<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A<PAGE>
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
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 February 29, 1996, the registrant had 28,030,829
shares outstanding of its Common Stock, $.10 par value.
PAGE
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION 4
Item 1. Consolidated Financial Statements:
Balance Sheets (unaudited) at February 29, 1996
and May 31, 1995 4
Statements of Operations (unaudited) for the
three months ended February 29, 1996 and 1995 6
Consolidated Statements of Cash Flows (unaudited)
for the three months and nine months ended
February 29, 1996 and 1995 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 16
SIGNATURES 17
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<S> <C> <C>
February 29, May 31,
1996 1995
----------- -----------
(unaudited)
Cash and cash equivalents $ 8,991,064 $ 381,406
Accounts receivable, including amounts
retained by customers under contract
terms of $125,496 as of February 29,
1995 and $53,490 as of May 1995; less <PAGE>
allowance for doubtful accounts of
$67,670 as of February 29, 1996 and
$44,480 as if May 31, 1995 2,756,795 2,337,968
Costs and estimated earnings in excess
of billings on uncompleted contracts 38,258 343,405
Inventories 338,345 374,029
Investment in Curtom-Metalclad 0 87,453
Prepaid expenses and other current assets
including restricted certificates of
deposit of $54,950 in February, 1996
and $130,000 in May, 1995 289,060 681,696
Receivables from related parties 198,441 197,408
---------- ----------
TOTAL CURRENT ASSETS 12,611,963 4,403,365
---------- ----------
Property, plant and equipment, net 5,862,580 5,266,869
Capitalized debenture costs, less
accumulated amortization $456,819
as of May 31, 1995 0 595,478
Receivables from related parties,
non-current 0 6,261
Deposits and other assets, including
restricted certificates of deposit
of $7,730 in May, 1995 93,902 138,946
Costs in excess of net assets acquired,
less accumulated amortization of
$29,543 as of February 29, 1996 and
$17,469 as of May 1995 131,689 143,783
Real Estate held for sale 155,515 155,515
----------- -----------
TOTAL ASSETS $18,855,649 $10,710,217
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
<TABLE>
<S> <C> <C>
February 29, May 31,
1996 1995
----------- -----------
(unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,632,291 $2,751,540
Accrued payroll, property and
other taxes 898,910 596,657
Accrued expenses 904,232 1,616,233
Billings in excess of costs and
estimated earnings on uncompleted
contracts 53,268 113,817
Current portion of long-term debt 18,031 1,118,947<PAGE>
Note payable 190,749 0
----------- -----------
TOTAL CURRENT LIABILITIES 3,697,481 6,197,194
Long-term debt, less current portion 0 2,050,237
Convertible subordinated debentures 522,553 8,636,109
Stockholders equity (deficit):
Preferred stock, par value $.10;
1,500,000 shares authorized;
none issued - -
Common stock, par value $.10;
40,000,000 shares authorized;
28,030,829 and 15,885,628 issued
and outstanding as of February 29,
1996 and May 31, 1995, respectively 2,803,083 1,588,563
Additional paid-in capital 53,813,244 29,044,185
Officers receivable collateralized
by stock (607,294) (740,000)
Accumulated deficit (39,260,290) (34,583,991)
Cumulative foreign currency trans-
lation adjustment (2,113,128) (1,482,080)
----------- -----------
STOCKHOLDER S EQUITY 14,635,615 (6,173,323)
TOTAL LIABILITIES AND
STOCKHOLDER S EQUITY $18,855,649 $10,710,217
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
For Nine Months Ended For Three Months Ended
February 29, February 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues-Insulation Business
Contract revenues $ 8,934,866 $11,286,899 $ 3,451,234 $ 3,354,989
Material sales 142,895 163,901 75,362 66,596
Other 15,611 38,117 (13,342) 11,011
----------- ---------- ----------- -----------
9,093,372 11,488,917 3,513,254 3,432,596
----------- ---------- ----------- -----------
Operating costs and expenses-Insulation Business
Contract costs and expenses 8,043,104 9,658,612 3,587,637 2,966,609
Cost of material sales 108,299 121,561 59,272 50,536
Selling, general and administrative expenses 1,561,616 1,613,022 584,269 576,548
---------- ---------- ----------- -----------
9,713,019 11,393,195 4,231,178 3,593,693
---------- ---------- ----------- -----------<PAGE>
Operating income (loss)-Insulation Business (619,647) 95,722 (717,924) (161,097)
---------- ---------- ----------- -----------
Revenues-Waste Management 2,504,115 1,878,858 1,103,923 331,410
---------- ---------- ----------- -----------
Operating costs and expenses-Waste Management
Waste management 2,545,432 3,413,912 1,455,602 711,474
Landfill 2,470,450 3,275,568 996,864 1,092,269
---------- ---------- ----------- -----------
5,015,882 6,689,480 2,452,466 1,803,743
