<PAGE>
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 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.
PAGE
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION....................................... 1
Item 1. Consolidated Financial Statements:
Balance Sheets (unaudited) at August 31 1995 and May 31, 1995........ 1
Statements of Operations (unaudited) for the three months ended
August 31, 1995 and 1994............................................. 3
Consolidated Statements of Cash Flows (unaudited) for the three
months ended August 31, 1995 and 1994................................ 4
Notes to Consolidated Financial Statements........................... 5
Item 2. Management s Discussion and Analysis of Financial Condition
and Results of Operations............................................ 5
PART II. OTHER INFORMATION.......................................... 10
SIGNATURES........................................................... 10
PAGE
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
ASSETS
August 31, May 31,
1995 1995
(unaudited)
--------- ---------
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 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
uncompleted 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 certifi-
cates of deposit of $7,730 in August and May 1995 132,370 138,946
Goodwill, less accumulated amortization 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 - 595,478
---------- ----------
TOTAL ASSETS $10,406,639 $10,710,217
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
PAGE
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
<TABLE>
<S> <C> <C>
August 31, May 31,
1995 1995
(unaudited)
----------- ----------
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 38,924,119 29,044,185
Accumulated deficit (36,072,792) (34,583,991)
Officer s receivable collateralized by stock (740,000) (740,000)
Cumulative foreign currency translation 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>
PAGE
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Three Months Ended
August 31,
1995 1994
(unaudited) (unaudited)
---------- ----------
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 administrative 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)
Other Expense (728,644) -
---------- ----------
Net Loss $(1,488,801) $(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 $ (.09) $ (.16)
</TABLE>
See Notes to Consolidated Financial Statements
PAGE
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Three Months Ended
August 31,
1995 1994
(unaudited) (unaudited)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,488,801) $(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 -
Common stock issued for services 75,600 -
Debenture issued for services 39,323 -
Debenture conversion expense 728,644 -
Donated equipment (317,306) -
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)
---------- ----------
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 - 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 1,780,724 -
---------- ----------
NET CASH PROVIDED IN
FINANCING ACTIVITIES 1,660,688 (14,068)
---------- ----------
Effect of exchange rates on cash (21,249) (45,994)
---------- ----------<PAGE>
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
</TABLE>
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 which
is below the adjusted conversion rate. In conjunction with this transaction
approximately $550,716 and $316,800 in unamortized commissions and bond
discounts were written off respectively. Additionally the Company expensed
approximately 729,000 in connection with the conversion rate discount.
During the quarter ended August 31, 1994 debentures of $170,160 were
converted into common stock.
See Notes to Consolidated Financial Statements
PAGE
<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 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, 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.
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. <PAGE>
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 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<PAGE>
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 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.
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 ($1,489,000) 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 $412,000 or 22%.
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<PAGE>
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 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<PAGE>
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; however, 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 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental 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 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. <PAGE>
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
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 .
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> May-31-1996
<PERIOD-START> Sep-01-1995
<PERIOD-END> Nov-30-1995
<CASH> 1063
<SECURITIES> 0
<RECEIVABLES> 1863
<ALLOWANCES> 54
<INVENTORY> 370
<CURRENT-ASSETS> 4404
<PP&E> 5573
<DEPRECIATION> 0
<TOTAL-ASSETS> 10407
<CURRENT-LIABILITIES> 7151
<BONDS> 584
<COMMON> 41015
0
0
<OTHER-SE> (38353)
<TOTAL-LIABILITY-AND-EQUITY> 10407
<SALES> 3430
<TOTAL-REVENUES> 3453
<CGS> 2576
<TOTAL-COSTS> 3773
<OTHER-EXPENSES> 729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440
<INCOME-PRETAX> (1489)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1489)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1489)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
