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 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.
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. . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE><S> <C> <C>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 286,964 $ 519,940
Accounts receivable, less allowance for
doubtful accounts of $20,000 at March
1999, and $28,907 at December 1998 1,819,109 828,686
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 56,492
Receivables from related parties 107,251 151,765
--------- ---------
Total current assets 2,642,589 1,877,252
Property, plant and equipment, net 333,240 271,592
Net assets of discontinued operations 8,959,139 9,096,300
Other assets 43,161 43,162
--------- ---------
$11,978,129 $11,288,306
========== ==========
<PAGE>
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,152,794 $ 636,096
Current liabilities, net--discontinued
Operations 2,579,248 2,886,067
Accrued expenses 659,268 913,772
Billings in excess of costs and estimated
earnings on uncompleted contracts 222,101 71,280
Current portion of long-term debt 11,421 18,585
Convertible zero coupon notes 1,675,000 1,640,000
--------- ---------
Total current liabilities 6,299,832 6,165,800
Long-term debt, less current portion 84,732 51,949
Convertible long-term notes 1,063,766 1,201,547
--------- ---------
Total liabilities 7,448,330 7,419,296
--------- ---------
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 (54,292,447) (53,907,766)
Officers' receivable collateralized by stock (550,587) (544,906)
Accumulated other comprehensive income (2,140,110) (2,140,110)
--------- ---------
4,529,799 3,869,010
--------- ---------
$11,978,129 $11,288,306
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
METALCLAD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><S> <S> <S>
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 439,336 435,505
--------- ---------
Operating loss (300,377) (328,437)
Interest expense (84,304) (29,947)
--------- ---------
Loss from continuing operations (384,681) $(358,384)
Loss from discontinued operations - (475,471)
--------- ---------
Net loss $ (384,681) $ (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 ($.01) ($.01)
Loss per share of common stock, discontinued
operations basic and diluted - ($.02)
Loss per share of common stock basic and
diluted ($.01) ($.03)
</TABLE>
See Notes to Consolidated Financial Statements
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 $ (384,681) $ (833,855)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss from discontinued operations - 475,471
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 (990,423) (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 (8,538) 20,898
Decrease in receivables from related parties 44,514 14,753
Increase (decrease) in accounts payable & accrued expenses 262,194 (14,912)
Increase in billings over cost 150,821 43,805
Other - (11,401)
--------- ---------
Net cash used in continuing operations (793,013) (195,492)
Net cash used in discontinued operations (131,266) (616,340)
--------- ---------
Net cash used in operating activities (924,279) (811,832)
--------- ---------
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 (232,976) (1,128,424)
Cash and cash equivalents at beginning of period 519,940 1,510,667)
--------- ---------
Cash and cash equivalents at end of period $ 286,964 $ 382,243
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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.
This Form 10-Q Amendment No. 1 to Form 10-Q which amends the 1999
Quarterly Report includes the following primary changes: the Company has
included all Mexican operations, including the unopened landfill in San Luis
Potosi, in discontinued operations. Previously, the Company included the
landfill and the costs of its ongoing NAFTA arbitration, in continued
operations, pending resolution of the claim. Consequently, this amendment
includes the landfill and all associated costs of its NAFTA claim, in
discontinued operations, since the Company believes it will not open the
landfill and the NAFTA claim will determine the landfill's disposition.
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 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. 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.
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 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 $339,000
for the three months ended March 31, 1999 as compared to a loss of $475,000
for the quarter ended March 31, 1998. The $339,000 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 $439,000 for the three
months ended March 31, 1999 as compared to $436,000 for the comparable
period of 1998.
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 $385,000 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 54%.
Impact of Year 2000
Certain computer programs written with two digits rather than four to
define the applicable year may experience problems handling dates beyond the
year 1999. This may cause computer applications to fail or create erroneous
results unless corrective measures are taken. The Year 2000 ("Y2K") problem
can arise at any point in the Company's supply and customer chains. The
Company acknowledges that its failure to resolve a material Y2K issue could
result in the interruption in, or failure of, certain normal business
activities or operations. Such failures could materially and adversely
affect the Company's results of operations. In addition, the Company could
be materially impacted by the widespread economic or financial market
disruption by Y2K computer system failures at suppliers, customers and other
third parties. Possible risks of Y2K failure could include, among other
things, delays or errors with respect to payments and third party delivery
of materials.