---------- ---------- ----------- ----------
Operating Loss- Waste Management (2,511,767) (4,810,622) (1,348,543) (1,472,333)
---------- ---------- ----------- -----------
Operating Loss (3,131,414) (4,714,900) (2,066,467) (1,633,430)
Interest Expense (816,240) (1,280,936) (74,916) (403,092)
Other Expense (728,644) - - -
----------- ---------- ----------- -----------
Net Loss (4,676,298) (5,995,836) (2,141,383) (2,036,522)
=========== =========== ============ ============
Weighted average number of common shares 20,627,703 13,370,308 22,598,426 14,252,424
Net loss per share of common stock ($0.23) ($0.45) ($0.09) ($0.14)
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Nine Months Ended
February 29,
1996 1995
----------- -----------
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net loss $(4,676,298) $(5,995,836)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 223,933 918,427
Provision for losses on accounts
receivable 23,190 (16,315)
Foreign currency translation
adjustment - (1,494,900)
Donated equipment (317,306) (44,405)
Issuance of stock for services/
assets 581,350 -
Debenture conversion expense 728,644 -
Changes in operating assets
and liabilities:
(Increase) decrease in accounts
receivable (442,017) 320,235
(Increase) decrease in unbilled <PAGE>
receivables 305,147 122,004
(Increase) decrease in inventories 35,684 (49,269)
(Increase) decrease in prepaid
expenses and other assets 988,114 114,774
(Increase) decrease in receivables
from Curtom-Metalclad 87,453 33,320
(Increase) decrease in related
party receivables 137,934 (737,570)
(Decrease)in accounts payable and
accrued expenses (1,528,997) (682,474)
(Increase) decrease in costs
over billing (60,549) 130,419
(Decrease) in reserve for disposal
of discontinued operations 0 (4,280)
NET CASH USED IN OPERATING
ACTIVITIES (3,913,718) (7,297,060)
---------- ----------
INVESTING ACTIVITIES
Purchase of equipment (947,063) (553,004)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (947,063) (553,004)
---------- ----------
FINANCING ACTIVITIES
Proceeds from short-term borrowings 0 525,000
Payments on short-term borrowings 0 (250,000)
Payments on revolving line of
credit and long-term borrowings (1,035,607) (234,733)
Proceeds from issuance of common
stock under stock option plan 2,651,062 65,313
Proceeds from issuance of common
stock 11,929,366 6,776,612
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 13,544,821 6,882,192
---------- ----------
Effects of exchange rates on cash (74,382) 0
---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 8,609,658 (967,872)
---------- ----------
Cash and cash equivalents at
beginning of period $ 381,406 $1,146,491
---------- ----------
Cash and cash equivalents at
end of period $ 8,991,064 $ 178,619
========== =========
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 816,240 $ -
========== =========
See Notes to Consolidated Financial Statements<PAGE>
</TABLE>
<PAGE>
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
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 nine months ended February 29, 1996 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 3,366,921 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. During the third quarter an
additional $61,980 of the convertible subordinated debentures
were converted into 24,792 shares of common stock.
3. In February 1996, the financial institution holding
approximately $1,925,000 of principal of the Company s current
debt obligation exercised its right to convert the debt into
shares of common stock of the Company at the rate of $1.59 per
share. This transaction resulted in the Company issuing
1,210,564 shares of common stock and the payment of interest due
through the conversion date of approximately $74,000.
4. In February, the Company completed a private placement of
1,650,000 shares of its common stock priced at $4.00 per share,
along with 2,600,000 warrants to purchase common stock at $5.00
per share. Additionally, Messrs. G. Kesler, T.D. Neveau and J.
Guerra, each an officer and director of the Company, placed
950,000 shares of common stock priced at $4.00 per share. These
latter shares were obtained through the exercise of stock
options with the Company as follows: Mr. Kesler, 425,000 shares;
Mr. Neveau, 425,000 shares; and Mr. Guerra, 100,000 shares. The
Company and the selling shareholders each incurred their own
costs and fees associated with the private placement, with the
Company realizing net proceeds, from its placement of common
stock, of $5,875,000.<PAGE>
5. The earnings (loss) per share amounts for the nine months
ended February 29, 1996 and 1995 were computed by dividing the
net income (loss) by the weighted average shares outstanding
during the applicable period 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,
sales of blended fuels to cement kilns, and brokering the
disposal of hazardous waste.
