<PAGE>
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 August 31, 1995
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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3737 Birch Street, Suite 300
Newport Beach, California 92660
(Address of Principal Executive Office) (Zip Code)
Registrant s telephone number, including area code (714) 476-2772
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 August 31, 1995, the registrant had 20,913,487 shares
outstanding of its Common Stock, $.10 par value.
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METALCLAD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION 4
Item 1. Consolidated Financial Statements:
Balance Sheets (unaudited) at August 31 1995
and May 31, 1995 4
Statements of Operations (unaudited) for the
three months ended August 31, 1995 and 1994 6
Consolidated Statements of Cash Flows (unaudited)
for the three months ended August 31, 1995 and 1994 7
Notes to Consolidated Financial Statements 9
Item 2. Management s Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, May 31,
1995 1995
(unaudited)
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Cash and cash equivalents $ 1,062,502 $ 381,406
Accounts receivable, including
amounts retained by customers
under contract terms of $48,538
as of August and $53,490 as of
<PAGE>
May 1995; less allowance for
doubtful accounts of $53,490 in
August and $44,480 in May 1995 1,809,167 2,337,968
Investment in Curtom-Metalclad 80,013 87,453
Costs and estimated earnings in
excess of billings on uncom-
pleted contracts 169,396 343,405
Inventories 370,314 374,029
Prepaid expenses and other current
assets including restricted
certificates of deposit of
$130,000 in August and May 1995 714,822 681,696
Receivables from related parties 197,408 197,408
--------- ---------
TOTAL CURRENT ASSETS 4,403,622 4,403,365
Property, plant and equipment, net 5,573,285 5,266,869
Receivables from related parties,
non-current 2,095 6,261
Deposits and other assets, including
restricted certificates of deposit
of $7,730 in August and May 1995 132,370 138,946
Goodwill, less accumulated amortiza-
tion of $21,500 in August and
$17,469 in May 1995 139,752 143,783
Real estate held for sale, pledged 155,515 155,515
Capitalized debenture costs, less
accumulated amortization of
$456,819 in May 1995 0 595,478
----------- -----------
TOTAL ASSETS $10,406,639 $10,710,217
=========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
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METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
August 31, May 31,
1995 1995
(unaudited)
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CURRENT LIABILITIES
Accounts payable $ 2,326,881 $2,751,540
Accrued payroll, property and
other taxes 726,874 596,657
Accrued expenses 939,798 1,465,759
Accrued waste disposal costs 90,301 150,474
Billings in excess of costs and
estimated earnings on uncompleted
contracts 85,518 113,817
Current portion of long-term debt 2,981,181 1,118,947
----------- -----------
TOTAL CURRENT LIABILITIES 7,150,553 6,197,194
Long-term debt, less current portion 9,005 2,050,237
Convertible subordinated debentures 584,533 8,636,109
Shareholders equity (deficit):
Preferred stock, par value $.10;
1,500,000 shares authorized;
none issued - -
Common stock, par value $.10;
40,000,000 shares authorized;
20,913,487 and 15,885,628 issued
and outstanding in August and
May 1995, respectively 2,091,348 1,588,563
Additional paid-in capital 38,195,475 29,044,185
Accumulated deficit (35,344,148) (34,583,991)
Officers receivable collateralized
by stock (740,000) (740,000)
Cumulative foreign currency trans-
lation adjustment (1,540,127) (1,482,080)
----------- -----------
TOTAL STOCKHOLDER S EQUITY 2,662,548 (6,173,323)
TOTAL LIABILITIES AND
STOCKHOLDER S EQUITY $10,406,639 $10,710,217
=========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
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METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
August 31, August 31,
1995 1994
(unaudited) (unaudited)
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Revenues - Insulation Business
Contract revenues $ 2,635,995 $ 3,483,023
Material sales 34,415 49,602
Other 23,004 9,690
---------- ----------
2,693,414 3,542,315
---------- ----------
Operating costs and expenses -
Insulation Business
Contract costs and expenses 2,112,877 2,966,149
Cost of material sales 24,443 36,861
Selling, general and adminis-
trative expenses 480,950 495,501
---------- ----------
2,618,270 3,498,511
---------- ----------
