<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 March 31, 1997
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 March 31, 1997, the registrant had 29,123,244 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
March 31, 1997 and December 31, 1996............................... 1
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1997 and
February 29, 1996.................................................. 3
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1997 and
February 29, 1996.................................................. 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
March 31, December 31,
1997 1996
---------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $2,337,971 $3,074,395
Accounts receivable, including amounts
retained by customers under contract
terms of $16,099 in March 1997 and
$13,407 in December 1996, less allowance
for doubtful accounts of $120,970 in
March 1997 and $67,972 in December 1996 1,618,627 2,478,528
Costs and estimated earnings in excess
of billings on uncompleted contracts 153,082 174,768
Inventories 264,643 314,157
Prepaid expenses and other current assets 430,770 253,059
Receivables from related parties 127,810 240,379
---------- ----------
TOTAL CURRENT ASSETS 4,932,903 6,535,286
Property, plant and equipment, net 5,310,218 5,319,409
Investment and capitalized costs in
unconsolidated affiliates 1,812,765 1,516,878
Deposits and other assets 65,662 837,516
Goodwill, less accumulated amortization
of $139,163 in March 1997 and $115,390
in December 1996 673,589 697,363
Real estate held for sale 25,000 25,000
---------- ----------
$12,820,137 $14,931,452
========== ==========
See Notes to Consolidated Financial Statements
1<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1997 1996
---------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $1,078,440 $1,665,475
Accrued payroll, property and other taxes 404,910 493,751
Accrued expenses 1,226,127 1,381,972
Billings in excess of costs and estimated
earnings on uncompleted contracts 22,645 45,468
Current portion of convertible subordinated
debentures 229,533 229,533
---------- ----------
Total Current Liabilities 2,961,655 3,816,199
---------- ----------
Shareholders equity:
Preferred stock, par value $10; 1,500,000
shares authorized; none issued - -
Common stock, par value $.10; 40,000,000
shares authorized, 29,123,244 and
29,123,239 issued and outstanding in
March 1997 and December 1996,
respectively 2,912,324 2,912,324
Additional paid-in capital 55,582,063 55,582,063
Accumulated deficit (45,893,108) (44,643,578)
Officers receivable collateralized by
stock (583,881) (576,640)
Cumulative foreign currency translation
adjustment (2,158,916) (2,158,916)
---------- ----------
9,858,482 11,115,253
---------- ----------
$12,820,137 $14,931,452
========== ==========
See Notes to Consolidated Financial Statements
2<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For Three Months Ended
--------------------------
March 31, February 29,
1997 1996
---------- -----------
INSULATION BUSINESS
Revenues
Contract revenues $2,446,797 $3,451,234
Material sales 86,582 75,362
Other 179,881 (13,342)
--------- ---------
2,713,260 3,513,254
Operating costs and expenses
Contract costs and expenses 2,196,529 3,587,637
Cost of material sales 69,682 59,272
Selling, general and administrative
expenses 332,739 584,269
--------- ---------
2,598,950 4,231,178
--------- ---------
Operating income (loss) 114,310 (717,924)
WASTE MANAGEMENT
Revenues
Collection, recycling and destruction 52,858 1,103,923
--------- ---------
52,858 1,103,92
Operating costs and expenses
Collection, recycling and destruction 304,300 1,455,602
Landfill 93,534 46,097
--------- ---------
397,834 1,501,699
Equity in earnings of unconsolidated
affiliates (375,345) -
--------- ---------
Operating loss (720,321) (397,776)
--------- ---------
Corporate expense (626,797) (950,767)
--------- ---------
Operating loss (1,232,808) (2,066,467)
Interest income (expense) 21,912 (74,916)
Loss on foreign currency translation (38,634) -
--------- ---------
Net loss $(1,249,530) $(2,141,383)
========= =========
Weighted average number of common shares 29,123,239 22,598,426
Net loss per share of common stock ($0.04) ($0.09)
See Notes to Consolidated Financial Statements
3<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Three Months Ended
--------------------------
March 31, February 29,
1997 1996
---------- -----------
OPERATING ACTIVITIES
Net loss $(1,249,530) $(2,141,383)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 113,572 138,845
