<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, 1999
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.)
2 Corporate Plaza, Suite 125, Newport Beach, CA 92660
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (949) 719-1234
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, 1999, the registrant had 34,727,522 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, 1999
and December 31, 1998. . . . . . . . . . . . . . . . . . . 1-2
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and 1998. . . . . . . . . 3
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1999 and 1998. . . . . 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. . . . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 11<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 286,573 $ 523,953
Accounts receivable, less allowance for
doubtful accounts of $25,854 at March
1999, and $133,868 at December 1998 1,838,598 817,257
Costs and estimated earnings in excess of
billings on uncompleted contracts 155,449 143,672
Inventories 208,786 176,697
Prepaid expenses and other current assets 65,030 58,813
Receivables from related parties 107,251 190,492
--------- ---------
Total current assets 2,661,687 1,910,884
Property, plant and equipment, net 4,666,362 4,631,097
Net assets of discontinued operations 1,493,482 1,754,677
Goodwill, less accumulated amortization of
$329,353 at March 1999, and $305,579 at
December 1998 483,399 507,173
Other assets 46,220 245,834
--------- ---------
$9,351,150 $9,049,665
========= =========<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $1,380,721 $1,031,244
Accrued expenses 447,147 1,166,050
Billings in excess of costs and estimated
earnings on uncompleted contracts 222,101 71,280
Current portion of long-term debt 19,861 18,585
--------- ---------
Total current liabilities 2,069,830 2,287,159
Long-term debt, less current portion 84,732 51,949
Convertible long-term notes 1,675,000 1,640,000
Convertible subordinated debentures 1,063,766 1,201,547
--------- ---------
Total liabilities 4,893,328 5,180,655
--------- ---------
Shareholders equity:
Preferred stock, par value $10; 1,500,000
shares authorized; none issued - -
Common stock, par value $.10; 80,000,000
shares authorized; 34,727,522, and
30,569,122 issued and outstanding at
March 1999 and December 1998,
respectively 3,472,753 3,056,912
Additional paid-in capital 58,040,190 57,404,880
Accumulated deficit (54,364,424) (53,907,766)
Officers receivable collateralized by stock (550,587) (544,906)
Accumulated other comprehensive income (2,140,110) (2,140,110)
--------- ---------
4,457,822 3,869,010
--------- ---------
$9,351,150 $9,049,665
========= =========
See Notes to Consolidated Financial Statements
2<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
1999 1998
---- ----
Revenues-Insulation
Contract revenues $3,494,497 $2,579,328
Material sales 110,828 5,182
Other - 3,500
--------- ---------
3,605,325 2,588,010
--------- ---------
Operating costs and expenses Insulation
Contract costs and expenses 3,091,279 2,230,251
Cost of material sales 86,337 3,568
Selling, general and administrative 288,750 247,123
--------- ---------
3,466,366 2,480,942
--------- ---------
Corporate expense 511,313 561,740
--------- ---------
Operating loss (372,354) (454,672)
Interest expense (84,304) (29,947)
--------- ---------
Loss from continuing operations (456,658) $(484,619)
Loss from discontinued operations - (349,236)
--------- ---------
Net loss $ (456,658) $ (833,855)
========= =========
Weighted average number of common shares 32,624,496 30,063,870
========== ==========
Loss per share of common stock, continuing
operations basic and diluted ($.01) ($.02)
Loss per share of common stock, discontinued
operations basic and diluted - ($.01)
Loss per share of common stock basic and
diluted ($.01) ($.03)
See Notes to Consolidated Financial Statements
3<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><S> <C> <C>
Three Months Ended
March 31,
1999 1998
---- ----
Cash flows from operating activities:
Net loss $ (456,658) $ (833,855)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss from discontinued operations - 349,246
Depreciation and amortization 69,166 54,545
Issuance of stock for services and interest 107,800 -
Changes in operating assets & liabilities:
Increase in accounts receivable (1,021,341) (36,120)
Decrease (increase) in unbilled receivables (11,777) 120,126
Increase in inventories (32,089) (28,802)
Decrease (increase) in prepaid expenses and other assets (6,217) 20,898