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 and inorganic waste treatment facility
in San Luis Potosi, the approval for opening of which was
announced by the Federal government of Mexico in December 1995.
All other contemplated projects in Mexico 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.
On April 9, 1996, the Company and Browning-Ferris
I n d ustries, Inc. ( BFI ), through wholly-owned Mexican
subsidiaries, formed BFI-Omega, S.A. de C.V. ( BFI-Omega ) as a
50%-50% owned joint venture corporation to provide a full range
of industrial waste collection, transportation, recycling,
treatment, and disposal services in Mexico. The Company s
interest in BFI-Omega is owned by Quimica Omega, S.A. de C.V.
( Quimica Omega ), a wholly-owned subsidiary; BFI s interest is
owned by Browning-Ferris Industries de Mexico, S.A. de C.V.
( BFI-Mexico ), a wholly-owned subsidiary. Pursuant to a
shareholders agreement between the parties, the Company will
contribute its business assets relating to certain waste
collection, treatment, and disposal activities to BFI-Omega as
its initial capital contribution to the venture. BFI-Mexico
w i ll contribute transportable industrial waste processing
equipment to BFI-Omega as its initial capital contribution to
the venture.
The Company, through its existing wholly-owned Mexican
subsidiaries, will continue its activities with respect to the
development and ownership of hazardous waste landfill facilities
which will not be an activity to be engaged in by BFI-Omega.<PAGE>
However, the parties contemplate that BFI-Omega may enter into a
landfill operating agreement with the Company for any landfill
facility owned by the Company if certain conditions relating
primarily to the opening of such facility are met.
Although the Company s landfill in the Mexican state of San
Luis Potosi has been completed and employees have been trained
in landfill operations, the Company is facing legal, political,
and social opposition which have caused substantial delays in
commencing commercial operations at the landfill. During fiscal
1995, at the request of the Federal agencies of the Mexican
government, the Company completed additional engineering and
site studies, the results of which demonstrated the viability of
the San Luis Potosi site as a hazardous waste landfill and the
project as been endorsed by the Federal government of Mexico.
However, the Company has not obtained the support of the state
and local government for commercial operation of the facility.
Because of the opposition by state and local officials, the
Company has not been able to establish a timetable for the
commencement of revenue-producing activities of the landfill.
Consequently, the Company has initiated legal proceedings in
Mexico to enable it to open the landfill in accordance with the
Federal permits to operate the landfill. These actions are in
the process of being adjudicated and the Company is unable to
predict their outcome. Furthermore, in response to the
Company s legal actions, the local government has commenced
legal action to prevent the opening of the landfill. With
construction of the landfill and training of potential employees
completed, the Company is ready to commence landfill operations
upon receipt of public support form state and local governmental
officials to assure safe and uninterrupted operations.
Insulation Business
Total revenues from the insulation business for the first
nine months of fiscal 1996 decreased 21% to $9,093,000 compared
to revenues of $11,489,000 for the same period in fiscal 1995.
For the three months ended February 29, 1996, revenues increased
2% to $3,513,000 from $3,433,000 for the same period in fiscal
1995.
Insulation contract revenues for the first nine months
decreased 21% to $8,935,000 compared to contract revenues of
$11,287,000 for the same period of fiscal 1995. For the three
m o n t hs ended February 29, 1996 contract revenues were
$3,451,000, an increase of 3% compared to contract revenues of
$3,355,000 for the same period of fiscal 1995. The decrease in
revenues for the nine months is primarily attributable to an
overall reduction in the work performed under the Company s
maintenance contracts with industrial and utility plant clients.
Insulation material sales decreased 13% to $142,900 for the
nine months of fiscal 1996 compared to $163,900 for the same
period in fiscal 1995. For the three months ended February 29,<PAGE>
1996, material sales were $75,440, an increase of 13% from
$66,600 for the same period in fiscal 1995.
Expenses related to the insulation business decreased 17% to
$8,043,100 for the first nine months of fiscal 1996 as compared
to $9,659,000 for the same period in fiscal 1995. For the three
months ended February 29, 1996 expenses were $3,587,600, an
increase of 21% from $2,966,600 for the same period in fiscal
1995. The expense increase in the third quarter of fiscal 1996
is primarily attributable to cost overruns on two fixed price
contracts which the Company has estimated and recorded as of
February 29, 1996. The Company believes that 100% of the
overrun on these two contracts has been provided for and no
additional losses on these two contracts is anticipated.
