<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, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3737 Birch Street, Suite 300
Newport Beach, CA 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, 1996, the registrant had 28,748,229 shares
outstanding of its Common Stock, $.10 par value.<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited) at
August 31, 1996 and May 31, 1995........................... 1
Consolidated Statements of Operations (unaudited)
for the three months ended August 31, 1996 and 1995........ 3
Consolidated Statements of Cash Flows (unaudited)
for the three months ended August 31, 1996 and 1995........ 4
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 7
PART II. OTHER INFORMATION................................... 10
SIGNATURES.................................................... 11<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, May 31,
1996 1996
------------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $4,976,731 $7,344,357
Accounts receivable, including amounts
retained by customers under contract
terms of $18,589 in August 1996 and
$25,967 in May 1996, less allowance
for doubtful accounts of $73,946 in
August 1996 and $66,566 in May 1996 1,493,989 2,297,820
Costs and estimated earnings in excess
of billings on uncompleted contracts 76,978 56,372
Inventories 306,515 325,795
Prepaid expenses and other current assets 211,968 53,371
Receivables from related parties 108,758 105,763
---------- ----------
TOTAL CURRENT ASSETS 7,174,939 10,183,478
Property, plant and equipment, net 5,387,780 5,462,657
Investment and capitalized costs in
unconsolidated affiliates 1,748,375 1,169,221
Deposits and other assets 96,362 108,842
Goodwill, less accumulated amortization
of $83,691 in August 1996 and $59,917
in May 1996 729,061 752,835
Real estate held for sale 25,000 25,000
---------- ----------
$15,161,517 $17,702,033
========== ==========
See Notes to Consolidated Financial Statements<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
1996 1996
------------------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 781,860 $1,149,586
Accrued payroll, property and other taxes 268,675 359,807
Accrued expenses 970,891 1,525,216
Accrued waste disposal costs 1,176 255,623
Billings in excess of costs and estimated
earnings on uncompleted contracts 25,823 69,757
Current portion of long-term debt 14,968 36,721
--------- ---------
TOTAL CURRENT LIABILITIES 2,063,393 3,396,710
--------- ---------
Long-term debt, less current portion - -
--------- ---------
Convertible subordinated debentures 229,533 239,533
--------- ---------
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, 28,748,229 and
28,733,229 issued and outstanding in
August 1996 and May 1996, respectively 2,874,823 2,873,323
Additional paid-in capital 55,016,801 54,990,952
Accumulated deficit (42,356,113) (41,363,763)
Officers receivable collateralized by
stock (566,551) (559,192)
Cumulative foreign currency translation
adjustment (2,100,369) (1,875,530)
--------- ---------
12,868,591 14,065,790
--------- ---------
$15,161,517 $17,702,033
========== ==========
See Notes to Consolidated Financial Statements<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For Three Months Ended
August 31,
1996 1995
---------- ----------
Revenues-Insulation Business
Contract revenues $1,319,714 $2,635,995
Material sales 54,923 34,415
Other 15,863 23,004
1,390,500 2,693,414
Operating costs and expenses-Insulation Business
Contract costs and expenses 1,141,845 2,112,877
Cost of material sales 45,249 24,443
Selling, general and administrative
expenses 247,163 480,950
---------- ----------
1,434,257 2,618,270
Operating income (loss)-Insulation Business (43,757) 75,144
Revenues - Waste Management
Collection, recycling and destruction 527,498 759,635
Other - 317,306
--------- ---------
527,498 1,076,941
Operating costs and expenses-Waste Management
Collection, recycling and destruction 616,174 756,854
Land Fill 126,107 50,988
--------- ---------
742,281 807,842
Equity in earnings of unconsolidated
affiliates (168,291) -
--------- ---------
Operating Loss - Waste Management (383,074) 269,099
--------- ---------
Operating income (loss) (426,831) 344,243
Corporate expense (631,920) (664,822)
Interest income (expense) 66,401 (439,578)
Other income (expense) - (728,644)
--------- ---------
Net loss ($ 992,350) ($1,488,801)
========= ==========
Weighted average number of common shares 28,738,370 16,948,754
Per share of common stock:
Income (loss) from continuing operations ($0.03) ($0.09)
See Notes to Consolidated Financial Statements<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Three Months Ended
August 31,
1996 1995
------------------------
OPERATING ACTIVITIES
Net loss ($992,350) ($1,488,801)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 86,546 141,678
