Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (Date of earliest event reported): April 3, 2006
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Entrx
Corporation
(Exact
name of registrant as specified in its
charter)
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Delaware
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0-2000
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95-2368719
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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800
Nicollet Mall, Suite 2690,
Minneapolis,
Minnesota
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55402
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (612) 333-0614
N/A
(Former
name or former address, if change since last report.)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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Soliciting
material pursuant to rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13c-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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INFORMATION
TO BE INCLUDED IN THIS REPORT
Item 2.04. Triggering
Events that Accelerate or Increase a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement
The
Company’s subsidiary, Metalclad Insulation Company (“Metalclad”), has a
$1,000,000 line of credit from the Far East National Bank (the “Bank”), which
matures on May 1, 2006. The amount due under the line of credit was
$775,000 as of December 31, 2005, and $1,000,000, as of March 31, 2006. The
line
of credit is secured by certain assets of Metalclad, including the land and
building from which Metalclad currently conducts its business. The line of
credit is also guaranteed by Entrx, and secured by Entrx’s equity interest in
Metalclad.
The
line
of credit agreements with the Bank contain a number of financial covenants,
including covenants requiring Metalclad to maintain a minimum amount of income
and cash flow, as well as a minimum tangible net worth of $3,000,000, a
two-to-one debt to net worth ratio, and a 1.25 to 1 current ratio. In addition,
Entrx has provided a covenant that it will maintain a net worth of $4,000,000.
A
default in the maintenance of any of these covenants constitutes an event of
default, allowing the Bank to accelerate the due date of the amounts owed to
the
Bank under the line of credit, so that such debt becomes immediately due. These
financial covenants are measured at the end of each interim fiscal quarter,
and
at the end of each fiscal year.
Under
its
agreements with the Bank, Metalclad and Entrx are each required to provide
the
Bank with quarterly financial statements relating to each entity within 45
days
after the end of each interim fiscal quarter, and annual audited financial
statements within 120 days following the end of each fiscal year. In addition,
Metalclad is required to provide the Bank with a certificate within 45 days
of
each interim fiscal quarter that no event of default exists under the line
of
credit agreements.
As
of
December 31, 2005, the Company’s and Metalclad’s audited financial statements
will disclose that on that date neither Entrx nor Metalclad was in compliance
with a number of their respective financial covenants. Metalclad’s and Entrx’s
failure to comply with the financial covenants was substantially the result
of
losses which are estimated to be sustained in connection with a fixed-price
asbestos abatement project undertaken by Metalclad. The project involves the
removal of asbestos insulation from large boilers, and was entered into with
Cleveland Wrecking Company on February 8, 2005. After undertaking the
project, the thickness of the asbestos was discovered to be approximately two
times thicker than originally anticipated, and the workers promised to be
provided by the union, with which Metalclad has a contract, failed to be
supplied, requiring Metalclad to seek and engage other workers at a greater
expense and causing delays in the project.
On
approximately September 30, 2005, the Company projected that it would incur
a
loss on the Cleveland Wrecking Company project, and booked a $650,000 loss
for
the period ended September 30, 2005. As a result of this loss, the Company
reported that Metalclad was not in compliance with its income and cash flow
covenants, and received a waiver of such non-compliance from the Bank. As of
December 31, 2005, the Company increased its projected loss to $1,050,000.
This
increase in the estimated loss will adversely impact other financial covenants
in the line of credit agreements. This further loss is normally required to
be
disclosed to the Bank by delivery of the Company’s audited annual financial
statements. In addition, however, the waiver previously granted by the Bank
requires that the Company and Metalclad come into compliance with its financial
covenants by April 3, 2006, which neither was able to do, resulting in an event
of default on that date.
The
Company does not anticipate that it will receive a waiver with respect to its
non-compliance with the various financial covenants contained in its agreements
with the Bank, or that the Bank will renew the line of credit when it comes
due
on May 1, 2006.
Metalclad
has entered into a contract to sell its Anaheim, California facilities for
$3,900,000, and anticipates that this transaction will close on or before May
1,
2006, providing Metalclad with the cash necessary to pay off its line of credit
and continue its operations. Following the sale of the building, Metalclad
intends to lease other facilities in the Anaheim, California area, including
leasing its sold building for approximately eight months. If the closing of
the
sale of the building is significantly delayed, or does not occur, the Bank
could
satisfy Metalclad’s debt by foreclosing on the assets pledged as collateral for
the loan, including the Company’s Anaheim, California facilities, or in the
alternative Metalclad might be forced to enter into a new financing arrangement
or sell assets under terms or prices which may be significantly less favorable
than those terms or prices which Metalclad might obtain under normal
circumstances.
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 hereunto
duly authorized.
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| Dated:
April 7, 2006 |
ENTRX
CORPORATION |
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By: |
/s/ Brian D. Niebur |
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Brian
D.
Niebur, Treasurer and Chief Financial
Officer |