Loss in earnings of unconsolidated
affiliates 375,345 -
Provision for losses on accounts
receivable 53,495 10,457
Issuance of stock for services and
interest on convertible subordinated
debentures - 466,427
Earnings in excess of distributions
from Curtom-Metalclad - 54,883
Changes in operating assets and
liabilities:
Decrease in accounts receivable 803,939 115,402
(Increase) decrease in unbilled
receivables 21,686 144,579
Decrease in inventories 49,514 12,464
(Increase) decrease in prepaid
expenses and other assets (178,072) 301,833
Decrease in receivables from related
parties 105,328 129,402
(Decrease) in accounts payable and
accrued expenses (825,983) (282,995)
(Decrease) in billings over costs (22,823) (253,013)
--------- ----------
NET CASH USED IN OPERATING ACTIVITIES (753,529) (1,303,099)
INVESTING ACTIVITIES
Purchase of equipment (74,690) (913,813)
Investments and capitalized costs in
unconsolidated affiliates (706,087) -
Restricted cash 769,500 -
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (11,277) (913,813)
4<PAGE>
FINANCING ACTIVITIES
Payments on long-term borrowings - (154,110)
Proceeds from sale of common stock
under stock option plan - 2,492,937
Proceeds from sale of common stock - 8,290,703
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 10,629,530
Effect of exchange rates on cash 28,382 (131,284)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (736,424) 8,281,334
Cash and cash equivalents at beginning
of period 3,074,395 709,730
--------- ---------
Cash and cash equivalents at end
of period $2,337,971 $8,991,064
========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 8,815 $ 74,916
========= =========
See Notes to Consolidated Financial Statements
5<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended March 31, 1997
(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 March 31, 1997 are not
necessarily indicative of what results will be for the fiscal year ending
December 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 December 31, 1996.
2. In December 1996, the Company changed its fiscal year end to
December 31 from its previous May 31. This 10-Q reflects the Company s
new quarterly reporting period and compares it to the most comparable
quarter from its previous 10-Q filings.
3. The Company, because of its operations in Mexico, is required to
account for all foreign currency translations in accordance with Financial
Accounting Standards Board Statement No. 52. In part, FASB 52 requires
the Company to account for translation gains or losses in its Income
Statement, as opposed to being a direct charge against equity, if its
foreign operations are in a country that is determined to be highly
inflationary. In accordance with the most recent statistics published by
the International Monetary Fund, the SEC has determined that Mexico must
be considered highly inflationary, requiring a change in the Company s
accounting for its foreign currency translation adjustment effective
January 1, 1997.
4. In December 1996, the Company received an unfavorable court
ruling on its position relative to certain rights of defense in its
litigation against the California State Compensation Fund for the policy
year ended September 30, 1990. In order to appeal the decisions of the
Court, the Company stipulated to a judgment of $513,000 representing
principal and interest on the claim and posted a collateralized appeal
bond in the amount of $769,500.
In April 1997, the Company reached a settlement with the State Fund
for $385,000 which ends the litigation and which will release the appeal
bond and its collateral. A provision for potential settlement of $325,000
was previously recorded in December 1996.
5. In late March 1997, QUIMICA OMEGA and BFI-MEXICO completed
QUIMICA OMEGA s previously announced acquisition of BFI s interest in BFI-
OMEGA, the Mexican joint venture company established in April 1996.
Effective January 1, 1997, the Company controlled 100% of the outstanding
stock of BFI-OMEGA and assumed management control of its operations. The
financial statements for the quarter ended March 31, 1997 maintain the
equity method of accounting for BFI-OMEGA as it is the Company s intent to
6<PAGE>
identify a new strategic partner for these operations going forward. The
Company s 100% ownership and control of operations should, therefore, be
viewed as temporary as the Company identifies potential new partners for
these operations.
6. Certain reclassifications have been made to prior period
consolidated financial statements to conform with the current year
presentation.