Operating income (loss) -
Insulation Business 75,144 43,804
---------- ----------
Revenues - Waste Management 759,635 744,202
---------- ----------
Operating costs and expenses - Waste
Management
Waste collection 439,548 1,167,447
Landfill 715,810 1,107,190
---------- ----------
1,155,358 2,274,637
---------- ----------
Operating Loss - Waste Management (395,723) (1,530,435)
---------- ----------
Operating Loss (320,579) (1,486,631)
Interest Expense (439,578) (414,633)
---------- ----------
Net Loss (760,157) (1,901,264)
========== ==========
Weighted average number of common shares 16,948,754 11,744,244
Per share of common stock:
Income (loss) from continuing
operations (.04) (.16)
See Notes to Consolidated Financial Statements
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</TABLE>
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METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
August 31, August 31,
1995 1994
(unaudited)
(unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (760,157) $(1,901,264)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 141,678 353,390
Provision for losses on account
receivables 9,309 0
Common stock issued for services 75,600 0
Debenture issued for services 39,323 0
Donated equipment (317,306) 0
Changes in operating assets and
liabilities:
Decrease in accounts receivable 507,791 429,683
Decrease in unbilled receivables 174,009 (59,940)
Decrease in inventories 3,556 54,104
(Increase) in prepaid expenses
and other assets (30,644) (225,285)
Decrease in receivables from
Curtom-Metalclad 7,440 19,600
Decrease in receivables from
related parties 4,166 8,432
(Decrease) increase in bank
overdraft, accounts payable
and accrued expenses (643,591) 648,183
(Decrease) increase in billings
over costs (28,299) 4,155
(Decrease) in reserve for loss on
disposal of discontinued operations (4,280)
--------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (817,125) (673,222)
--------- ---------
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CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment (141,218) (95,197)
--------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (141,218) (95,197)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 0 100,000
Payments on long-term borrowings (175,661) (171,443)
Proceeds from issuance of common
stock under stock option plan 55,625 57,375
Proceeds from issuance of common
stock 1,431,008 0
--------- ----------
NET CASH PROVIDED IN
FINANCING ACTIVITIES 1,660,688 (14,068)
--------- ----------
Effect of exchange rates on cash (21,249) (45,994)
--------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 681,096 (828,481)
--------- ----------
Cash and cash equivalents at beginning
of period $ 381,406 $ 1,146,491
--------- ----------
Cash and cash equivalents at end of
period $1,062,502 $ 318,010
========= ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 140,712 $ 219,000
========= ==========
Supplemental schedule of noncash investing and financing activities:
In August 1995 the Company converted approximately $8,417,300
of convertible subordinated debentures and $192,346 in related
accrued interest into 3,443,858 of common stock at a conversion
rate of $2.50 per share. In conjunction with this transaction
approximately $550,716 and $316,800 in unamortized commissions and
bond discounts were written off respectively.
During the quarter ended August 31, 1994 debentures of $170,160
were converted into common stock.
See Notes to Consolidated Financial Statements
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</TABLE>
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METALCLAD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
b y generally accepted accounting principles for complete
f i nancial 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 August 31, 1995 are not
necessarily indicative of what results will be for the fiscal
year ending May 31, 1996. These statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company s Form 10-K for the year ended
May 31, 1995.
2. In August 1995, $8,417,300 of the Company s convertible
subordinated debentures were converted into 3,366,920 shares.
Additionally, $192,346 in interest on the debentures which was
accrued through August 31, 1995 was converted into 76,938
additional shares of common stock.
3. The earnings (loss) per share amounts for the three
months ended August 31, 1995 and 1994 were computed by dividing
the net income (loss) by the weighted average shares outstanding
during the applicable quarter including common stock equivalents.