Cost of insulation material sales decreased 11% to $108,300
for the nine months ended February 29, 1996 as compared to
$121,600 for the same period in fiscal 1995. For the three
months ended February 29, 1996, costs increased 17% to $59,300
as compared to $50,500 for the same period in fiscal 1995.
Selling, general and administrative costs for the nine months
ended February 29, 1995 decreased 3% to $1,561,600 as compared
to $1,613,022 for the same period in fiscal 1995. For the three
months ended February 29, 1996, costs increased 1% to $584,300
as compared to $576,500 for the same period in fiscal 1995.
The Company experienced a net loss from the insulation
business of ($619,600) during the first nine months of fiscal
1996 as compared to a net profit of $95,700 for the same period
in fiscal 1995. For the three months ended February 1996, the
loss from the insulation business was ($717,900) as compared to
a loss of ($161,100) for the same period in fiscal 1995. The
loss for the third quarter is primarily attributed to cost
overruns on two fixed-price contracts the Company is performing,
as well as lower margins on other projects awarded during the
quarter.
Mexican Business
The devaluation of the Mexican peso makes financial
comparisons between years difficult. The average exchange rate
for the first nine months of fiscal 1996 was 6.91 pesos to the
dollar as compared to 4.14 pesos to the dollar for the same
period in fiscal 1995.
Revenues, in dollars, for the nine months ended February 29,
1996 were $2,504,000, an increase of 33% over the $1,879,000 for
the same period in fiscal 1995. Using exchange rates in effect
for the periods, comparing results in terms of pesos indicate
revenues for the nine months increased 122% to 17,303,000 from
7,779,000 for the same period in fiscal 1995. For the three
months ended February 29, 1996 revenues increased 233% to
1,104,000 compared to 331,000 for the same period in fiscal<PAGE>
1995. On a peso basis, revenues increased 456% to 7,629,000
from 1,370,000 for the same period in fiscal 1995. These
revenue increases reflect the continued expansion of operations
as well as increased revenues from existing branches.
Waste collection costs decreased 25% for the nine months
ended February 29, 1996 to $2,545,000 from $3,414,000 for the
same period in fiscal 1995. On a peso basis, costs increased
24% to 17,586,000 from 14,134,000. For the three months ended
February 29, 1996 costs increased 105% to $1,456,000 from
$711,000 for the same period in fiscal 1995. On a peso basis,
costs increased 241% to 10,061,000 compared to 2,946,000.
The cost reductions experienced for the first nine months of
fiscal 1996 reflect the Company s efforts in the areas of cost
containment, productivity improvement and efficiency as revenues
increase.
General and administrative costs associated with the
continuing development activities for the nine months were
$2,470,000, a decrease of 25% from the $3,276,000 for the same
period in fiscal 1995. For the three months, these costs were
$997,000, a decrease of 9% from the $1,092,000 for the same
period in fiscal 1995.
Interest Expense
Net interest expense decreased $469,000 to $816,000 in the
first nine months of fiscal 1996 from $1,281,000 in the same
period of fiscal 1995, as a result of the conversion of
approximately 94% of the outstanding convertible subordinated
debentures during the first quarter of fiscal 1996. At the end
of the third quarter of fiscal 1996, the remaining principal
balance of the Company s promissory note with a financial
institution bearing interest at the prime rate plus 7% was
converted into common stock.
Other Expense
Other expense of $729,000 represents the value of the
increased number of shares issued in connection with the
reduction of the conversion rate on the convertible subordinated
debentures below their adjusted conversion rate at the date of
the conversion. There are no comparative figures for the prior
period for this expense.
Consolidated Results
The Company experienced a net loss of ($4,676,000) during the
first nine months of fiscal 1996 compared to a net loss of
($5,996,000) during the comparable period in fiscal 1995, an
improvement of $1,320,000 or 22%.
Liquidity and Capital Resources <PAGE>
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 since May
31, 1995, the Company has made private placements of its common
stock and has obtained capital as a result of the exercise of
outstanding warrants and options to purchase common stock.
Private placements of the Company s common stock during the
nine months ended February 29, 1996 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; (iii) the issuance
of 281,000 shares in August 1995 and 420,000 shares in September
1995 at a price of $2.00 per share for net proceeds of
$1,261,800; (iv) the issuance of 350,000 shares in January at a
price of $3.00 per share with net proceeds of $945,000; and (v)
the issuance in February of 1,650,000 shares at a price of $4.00
per share with net proceeds of $5,875,000.