Decrease in receivables from related parties 83,241 14,753
Decrease in accounts payable & accrued expenses 369,426 (14,912)
Increase in billings over cost 150,821 43,805
Other 199,614 (11,401)
--------- ---------
Net cash used in continuing operations (1,286,866) (321,727)
Net cash provided by discontinued operations 358,183 (622,959)
--------- ---------
Net cash used in operating activities (928,683) (944,686)
--------- ---------
Cash flows from investing activities:
Capital expenditures continuing operations (81,217) (4,466)
Capital expenditures discontinued operations (46,771) (306,927)
--------- ---------
Net cash used in investing activities (127,988) (311,393)
--------- ---------
Financing activities:
Proceeds from long-term borrowings 69,063 -
Payments on long-term borrowings continued operations (137,785) -
Borrowings by officers, secured by stock (5,681) (5,199)
Proceeds from exercise of warrants 943,351 -
--------- ---------
Net cash provided (used) in continuing operations 868,948 (5,199)
Net cash used in discontinued operations (49,657) -
--------- ---------
Net cash provided (used) in financing activities 819,291 (5,199)
--------- ---------
Decrease in cash and cash equivalents (237,380) (1,261,278)
Cash and cash equivalents at beginning of period 523,953 1,643,521)
--------- ---------
Cash and cash equivalents at end of period $ 286,573 $ 382,243)
========= =========
</TABLE> See Notes to Consolidated Financial Statements
4<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ended March 31, 1999
(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, 1999 are not
necessarily indicative of what results will be for the year ending
December 31, 1999. These statements should be read in conjunction with
the consolidated financial statements and notes thereto and the report of
independent public accountants which was modified due to substantial doubt
about the Company s ability to continue as a going concern included in the
Company's Form 10-K for the year ended December 31, 1998.
2. During the fourth quarter of 1998, the Company committed to a plan
to discontinue its Mexican operations and to seek to identify potential
buyers for its Mexican business, consequently, the Company s Mexican
operations are now classified as discontinued operations. The financial
statements for the period ending March 31, 1998 have been reclassified to
reflect this accounting so as to be consistent with the current
presentation.
The Company continues to pursue the sale of these operations, and
believes that a transaction will be completed during 1999; however, no
assurances can be given that the Company will be successful.
3. The loss per share amounts for the three months ended March 31,
1999 and March 31, 1998 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-Q, 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
5<PAGE>
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
d i f f er 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. Historically, the Company s revenues were generated
primarily by revenues in the United States from insulation and asbestos
abatement services and revenues in Mexico from the collection of waste
oils and solvents for recycling, placement and servicing of parts washing
machines, brokering the disposal of waste and remediation services.
Since November 1991, the Company has been actively involved in doing
business in Mexico. The Company s initial focus was the development of
facilities for the treatment, storage and disposal of industrial hazardous
waste.
During the fourth quarter of 1998, the Company determined that its
efforts at building its business in Mexico would not be allowed to
succeed. The Company s investment in El Confin has resulted in an
arbitration under the NAFTA treaty, its investment in Aguascalientes has
been blocked just prior to the project s completion, and its other
business has been impacted due to the loss of these projects and the
synergy they would have provided. Consequently, the Company has
determined that its Mexican businesses must be sold to minimize future
losses and that any further investment in Mexico should be halted. The
Company will retain its investment in El Confin, with the operations of
ARI and El Llano and the development activities of ECONSA held for sale.
Insulation Business. Total revenues from the insulation business for
the three months ended March 31, 1999 were $3,605,000 as compared to
$2,588,000 for the comparable period ended March 31, 1998, an increase of
39%.