Loss in earnings of unconsolidated
affiliates 168,291 -
Provision for losses on accounts
receivable 8,117 9,309
Issuance of stock for services and
interest on convertible subordinated
debentures - 75,600
Issuance of debentures for services - 39,323
Debenture conversion expense - 728,644
Donated equipment - (317,306)
Earnings in excess of distributions
from Curtom-Metalclad 32,952 -
Changes in operating assets and
liabilities:
Decrease in accounts receivable 781,825 507,791
(Increase) decrease in unbilled
receivables (20,606) 174,009
Decrease in inventories - 19,193
(Increase) decrease in prepaid expenses
and other assets (150,514) 3,556
Increase in receivables from related
parties (10,354) (30,644)
Decrease in receivables from
Curtom-Metalclad - 7,440
Decrease in receivables from
related parties - 4,166
Decrease in accounts payable and
accrued expenses (1,262,912) (643,591)
Decrease in billings over costs (43,934) (28,299)
--------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (1,383,746) (817,125)
INVESTING ACTIVITIES
Purchase of equipment (57,347) (141,218)
Investments and capitalized costs in
unconsolidated affiliates (793,111) -
Other investments (67,229) -
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (917,687) (141,218)
--------- ---------<PAGE>
FINANCING ACTIVITIES
Payments on long-term borrowings - (175,661)
Proceeds from sale of common stock
under stock option plan 17,349 55,625
Proceeds from sale of common stock - 1,780,724
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 17,349 1,660,688
--------- ---------
Effect of exchange rates on cash (83,542) (21,249)
--------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,367,626) 681,096
Cash and cash equivalents at beginning
of period 7,344,357 381,406
--------- ---------
Cash and cash equivalents at end
of period $4,976,731 $1,062,502
========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 34,141 $ 140,712
========= =========
See Notes to Consolidated Financial Statements <PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended August 31, 1996
(Unaudited)
1. The accompanying unaudited financial statements of
Metalclad Corporation and its subsidiaries (the "Company") have
been prepared in accordance with the instructions to Form 10-Q
and do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. In the opinion of management all
adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation have been included. Operating
results for the three months ended August 31, 1996 are not
necessarily indicative of what results will be for the fiscal
year ending May 31, 1997. 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, 1996.
2. In August 1995, approximately $8,375,000 of the
Company s convertible subordinated debentures were converted into
3,325,120 shares. Additionally, $197,000 in interest on the
debentures which was accrued through August 31, 1995 was
converted into 78,800 additional shares of common stock.
3. In September 1993 and September 1994, the Company
obtained loans from a financial institution totally $3,025,000
which, pursuant to the terms of a promissory note, bore interest
at the prime rate plus 7%. In May 1995 the Company and the
lender re-negotiated the terms of the loans. Included in the re-
negotiations was the right for the lender to convert the debt
into shares of common stock at the rate of $1.59 per share. In
February 1996 the lender exercised its right to convert 100% of
the outstanding loan balance of $1,925,000 into 1,210,564 shares
of the Company s common stock.
4. On April 9, 1996, the Company and BFI, through wholly-
owned Mexican subsidiaries, formed 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; BFI s interest is owned by BFI-Mexico.
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
will contribute a transportable hazardous waste incinerator to
BFI-OMEGA as its initial capital contribution to the venture.
The Company s interest in BFI-OMEGA is accounted for under the
equity method.
5. Certain reclassifications have been made to prior period <PAGE>
consolidated financial statements to conform with the current
year presentation.
6. The loss per share amounts for the three months ended
August 31, 1996 and 1995 were computed by dividing the net 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 Operations
Mexican Hazardous Waste Treatment Business. Since November
1991, the Company has been actively involved in the development
of integrated hazardous waste treatment and disposal facilities
in various states in the Republic of Mexico. The business is
comprised of two major parts: operations and development.
All operating activities associated with waste collection,
transport, and disposal are conducted by BFI-Omega, S.A. de C.V.
