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 November 30, 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<PAGE>
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 November 30, 1996, the registrant had 29,108,229 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
November 30, 1996 and May 31, 1996........................... 1
Consolidated Statements of Operations (unaudited)
for the six months ended November 30, 1996 and 1995.......... 3
Consolidated Statements of Cash Flows (unaudited)
for the three months ended November 30, 1996 and 1995........ 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..................................... 7
SIGNATURES...................................................... 9<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, May 31,
1996 1996
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,992,257 $7,344,357
Accounts receivable, including amounts
retained by customers under contract
terms of $16,890 in November 1996 and
$25,967 in May 1996, less allowance
for doubtful accounts of $72,356 in
November 1996 and $66,566 in May 1996 2,465,625 2,297,820
Costs and estimated earnings in excess
of billings on uncompleted contracts 395,895 56,372
Inventories 302,238 325,795
Prepaid expenses and other current assets 299,136 53,371
Receivables from related parties 86,725 105,763
---------- ----------
TOTAL CURRENT ASSETS 7,541,876 10,183,478
Property, plant and equipment, net 5,369,405 5,462,657
Investment and capitalized costs in
unconsolidated affiliates 1,721,290 1,169,221
Deposits and other assets 42,387 108,842
Goodwill, less accumulated amortization
of $107,465 in November 1996 and
$59,917 in May 1996 705,287 752,835
Real estate held for sale 25,000 25,000
---------- ----------
$15,405,245 $17,702,033
========== ==========
See Notes to Consolidated Financial Statements<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, May 31,
1996 1996
------------ -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,584,616 $1,149,586
Accrued payroll, property and other taxes 339,399 359,807
Accrued expenses 970,301 1,525,216
Accrued waste disposal costs 40,547 255,623
Billings in excess of costs and estimated
earnings on uncompleted contracts 33,854 69,757
Current portion of long-term debt 6,991 36,721
---------- ----------
TOTAL CURRENT LIABILITIES 2,975,708 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, 29,108,229 and
28,733,229 issued and outstanding in
November 1996 and May 1996,
respectively 2,910,823 2,873,323
Additional paid-in capital 55,529,189 54,990,952
Accumulated deficit (43,460,350) (41,363,763)
Related party receivables collateralized
by stock (574,146) (559,192)
Cumulative foreign currency translation
adjustment (2,205,512) (1,875,530)
---------- ----------
12,200,004 14,065,790
---------- ----------
$15,405,245 $17,702,033
========== ==========
See Notes to Consolidated Financial Statements<PAGE>
<TABLE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For Six Months Ended For Three Months Ended
November 30, November 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues-Insulation Business
<S> <C> <C> <C> <C>
Contract revenues $4,215,356 $5,483,632 $2,895,642 $2,847,637
Material sales 122,743 67,533 67,820 33,118
Other 23,170 28,953 7,307 5,949
---------- ---------- ---------- ----------
4,361,269 5,580,118 2,970,769 2,886,704
Operating costs and expenses-
Insulation Business
Contract costs and expenses 3,733,587 4,455,467 2,591,742 2,342,590
Cost of material sales 99,081 49,027 53,832 24,584
Selling, general and administrative
expenses 540,963 977,347 293,800 496,397
---------- ---------- ---------- ----------
4,373,631 5,481,841 2,939,374 2,863,571
---------- ---------- ---------- ----------
Operating income (loss)-
Insulation Business (12,362) 98,277 31,395 23,133
Revenues - Waste Management
Collection, recycling and destruction 716,441 1,082,886 188,943 640,557
Other - 317,306 - -
---------- ---------- ---------- ----------
716,441 1,400,192 188,943 640,557
Operating costs and expenses-
Waste Management
Collection, recycling and destruction 920,435 1,089,830 304,261 650,282
Land Fill 223,167 101,684 97,060 50,696
---------- ---------- ---------- ----------
1,143,602 1,191,514 401,321 700,978
Equity in earnings of unconsolidated
affiliates (391,027) - (222,736) -
---------- ---------- ---------- ----------
Operating Income (Loss) - Waste Management (818,188) 208,678 (435,114) (60,421)
---------- ---------- ---------- ----------
Operating income (loss) (830,550) 306,955 (403,679) (37,288)
Corporate expense (1,244,549) (1,371,902) (612,629) (707,080)
Interest income (expense) (21,488) (741,324) (87,889) (301,746)
Other income (expense) - (728,644) - -
---------- ---------- ---------- ----------
Net loss (2,096,587) (2,534,915) (1,104,237) (1,046,114)
========== ========== ========== ==========