Contract revenues for the three months ended March 31, 1999 were
$3,494,000 as compared to $2,579,000 for the three months ended March 31,
1998, an increase of 35%. This increase is attributed to the Company s
efforts to diversify its client base, including its entry into the
commercial insulation market.
Material sales were $110,000 for the quarter as compared to $5,000 for
the comparable period.
Total expenses for the three months ended March 31, 1999 were
$3,466,000 as compared to $2,481,000 for the comparable period ended March
6<PAGE>
31, 1998, an increase of 40%.
Contract costs and expenses were $3,091,000 for the quarter as
compared to $2,230,000 for the three months ended March 31, 1998, an
increase of 39%. This increase is consistent with the Company s increase
in revenues..
Cost of material sales was $86,000 for the quarter as compared to
$4,000, matching the increase in sales in this area.
Selling, general and administrative costs for the three months ended
March 31, 1999 were $289,000 as compared to $247,000 for the comparable
period ended March 31, 1998, an increase of 17% and due to the increased
volume of work in the quarter.
Discontinued Operations. Loss from discontinued operations was
$266,000 for the three months ended March 31, 1999 as compared to a loss
of $349,000 for the quarter ended March 31, 1998. The $266,000 loss for
the quarter ended March 31, 1999 has been charged to the accrual for
losses on discontinued operations established in December 1998 and is not
included in the current period consolidated loss.
Corporate Expense. Corporate expenses were $511,000 for the three
months ended March 31, 1999 as compared to $562,000 for the comparable
period of 1998, a decline of 9%. This decline was achieved despite the
increasing costs associated with the Company s pursuit of its claim under
NAFTA by continued cost reductions and staffing reductions.
Interest Income (Expense). Interest expense for the quarter ended
March 31, 1999 was $84,000 as compared to interest expense of $30,000 for
the comparable period. This is due to the addition of interest-bearing
debt during the second half of 1998.
Consolidated Results
The Company experienced a net loss of $457,000 for the three months
ended March 31, 1999 as compared to a net loss of $834,000 for the
comparable period ended March 31, 1998, an improvement of 45%.
Liquidity and Capital Resources
In the fourth quarter of 1998, the Company committed to a plan to
discontinue its Mexican operations and to seek potential buyers for its
Mexican business. The Company is, however, retaining the El Confin
landfill facility currently in an arbitration under the NAFTA. Although
no further investments are being made in Mexico, the Company continues to
rely upon additional capital to maintain its Mexican assets until sold,
pursue its NAFTA arbitration and support its remaining operations.
During the three months ended March 31, 1999, the Company received
approximately $443,000 from the exercise of warrants under its warrant
exchange program and an additional $500,000 from the exercise of warrants
outside of any exchange offer. Additionally, the Company issued 385,000
shares of its common stock to certain employees of the Company in exchange
7<PAGE>
for $108,000 in payroll obligations. In April 1999, the Company received
an additional $250,000 from the exercise of warrants.
The Company had working capital at March 31, 1999 of $592,000 compared
to working capital deficit of $376,000 at December 31, 1998. The Company
had cash and cash equivalents at March 31, 1999 of $287,000 and $524,000
at December 31, 1998. Cash used in continuing operations for the three
months ended March 31, 1999 was $1,287,000 compared to $322,000 for 1998.
Cash provided by discontinued operations for the three months ended March
31, 1999 was $358,000 compared to cash used of $623,000 for 1998. Cash
used in operating activities for the three months ended March 31, 1999 was
funded primarily by cash and cash equivalents on hand at the beginning of
the year as well as the warrant exercises completed during the quarter.