( BFI-OMEGA ), the Company s joint venture with Browning-Ferris
Industries de Mexico, S.A. de C.V. ( BFI-Mexico ), a subsidiary
of BFI International, Inc., which in turn is a subsidiary of
Browning-Ferris Industries, Inc. (NYSE: BFI) ( BFI ). All
developmental activities are conducted by the Company s
subsidiary, Ecosistemas Nacionales, S.A. de C.V. ( ECONSA ).
BFI-OMEGA s business is comprised of waste collection,
transportation, and treatment, through branches located in
Guadalajara, Aguascalientes, San Luis Potosi, Mexico City,
Tampico and Puebla. In addition, it operates a blending and
recycling plant in Tenango and has its headquarters in Mexico
City.
ECONSA s primary business has been the development of a
landfill and treatment facility located in the State of San Luis
Potosi. Its other development activities include an additional
hazardous waste landfill in another state, a facility for non-
hazardous industrial waste in yet another state, the location of
a hazardous waste incinerator, the development of an aqueous
waste treatment facility, and in the exportation for the
destruction of polychlorinated biphenyls ( PCBs ).
Industrial Insulation Contracting. The Company has
historically been engaged in industrial insulation contracting
services, including asbestos abatement services and insulation
material sales, to customers primarily in California. Insulation
services include the installation of high and low temperature
insulation on pipe, ducts, furnaces, boilers, and other types of
industrial equipment for a variety of industrial facilities. The
Company sells insulation accessories incident to its service
business to its customers as well as other insulation
contractors. The Company's customers consist primarily of <PAGE>
industrial facilities, such as public utilities, oil refineries,
and manufacturing plants.
Insulation Business
Total revenues from the insulation business for the first
quarter of fiscal 1997 declined 48% to $1,390,000 from $2,693,000
for the same period in fiscal 1996.
Contract revenues decreased 50% to $1,320,000 as compared to
$2,636,000 for the same period in fiscal 1996. This decline is
directly attributable to an overall decline in work awarded under
the Company s maintenance contracts with refinery and power plant
customers. Additionally, work associated with the Southern
California Edison strategic partnering alliance was not committed
until September 1996, further contributing to the quarterly
decline.
Material sales increased 62% to $55,000 from $34,000 for the
same period in fiscal 1996.
Total expenses decreased 45% to $1,434,000 during the first
quarter of fiscal 1997 from $2,618,000 for the same period in
fiscal 1996.
Insulation contracting costs and expenses for the quarter,
decreased 46% to $1,142,000 as compared to $2,113,000 for the
same quarter in fiscal 1996. This decrease directly corresponds
to the decrease in contract revenues.
Cost of insulation materials increased 88% to $45,000 as
compared to $24,000 for the same quarter in fiscal 1996.
Selling, general and administrative expenses decreased 49%
to $247,000 compared to $481,000 for the same period last year.
This decrease is a direct result of several actions taken by the
Company to reduce its overhead.
The Company experienced a net loss of ($44,000) compared to
a net profit of $75,000 for the same period last year. The loss
is the result of the decrease in revenues during the quarter.
Waste Management Services
The financial results in Mexico are difficult to compare, as
the value of the peso fluctuates between periods. The average
exchange rate for the first quarter of fiscal 1997 was 7.6 as
compared to a rate of 6.154 for the same quarter of fiscal 1996.
Additionally, the first quarter of fiscal 1997 represents a
transition period in that the operations of QUIMICA OMEGA, the
Company s principal revenue producer in Mexico, are being
transferred to the newly formed joint venture company known as
BFI-OMEGA. (See Note 4.) <PAGE>
Total revenues from operations were $527,000 as compared to
$760,000 for the first quarter of fiscal 1996. This decline is
due to the transfer of certain revenue producing operations to
BFI-OMEGA during the middle of the quarter.
Operating costs and expenses for collection, recycling and
destruction were $616,000 for the quarter compared to $757,000
for the same quarter last year. This reduction is also
attributed to the transfer of certain operations to BFI-OMEGA mid
quarter.
Landfill costs were $126,000 for the quarter compared to
$51,000 for the same quarter last year. The increase in costs
reflects the on-going development activities of the Company
related to additional landfills in Mexico as well as continuing
costs associated with pursuing the opening of the Company s
existing landfill in San Luis Potosi.
