely upon
additional capital to maintain its Mexican assets until sold, pursue its
NAFTA arbitration and support its remaining operations.
During the six months ended June 30, 1999, the Company received
approximately $526,000 from the exercise of warrants under its warrant
exchange program and an additional $750,000 from the exercise of warrants
outside of any exchange offer. Additionally, the Company issued 385,000
shares of its common stock to certain employees of the Company in exchange
for $108,000 in payroll obligations.
During July 1999, the holder of the Company's $350,000 principal, 10%
Convertible Subordinated Debentures due 2001 converted the debentures into
common stock of the Company. Additionally, the holder of the Company's 7%
Convertible Subordinated Debentures due 2001 converted $100,000 of the
principal amount of the debentures into common stock of the Company. The
Company believes the holder of these debentures intends to convert the
remaining debentures into its common stock as well.
The Company had negative working capital at June 30, 1999 of $4,141,000
compared to negative working capital of $4,289,000 at December 31, 1998.
The Company had cash and cash equivalents at June 30, 1999 of $164,000 and
$520,000 at December 31, 1998. Cash used in continuing operations for the
six months ended June 30, 1999 was $1,252,000 compared to $7,000 for 1998.
Cash used by discontinued operations for the six months ended June 30, 1999
was $284,000 compared to cash used of $790,000 for 1998. Cash used in
operating activities for the six months ended June 30, 1999 was funded
primarily by cash and cash equivalents on hand at the beginning of the year
as well as the warrant exercises completed during the six months.
For the six months ended June 30, 1999 the Company generated negative
cash flow from continuing operations of $1,252,000, of which $105,000 in
negative cash flow related to the insulation business due primarily to
larger than usual collection of accounts receivable in December 1998. The
remaining negative cash flow is related to corporate activities, primarily
the Company's NAFTA claim. The Company will require substantial additional
financing to continue pursuit of its NAFTA claim, and complete the sale of
its Mexican operations, 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 warrant holders, investment
bankers and other sources to meet its on going needs through December 31,
1999. Given the Company's decision to discontinue operations in Mexico, and
sell its businesses, the cash requirements in Mexico greatly diminish. The
Company believes it will obtain the necessary funds to continue its planned
operations throughout 1999; however, no assurances can be given that such
funds will be available to the Company as required.
Foreign Currency Translation
Effective January 1, 1999, Mexico is no longer considered to be "highly
inflationary". However, the Company is discontinuing its Mexican
operations, therefore, the impact of this change had no effect on the
Company's financial statements.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Given the Company's long history in the insulation business and in the
sale of insulation materials, it is subject to various claims related to
prior asbestos related business as well as its current business. The number
of these claims is over 300, the Company believes it has adequate insurance
in place and had adequate insurance in prior years and is vigorously
defending all claims. The Company does not believe that these claims,
individually or in the aggregate, will have a material adverse effect on its
financial condition.
On October 2, 1996, having completed a long period of negotiation with
the Mexican government on the opening of its hazardous waste landfill in San
Luis Potosi, Mexico, the Company filed a Notice of Claim under the provision
of the North American Free Trade Agreement. The notice was filed with the
International Center for the Settlement of Investment Disputes (ICSID) in
Washington, D.C. pursuant to the provisions of the NAFTA. On January 2,
1997, the Company filed its actual claim with the Tribunal, after which a
three-member Tribunal was impaneled which includes one arbitrator from
Mexico, one from the United States and a third, chosen jointly by the
parties, from Great Britain. The first hearing was held in Washington, D.C.
on July 15, 1997.
Pursuant to the proceedings, the Company, on October 13, 1997, filed
its Memorial, which included the Claim and all of the evidence supporting
the Claim, including expert witness studies and the like. The basis of the
Company's claim against Mexico is one likened to expropriation. The
Company's position is since it is not being allowed to operate a legally
authorized project, it has in essence been taken by the Mexican government
and they should, therefore, be responsible for paying fair compensation
under the provision of the NAFTA. A fair market valuation was done on
behalf of the Company by an expert company, which indicated the fair market
value of this business was $90,000,000.
On February 17, 1998, the United Mexican States ("Mexico") responded to
the Company's claim to the Tribunal. On August 21, 1998 the Company filed
its Reply to Mexico and on May 3, 1999 Mexico filed its rejoinder. A pre-
hearing conference was completed on July 6, 1999 with the final hearing date
set for August 30, 1999.
The Company has devoted substantial resources in the pursuit of its
claim before the NAFTA tribunal. It has given counsel broad authority in
the employment of experts and others it feels necessary to properly pursue
the Company's claim. The officers of the Company have also spent
substantial amounts of time and resources in assisting the Company's NAFTA
counsel and will continue to do so to completion. There is no assurance,
however, that the Company will be successful. If it is not, the impact will
be material and adverse. Management does not believe that a loss of its
arbitration case would cause the Company to become insolvent or prevent it
from conducting its domestic business, or in making acquisitions or mergers
with others in similar businesses seeking a public market.
Item 2. Changes in Securities
On June 2, 1999 the shareholders of the Company approved a reverse
stock split of the Company's common stock in a ratio of one share for up to
ten shares of its outstanding common stock.
Pursuant to this approval, the Board of Directions of the Company
approved a reverse split of the common shares in a ratio of one share for
every ten shares. This reverse split was effective on The Nasdaq SmallCap
Market on July 2, 1999.
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On June 2, 1999, the Company held its Annual Meeting of Shareholders
in Newport Beach, California. The following matters were presented for the
approval of the shareholders with the results presented:
a. The election of five members to the Board of Directors of the
Company, to serve until the next annual meeting. The results of the
shareholders' votes are as follows:
For Against
---------- ---------
Grant S. Kesler 29,887,554 1,053,430
Anthony C. Dabbene 29,887,554 1,053,430
Raymond J. Pacini 29,888,254 1,052,730
J. Thomas Talbot 29,887,554 1,053,430
Bruce H. Haglund 29,888,254 1,052,730
b. To ratify the appointment of Moss Adams LLP as the independent
public accountants of the Company for the year ended December 31, 1999. The
results were as follows:
For: 30,300,241
Against: 487,365
Abstain: 153,378
c. To consider and act upon a proposal to effect a one for up to ten
reverse split of the common stock of the Company, provided that it becomes
a necessary requirement of NASDAQ to maintain the Company's listing. The
results were as follows:
For: 28,857,567
Against: 1,911,727
Abstain: 171,690
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
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: February 9, 2000 By: /s/Anthony C. Dabbene
--------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)
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