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operation
General.
The Company s revenues were generated primarily by (i)
revenues in the United States from industrial insulation services
and sales of insulation products and related materials; and (ii)
revenues in Mexico from the collection of waste oils and solvents
for recycling, rental of parts washing machines, and brokering
the disposal of hazardous waste.
<PAGE>
Since November 1991, the Company has pursued the development
of integrated waste treatment and disposal facilities in several
Mexican states. The Company has completed construction of a
hazardous waste landfill in San Luis Potosi which is not yet
open; all other contemplated projects are in the early stages of
development. The Company s results of operations reflect the
costs of development of all such hazardous waste treatment
facilities in Mexico.
Although the landfill in San Luis Potosi has been completed,
political and social challenges have caused substantial delays in
its opening. During fiscal 1995, at the request of the Mexican
government, the Company completed additional engineering and site
studies, the results of which were positive and resulted in an
endorsement of the project by the federal government of Mexico.
Because of the history of delays by governmental officials, the
Company has been unable to establish a firm timetable for the
commencement of revenue-producing activities at its landfill.
The Company is ready to commence landfill operations upon receipt
of public support from state and local governmental officials to
assure safe and uninterrupted operations.
Insulation Business
Revenues from the insulation business for the first quarter
of fiscal 1996 decreased 24% to $2,693,000 compared to revenues
of $3,542,000 during the same period in fiscal 1995.
Insulation contract revenues in the first quarter of fiscal
1996 decreased 24.3% to $2,636,000 compared to revenues of
$3,483,000 during the same period in fiscal 1995, a decrease of
$847,000. The decrease in contract revenue is primarily
attributable to an overall reduction in the work performed under
the company s maintenance contracts with refinery and power plant
customers.
Insulation material sales decreased 30.6% to $34,400 in the
first quarter of fiscal 1996 from $49,600 during the same period
in fiscal 1995, a decrease of $15,200.
Expenses related to the insulation business decreased 25.2%
to $2,618,000 during the first quarter of fiscal 1996 compared
with $3,499,000 during the same period in fiscal 1995.
Insulation contracting costs and expenses for the three
months ended August 31, 1995 decreased 28.8% to $2,113,000
compared to $2,966,000 for the same period in fiscal 1995, a
decrease of $853,000. The decrease in contracting costs and
expenses corresponded to a similar decrease in contract revenue
<PAGE>
and lower insurance rates.
Cost of insulation material sales decreased 35.1% from
$37,000 in the first quarter of fiscal 1995 to $24,000 for the
corresponding period in fiscal 1996 which is comparable to the
related decrease in material sales.
Selling, general, and administrative costs decreased 3% from
$496,000 for the first quarter of fiscal 1995 to $481,000 for the
same period in fiscal 1996. The reduction is primarily due to a
decrease in overall labor costs and related expenses.
The Company experienced a net profit from the insulation
business of $75,000 during the first quarter of fiscal 1996
compared to a net profit of $44,000 during the first quarter of
fiscal 1995, an increase of $31,000 or 70.5%.
Mexican Business
The devaluation of the Mexican peso makes financial
comparisons between years difficult. The average exchange rate
for the first quarter of fiscal 1995 was 3.4 pesos to the dollar.
The average rate for the first quarter just ended was 6.15 pesos
to the dollar. A comparison of revenues from the Company s
Mexican operations in dollars reveals a modest 2.1% increase in
revenues to $760,000 in the three months ended August 31, 1995
from $744,000 in the comparable period in 1994. However,
comparing the results in peso terms, at exchange rates effective
during the period, demonstrates a revenue increase in the first
quarter of fiscal 1996 to 4,674,000 pesos from 2,530,000 pesos in
the comparable quarter of the prior year, an increase of 84%.
The increase is a result of (i) increased revenues from existing
branch operations and opening three new branch operations which
collect waste oils and solvents for recycling and rent parts
washing machines, and (ii) increased outlets for the recycled
waste oils and solvents.