7. The loss per share amounts for the three months ended March 31,
1997 and February 29, 1996 were computed by dividing the net loss by the
weighted average shares outstanding during the applicable quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
All statements, other than statements of historical fact, included in
this Form 10-K, including without limitation the statements under
Management s Discussion and Analysis of Financial Condition and Results
of Operations are, or may be deemed to be, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance or achievements of Metalclad Corporation (the Company ) to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements contained in this
Form 10-Q. Such potential risks and uncertainties include, without
limitation, the ability to commence operations at the Company s hazardous
waste treatment sites under development, competitive pricing and other
pressures from other businesses in the Company s markets, economic
conditions generally and in the Company s primary markets, availability of
capital, cost of labor, and other risk factors detailed herein and in
other of the Company s filings with the Securities and Exchange
Commission. The forward-looking statements are made as of the date of
this Form 10-Q and the Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could
differ from those projected in such forward-looking statements.
Therefore, readers are cautioned not to place undue reliance on these
forward-looking statements.
Results of Operations
General. The Company s revenues were generated primarily by (i)
revenues in the United States from 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, brokering the disposal of waste and remediation
services.
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 include the costs of development of all such waste treatment
facilities in Mexico.
7<PAGE>
Insulation Business. Total revenues from the insulation business for
the three months ended March 31, 1997 were $2,713,000 as compared to
$3,513,000 for the comparable period ended February 29, 1996, a decrease
of 23%.
Contract revenues for the three months ended March 31, 1997 were
$2,447,000 as compared to $3,451,000 for the three months ended February
29, 1996, a decline of 29%. This decline can be attributed to two
factors: 1) the Company s decision to close its unprofitable operations
in Salt Lake City and Sacramento, eliminating revenues from these
locations and 2) the timing of work performed under the Company s various
maintenance contracts with utility plant clients as this industry
undergoes its transition into the era of deregulation.
Material sales were $87,000 for the quarter as compared to $75,000
for the comparable period, an increase of 16%.
Total expenses for the three months ended March 31, 1997 were
$2,598,000 as compared to $4,231,000 for the comparable period ended
February 29, 1996, a decline of 39%.
Contract costs and expenses decreased to $2,197,000 for the quarter
as compared to $3,588,000 for the three months ended February 29, 1996, a
decline of 39%. This decline is associated with the decline in revenue as
well as the fact that the quarter ended February 29, 1996 included the
costs associated with overruns on two fixed-price contracts.
Cost of material sales was $70,000 for the quarter as compared to
$59,000, an increase of 19%, due to the increase in sales volumes.
Selling, general and administrative costs for the three months ended
March 31, 1997 were $333,000 as compared to $584,000 for the comparable
period ended February 29, 1996, a decrease of 43%.
Other income was $180,000 for the quarter as compared to ($13,000)
for the comparable period, an increase of $193,000, primarily related to
the settlement of a collection claim against a previous customer as well
as return premiums for prior years insurance coverages.
Waste Management Services. Revenues for the three months ended March
31, 1997 were $53,000 as compared to revenues of $1,103,000 for the
comparable period ended February 29, 1996. This decline is the result of
the completed transition of the revenue producing activities of the
Company s QUIMICA OMEGA subsidiary to the BFI-OMEGA joint venture.
Revenues for the joint venture, although not reflected in the
Company s financial statements, continue to grow at a rate of 12% per
quarter on a peso basis.
Operating costs and expenses were $398,000 for the quarter as
compared to $1,502,000 for the comparable period. This decline is
directly associated with the shifting of revenue producing activities, and
their associated costs, to the BFI-OMEGA joint venture.
Equity in earnings of unconsolidated affiliates was ($375,000) for
the quarter with no comparable period. This loss represents 100% of the
8<PAGE>
loss from the BFI-OMEGA joint venture (see Note 5). These results are
consistent with the venture s business plan as it continues to expand its
market presence in new districts.