During the nine months ended February 29, 1996, the Company
issued an aggregate of 2,264,636 shares at a price ranging from
$1.51 to $1.59 per share for net proceeds of $3,373,600 upon
exercise of outstanding common stock purchase warrants and
1,270,750 shares upon the exercise of outstanding stock options,
inclusive of those options referred to in Note 4, at prices
ranging from $1.375 to $2.25 per share for net proceeds of
$2,651,062.
In August 1995, $8,417,300 principal amount of the Company s
convertible subordinated debentures and $192,000 of accrued
interest thereon were converted into 3,443,859 shares of common
stock at a conversion rate of $2.50 per share which was below
the adjusted conversion rate. In the quarter ended February 29,
1996 an additional $61,980 of debentures were converted into
24,792 shares at a conversion rate of $2.50 per share.
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<PAGE>
from the lender, bearing interest at the prime rate plus 7% and
payable in November 1994. In connection with this loan, the
Company granted 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 agreement, as
further amended in September 1995, requires that the Company s
landfill be in operation by December 31, 1995. At November 30,
1995, the outstanding principal balance of the loan was
$2,107,000. In December 1995, the lender exercised 150,000 of
its warrants in consideration of a $182,000 reduction of the
p r incipal balance and forgiveness of $56,000 of accrued
interest. In February, the lender exercised its right to
convert the outstanding principal balance of its loan into
shares of the Company s common stock. In connection with this
conversion, the Company issued 1,210,564 shares in conversion of
$1,925,000 in outstanding loan principal.
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
c o nnection with the expansion of the Company s Mexican
operations, and for equipment purchases and construction of the
l a n dfill; however, the Company will require substantial
additional capital to develop and construct the additional
facilities it intends to pursue.
Working capital (deficit) at February 29, 1996 was $8,915,000
compared to ($1,794,000) at May 31, 1995. The Company had cash
and cash equivalents at February 29, 1996 of $8,991,000 compared
to $381,000 at May 31, 1995. Cash flow used in operations at
February 29, 1996 was $3,914,000 compared to $7,297,000 for the
same period in fiscal 1995. Cash used in operations in the nine
months ended February 29, 1996 was funded primarily 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;<PAGE>
h o wever, the Company will require substantial additional
financing to construct and operate additional hazardous waste
treatment facilities in Mexico. Furthermore, to the extent that
the Company is required to expend additional efforts to open the
l a ndfill, additional general and administrative expenses,
without revenues to offset such expenses, are anticipated until
the landfill is opened. The Company has raised $24,700,000 in
additional capital during the first nine months of fiscal 1996
to fund its Mexican business costs. The newly created joint
v e nture between Browning-Ferris Industries of Mexico and
Metalclad, to be known as BFI-Omega, has developed a business
plan which calls for the infusion of substantial capital by both
parties for the next five-year period. While a significant
portion of the amount needed may be obtained through debt
financing, the Company may find it in its best interest to use
equity capital rather than debt, in which case the Company will
be required to contribute such equity capital from its own
resources.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation
i n cidental to its insulation services business, relating
primarily 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
s e ttling 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
On April 9, 1996, the Company and Browning-Ferris
I n d ustries, Inc. ( BFI ), through wholly-owned Mexican
subsidiaries, formed BFI-Omega, S.A. de C.V. ( BFI-Omega ) as a
50%-50% owned joint venture corporation to provide a full range
of industrial waste collection, transportation, recycling,
treatment, and disposal services in Mexico. The Company s
interest in BFI-Omega is owned by Quimica Omega, S.A. de C.V.
( Quimica Omega ), a wholly-owned subsidiary; BFI s interest is
owned by Browning-Ferris Industries de Mexico, S.A. de C.V.
( BFI-Mexico ), a wholly-owned subsidiary. Pursuant to a
shareholders agreement between the parties, the Company will
contribute its business assets relating to certain waste
collection, treatment, and disposal activities to BFI-Omega as
its initial capital contribution to the venture. BFI-Mexico
w i ll contribute transportable industrial waste processing
equipment to BFI-Omega as its initial capital contribution to
the venture. BFI-Omega will not engage in the development and
ownership of hazardous waste facilities being conducted by the
Company.
Item 6. Exhibits and Reports on Form 8-K
A current report on Form 8-K was filed March 29, 1996,
reporting the dismissal of the Company s principal accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
METALCLAD CORPORATION
Date: August 28, 1996 By: /s/Grant S. Kesler
Grant S. Kesler,
President
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