Waste collection costs were $407,000 for the first three
months of fiscal 1996 compared to $1,167,000 in the prior year, a
savings of $760,000. The savings resulted from the receipt of
donated environmental control equipment valued at $317,000 and
from other cost containment measures implemented during the
quarter.
Interest Expense
Interest expenses increased $25,000 to $440,000 in the first
quarter of fiscal 1996 from $415,000 in the same period of fiscal
1995. The increase in interest expense is due to higher
<PAGE>
borrowing rates during the quarter. At the end of the quarter,
the Company converted approximately 93% of its Convertible
Subordinated Debentures. Beginning in the second quarter of
fiscal 1996, the Company s interest expense will be reduced by
$180,000 per quarter as a result of such conversion.
Consolidated Results
The Company experienced a net loss of ($760,000) during the
first quarter of fiscal 1996 compared to a net loss of
($1,901,000) during the comparable period in fiscal 1995, an
improvement of $1,141,000 or 60%.
Liquidity and Capital Resources
In November 1991, the Company completed the acquisition of
Eco-Metalclad, Inc. ("ECO-MTLC"), commenced the development of
the hazardous waste treatment business in Mexico, and began
advancing cash to its Mexican subsidiaries for use in the Mexican
business. Funding the development of the Company's Mexican
business has required and will continue to require substantial
capital. To obtain capital for the continued development of the
business of the Company in Mexico, the Company has made private
placements of its common stock and convertible subordinated
debentures and has obtained loans from financial institutions.
Private placements of the Company s securities since May 31,
1995 included: (i) the issuance of 750,000 shares in June 1995
to two institutions at a price of $1.05 per share for net
proceeds of $708,750; (ii) the issuance of 200,000 shares in June
1995 to two institutions at a price of $1.15 per share for net
proceeds of $216,458; and (iii) the issuance of 420,000 shares of
stock in August 1995 at a price of $2.00 per share for net
proceeds of $756,000.
In September 1993, the Company obtained a loan in the amount
of $2,500,000 from a financial institution pursuant to the terms
of a promissory note due in September 1995. Interest on the loan
accrued at the prime rate of interest plus 7% and was secured by
substantially all of the assets of the Company, including a
pledge of the shares of common stock of Metalclad Insulation
Corporation, Metalclad Environmental Contractors, and ECO-MTLC,
the Company s United States subsidiaries. In connection with
this credit facility, the Company granted the lender a five-year
warrant to purchase 375,000 shares of common stock at an exercise
price of $4.50 per share. In September 1994, the Company
obtained a loan for an additional $525,000 from the lender,
bearing interest at the prime rate plus 7% and payable in
November 1994. In connection with this loan, the Company granted
<PAGE>
the lender a five-year warrant to purchase 75,000 shares of
common stock at an exercise price of $2.625 per share.
In May 1995, the Company entered into a loan modification
agreement with the lender and extended the maturity of the debt,
including principal and interest of approximately $2,800,000 to
June 30, 1996. In connection with the extension, the Company
issued the lender 87,578 shares of common stock, reduced the
exercise price of previously granted warrants to $1.59, extended
the expiration date of the warrants to May 31, 2000, and granted
the lender an additional five-year warrant to purchase 600,000
shares of common stock at an exercise price of $1.908 per share.
The agreement with the lender further provides for a right of
first refusal for the lender with respect to future debt and
equity financings by the Company, gives the lender the right to
convert the debt into shares of common stock at the rate of $1.59
per share, and requires that 60% of the net proceeds from future
financings be paid to the lender. The Company has made principal
payments since May 31, 1995 of $730,000. The agreement, as
further amended in September 1995, requires that the Company s
landfill be in operation by December 31, 1995. The Company has
agreed to pay the lender an additional $100,000 if the loan is
not repaid in full by October 13, 1995.