Corporate Expense. Corporate expenses were $627,000 for the three
months ended March 31, 1997 as compared to $951,000 for the three months
ended February 29, 1996, a decline of 34%. This decline in expenses was
achieved while the Company a) absorbed certain settlement costs associated
with the State Fund litigation and b) funded pursuit of its claim under
the NAFTA related to its San Luis Potosi facility.
Interest Income (Expense). Interest income was $22,000 for the
quarter as compared to interest expense of ($75,000) for the comparable
period, as the Company has virtually eliminated most of its interest
bearing obligations.
Loss on Foreign Currency Translation. This loss of ($39,000) is due
to the accounting treatment associated with Mexico s highly inflationary
economy. (See Note 3.) During the comparable period, this adjustment was
made directly to the Company s equity section of its balance sheet.
Consolidated Results
The Company experienced a net loss of ($1,250,000) for the three
months ended March 31, 1997 as compared to a net loss of ($2,141,000) for
the comparable period ended February 29, 1996, an improvement of 42%.
Liquidity and Capital Resources
Working capital at March 31, 1997 was $1,971,000 as compared to
$2,719,000 as of December 31, 1996. The Company had cash and cash
equivalents of $2,338,000 at March 31, 1997 as compared to $3,074,000 at
December 31, 1996. Cash used in operations was ($754,000) as compared to
($1,303,000) for the comparable period ending February 29, 1996.
The Company believes that the insulation business will generate
adequate cash flows from operations to meet its future obligations and
expenses relating to such operations. 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 BFI-OMEGA s operations. Furthermore, to the extent that the
Company is required to expend additional efforts to open its existing
landfill or pursue its NAFTA claim, additional general and administrative
expenses without revenues to offset such expenses are anticipated until
the landfill is opened. The Company is aware of its ongoing cash
requirements and has implemented a cash flow plan, including continued
reduction in its general and administrative expenses.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company has filed a claim against the Mexican government under
the North American Free Trade Agreement ( NAFTA ) related to the Company s
9<PAGE>
inability to open and operate its completed hazardous waste treatment
facility in San Luis Potosi. The claim was filed with the International
Centre for Settlement of Investment Disputes ( ICSID ) in Washington, D.C.
on January 13, 1997. The Company s claim is one under the category of
Like unto Expropriation wherein the Company claims, having been denied
the right to operate its constructed and permitted facility, its property
has therefore been expropriated. The Company s claim estimates damages in
excess of $50 million based upon the fair market value of the facility.
The three member panel which will hear the case has been formed and the
process continues to move forward. No assurance can be given that the
efforts of the Company will be fruitful and there is always the
possibility of a negotiated settlement between the parties.
The Company has contested an assessment by the State Compensation
Insurance Fund ("SCIF"), which provided the Company's workers compensation
insurance, of approximately $400,000 of workers compensation insurance
premium for the 1990 policy year. In December 1996, the Company received
an unfavorable court ruling on its position relative to certain rights of
defense in its litigation against the California State Compensation Fund
for the policy year ended September 30, 1990. In order to appeal the
decisions of the Court, the Company stipulated to a judgment of $513,000
representing principal and interest on the claim and posted a
collateralized appeal bond in the amount of $769,500 so as to continue its
legal proceedings on appeal.
In April 1997, the Company reached a settlement with the State Fund
for $385,000 which ends the litigation and which will release the appeal
bond and its collateral. A provision for potential settlement of $325,000
was previously recorded in December 1996.
In May 1997 a jury found Texaco oil refinery, a client of the Company
55% liable for injuries and damages sustained by a Metalclad Insulation
employee while working at the Wilmington, California refinery. The jury
determined that Texaco s portion of the damages amounted to $5.5 million.
Under terms of the Company s contract with Texaco, certain indemnities may
be applied. The Company had project specific, as well as other insurance
policies in effect at the time of the injury.
It is believed that this award will be appealed and the ultimate
outcome cannot be predicted, however, the Company believes its insurance
programs are adequate to address any potential exposure.
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 3. Defaults Upon Senior Securities
Item 2. Changes in Securities
Not Applicable
10<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
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: May 15, 1997 By: /s/ Anthony C. Dabbene
-------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)
11<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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