During fiscal 1998, the Company initiated a plan to assess its Y2K
exposure. The Company's Y2K project is expected to significantly reduce the
Company's level of uncertainty and exposure to the Y2K issue. In connection
with this assessment, the Company initiated a plan to acquire and implement
new business systems that will address its Y2K issues. To date, the Company
has not identified any operating systems, either of its own or of a material
third party relationship, that present a material risk of not being Y2K
ready or for which a suitable alternative cannot be implemented. The
Company is on schedule with its plan and believes that it will have all of
its own systems Y2K compliant by December 1, 1999.
As part of the Company's assessment of the risk of the Y2K problem, the
Company's relationships with significant suppliers, customers, and other
third parties are being examined to determine the status of these third
parties' efforts to comply with the Y2K requirements. There is no assurance
that such third parties will not suffer a Y2K business disruption. While it
is conceivable that such failures could have a material adverse effect on
the Company's liquidity, financial condition and results of its operations,
management believes that the risk is low.
The following outlines the various phases of the Company's Y2K project,
as well as the expected completion date of the phase:
Expected
Description of Task Completion Date
- ------------------------------------------------------- ---------------
Address Compliance of IT Systems with Year 2000 issues:
--Address Business Information IT System Completed
--Address Operations IT System Completed
Assessment of third-Party Risk regarding Y2K issues 10/15/1999
Assessment of Non-IT Systems 06/30/1999
Update of IT Systems to meet Year 2000 requirements 10/15/1999
Development of contingency plan for non-compliance of
systems to Y2K requirements 10/31/1999
The Company's ability to complete the Y2K modifications in the time line
outlined above is dependent upon numerous factors, including the ability of
third party software and hardware suppliers to make necessary modifications
to current versions of their products, the availability of resources to
install and test the modified systems and other factors. Accordingly, there
can be no assurance that these modifications will be successful. If the
Company is not successful in the above implementation, management will
consider the necessity of implementing a contingency plan to mitigate any
adverse effects associated with the Y2K issue. At this time, management
does not have such a plan.
To date, the Company's effort to modify its accounting and information
systems to comply to the Y2K requirements has been focused on its core
business applications (i.e. systems used for the Company's day-to-day
operations). As of March 31, 1999, the Company has spent approximately
$50,000 to modify its computer systems (including software) to process dates
beyond December 31, 1999. The Company does not estimate that its future
costs related to its Y2K initiatives will be material. The Company
currently anticipates that all of its operating systems will be Y2K
compliant well before January 1, 2000, and that the Y2K issue will not have
a material adverse effect upon the Company's liquidity, financial position
or results of operations.
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 plans to dispose of its El Confin landfill
upon resolution of its NAFTA claim. 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
for $108,000 in payroll obligations. In April 1999, the Company received an
additional $250,000 from the exercise of warrants.
The Company had negative working capital at March 31, 1999 of $3,657,000
compared to negative working capital deficit of $4,289,000 at December 31,
1998. The Company had cash and cash equivalents at March 31, 1999 of
$287,000 and $520,000 at December 31, 1998. Cash used in continuing
operations for the three months ended March 31, 1999 was $793,000 compared
to $195,000 for 1998. Cash provided in discontinued operations for the
three months ended March 31, 1999 was $131,000 compared to cash used of
$616,000 for 1998.
For the three months ended March 31, 1999 the Company generated negative
cash flow from continuing operations of $793,000, of which $174,000 in
negative cash flow related to the insulation business due primarily to
larger than usual collection of accounts receivable in December 1998. The
negative cash flow primarily related to cororate activities, including the
pursuit of the Company's NAFTA claim and also is attributed to the
aforementioned larger than usual collection of accounts receivables. The
current accounts receivable balances are in line with the increased
revenues. 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 other than for
its NAFTA claim. 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.
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.
Foreign Currency Translation
Effective January 1, 1999, Mexico is no longer considered to be "highly
inflationary". However, the Company is discontinuing its Mexican
operations, therefore, the impact of this change had no effect on the
Company's financial statements.
<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
basis 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")
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 prevent 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
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: February 9, 2000 By: /s/Anthony C. Dabbene
---------------------------------
Anthony C. Dabbene
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
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<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
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<ALLOWANCES> (20)
<INVENTORY> 209
<CURRENT-ASSETS> 2643
<PP&E> 791
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0
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