The Company believes that the insulation business will generate
adequate cash flows from operations to meet its future obligations and
e x penses relating to such operations. The Company will require
substantial additional financing to continue pursuit of its NAFTA claim,
and complete the sale of its Mexican operations, along with general and
administrative expenses without revenues to offset such expenses. The
Company is aware of its on going cash needs and continues to work with its
warrant holders, investment bankers and other sources to meet its on going
needs through December 31, 1999. Given the Company s decision to
discontinue operations in Mexico, and sell its businesses, the cash
requirements in Mexico greatly diminish. The Company believes it will
obtain the necessary funds to continue its planned operations throughout
1999; however, no assurances can be given that such funds will be
available to the Company as required.
8<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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 300, 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.
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. This award
has been appealed and the ultimate outcome cannot be predicted; however,
the Company maintained separate, project-specific insurance coverage,
which it believes is adequate to address any potential exposure.
On October 2, 1996, having completed a long period of negotiation with
the Mexican government on the opening of its hazardous waste landfill in
San Luis Potosi, Mexico, the Company filed a Notice of Claim under the
provision of the North American Free Trade Agreement. The notice was
filed with the International Center for the Settlement of Investment
Disputes (ICSID) in Washington, D.C. pursuant to the provisions of the
NAFTA. On January 2, 1997, the Company filed its actual claim with the
Tribunal, after which a three-member Tribunal was impaneled which includes
one arbitrator from Mexico, one from the United States and a third, chosen
jointly by the parties, from Great Britain. The first hearing was held in
Washington, D.C. on July 15, 1997 and a number of matters were agreed upon
by the parties and a significant amount of direction was given by the
Tribunal to the proceedings that would move forward.
Pursuant to those understandings, the Company, on October 13, 1997,
filed its Memorial, which included the Claim and all of the evidence
supporting the Claim, including expert witness studies and the like. The
b a sis of the Company s claim against Mexico is one likened to
expropriation. The Company s position is since it is not being allowed to
operate a legally authorized project, it has in essence been taken by the
Mexican government and they should, therefore, be responsible for paying
fair compensation under the provision of the NAFTA. A fair market
valuation was done on behalf of the Company by an expert company, which
indicated the fair market value of this business was $90,000,000.
On October 13, 1997, the Company filed its detailed memorial with the
NAFTA Tribunal, hearing the Company s claim related to its El Confin
facility. On February 17, 1998, the United Mexican States ( Mexico )
9<PAGE>
responded to the Company s claim to the Tribunal. On August 21, 1998 the
Company filed its Reply to Mexico and on May 3, 1999 Mexico filed its
rejoinder. A pre-hearing conference has been scheduled for July 6, 1999
with a final hearing date set for August 30, 1999. A decision is expected
shortly after the final hearing.
The Company has devoted substantial resources in the pursuit of its
claim before the NAFTA tribunal. It has given counsel broad authority in
the employment of experts and others it feels necessary to properly pursue
the Company s claim. The officers of the Company have also spent
substantial amounts of time and resources in assisting the Company s NAFTA
counsel and will continue to do so to completion. There is no assurance,
however, that the Company will be successful. If it is not, the impact
will be material and adverse. Management does not believe that a loss of
its arbitration case would cause the Company to become insolvent or
p r e vent it from conducting its domestic business, or in making
acquisitions or mergers with others in similar businesses seeking a public
market.
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 ApplicableItem 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
10<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: May 15, 1999 By: /s/Anthony C. Dabbene
---------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> December-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 1864
<ALLOWANCES> (26)
<INVENTORY> 209
<CURRENT-ASSETS> 2662
<PP&E> 5235
<DEPRECIATION> (569)
<TOTAL-ASSETS> 9351
<CURRENT-LIABILITIES> 2070
<BONDS> 2839
<COMMON> 3483
0
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<OTHER-SE> 094
<TOTAL-LIABILITY-AND-EQUITY> 9351
<SALES> 3605
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<CGS> 3466
<TOTAL-COSTS> 3977
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> (84)
<INCOME-PRETAX> (457)
<INCOME-TAX> 0
<INCOME-CONTINUING> (457)
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11<PAGE>
<EXTRAORDINARY> 0
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</TABLE>