Weighted average number of common shares 28,872,590 19,133,018 29,008,284 21,106,640
Per share of common stock:
Income (loss) from continuing operations ($.07) ($.13) ($.04) ($.05)
See Notes to Consolidated Financial Statements
/TABLE
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended
November 30,
1996 1995
---------- ----------
OPERATING ACTIVITIES
Net loss $(2,096,587) $(2,534,915)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 167,549 85,088
Loss in earnings of unconsolidated
affiliates 389,679 -
Provision for losses on accounts
receivable 8,005 12,733
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)
Changes in operating assets and
liabilities:
(Increase) Decrease in accounts
receivable (208,302) (557,419)
(Increase) decrease in unbilled
receivables (339,523) 160,568
Decrease in inventories 23,289 23,220
(Increase) decrease in prepaid expenses
and other assets (186,760) 686,280
Distributions in excess of earnings from
Curtom-Metalclad 34,300 -
Decrease in receivables from
Curtom-Metalclad - 8,532
Decrease in receivables from
related parties 4,084 32,570
Decrease in accounts payable and
accrued expenses (323,137) (1,246,001)
Increase (Decrease) in billings
over costs (35,903) 192,464
--------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (2,563,306) (2,610,619)
INVESTING ACTIVITIES
Purchase of equipment (221,083) (33,250)
Investments and capitalized costs in
unconsolidated affiliates (1,028,017) -
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (1,249,100) (33,250)
--------- ---------
See Notes to Consolidated Financial Statements<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For Six Months Ended
November 30,
1996 1995
---------- ----------
FINANCING ACTIVITIES
Payments on long-term borrowings - (881,497)
Proceeds from sale of common stock
under stock option plans and warrants 565,738 158,125
Proceeds from issuance of common stock - 3,638,663
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 565,738 2,915,291
--------- ---------
Effect of exchange rates on cash (105,432) 56,902
--------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,352,100) 328,324
Cash and cash equivalents at beginning
of period 7,344,357 381,406
--------- ---------
Cash and cash equivalents at end
of period $3,992,257 $ 709,730
========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 182,112 $ 741,324
========= =========
See Notes to Consolidated Financial Statements<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended November 30, 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 six months ended November 30, 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. 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. The Company s interest in BFI-OMEGA is accounted
for under the equity method.
3. On September 19, 1996 the Company, through its ECONSA Mexican
subsidiary, acquired Seguridad Electrica Mexicana, S.A. ( SEM ) for $88,000
cash. SEM is a fully permitted company engaged in the exportation for the
destruction of polychlorinated biphenyls ( PCBs ). SEM is consolidated into
the Company s financials as of November 30, 1996.
4. Certain reclassifications have been made to prior period
consolidated financial statements to conform with the current year
presentation.
5. The loss per share amounts for the six months ended November 30,
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
General.
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,<PAGE>
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 industrial facilities, such as public
utilities, oil refineries, and manufacturing plants.
Insulation Business
Total revenues from the insulation business for the six months ended
November 30, 1996 declined 22% to $4,361,000 from $5,580,000 for the same
period in fiscal 1996.
Contract revenues decreased 23% to $4,215,000 as compared to
$5,484,000 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.
Material sales increased 81% to $123,000 from $68,000 for the same
period in fiscal 1996.
Total expenses decreased 20% to $4,374,000 for the six months ended
November 30, 1996 from $5,482,000 for the same period in fiscal 1996.
Insulation contracting costs and expenses for the six months,
decreased 16% to $3,734,000 as compared to $4,455,000 for the same period
in fiscal 1996. This decrease directly corresponds to the decrease in
contract revenues.
Cost of insulation materials increased 100% to $99,000 as compared to
$49,000 for the same period in fiscal 1996.
Selling, general and administrative expenses decreased 45% to $541,000
compared to $977,000 for the same period last year. This decrease is a
direct result of several actions taken by the Company to reduce its<PAGE>
overhead.
The Company experienced a net loss of ($12,000) compared to a net
profit of $98,000 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 six months of fiscal 1997 was 7.7 as compared to a rate of 6.6 for
the same period of fiscal 1996.