Equity in earnings of unconsolidated affiliates represents
the Company s 50% share of earnings or losses of BFI-OMEGA. The
loss of ($168,000) for the quarter includes transition costs,
expansion costs and increased costs of staffing to manage the
growth plan. There is no comparative accounting for this new
venture.
The Company experienced a net loss from Mexican operations
of ($383,000) versus a net profit of $269,000 for the comparable
period in fiscal 1996. This loss incorporates the transition
activities to BFI-OMEGA as well as continuing development costs
in support of the Company s waste management strategy in Mexico.
Additionally, the first quarter of fiscal 1996 included a one-
time gain of $317,000 due to the donation of environmental
control equipment to the Company.
Corporate Expense
Corporate expenses for the quarter were $632,000 a decline
of 5% as compared to $665,000 for the same quarter in fiscal
1996. The Company is continuing to review its costs and further
reductions are anticipated.
Interest Income (Expense)
Interest income for the quarter was $66,000 compared to
interest expense of ($665,000) for the same quarter in fiscal
1996. This is due to the Company s earnings on its cash balances
in fiscal 1997 as well as a reduction in interest expense due to
(a) the conversion of a majority of its outstanding 8% and 9%
debentures to common stock of the Company in August 1995, and (b)
the conversion of its outstanding debt to common stock of the
Company in February 1996. (See Notes 2 and 3.)
Other Expense
Other expense was $0 for the quarter compared with $729,000 <PAGE>
for the same quarter last year. Last year s expense was
associated with the induced conversion of the Company s 8% and 9%
debentures into common stock of the Company.
Consolidated Results
The Company experienced a net loss of ($992,000) for the
quarter compared to a net loss of ($1,489,000) for the same
quarter in fiscal 1996, an improvement of 33%.
Liquidity and Capital Resources
Working capital at August 31, 1996 was $5,111,500 as
compared to $6,787,000 as of May 31, 1996. The Company had cash
and cash equivalents of $4,976,700 at August 31, 1996 as compared
to $7,344,400 at May 31, 1996. Cash used in operations was
($1,383,700) as compared to ($817,125) for the same period in
fiscal 1996 as the Company reduces its accounts payable and
accrued expenses.
The Company had no private placements or other material
issuances of its common stock during the current quarter.
Previous conversions of the Company s debentures and debt have
contributed to the Company s maintenance of working capital.
(See Notes 2 and 3.)
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;
however, the Company will require substantial additional
financing to construct and operate additional waste treatment
facilities in Mexico as well as to support the continuing
expansion of the BFI-OMEGA joint venture. 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 expenses are anticipated
until the landfill is opened.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company has contested an assessment by the State
Compensation Insurance Fund ("SCIF"), which provides the
Company's workers compensation insurance, of an additional
$330,000 of workers compensation insurance premium for the 1990
policy year. The Company has not recognized this assessment as
an expense and believes that SCIF has overcharged the Company by
approximately $500,000 as a result of over-reserves for pending
claims and inadequate claim investigation. Although the Company
has initiated legal action against SCIF to recover the alleged
damages and intends to pursue its remedies vigorously, there can <PAGE>
be no assurance that the outcome will be favorable to the
Company.
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 100, 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.
Item 2. Changes in Securities
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
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: October 14, 1996 By: /s/Anthony C. Dabbene
--------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> May-31-1997
<PERIOD-START> Jun-01-1996
<PERIOD-END> Aug-31-1996
<CASH> 4977
<SECURITIES> 0
<RECEIVABLES> 1494
<ALLOWANCES> 74
<INVENTORY> 307
<CURRENT-ASSETS> 7175
<PP&E> 5388
<DEPRECIATION> 0
<TOTAL-ASSETS> 15162
<CURRENT-LIABILITIES> 2063
<BONDS> 230
<COMMON> 57892
0
0
<OTHER-SE> (45023)
<TOTAL-LIABILITY-AND-EQUITY> 15162
<SALES> 1902
<TOTAL-REVENUES> 1918
<CGS> 1187
<TOTAL-COSTS> 1829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> (992)
<INCOME-TAX> 0
<INCOME-CONTINUING> (992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