The proceeds of the loan from the financial institution and
private placements of common stock have been utilized for working
capital, for equipment and fixed asset purchases in connection
with the expansion of the Company s Mexican operations, and for
equipment purchases and construction of the landfill; however,
the Company will require substantial additional capital to
develop and construct the additional facilities it intends to
pursue.
Working capital (deficit) at August 31, 1995 was
($2,748,000) compared to ($1,794,000) at May 31, 1995. The
Company had cash and cash equivalents at August 31, 1995 of
$1,062,000 compared to $381,000 at May 31, 1995. Cash flow used
in operations at August 31, 1995 was ($817,125) compared to
($673,222) for the same period in fiscal 1995. Cash used in
operations in the three months ended August 31, 1995 was funded
primarily by existing cash and cash equivalents on hand at the
beginning of the fiscal year and by the proceeds received from
stock issuances.
The Company believes that the insulation business will
generate adequate cash flows from continuing operations to meet
its future obligations and expenses relating to such operations;
h o w ever, the Company will require substantial additional
financing to construct and operate additional hazardous waste
<PAGE>
treatment facilities in Mexico. Furthermore, to the extent that
the Company is required to expend additional efforts to open the
landfill, additional general and administrative expenses without
revenues to offset such are anticipated expenses until the
landfill is opened. The Company has raised additional $3,700,000
capital during the first four months of fiscal year 1996 to fund
its Mexican business costs and anticipates that additional
capital from the sale of the Company s securities and project
financing will be available through debt or joint venture
financing for its proposed Mexican operations in the future;
however, no additional development projects other than the
landfill in San Luis Potosi have been undertaken at this time.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation
i n c idental to its insulation services business, relating
p r imarily to asbestos-related claims against the Company.
Although the asbestos-related claims number over 100, the Company
defends these actions vigorously and believes that these actions,
individually and in the aggregate, will not have a material
adverse effect on the Company's financial condition. The
Company's insurance carrier pays for substantially all of the
legal costs associated with the defense of these actions; the
Company has accrued all other relevant legal costs. While some
of the cases have been settled in the range of $2,500 to $5,000
by the insurance carrier, most of the asbestos-related cases that
have been resolved have resulted in the dismissal of the Company
without liability to the Company. While the Company believes
that its insurance coverage is sufficient to cover the cost of
anticipated settlements, the Company has a $50,000 reserve at May
31, 1993 and August 31, 1993, for the asbestos-related cases. No
significant costs have been incurred in settling these cases.
Management does not believe the resolution of these claims will
have a material adverse effect on the Company's results of
operations.
In September 1995, the Company settled a claim by a former
employee alleging wrongful termination by paying the employee
$26,000.
Item 2. Changes in Securities
<PAGE>
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
A Current Report on Form 8-K was filed on June 14, 1995
reporting the May 31, 1995 Loan Modification Agreement with CVD
Financial Corporation. See Item 2, Management s Discussion and
Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources.
<PAGE>
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: October 19, 1994 By: /s/Grant S. Kesler
-----------------------------
Grant S. Kesler,
President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> May-31-1996
<PERIOD-START> Jun-01-1995
<PERIOD-END> Aug-31-1995
<CASH> 1063
<SECURITIES> 0
<RECEIVABLES> 1853
<ALLOWANCES> 44
<INVENTORY> 370
<CURRENT-ASSETS> 4404
<PP&E> 5573
<DEPRECIATION> 0
<TOTAL-ASSETS> 10407
<CURRENT-LIABILITIES> 7151
<BONDS> 593
<COMMON> 40287
0
0
<OTHER-SE> (37624)
<TOTAL-LIABILITY-AND-EQUITY> 10407
<SALES> 3453
<TOTAL-REVENUES> 3453
<CGS> 2137
<TOTAL-COSTS> 3773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440
<INCOME-PRETAX> (760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (760)
<EPS-PRIMARY> (.04)
<EPS-DILU* Mic 0
</TABLE>