Additionally, the six months ended November 30, 1997 represent a
transition period in that the operations of QUIMICA OMEGA, the Company s
principle revenue producer in Mexico, are being transferred to BFI-OMEGA.
Total revenues from operations were $716,000 for the six months as
compared to $1,083,000 for the same period of fiscal 1996. This decline is
due to the transfer of certain revenue producing operations to BFI-OMEGA.
Operating costs and expenses for collection, recycling and destruction
were $920,000 for the six months compared to $1,090,000 for the same period
last year. This reduction is also attributed to the transfer of certain
operations to BFI-OMEGA.
Landfill costs were $223,000 for the six months as compared to
$102,000 for the same period 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
($391,000) for the six months 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
($818,000) versus a net profit of $209,000 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 six months results 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 six months ended November 30, 1996 was
$1,245,000 a decline of 9% as compared to $1,372,000 for the same quarter
in fiscal 1996.
Interest Income (Expense)
Interest expense for the six months was ($21,000) compared to interest
expense of ($741,000) for the same period 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 the conversion of a majority of its<PAGE>
outstanding 8% and 9% debentures to common stock of the Company in August
1995.
Other Expense
Other expense was $0 for the six months ended November 30, 1996 as
compared with $729,000 for the same period 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 ($2,097,000) for the six months
compared to a net loss of ($2,535,000) for the same period in fiscal 1996,
an improvement of 21%.
Liquidity and Capital Resources
Working capital at November 30, 1996 was $4,566,000 as compared to
$6,787,000 as of May 31, 1996. The Company had cash and cash equivalents
of $3,992,000 at November 30, 1996 as compared to $7,344,400 at May 31,
1996. Cash used in operations was ($2,563,000) as compared to ($2,611,000)
for the same period in fiscal 1996.
The Company had no private placements or other material issuances of
its common stock during the first six months of fiscal 1997. Previous
conversions of the Company s debentures and debt have contributed to the
Company s maintenance of working capital.
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 operations of BFI-OMEGA. 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. In December, 1996 the Company received
an unfavorable ruling on its position relative to certain rights of defense
against the claims of the insurer. In order to appeal the decisions of the
court, the Company stipulated to a judgment of $513,000 (representing
principal and interest on claims) and has posted an appeal bond in the
amount of $769,500 so as to continue its legal proceedings on appeal. The
bonding company has required collateral in the form of an escrow account in<PAGE>
the amount of the bond, which the Company established in December, thereby
restricting the Company s use of these funds. Although the Company feels
strongly about its position on appeal, no assurances can be made 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
In January, 1997, Metalclad s subsidiary, Quimica Omega, and BFI de
Mexico, S.A. de C.V. reached a tentative agreement for Quimica Omega to
acquire BFI s 50 percent interest in the joint venture. As part of this
proposed sale BFI would contribute certain waste transportation equipment
to Quimica Omega. In addition, BFI will also provide certain technical and
landfill management services to the Company and ECOPSA, including the
services of George Fonseca, a current general manager who will remain in
Mexico to manage the day-to-day affairs of the Company. This sale comes as
a result of BFI International s decision to concentrate on their core
businesses such as municipal and non-hazardous solid waste collection.
In December, 1996, the Board of Directors of the Company approved a
change of the Company s fiscal year end to December 31st from its current
May 31st year end. This change will be effective with the current year
ending December 31, 1996. In changing its year end, the Company will now
have all its entities reporting their book and tax years on a common
closing date.
Item 6. Exhibits and Reports on Form 8-K
Not Applicable<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
METALCLAD CORPORATION
Date: January 15, 1997 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> Sep-01-1996
<PERIOD-END> Nov-30-1996
<CASH> 3992
<SECURITIES> 0
<RECEIVABLES> 2466
<ALLOWANCES> 72
<INVENTORY> 302
<CURRENT-ASSETS> 7542
<PP&E> 5369
<DEPRECIATION> 0
<TOTAL-ASSETS> 15405
<CURRENT-LIABILITIES> 2976
<BONDS> 230
<COMMON> 58440
0
0
<OTHER-SE> (46240)
<TOTAL-LIABILITY-AND-EQUITY> 15405
<SALES> 5054
<TOTAL-REVENUES> 4686
<CGS> 5517
<TOTAL-COSTS> 6762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> (2097)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2097)<PAGE>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2097)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
